1.

[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,Defendant-Appellee.

DECISION

PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh Judicial District, Branch III,
in Civil Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development
Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered
on January 21, 1955 with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and
concessions over public and/or private forest lands and to operate, develop and promote such forests rights and concessions." (Rollo,
p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located
at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued and
became the basis of subsequent renewals made for and in behalf of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership, including marketing
and handling of cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be
the logging superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of co-
partnership that all profits and losses of the partnership shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on Appeal [R.A.] p.
946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C")
under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second
partnership which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the
term of the second partnership is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize
profits. An income was derived from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE
PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas
shall purchase the interest, share and participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was
also agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured
by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by
Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved.
Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of the second partnership (R.A.
921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written
agreement or reconstitution of their written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and
abandoned the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate, Inc. by way of
chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment, to the
capital investments of the partnership as well as his obligation to perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will
not work as logging superintendent. Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).: nad

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Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties,
accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by Judge Romero for want of
merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961 in the report to be submitted by the
commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and supporting papers of the
partnership as well as the information furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching thereto the amended
answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of the
commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be submitted to the
trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.A. pp. 895-896).-
nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second
partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share — the partnership of the defendant
and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and proportion of their
respective contributions, or on the basis of share and share alike — this covered by actual contributions of the plaintiff and
the defendant and by their verbal agreement; that the sharing of profits and losses is on the basis of actual contributions;
that from 1957 to 1959, the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of the profits, but from
1960 to the date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name were acquired
with partnership funds or with funds of the defendant and — the Court declares that there is no evidence that these
properties were acquired by the partnership funds, and therefore the same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be liable for them —
the Court declares that neither parties is entitled to damages, for as already stated above it is not a wise policy to place a
price on the right of a person to litigate and/or to come to Court for the assertion of the rights they believe they are entitled
to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it dissolve the
partnership or not — the Court declares that the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the laborers and
employees of the Eastcoast Development Enterprises, — the COURT DECLARES THE SAME AS NOT BELONGING TO THE
PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David — is VALID AND BINDING UPON
THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of P69,000.00 the
profits he received from the CMS Estate, Inc. operated by him;

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 "9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to him he is still
entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not yet been actually received, and
further the receipt is merely based upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as logging
superintendent, and which was not paid to him, and this should be considered as part of Maglana's contribution likewise to
the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from
the second partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved
there was no written contract of co-partnership; there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang
partnership contract. Hence, the partnership which was carried on by Rojas and Maglana after the dissolution of the second
partnership was a de facto partnership and at will. It was considered as a partnership at will because there was no term, express or
implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE)
evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved
by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4,
1956 (Exhibit "C") and accordingly, the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern
the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"),
the legally constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal error to consider
a de facto partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana dated February 23,
1961, did not legally dissolve the registered partnership between them, being in contravention of the partnership agreement agreed
upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article
1837 of the Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-
Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the
intention of the partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an
"Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial
partner; gave him an equal share in the profits and fixed the term of the second partnership to thirty (30) years, everything else was
the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the
capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as important is the fact
that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all
intents and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-
Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence
of the second partnership, all business transactions were carried out under the duly registered articles. As found by the trial court, it
is an admitted fact that even up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957).
No rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which was fully paid by the
duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect
the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation
in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment
contributed by Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of
his obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well as his obligation to
perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered
Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and he
will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was referring to and
left no room for doubt that both considered themselves governed by the articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a
De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the
affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of
withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly
withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no
cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his
withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the

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conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly
registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between
the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners
appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio
Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed
P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute
a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786,
Civil Code) and for interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code) (Moran,
Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved
by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable
for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a
continuation of the duly registered partnership and the sharing of profits and losses which should be on the basis of share and share
alike as provided for in the duly registered Articles of Co-Partnership, no plausible reason could be found to disturb the findings and
conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang,
Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same
business as the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment
and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas
not only abandoned the partnership but also took funds in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that
the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of
the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of
the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects.: nad
SO ORDERED.
Melencio-Herrera, Sarmiento and Regalado, JJ., concur.
Padilla, J., took no part.

2. G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638
and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its
decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937
and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were
several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm [name] to ROSS,
SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on
11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980,
[Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

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 I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.

"I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the
pay scale of our employees have been thwarted by the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in a
manner that deprived them of their self-respect. The result of such policies is the formation of the union,
including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition
for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa &
Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits,
rent or interest attributable to the use of his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in
such amounts as maybe proven during the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or
P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary
damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing
partner in the partnership interest."1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had
dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can
be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the
partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the parties. 2

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The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take
over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued
an order denying reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the case to the
Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on,
respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in
the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over
the need to preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order
appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal
was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to
the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e)
that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets
were in any such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada,
Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the
partnership so that he can get a physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega
and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The
"DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will,
citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative
of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with respect to their legal and other affairs;
and to appear for and represent their principals and client in all courts of justice and government
departments and offices in the Philippines, and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore
be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a
specific undertaking or "project" which has a definite or definable period of completion. 3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership4 but
that it can result in a liability for damages. 5

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In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners,7 mutual agency arises and the doctrine
of delectus personae allows them to have the power, although not necessarily theright, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the
carrying on, as might be distinguished from the winding up of, the business.8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; 10 however,
an agreement of the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable
over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in
accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation
as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium which
the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo
Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a
deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2)
floor office condominium shall be determined upon the basis of the valuation above mentioned which shall be paid monthly
within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00
in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner,
inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual
finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under
such an atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner is
not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept of a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

3. G.R. No. L-6339 April 20, 1954

MANUEL LARA, ET AL., plaintiffs-appellants,

vs.
PETRONILO DEL ROSARIO, JR., defendant-appellee.

Manansala and Manansala for appellants.

Ramon L. Resurreccion for appellee.

MONTEMAYOR, J.:

In 1950 defendant Petronilo del Rosario, Jr., owner of twenty-five taxi cabs or cars, operated a taxi business under the name of "Waval
Taxi." He employed among others three mechanics and 49 chauffeurs or drivers, the latter having worked for periods ranging from 2
to 37 months. On September 4, 1950, without giving said mechanics and chauffeurs 30 days advance notice, Del Rosario sold his 25
units or cabs to La Mallorca, a transportation company, as a result of which, according to the mechanics and chauffeurs above-
mentioned they lost their jobs because the La Mallorca failed to continue them in their employment. They brought this action against
Del Rosario to recover compensation for overtime work rendered beyond eight hours and on Sundays and legal holidays, and one
month salary (mesada) provided for in article 302 of the Code of Commerce because the failure of their former employer to give them
one month notice. Subsequently, the three mechanics unconditionally withdrew their claims. So only the 49 drivers remained as
plaintiffs. The defendant filed a motion for dismissal of the complaint on the ground that it stated no cause of action and the trial court
for the time being denied the motion saying that it will be considered when the case was heard on the merits. After trial the complaint
was dismissed. Plaintiffs appealed from the order of dismissal to the Court of Appeals which Tribunal after finding only questions of
law are involved, certified the case to us.
7|Page
The parties are agreed that the plaintiffs as chauffeurs received no fixed compensation based on the hours or the period of time that
they worked. Rather, they were paid on the commission basis, that is to say, each driver received 20 per cent of the gross returns or
earnings from the operation of his taxi cab. Plaintiffs claim that as a rule, each drive operated a taxi 12 hours a day with gross earnings
ranging from P20 to P25, receiving therefrom the corresponding 20 per cent share ranging from P4 to P5, and that in some cases,
especially during Saturdays, Sundays, and holidays when a driver worked 24 hours a day he grossed from P40 to P50, thereby receiving
a share of from P8 to P10 for the period of twenty-four hours.

The reason given by the trial court in dismissing the complaint is that the defendant being engaged in the taxi or transportation
business which is a public utility, came under the exception provided by the Eight-Hour Labor Law (Commonwealth Act No. 444); and
because plaintiffs did not work on a salary basis, that is to say, they had no fixed or regular salary or remuneration other than the 20
per cent of their gross earnings "their situation was therefore practically similar to piece workers and hence, outside the ambit of
article 302 of the Code of Commerce."

For purposes of reference we are reproducing the pertinent provisions of the Eight-Hour Labor Law, namely, sections 1 to 4.

SECTION 1. The legal working day for any person employed by another shall not be more than eight hours daily. When the
work is not continuous, the time during which the laborer is not working and can leave his working place and can rest
completely shall not be counted.

SEC. 2. This Act shall apply to all persons employed in any industry or occupation, whether public or private, with the exception
of farm laborers, laborers who prefer to be paid on piece work basis, domestic servants and persons in the personal service
of another and members of the family of the employer working for him.

SEC. 3. Work may be performed beyond eight hours a day in case of actual or impending emergencies, caused by serious
accidents, fire flood, typhoon, earthquakes, epidemic, or other disaster or calamity in order to prevent loss of life and property
or imminent danger to public safety; or in case of urgent work to be performed on the machines, equipment, or installations
in order to avoid a serious loss which the employer would otherwise suffer, or some other just cause of a similar nature; but
in all cases the laborers and the employees shall be entitled to receive compensation for the overtime work performed at the
same rate as their regular wages or salary, plus at least twenty-five per centum additional.

In case of national emergency the Government is empowered to establish rules and regulations for the operation of the
plants and factories and to determine the wages to be paid the laborers.

SEC. 4. No person, firm, or corporation, business establishment or place or center of work shall compel an employee or laborer
to work during Sundays and legal holidays, unless he is paid an additional sum of at least twenty-five per centum of his regular
remuneration: Provided however, That this prohibition shall not apply to public utilities performing some public service such
as supplying gas, electricity, power, water, or providing means of transportation or communication.

Under section 4, as a public utility, the defendant could have his chauffeurs work on Sundays and legal holidays without paying them
an additional sum of at least 25 per cent of their regular remuneration: but that with reference only to work performed on Sundays
and holidays. If the work done on such days exceeds 8 hours a day, then the Eight-Hour Labor Law would operate, provided of course
that plaintiffs came under section 2 of the said law. So that the question to be decided here is whether or not plaintiffs are entitled to
extra compensation for work performed in excess of 8 hours a day, Sundays and holidays included.

It will be noticed that the last part of section 3 of Commonwealth Act 444 provides for extra compensation for over-time work "at the
same rate as their regular wages or salary, plus at least twenty-five per centum additional'" and that section 2 of the same act excludes
application thereof laborers who preferred to be on piece work basis. This connotes that a laborer or employee with no fixed salary,
wages or remuneration but receiving as compensation from his employer uncertain and variable amount depending upon the work
done or the result of said work (piece work) irrespective of the amount of time employed, is not covered by the Eight-Hour Labor Law
and is not entitled to extra compensation should he work in excess of 8 hours a day. And this seems to be the condition of employment
of the plaintiffs. A driver in the taxi business of the defendant, like the plaintiffs, in one day could operate his taxi cab eight hours, or
less than eight hours or in excess of 8 hours, or even 24 hours on Saturdays, Sundays, and holidays, with no limit or restriction other
than his desire, inclination and state of health and physical endurance. He could drive continuously or intermittently, systematically
or haphazardly, fast or slow, etc. depending upon his exclusive wish or inclination. One day when he feels strong, active and
enthusiastic he works long, continuously, with diligence and industry and makes considerable gross returns and receives as much as
his 20 per cent commission. Another day when he feels despondent, run down, weak or lazy and wants to rest between trips and
works for less number of hours, his gross returns are less and so is his commission. In other words, his compensation for the day
depends upon the result of his work, which in turn depends on the amount of industry, intelligence and experience applied to it, rather
than the period of time employed. In short, he has no fixed salary or wages. In this we agree with the learned trial court presided by
Judge Felicisimo Ocampo which makes the following findings and observations of this point.

. . . As already stated, their earnings were in the form of commission based on the gross receipts of the day. Their participation
in most cases depended upon their own industry. So much so that the more hours they stayed on the road, the greater the
gross returns and the higher their commissions. They have no fixed hours of labor. They can retire at pleasure, they not being
paid a fixed salary on the hourly, daily, weekly or monthly basis.

8|Page
 It results that the working hours of the plaintiffs as taxi drivers were entirely characterized by its irregularity, as distinguished
from the specific regular remuneration predicated on specific and regular hours of work of factories and commercial
employees.

In the case of the plaintiffs, it is the result of their labor, not the labor itself, which determines their commissions. They worked
under no compulsion of turning a fixed income for each given day. . . ..

In an opinion dated June 1, 1939 (Opinion No. 115) modified by Opinion No. 22, series 1940, dated June 11, 1940, the Secretary of
Justice held that chauffeurs of the Manila Yellow Taxicab Co. who "observed in a loose way certain working hours daily," and "the time
they report for work as well as the time they leave work was left to their discretion.," receiving no fixed salary but only 20 per cent of
their gross earnings, may be considered as piece workers and therefore not covered by the provisions of the Eight-Hour Labor Law.

The Wage Administration Service of the Department of Labor in its Interpretative Bulletin No. 2 dated May 28, 1953, under "Overtime
Compensation," in section 3 thereof entitled Coverage, says:

The provisions of this bulletin on overtime compensation shall apply to all persons employed in any industry or occupation,
whether public or private, with the exception of farm laborers, non-agricultural laborers or employees who are paid on piece
work, contract, pakiao, task or commission basis, domestic servants and persons in the personal service of another and
members of the family of the employer working for him.

From all this, to us it is clear that the claim of the plaintiffs-appellants for overtime compensation under the Eight-Hour Labor Law has
no valid support.

As to the month pay (mesada) under article 302 of the Code of Commerce, article 2270 of the new Civil Code (Republic Act 386)
appears to have repealed said Article 302 when it repealed the provisions of the Code of Commerce governing Agency. This repeal
took place on August 30, 1950, when the new Civil Code went into effect, that is, one year after its publication in the Official Gazette.
The alleged termination of services of the plaintiffs by the defendant took place according to the complaint on September 4, 1950,
that is to say, after the repeal of Article 302 which they invoke. Moreover, said Article 302 of the Code of Commerce, assuming that it
were still in force speaks of "salary corresponding to said month." commonly known as "mesada." If the plaintiffs herein had no fixed
salary either by the day, week or month, then computation of the month's salary payable would be impossible. Article 302 refers to
employees receiving a fixed salary. Dr. Arturo M. Tolentino in his book entitled "Commentaries and Jurisprudence on the Commercial
Laws of the Philippines," Vol. 1, 4th edition, p. 160, says that article 302 is not applicable to employees without fixed salary. We quote
—

Employees not entitled to indemnity. — This article refers only to those who are engaged under salary basis, and not to those
who only receive compensation equivalent to whatever service they may render. (1 Malagarriga 314, citing decision of
Argentina Court of Appeals on Commercial Matters.)

In view of the foregoing, the order appealed from is hereby affirmed, with costs against appellants.

4. 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.
9|Page
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.

10 | P a g e
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.

5. Ortega vs. ca refer to case #2

11 | P a g e
6. 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

12 | P a g e
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

13 | P a g e
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.

7. G.R. No. L-49982 April 27, 1988

ELIGIO ESTANISLAO, JR., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO, respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

GANCAYCO, J.:

By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same family arising from
their joint ownership of certain properties.

Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of Annapolis and Aurora
Blvd., QuezonCity which were then being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to open and
operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from
the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was
executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner
herein, by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agreed that petitioner would
apply for the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February
16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the
P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that said
agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but
therafter petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a demand was made on petitioner to render
an accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79 and that by the year
ending 1969, a profit of P 150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against petitioner praying among
others that the latter be ordered:

1. to execute a public document embodying all the provisions of the partnership agreement entered into between
plaintiffs and defendant as provided in Article 1771 of the New Civil Code;

2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to December
21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be subject to proper audit;

3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount of no less
than P l50,000.00 with interest at the rate of 1% per month from date of demand until full payment thereof for the
entire duration of the business; and

4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14 Record on
Appeal.)

14 | P a g e
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge of Branch IV of the trial
court, rendered judgment dismissing the complaint and counterclaim and ordering private respondents to pay petitioner P 3,000.00
attorney's fee and costs. Private respondent filed a motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo
Tensuan who was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and rendered another
decision in favor of said respondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new judgment is hereby
rendered in favor of the plaintiffs and as against the defendant:

(1) Ordering the defendant to execute a public instrument embodying all the provisions of the partnership
agreement entered into between plaintiffs and defendant as provided for in Article 1771, Civil Code of the
Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up to the time
this order is issued, the same to be subject to examination and audit by the plaintiff,

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the business in
the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per month from date of demand
until full payment thereof;

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of plaintiffs' counsel;
as well as the costs of suit. (pp. 161-162. Record on Appeal).

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly committed by the trial court. In
due course, a decision was rendered by the Court of Appeals on November 28,1978 affirming in toto the decision of the lower court
with costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not satisfied therewith, the petitioner
now comes to this court by way of this petition for certiorari alleging that the respondent court erred:

1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge Agreement
(Exhs. "B-2","6", and "L"); and

2. In declaring that a partnership was established by and among the petitioner and the private respondents as
regards the ownership and or operation of the gasoline service station business.

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional Cash Pledge Agreement
of May 20, 1966 (Exhibit 6) which are herein reproduced-

(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos. 45071 and 71244
of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a
corporation duly licensed to do business in the Philippines;

(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals in the total
amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can use the said amount to
augment our capital investment in the operation of that gasoline station constructed ,by the said company on our
two lots aforesaid by virtue of an outstanding Lease Agreement we have entered into with the said company;

(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to help us in
aumenting our capital investment in the operation of the said gasoline station, has agreed to give us the said amount
of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS;

(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN THOUSAND PESOS
(P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be
applied as monthly rentals for the sai two lots under our Lease Agreement starting on the 25th of May, 1966 until
such time that the said of P 15,000.00 be applicable, which time to our estimate and one-half months from May 25,
1966 or until the 10th of October, 1966 more or less;

15 | P a g e
 (5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED execute
an instrument for us to sign embodying our conformity that the said amount that it will generously grant us as
requested be applied as ADVANCED RENTALS; and

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page Nos.
99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez, and R.D.
Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and another Lease Agreement dated
19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for the
lease of adjoining portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE
a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29),
Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased land, and as
Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in cash the amount of PESOS
TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of Shell petroleum products; . . .

WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured the conformity
of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of them to accumulate the
equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as additional cash deposit
to SHELL under the same terms and conditions of the aforementioned Cash Pledge Agreement dated llth May 1966.

NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among the CO-
OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-OWNERS, collectively,
under the above describe two Lease Agreements, one dated 13th November 1963 and the other dated 19th March
1964 to enable DEALER to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such purpose,
the SHELL CO-OWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to
them respectively as they fall due, monthly, commencing 24th May 1966, until such time that the monthly rentals
accumulated, shall be equal to P l5,000.

2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL,
thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement, therefore, cancels and supersedes
the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from SHELL petroleum
products, on credit, up to the amount of P 25,000.

4. This increase in the credit shall also be subject to the same terms and conditions of the above-mentioned Cash
Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P 15,000.00 advance rental
due to them from SHELL shall augment their "capital investment" in the operation of the gasoline station, which advance rentals shall
be credited as rentals from May 25, 1966 up to four and one-half months or until 10 October 1966, more or less covering said P
15,000.00.

In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the private respondents and
petitioners assigned to SHELL the monthly rentals due them commencing the 24th of May 1966 until such time that the monthly
rentals accumulated equal P 15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL to increase
his credit limit as dealer. As above-stated it provided therein that "This agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership
agreement there was in said previous agreement had thereby been abrogated. We find no merit in this argument. Said cancelling
provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement
also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in
the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of
the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter
document SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a
partnership with private respondents and not a sole proprietorship of petitioner.

16 | P a g e
Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested
by the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic
accounting of the business. 4 Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and
audit the books of their "common business' aming negosyo). 5 Respondent Remedios assisted in the running of the business. There is
no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the
intention of dividing the profits among themselves.6 The sole dealership by the petitioner and the issuance of all government permits
and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties
of having only one dealer of the SHELL products.

Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said facts are
in accordancewith the applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision is immediately executory
and no motion for extension of time to file a motion for reconsideration shag beentertained.

SO ORDERED.

8. G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant,

vs.
FRANCISCO DE LA ROSA, defendant-appellee.

Vicente Miranda, for appellant.

Simplicio del Rosario, for appellee.

LADD, J.:

The object of this action is to obtain from the court a declaration that a partnership exists between the parties, that the plaintiff has a
consequent interested in certain cascoes which are alleged to be partnership property, and that the defendant is bound to render an
account of his administration of the cascoes and the business carried on with them.

Judgment was rendered for the defendant in the court below and the plaintiff appealed.

The respective claims of the parties as to the facts, so far as it is necessary to state them in order to indicate the point in dispute, may
be briefly summarized. The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the defendant to form a
partnership for the purchase of cascoes and the carrying on of the business of letting the same for hire in Manila, the defendant to
buy the cascoes and each partner to furnish for that purpose such amount of money as he could, the profits to be divided
proportionately; that in the same January the plaintiff furnished the defendant 300 pesos to purchase a casco designated as No. 1515,
which the defendant did purchase for 500 pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished
further sums aggregating about 300 pesos for repairs on this casco; that on the fifth of the following March he furnished the defendant
825 pesos to purchase another casco designated as No. 2089, which the defendant did purchase for 1,000 pesos of Luis R. Yangco,
taking the title to this casco also in his own name; that in April the parties undertook to draw up articles of partnership for the purpose
of embodying the same in an authentic document, but that the defendant having proposed a draft of such articles which differed
materially from the terms of the earlier verbal agreement, and being unwillingly to include casco No. 2089 in the partnership, they
were unable to come to any understanding and no written agreement was executed; that the defendant having in the meantime had
the control and management of the two cascoes, the plaintiff made a demand for an accounting upon him, which the defendant
refused to render, denying the existence of the partnership altogether.

The defendant admits that the project of forming a partnership in the casco business in which he was already engaged to some extent
individually was discussed between himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a partner of
the plaintiff in a bakery business, being also a party to the negotiations, but he denies that any agreement was ever consummated.
He denies that the plaintiff furnished any money in January, 1900, for the purchase of casco No. 1515, or for repairs on the same, but
claims that he borrowed 300 pesos on his individual account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo,
and Antonio Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for the purchase of casco
No. 1515, which he alleged was bought March 12, and he alleges that he never received anything from the defendant toward the
purchase of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second
one.

The case comes to this court under the old procedure, and it is therefore necessary for us the review the evidence and pass upon the
facts. Our general conclusions may be stated as follows:

17 | P a g e
(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was made and the casco delivered in
January, although the public document of sale was not executed till some time afterwards. This witness is apparently disinterested,
and we think it is safe to rely upon the truth of her testimony, especially as the defendant, while asserting that the sale was in March,
admits that he had the casco taken to the ways for repairs in January.

It is true that the public document of sale was executed March 10, and that the vendor declares therein that she is the owner of the
casco, but such declaration does not exclude proof as to the actual date of the sale, at least as against the plaintiff, who was not a
party to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in such cases, that the actual sale precedes by a
considerable time the execution of the formal instrument of transfer, and this is what we think occurred here.

(2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose Fernandez eight hundred and
twenty-five pesos for the cost of a casco which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa." The
authenticity of this receipt is admitted by the defendant. If casco No. 1515 was bought, as we think it was, in January, the casco
referred to in the receipt which the parties "are to purchase in company" must be casco No. 2089, which was bought March 22. We
find this to be the fact, and that the plaintiff furnished and the defendant received 825 pesos toward the purchase of this casco, with
the understanding that it was to be purchased on joint account.

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give the defendant, in the name of the
plaintiff, a sum of money, the amount of which he is unable to state, for the purchase of a casco to be used in the plaintiff's and
defendant's business. Antonio Angulo also testifies, but the defendant claims that the fact that Angulo was a partner of the plaintiff
rendered him incompetent as a witness under the provisions of article 643 of the then Code of Civil Procedure, and without deciding
whether this point is well taken, we have discarded his testimony altogether in considering the case. The defendant admits the receipt
of 300 pesos from Antonio Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he sets up the claim
that the 825 pesos which he received from the plaintiff in March were furnished toward the purchase of casco No. 1515, thereby
virtually admitting that casco was purchased in company with the plaintiff. We discover nothing in the evidence to support the claim
that the 300 pesos received in January was a loan, unless it may be the fact that the defendant had on previous occasions borrowed
money from the bakery firm. We think all the probabilities of the case point to the truth of the evidence of Antonio Fernandez as to
this transaction, and we find the fact to be that the sum in question was furnished by the plaintiff toward the purchase for joint
ownership of casco No. 1515, and that the defendant received it with the understanding that it was to be used for this purposed. We
also find that the plaintiff furnished some further sums of money for the repair of casco.

(4) The balance of the purchase price of each of the two cascoes over and above the amount contributed by the plaintiff was furnished
by the defendant.

(5) We are unable to find upon the evidence before us that there was any specific verbal agreement of partnership, except such as
may be implied from the fact as to the purchase of the casco.

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than otherwise that no attempt was
made to agree upon articles of partnership till about the middle of the April following the purchase of the cascoes.

(7) At some time subsequently to the failure of the attempt to agree upon partnership articles and after the defendant had been
operating the cascoes for some time, the defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and one
of 825 pesos. The only evidence in the record as to the circumstances under which the plaintiff received these sums is contained in his
answer to the interrogatories proposed to him by the defendant, and the whole of his statement on this point may properly be
considered in determining the fact as being in the nature of an indivisible admission. He states that both sums were received with an
express reservation on his part of all his rights as a partner. We find this to be the fact.

Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the parties? (2) If such partnership existed,
was it terminated as a result of the act of the defendant in receiving back the 1,125 pesos?

(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1) mutual contribution
to a common stock, and (2) a joint interest in the profits. If the contract contains these two elements the partnership relation results,
and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the defendant with the understanding that it was
to be used for the purchase of the cascoes in question. This establishes the first element of the contract, namely, mutual contribution
to a common stock. The second element, namely, the intention to share profits, appears to be an unavoidable deduction from the fact
of the purchase of the cascoes in common, in the absence of any other explanation of the object of the parties in making the purchase
in that form, and, it may be added, in view of the admitted fact that prior to the purchase of the first casco the formation of a
partnership had been a subject of negotiation between them.

18 | P a g e
Under other circumstances the relation of joint ownership, a relation distinct though perhaps not essentially different in its practical
consequence from that of partnership, might have been the result of the joint purchase. If, for instance, it were shown that the object
of the parties in purchasing in company had been to make a more favorable bargain for the two cascoes that they could have done by
purchasing them separately, and that they had no ulterior object except to effect a division of the common property when once they
had acquired it, the affectio societatiswould be lacking and the parties would have become joint tenants only; but, as nothing of this
sort appears in the case, we must assume that the object of the purchase was active use and profit and not mere passive ownership
in common.

It is thus apparent that a complete and perfect contract of partnership was entered into by the parties. This contract, it is true, might
have been subject to a suspensive condition, postponing its operation until an agreement was reached as to the respective
participation of the partners in the profits, the character of the partnership as collective or en comandita, and other details, but
although it is asserted by counsel for the defendant that such was the case, there is little or nothing in the record to support this claim,
and that fact that the defendant did actually go on and purchase the boat, as it would seem, before any attempt had been made to
formulate partnership articles, strongly discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a civil
contract, the contributions of the partners not having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)
The special provision cited, requiring the execution of a public writing in the single case mentioned and dispensing with all formal
requirements in other cases, renders inapplicable to this species of contract the general provisions of article 1280 of the Civil Code.

(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returned to him by the defendant
after the definitive failure of the attempt to agree upon partnership articles. The amount returned fell short, in our view of the facts,
of that which the plaintiff had contributed to the capital of the partnership, since it did not include the sum which he had furnished
for the repairs of casco No. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been realized from
the business during the period in which the defendant have been administering it prior to the return of the money, and if so he still
retained that sum in his hands. For these reasons the acceptance of the money by the plaintiff did not have the effect of terminating
the legal existence of the partnership by converting it into a societas leonina, as claimed by counsel for the defendant.

Did the defendant waive his right to such interest as remained to him in the partnership property by receiving the money? Did he by
so doing waive his right to an accounting of the profits already realized, if any, and a participation in them in proportion to the amount
he had originally contributed to the common fund? Was the partnership dissolved by the "will or withdrawal of one of the partners"
under article 1705 of the Civil Code? We think these questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a partner, nor is there any evidence
that by anything that he said or by anything that he omitted to say he gave the defendant any ground whatever to believe that he
intended to relinquish them. On the contrary he notified the defendant that he waived none of his rights in the partnership. Nor was
the acceptance of the money an act which was in itself inconsistent with the continuance of the partnership relation, as would have
been the case had the plaintiff withdrawn his entire interest in the partnership. There is, therefore, nothing upon which a waiver,
either express or implied, can be predicated. The defendant might have himself terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits. Having failed to do this he can
not be permitted to force a dissolution upon his co-partner upon terms which the latter is unwilling to accept. We see nothing in the
case which can give the transaction in question any other aspect than that of the withdrawal by one partner with the consent of the
other of a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in January, 1900, the existence of which the
defendant is bound to recognize; that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is entitled to
an accounting of the defendant's administration of such property, and of the profits derived therefrom. This declaration does not
involve an adjudication as to any disputed items of the partnership account.

The judgment of the court below will be reversed without costs, and the record returned for the execution of the judgment now
rendered. So ordered.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.

Willard, J., dissenting.

ON MOTION FOR A REHEARING.

MAPA, J.:

This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a rehearing upon the following grounds:

19 | P a g e
1. Because that part of the decision which refers to the existence of the partnership which is the object of the complaint is not based
upon clear and decisive legal grounds; and

2. Because, upon the supposition of the existence of the partnership, the decision does not clearly determine whether the juridical
relation between the partners suffered any modification in consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos
from the funds of the partnership, or if it continued as before, the parties being thereby deprived, he alleges, of one of the principal
bases for determining with exactness the amount due to each.

With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as follows: "We are unable to find from
the evidence before us that there was any specific verbal agreement of partnership, except such as may be implied from the facts as
to the purchase of the cascoes."

Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the one hand there is no direct evidence
of a contract, on the other its existence can only be inferred from certain facts, and the defendant adds that the possibility of an
inference is not sufficient ground upon which to consider as existing what may be inferred to exist, and still less as sufficient ground
for declaring its efficacy to produce legal effects.

This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of an inference, as the appellant
gratuitously stated, for the purpose of arriving at a conclusion that a contract of partnership was entered into between him and the
plaintiff, but have considered the proof which is derived from the facts connected with the purchase of the cascoes. It is stated in the
decision that with the exception of this evidence we find no other which shows the making of the contract. But this does not mean
(for it says exactly the contrary) that this fact is not absolutely proven, as the defendant erroneously appears to think. From this data
we infer a fact which to our mind is certain and positive, and not a mere possibility; we infer not that it is possible that the contract
may have existed, but that it actually did exist. The proofs constituted by the facts referred to, although it is the only evidence, and in
spite of the fact that it is not direct, we consider, however, sufficient to produce such a conviction, which may certainly be founded
upon any of the various classes of evidence which the law admits. There is all the more reason for its being so in this case, because a
civil partnership may be constituted in any form, according to article 1667 of the Civil Code, unless real property or real rights are
contributed to it — the only case of exception in which it is necessary that the agreement be recorded in a public instrument.

It is of no importance that the parties have failed to reach an agreement with respect to the minor details of contract. These details
pertain to the accidental and not to the essential part of the contract. We have already stated in the opinion what are the essential
requisites of a contract of partnership, according to the definition of article 1665. Considering as a whole the probatory facts which
appears from the record, we have reached the conclusion that the plaintiff and the defendant agreed to the essential parts of that
contract, and did in fact constitute a partnership, with the funds of which were purchased the cascoes with which this litigation deals,
although it is true that they did not take the precaution to precisely establish and determine from the beginning the conditions with
respect to the participation of each partner in the profits or losses of the partnership. The disagreements subsequently arising between
them, when endeavoring to fix these conditions, should not and can not produce the effect of destroying that which has been done,
to the prejudice of one of the partners, nor could it divest his rights under the partnership which had accrued by the actual contribution
of capital which followed the agreement to enter into a partnership, together with the transactions effected with partnership funds.
The law has foreseen the possibility of the constitution of a partnership without an express stipulation by the partners upon those
conditions, and has established rules which may serve as a basis for the distribution of profits and losses among the partners. (Art.
1689 of the Civil Code. ) We consider that the partnership entered into by the plaintiff and the defendant falls within the provisions of
this article.

With respect to the second point, it is obvious that upon declaring the existence of a partnership and the right of the plaintiff to
demand from the defendant an itemized accounting of his management thereof, it was impossible at the same time to determine the
effects which might have been produced with respect to the interest of the partnership by the withdrawal by the plaintiff of the sum
of 1,125 pesos. This could only be determined after a liquidation of the partnership. Then, and only then, can it be known if this sum
is to be charged to the capital contributed by the plaintiff, or to his share of the profits, or to both. It might well be that the partnership
has earned profits, and that the plaintiff's participation therein is equivalent to or exceeds the sum mentioned. In this case it is evident
that, notwithstanding that payment, his interest in the partnership would still continue. This is one case. It would be easy to imagine
many others, as the possible results of a liquidation are innumerable. The liquidation will finally determine the condition of the legal
relations of the partners inter se at the time of the withdrawal of the sum mentioned. It was not, nor is it possible to determine this
status a priori without prejudging the result, as yet unknown, of the litigation. Therefore it is that in the decision no direct statement
has been made upon this point. It is for the same reason that it was expressly stated in the decision that it "does not involve an
adjudication as to any disputed item of the partnership account."

The contentions advanced by the moving party are so evidently unfounded that we can not see the necessity or convenience of
granting the rehearing prayed for, and the motion is therefore denied.

9. G.R. No. L-18703 August 28, 1922

20 | P a g e
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,
vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING CORPORATION,petitioners-appellants.

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

Antonio Sanz for appellee.

ROMUALDEZ, J.:

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

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

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

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

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

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

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

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

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

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

But there being in our insolvency law no such provision as that contained in section 5 of said Act of Congress of July 1, 1898, nor any
rule similar thereto, and the juridical personality of limited partnership being recognized by our statutes from their formation in all
their acts and contracts the decision of American courts on this point can have no application in this jurisdiction, nor we see any reason
why these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their members, provided the

21 | P a g e
partnership has, as such, committed some of the acts of insolvency provided in our law. Under this view it is unnecessary to discuss
the other points raised by the parties, although in the particular case under consideration it can be added that the liability of the
limited partners for the obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the
common fund except when a limited partner should have included his name or consented to its inclusion in the firm name (arts. 147
and 148, Code of Commerce).

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

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

It is so ordered without special finding as to costs.

10. July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO
E. SALAZAR, FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES.
JR., ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO,
EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA
& REYES." RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DE
LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.

RESOLUTION

MELENCIO-HERRERA, J.:ñé+.£ªwph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975,
and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue
using, in the names of their firms, the names of partners who had passed away. In the Court's Resolution of September 2, 1976, both
Petitions were ordered consolidated.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the name of a deceased
partner; in fact, Article 1840 of the Civil Code explicitly sanctions the practice when it provides in the last paragraph that: têñ.£îhqwâ£

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased
partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts
contracted by such person or partnership. 1

2. In regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption of firm names
without any restriction as to the use, in such firm name, of the name of a deceased partner; 2 the legislative authorization given to
those engaged in the practice of accountancy — a profession requiring the same degree of trust and confidence in respect of clients
as that implicit in the relationship of attorney and client — to acquire and use a trade name, strongly indicates that there is no
fundamental policy that is offended by the continued use by a firm of professionals of a firm name which includes the name of a
deceased partner, at least where such firm name has acquired the characteristics of a "trade name." 3

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner in the firm name of
a law partnership because Canon 33 of the Canons of Professional Ethics adopted by the American Bar Association declares
that: têñ.£îhqwâ£

... The continued use of the name of a deceased or former partner when permissible by local custom, is not unethical
but care should be taken that no imposition or deception is practiced through this use. ... 4

22 | P a g e
4. There is no possibility of imposition or deception because the deaths of their respective deceased partners were well-publicized in
all newspapers of general circulation for several days; the stationeries now being used by them carry new letterheads indicating the
years when their respective deceased partners were connected with the firm; petitioners will notify all leading national and
international law directories of the fact of their respective deceased partners' deaths. 5

5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's name; 6 there is no custom or
usage in the Philippines, or at least in the Greater Manila Area, which recognizes that the name of a law firm necessarily Identifies the
individual members of the firm. 7

6. The continued use of a deceased partner's name in the firm name of law partnerships has been consistently allowed by U.S. Courts
and is an accepted practice in the legal profession of most countries in the world. 8

The question involved in these Petitions first came under consideration by this Court in 1953 when a law firm in Cebu (the Deen case)
continued its practice of including in its firm name that of a deceased partner, C.D. Johnston. The matter was resolved with this Court
advising the firm to desist from including in their firm designation the name of C. D. Johnston, who has long been dead."

The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled Register of Deeds of Manila vs. China
Banking Corporation. The law firm of Perkins & Ponce Enrile moved to intervene as amicus curiae. Before acting thereon, the Court,
in a Resolution of April 15, 1957, stated that it "would like to be informed why the name of Perkins is still being used although Atty. E.
A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of Perkins and Ponce Enrile, raising substantially the
same arguments as those now being raised by petitioners, prayed that the continued use of the firm name "Perkins & Ponce Enrile"
be held proper.

On June 16, 1958, this Court resolved: têñ.£îhqwâ£

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and Associates for their continued
use of the name of the deceased E. G. Perkins, the Court found no reason to depart from the policy it adopted in
June 1953 when it required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from including in their
firm designation, the name of C. D. Johnston, deceased. The Court believes that, in view of the personal and
confidential nature of the relations between attorney and client, and the high standards demanded in the canons of
professional ethics, no practice should be allowed which even in a remote degree could give rise to the possibility of
deception. Said attorneys are accordingly advised to drop the name "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.

The Court finds no sufficient reason to depart from the rulings thus laid down.

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are
partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code
which provides: têñ.£îhqwâ£

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or
more of the partners.

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the
liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the
case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third
person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in
a law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34
of the Canons of Professional Ethics "prohibits an agreement for the payment to the widow and heirs of a deceased lawyer of a
percentage, either gross or net, of the fees received from the future business of the deceased lawyer's clients, both because the
recipients of such division are not lawyers and because such payments will not represent service or responsibility on the part of the
recipient. " Accordingly, neither the widow nor the heirs can be held liable for transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there ran be no corresponding liability.

Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased partners. The public
relations value of the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession.
An able lawyer without connections will have to make a name for himself starting from scratch. Another able lawyer, who can join an
old firm, can initially ride on that old firm's reputation established by deceased partners.

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the first factor to consider is that it is
within Chapter 3 of Title IX of the Code entitled "Dissolution and Winding Up." The Article primarily deals with the exemption from
liability in cases of a dissolved partnership, of the individual property of the deceased partner for debts contracted by the person or
23 | P a g e
partnership which continues the business using the partnership name or the name of the deceased partner as part thereof. What the
law contemplates therein is a hold-over situation preparatory to formal reorganization.

Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of a professional partnership,
with no saleable good will but whose reputation depends on the personal qualifications of its individual members. Thus, it has been
held that a saleable goodwill can exist only in a commercial partnership and cannot arise in a professional partnership consisting of
lawyers. 9têñ.£îhqwâ£

As a general rule, upon the dissolution of a commercial partnership the succeeding partners or parties have the right
to carry on the business under the old name, in the absence of a stipulation forbidding it, (s)ince the name of a
commercial partnership is a partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s 204, p.
115) (Emphasis supplied)

On the other hand, têñ.£îhqwâ£

... a professional partnership the reputation of which depends or; the individual skill of the members, such as
partnerships of attorneys or physicians, has no good win to be distributed as a firm asset on its dissolution, however
intrinsically valuable such skill and reputation may be, especially where there is no provision in the partnership
agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)

C. A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. For one thing,
the law on accountancy specifically allows the use of a trade name in connection with the practice of accountancy. 10 têñ.£îhqwâ£

A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a particular
purpose. ... It is not a partnership formed for the purpose of carrying on trade or business or of holding
property." 11 Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law practice is
improper. 12

The usual reason given for different standards of conduct being applicable to the practice of law from those
pertaining to business is that the law is a profession.

Dean Pound, in his recently published contribution to the Survey of the Legal Profession, (The Lawyer from Antiquity
to Modern Times, p. 5) defines a profession as "a group of men pursuing a learned art as a common calling in the
spirit of public service, — no less a public service because it may incidentally be a means of livelihood."

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

1. A duty of public service, of which the emolument is a byproduct, and in which one may attain the highest eminence
without making much money.

2. A relation as an "officer of court" to the administration of justice involving thorough sincerity, integrity, and
reliability.

3. A relation to clients in the highest degree fiduciary.

4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to current
business methods of advertising and encroachment on their practice, or dealing directly with their clients. 13

"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or franchise. 14 It is limited to persons
of good moral character with special qualifications duly ascertained and certified. 15 The right does not only presuppose in its possessor
integrity, legal standing and attainment, but also the exercise of a special privilege, highly personal and partaking of the nature of a
public trust." 16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association" in support of their petitions.

It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or former partner in the firm name
of a law partnership when such a practice is permissible by local custom but the Canon warns that care should be taken that no
imposition or deception is practiced through this use.

It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or former partner's
name in the firm names of law partnerships. Firm names, under our custom, Identify the more active and/or more senior members or

24 | P a g e
partners of the law firm. A glimpse at the history of the firms of petitioners and of other law firms in this country would show how
their firm names have evolved and changed from time to time as the composition of the partnership changed. têñ.£îhqwâ£

The continued use of a firm name after the death of one or more of the partners designated by it is proper only
where sustained by local custom and not where by custom this purports to Identify the active members. ...

There would seem to be a question, under the working of the Canon, as to the propriety of adding the name of a
new partner and at the same time retaining that of a deceased partner who was never a partner with the new
one. (H.S. Drinker, op. cit., supra, at pp. 207208) (Emphasis supplied).

The possibility of deception upon the public, real or consequential, where the name of a deceased partner continues to be used cannot
be ruled out. A person in search of legal counsel might be guided by the familiar ring of a distinguished name appearing in a firm title.

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased partner's name in the firm name of
law partnerships. But that is so because it is sanctioned by custom.

In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. quoted in their
memorandum, the New York Supreme Court sustained the use of the firm name Alexander & Green even if none of the present ten
partners of the firm bears either name because the practice was sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties. The Court stated therein: têñ.£îhqwâ£

The practice sought to be proscribed has the sanction of custom and offends no statutory provision or legislative
policy. Canon 33 of the Canons of Professional Ethics of both the American Bar Association and the New York State
Bar Association provides in part as follows: "The continued use of the name of a deceased or former partner, when
permissible by local custom is not unethical, but care should be taken that no imposition or deception is practiced
through this use." There is no question as to local custom. Many firms in the city use the names of deceased members
with the approval of other attorneys, bar associations and the courts. The Appellate Division of the First Department
has considered the matter and reached The conclusion that such practice should not be prohibited. (Emphasis
supplied)

xxx xxx xxx

Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of the firm name herein is
also sustainable by reason of agreement between the partners. 18

Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has been defined as a rule of conduct
formed by repetition of acts, uniformly observed (practiced) as a social rule, legally binding and obligatory. 19 Courts take no judicial
notice of custom. A custom must be proved as a fact, according to the rules of evidence. 20 A local custom as a source of right cannot
be considered by a court of justice unless such custom is properly established by competent evidence like any other fact. 21 We find
such proof of the existence of a local custom, and of the elements requisite to constitute the same, wanting herein. Merely because
something is done as a matter of practice does not mean that Courts can rely on the same for purposes of adjudication as a juridical
custom. Juridical custom must be differentiated from social custom. The former can supplement statutory law or be applied in the
absence of such statute. Not so with the latter.

Moreover, judicial decisions applying or interpreting the laws form part of the legal system. 22 When the Supreme Court in the Deen
and Perkins cases issued its Resolutions directing lawyers to desist from including the names of deceased partners in their firm
designation, it laid down a legal rule against which no custom or practice to the contrary, even if proven, can prevail. This is not to
speak of our civil law which clearly ordains that a partnership is dissolved by the death of any partner. 23 Custom which are contrary
to law, public order or public policy shall not be countenanced. 24

The practice of law is intimately and peculiarly related to the administration of justice and should not be considered like an ordinary
"money-making trade." têñ.£îhqwâ£

... It is of the essence of a profession that it is practiced in a spirit of public service. A trade ... aims primarily at
personal gain; a profession at the exercise of powers beneficial to mankind. If, as in the era of wide free opportunity,
we think of free competitive self assertion as the highest good, lawyer and grocer and farmer may seem to be freely
competing with their fellows in their calling in order each to acquire as much of the world's good as he may within
the allowed him by law. But the member of a profession does not regard himself as in competition with his
professional brethren. He is not bartering his services as is the artisan nor exchanging the products of his skill and
learning as the farmer sells wheat or corn. There should be no such thing as a lawyers' or physicians' strike. The best
service of the professional man is often rendered for no equivalent or for a trifling equivalent and it is his pride to
do what he does in a way worthy of his profession even if done with no expectation of reward, This spirit of public
service in which the profession of law is and ought to be exercised is a prerequisite of sound administration of justice
according to law. The other two elements of a profession, namely, organization and pursuit of a learned art have
their justification in that they secure and maintain that spirit. 25

25 | P a g e
In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical impediment.

ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names "SYCIP" and "OZAETA" from their
respective firm names. Those names may, however, be included in the listing of individuals who have been partners in their firms
indicating the years during which they served as such.

SO ORDERED.

Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary view, as explained
in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate in the
disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of
Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and
the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the undersigned wishes to invite the
attention of all concerned, and not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera:
'Those names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of June 10, 1975,
prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975
(May he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office.

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in their petition of August
13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two partners, former Justice
Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Justice Ozaeta and
his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotation.

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part of the partnership
name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the name of a deceased partner,
"when permissible by local custom, is not unethical" as long as "no imposition or deception is practised through this use" (Canon 33
of the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two firms (as the
case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when they served as partners
should be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the clients who had
customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of those
respected and esteemed law practitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James Ross.
Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained
in the firm name with an indication of the year when he died. No one complained that the retention of the name of Judge Ross in the
firm name was illegal or unethical.

11. Balon vs Pajarillo (CA case not available in lawphil)

12. G.R. No. L-31684 June 28, 1973

26 | P a g e
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:

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

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

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

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

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

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

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

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said
respondent did not bind herself to contribute her industry, and she could not, and in fact did not,
because she was one of the judges of the City Court of Manila since 1954.

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

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

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

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

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

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

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

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

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

The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then concluded as
follows:

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

'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so; and if he should do so, the capitalist partners may either exclude
him from the firm or avail themselves of the benefits which he may have obtained in violation of
this provision, with a right to damages in either case.'

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

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

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

(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;

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

(3) As provided by article 1807;

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

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

The judgment appealed from is affirmed, with costs.

13. Tablason vs Ballozos (CA case not available in lawphil)

14. G.R. No. 3186 March 7, 1907

THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED MEN, plaintiff-appellee,
vs.
THE VETERAN ARMY OF THE PHILIPPINES, defendant-appellant.

29 | P a g e
Hartigan, Rohde, & Gutierrez for appellant.
W. A. Kincaid for appellee.

WILLAR, J.:

Article 3 of the Constitution of the Veteran Army of the Philippines provides as follows:

The object of this association shall be to perpetuate the spirit of patriotism and fraternity those men who upheld the Stars
and Stripes in the Philippine Islands during the Spanish war and the Philippine insurrection, and to promote the welfare of its
members in every just and honorable way; to assist the sick and afflicted and to bury the dead, to maintain among its
members in time of peace the same union and harmony with which they served their country in times of war and insurrection.

Article 5 provides that:

This association shall be composed of —

(a) A department.

(b) Two or more posts.

It is provided in article 6 that the department shall be composed of a department commander, fourteen officers, and the commander
of each post, or some member of the post appointed by him. Six members of the department constitute a quorum for the transaction
of business.

The Constitution also provides for the organization of posts. Among the posts thus organized is the General Henry W. Lawton Post,
No. 1. On the 1st day of March, 1903, a contract of lease of parts of a certain buildings in the city of Manila was signed by W.W. Lewis,
E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe,
citing for and on behalf of Lawton Post, Veteran Army of the Philippines as lessee. The lease was for the term of two years commencing
February 1, 903, and ending February 28, 1905. The Lawton Post occupied the premises in controversy for thirteen months, and paid
the rent for that time. It them abandoned them and this action was commenced to recover the rent for the unexpired term. Judgment
was rendered in the court below on favor of the defendant McCabe, acquitting him of the complaint. Judgment was rendered also
against the Veteran Army of the Philippines for P1,738.50, and the costs. From this judgment, the last named defendant has appealed.
The plaintiff did not appeal from the judgment acquitting defendant McCabe of the complaint.

It is claimed by the appellant that the action can not be maintained by the plaintiff, The Great Council of the United States of the
Improved Order of Red Men, as this organization did not make the contract of lease.

It is also claimed that the action can not be maintained against the Veteran Army of the Philippines because it never contradicted,
either with the plaintiff or with Apach Tribe, No. 1, and never authorized anyone to so contract in its name.

We do not find it necessary to consider the first point because we think the contention of the appellant on the second point must be
sustained.

It is difficult to determine the exact nature of the defendant organization. It is of course not a mercantile partnership. There is some
doubt as to whether it is a civil partnership, in view of the definition of the term in article 1665 of the Civil Code. That article is as
follows:

Partnership is a contract by which 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.

It seems to be the opinion of the commentators that where the society is not constituted for the purpose of gain. it does not fall within
this article of the Civil Code. Such an organization is fully covered by the Law of Associations of 1887, but that law was never extended
to the Philippine Islands. According to some commentators it would be governed by the provisions relating to the community of
property. However, the questions thus presented we do not find necessary to , and to not resolve. The view most favorable to the
appellee is the one that makes the appellant a civil partnership. Assuming that is such, and is covered by the provisions of title 8, book
4 of the Civil Code, it is necessary for the appellee to prove that the contract in question was executed by some authorized to so by
the Veteran Army of the Philippines.

Article 1695 of the Civil Code provides as follows:

Should no agreement have been made with regard to the form of management, the following rules shall be observed:

1 All the partners shall be considered as agents, and whatever any one of them may do by himself shall bind the partnership;
but each one may oppose the act of the others before they may have produced any legal effect.

30 | P a g e
One partner, therefore, is empowered to contract in the name of the partnership only when the articles of partnership make no
provision for the management of the partnership business. In the case at bar we think that the articles of the Veteran Army of the
Philippines do so provide. It is true that an express disposition to that effect is not found therein, but we think one may be fairly
deduced from the contents of those articles. They declare what the duties of the several officers are. In these various provisions there
is nothing said about the power of making contracts, and that faculty is not expressly given to any officer. We think that it was,
therefore, reserved to the department as a whole; that is, that in any case not covered expressly by the rules prescribing the duties of
the officers, the department were present. It is hardly conceivable that the members who formed this organization should have had
the intention of giving to any one of the sixteen or more persons who composed the department the power to make any contract
relating to the society which that particular officer saw fit to make, or that a contract when so made without consultation with, or
knowledge of the other members of the department should bind it. We therefore, hold, that no contract, such as the one in question,
is binding on the Veteran Army of the Philippines unless it was authorized at a meeting of the department. No evidence was offered
to show that the department had never taken any such action. In fact, the proof shows that the transaction in question was entirely
between Apache Tribe, No. 1, and the Lawton Post, and there is nothing to show that any member of the department ever knew
anything about it, or had anything to do with it. The liability of the Lawton Post is not presented in this appeal.

Judgment against the appellant is reversed, and the Veteran Army of the Philippines is acquitted of the complaint. No costs will be
allowed to either party in this court. After the expiration of twenty days let judgment be rendered in accordance to the lower court
for proper action. So ordered.

15. G.R. No. L-8576 February 11, 1915

VARGAS and COMPANY, plaintiff-appellee,

vs.
CHAN HANG CHIU, ET AL., defendants-appellants.

Rohde and Wright for appellants.

Escaler and Salas for appellee.

MORELAND, J.:

This is an action brought to set aside a judgment of the justice's court of Manila on the ground that the plaintiff here, the defendant
in the action in which the judgment was secured, was not served with summons and that, therefore, the justice's court acquired no
jurisdiction to render the judgment was that the same is null and void. Judgment was entered in favor of plaintiff declaring the
judgment in controversy void and setting it aside. This appeal is from that judgment.

It appears from the record that the plaintiff is a merchantile association duly organized under the laws of the Philippine Islands and
presumably registered as required by law. On the 19th day of August, 1911, an action was begun by Chan Hang Chiu against the
plaintiff in this case to recover a sum of money. The summons and complaint were placed in the hands of the sheriff, who certified
that on the 19th day of August, 1911, he served the same on Vargas & Co. by delivering to and leaving with one Jose Macapinlac
personally true copies thereof, he being the managing agent of said Vargas & Co. at the time of such service. On July 2. 1912, the
justice's court rendered judgment against Vargas & Co. for the sum of 372.28. Thereafter execution was duly issued and the property
of Vargas & Co. levied on for the payment thereof. Thereupon Vargas & Co. paid the amount of the judgment and costs under protest,
with notice that it would sue to recover the amount paid. The execution was returned satisfied and there the matter rested until the
present action was brought.

The contention of plaintiff is, and that contention is supported by the decision of the court below, that Vargas & Co. being a
partnership, it is necessary, in bringing an action against it, to serve the summons on all of the partners, delivering to each one of them
personally a copy thereof; and that the summons in this case having been served on the managing agent of the company only, the
service was of no effect as against the company and the members thereof and the judgment entered by virtue of such a service was
void.

Plaintiff also contends, and this contention is likewise supported by the court below, that, even admitting that service on the managing
agent of the plaintiff is sufficient service, as a matter of fact no service was really made on the managing agent of the company but,
rather, on an employee or salesman of the company, who had no powers of management or supervision and who was not competent
to receive service on behalf of the company within the provisions of section 396 of the Code of Civil Procedure.

We are of the opinion that neither of these contentions can be sustained. As to the first, we may say that it has been the universal
practice in the Philippine Islands since American occupation, and was the practice prior to that time, to treat companies of the class
to which the plaintiff belongs as legal or juridicial entities and to permit them to sue and be sued in the name of the company, the
summons being served solely on the managing agent or other official of the company specified by the section of the Code of Civil
Procedure referred to. This very action is an illustration of the practice in vogue in the Philippine Islands. The plaintiff brings this action
in the company name and not in the name of the members of the firm. Actions against companies of the class to which plaintiff belongs
are brought, according to the uninterrupted practice, against such companies in their company names and not against the individual

31 | P a g e
partners constituting the firm. In the States, in which the individual members of the firm must be separately served with process, the
rule also prevails that they must be parties to the action, either plaintiffs or defendant, and that the action cannot be brought in the
name of or against the company itself. This follows naturally for the reason that, if it is necessary to serve the partners individually,
they are entitled to be heard individually in the action and they must, therefore, be made parties thereto so that they can be heard.
It would be idle to serve process on individual members of a partnership if the litigation were to be conducted in the name of the
partnership itself and by the duly constituted officials of the partnership exclusively.

From what has been said it is apparent that the plaintiff in this action is acting contrary to its own contention by bringing the action in
the name of the company be served with process, then the action should be brought in the individual names of the partners and not
in the name of the company itself.

Article 35 of the Civil Code provides:

The following are judicial persons:

1. The corporation, associations, and institutions of public interest recognized by law.

2. The associations of private interest, be they civil, commercial, or industrial, to which the law grants proper personality,
independent of that of each member thereof.

Article 38 provides: "Judicial persons may acquire and possess property of all kinds, as well as contract obligations and institute civil
or criminal actions in accordance with the laws and rules of their establishment."

Article 116 of the Code of Commerce provides in part: "After a commercial association has been established, it shall have legal
representation in all its acts and contracts."

These provisions have been the foundation of the practice followed without interruption for many years that association of the class
to which plaintiff belongs have an independent and separate legal entity sufficient to permit them to sue and be sued in the company
name and to be served with process through the chief officer or managing agent thereof or any other official of the company specified
by law.

As to the second contention, we may say that the presumption is that a judgment rendered by a justice's court is a valid and
enforceable judgment where the record discloses that all of the steps necessary to confer jurisdiction on the court have been taken.
In the case before us it affirmatively appears that the service of process was made on the person the sheriff certified was the managing
agent of the defendant company. The sheriff's certificate serves asprima facie evidence of the existence of the facts stated therein.
The record, therefore, discloses, so far as the fact of service is concerned, that it was duly made on the managing agent of the company
as required by section 396, paragraph 1, of the Code of Civil Procedure. In attacking the judgement on the ground that service was not
made on the managing agent of the company, it is incumbent on the plaintiff to overcome the presumption arising from the sheriff's
certificate before the attack will succeed. Endeavoring to overcome the presumption referred to, plaintiff offered as a witness one
Tomas O. Segovia, an employee of the plaintiff company. He testified that he was a bookkeeper and that as such he was well
acquainted with the business of the company and that the person Macapinlac referred to in the sheriff's certificate as managing agent
of the plaintiff company was an agent for the sale of plows, of which the plaintiff company was a manufacturer; and that he had no
other relations with the company than that stated. During the course of the examination this question was put to and answer elicited
from this witness:

How do you know that they were not summoned, or that they did not know of this case brought before the justice of the
peace of the city of Manila?

I being the bookkeeper and the general attorney-in-fact to Vargas & Co., in Iloilo, ought to know whether they have been
notified or summoned, but I only knew about it when the sheriff appeared in our office to make the levy.

This is the only witness who testified in the case. It does not appear when he became the bookkeeper of the company, or that he was
in such a position that he could know or did know personally the acts of the company and its relations to Macapinlac. He does not
testify of his own knowledge to the essential facts necessary to controvert the statements contained it the sheriff's certificate of
service. His testimony is rather negative than positive, it being at all times possible, in spite of his evidence, indeed, in strict accord
therewith, that Vargas & Co., of which the witness was neither official nor manager, could have appointed a managing agent for the
company or could have removed him without the personal knowledge of the witness. The witness had no personal knowledge of the
relation between the company and Macapinlac. He never saw the contract existing between them. He did not hear the agreement
between them nor did he know of his own knowledge what the relations between the company and Macapinlac were. His testimony
besides being negative in character has in it many of the elements of hearsay and is not at all satisfactory. It would have been very
easy to present one of the members of the company, or all of them, who engaged Macapinlac, who know the relations between him
and the company, to testify as to what those relations were and to deny, if that were the fact, that Macapinlac was such an agent or
official of the company as is within the purview of section 396 above referred to. The facts stated in the certificate of the sheriff will
not be considered as overcome and rebutted except on clear evidence showing the contrary. The evidence of the bookkeeper, who is

32 | P a g e
the only witness for the company, is not satisfactory in any sense and is quite insufficient to overcome the presumption established
by the sheriff's certificate.

In view of these considerations it is not necessary to consider the question presented by the payment by the plaintiff company of the
judgment.

The judgment appealed from is reversed and the complaint dismissed on the merits, without costs in this instance. So ordered.

16. G.R. No. L-48113 April 7, 1947

NGO TIAN TEK and NGO HAY, petitioner,

vs.
PHILIPPINE EDUCATION CO., INC., respondent.

Tansinsin and Yatco for petitioner.

Marcial Esposo for respondent.

PARAS, J.:

The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of Manila an action against the defendants, Vicente
Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for the recovery of some P16,070.14, unpaid cost of merchandise
purchased by Lee Guan Box Factory from the plaintiff and five other corporate entities which, though not parties to the action, had
previously assigned their credits to the plaintiff, together with attorney's fees, interest and costs. /by agreement of the parties, the
case was heard before a referee, Attorney Francisco Dalupan, who in due time submitted his report holding the defendants jointly
and severally liable to the plaintiff for the sum of P16,070.14 plus attorney's fees and interest at the rates specified in the report. On
March 6, 1939, the Court of First Instance of Manila rendered judgment was affirmed by the Court of Appeals in its decision of January
31, 1941, now the subject of our review at the instance of the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.

"It appears that," quoting from the decision of the Court of Appeals whose findings of fact are conclusive, "as far back as the year
1925, the Modern Box Factory was established at 603 Magdalena Street, Manila. It was at first owned by Ngo Hay, who three years
later was joined by Ngo Tian Tek as a junior partner. The modern Box Factory dealt in pare and similar merchandise and purchased
goods from the plaintiff and its assignors in the names of the Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Hay.
Then about the year 1930, the Lee Guan Box Factory was established a few meters from the Modern Box Factory, under the
management of Vicente Tan. When that concern, through Vicente Tan, sought credit with the plaintiff and its assignors, Ngo Hay, in
conversations and interviews with their officers and employees, represented that he was the principal owner of such factory, that the
Lee Guan Box Factory and the Modern Box Factory belonged to the same owner, and that the Lee Guan Box Factory was a subsidiary
of the Modern Box Factory. There is evidence that many goods purchased in the name of the Lee Guan Box Factory were delivered to
the Modern Box Factory by the employees of the plaintiff and its assignors upon the express direction of Vicente Tan. There is also
evidence that the collectors of the sellers were requested by Vicente Tan to collect — and did collect — from the Modern Box Factory
the bills against the Lee Guan Box Factory. In the fact the record shows many checks signed by Ngo Hay or Ngo Tian Tek in payment
of accounts of the Lee Guan Box Factory. Furthermore, — and this seems to be conclusive-Ngo Hay, testifying for the defense, admitted
that 'he' was the owner of the Lee Guan Box Factory in and before the year 1934, but that in January, 1935, 'he' sold it, by the contract
of sale Exhibit 7, to Vicente Tan, who had been his manager of the business. Tan declared also that before January, 1935, the Lee Guan
Box Factory pertained to Ngo Hay and Ngo Tian Tek. The contract Exhibit 7 was found by the referee, to be untrue and simulated, for
various convincing reasons that need no repetition here. And the quoted statements serve effectively to confirm the evidence for the
plaintiff that it was Ngo Hay's representations of ownership of, and responsibility for, Lee Guan Box Factory that induced them to open
credit for that concern. It must be stated that in this connection — to answer appellant's fitting observation — that the plaintiff and
the assignors have considered Ngo Hay, the Modern Box Factory and Ngo Hay and Co. as one and the same, through the acts of the
partners themselves, and that the proof as to Ngo Hay's statements regarding the ownership of Lee Guan Box Factory must be taken
in that view. Ngo Hay was wont to say 'he' owned the Modern Box Factory, meaning that he was the principal owner, his other partner
being Ngo Tian Tek. Now, it needs no demonstration — for appellant does not deny it — that the obligations of the Lee Guan Box
Factory must rest upon its known owner. And that owner in Ngo Tian Tek and Ngo Hay."

We must overrule petitioner's contention that the Court of Appeals erred in holding that Lee Guan Box Factory was a subsidiary of the
Modern Box Factory and in disregarding the fact that the contracts evidencing the debts in question were signed by Vicente
Tan alias Chan Sy, without any indication that tended to involve the Modern Box Factory or the petitioner. In the first place, we are
concluded by the finding of the Court of Appeals regarding the ownership by the petitioner of Lee Guan Box Factory. Secondly, the
circumstances that Vicente Tan alias Chan Sy acted in his own name cannot save the petitioner, in view of said ownership, and because
contracts entered into by a factor of a commercial establishment known to belong to a well known enterprise or association, shall be
understood as made for the account of the owner of such enterprise or association, even when the factor has not so stated at the
time of executing the same, provided that such contracts involve objects comprised in the line and business of the establishment.
(Article 286, Code of Commerce.) The fact that Vicente Tan did not have any recorded power of attorney executed by the petitioner
will not operate to prejudice third persons, like the respondent Philippine Education Co., Inc., and its assignors. (3 Echavarri, 133.)

33 | P a g e
Another defense set up by the petitioner is that prior to the transactions which gave rise to this suit, Vicente Tan had purchased Lee
Guan Box Factory from Ngo Hay under the contract, Exhibit 7; and the petitioner assails, under the second assignment of error, the
conclusion of the Court of Appeals that said contract is simulated. This contention is purely factual and must also be overruled.

The petitioner questions the right of the respondent Philippine Education Co., Inc., to sue for the credits assigned by the five entities
with which Lee Guan Box Factory originally contracted, it being argued that the assignment, intended only for purposes of collection,
did not make said respondent the real party in interest. The petitioner has cited 5 Corpus Juris, section 144, page 958, which points
out that "under statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name, an assignee for
collection merely is not entitled to sue in his own name."

The finding of the Court of Appeals that there is nothing "simulated in the assignment," precludes us from ruling that respondent
company is not a bona fide assignee. Even assuming, however, that said assignment was only for collection, we are not prepared to
say that, under section 114 of the Code of Civil Procedure, in force at the time this action was instituted, ours is not one of those
jurisdictions following the rule that "when a choose, capable of legal assignment, is assigned absolutely to one, but the assignment is
made for purpose of collection, the legal title thereto vests in the assignee, and it is no concern of the debtor that the equitable title
is in another, and payment to the assignee discharges the debtor." (5 C. J., section 144, p. 958.) No substantial right of the petitioner
could indeed be prejudiced by such assignment, because section 114 of the Code of Civil Procedure reserves to it "'any set-off or other
defense existing at the time of or before notice of the assignment.'"

Petitioner's allegation that "fraud in the inception of the debt is personal to the contracting parties and does not follow assignment,"
and that the contracts assigned to the respondent company "are immoral and against public policy and therefore void," constitute
defenses on the merits, but do not affect the efficacy of the assignment. It is obvious that, apart from the fact that the petitioner can
not invoke fraud of its authorship to evade liability, the appealed decision is founded on an obligation arising, not from fraud, but from
the very contracts under which merchandise had been purchased by Lee Guan Box Factory.

The fourth and fifth assignments of error relate to the refusal of the Court of Appeals to hold that the writ of attachment is issued at
the commencement of this action by the Court of First Instance is illegal, and to award in favor of the petitioner damages for such
wrongful attachment. For us to sustain petitioner's contention will amount to an unauthorized reversal of the following conclusion of
fact of the Court of Appeals: "The stereotyped manner in which defendants obtained goods on credit from the six companies, Vicente
Tan's sudden disappearance, the execution of the fake sale Exhibit 7 to throw the whole responsibility upon the absent or otherwise
insolvent Tan, defendant's mercurial and unbelievable theories as to the ownership of the Modern Box Factory and Lee Guan Box
Factory — obviously adopted in a vain effort to meet or explain away the evidentiary force of plaintiff's documentary evidence — are
much too significant to permit a declaration that the attachment was not justified."

Regarding the suggestion in petitioner's memorandum that this case should be dismissed because of the death of Ngo Hay, it is
sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a partnership possessing a personality distinct from any of
the partners.

The appealed decision is affirmed, with costs against the petitioner. So ordered.

Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.

Separate Opinions

FERIA, J., concurring and dissenting:

I concur in the majority except that portion thereof which deals with the question whether an assignee for collection merely is entitled
to sue in his own name, which need not be discussed, in view of the finding of the Court of Appeals that there is nothing "simulated
in the assignment" which according to the very opinion of the majority "precludes us from ruling that the respondent company is not
a bona fide assignee;" because such being the conclusion of fact of the Court of Appeals, this Supreme Court can not modify or reverse
that conclusion and find that respondent Philippine Education Co. was not a bona fide assignee, and the assignment was not absolute,
but made merely for collection in order that said respondent may sue in its own name.

But I dissent from the majority opinion when it further says:

Even assuming, however, that said assignment was only for collection, we are not prepared to say that, under section 114 of
the Code of Civil Procedure, in force at the time this action was instituted, ours is not one of those jurisdictions following the
rule that "when a choose, capable of legal assignment, is assigned absolutely to one, but the assignment is made for purpose
of collection, the legal title thereto vests in the assignee, and it is no concern of the debtor that the equitable title is in
another, and payment to the assignee discharges the debtor." (5 C. J., section 114, p. 958.) No substantial right of the
petitioner could indeed be prejudiced by such assignment, because section 114 of the Code of Civil Procedure reserves to it
"any set-off or other defense exiting at the time of or before notice of the assignment."

34 | P a g e
The reason for my dissenting is that, after quoting the finding of the Court of Appeals and stating that said conclusion precludes this
Court "from ruling that the respondent company is not a bona fide assignee," the majority should have stopped then and there. But
having preferred to adduce an additional ratio decidendi, and assume that the assignment was for collection only and not an absolute
and bona fide one, in order to meet the latter's argument, because the Court of Appeals' conclusion is that the assignment was not
simulated, that is, absolute and bona fide, the majority should have quoted and discussed the second and third sentences of paragraph
144, page 958, of the Corpus Juris, quoted and relied on by the petitioner, which refers to an assignment that is not absolutely
and bona fide made. However the majority opinion did not do so, and quotes and bases its conclusion to the contrary on the first
sentence of said paragraph, not relied on by the petitioner, and which deals with absolute and bona fide assignment, and to the
provision of section 114 of the Code of Civil Procedure on set-off and defenses which defendant may set up to an action instituted by
a bona fide assignee.

To clearly show the error, we transcribe below section 144, page 958, of Corpus Juris quoted and underlined by the petitioner in his
brief:

144. G. Assignments for Collection. — When a chose, capable of legal assignment, is assigned absolutely to one, but the
assignment is made for purpose of collection, the legal title thereto vests in the assignee, and it is no concern of the debtor
that the equitable title is in another, and payment to the assignee discharges the debtor. Under the statutes of most
jurisdictions, the assignee may prosecute an action thereon in his own name as the real party in interest or as a trustee of an
express trust; but, under statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name, an
assignee for collection merely is not entitled to sue in his own name. An assignment merely for collection does not transfer the
beneficial ownership to the assignee.

It is not only convenient but necessary to point this error in the present concurring and dissenting opinion, for the conclusion set forth
in the above quoted portion of the majority decision is misleading; because it apparently lays down the ruling that an assignee not bona
fide to whom a credit was assigned, not absolutely, but for collection merely may sue in his own name (a debatable question which
has not yet been passed upon squarely by this Court [ Annotation; 64 L. R. A., 585]), but the premise on which the majority's conclusion
or ruling is predicated in said portion of the Corpus Juris quoted in the opinion, which is a wrong premise laid down, not by the
petitioner, but by the writer himself of the majority opinion.

17. 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

35 | P a g e
 xxx xxx xxx

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

Pol Comp Risk Insur Pays

icy any es
No
..

MI Zenith Buildin P50,0 P17,61

RO g 00 0.93

F- Insura
02 nce
50
0

Corp.

F- Phil. House 70,00 24,655.

84 hold 0 31
59
0

British

Assco.
Co.

Inc. FFF & 50,00 39,186.

F5 0 10

Pol Comp Risk Insur Pays

icy any es
No
.

FIC SSSAc
- cre
15
38
1

dited
Group

of Buildin P25,0 P8,805.

Insure g 00 47
rs

Totals P195, P90,25

000 7.81

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

Poli Comp Risk Injure Pays

cy any s
No.

MI Zenith
RO
/

F- Insura
02 nce

36 | P a g e
 50
0

Corp. Buildin P50,0 P11,87

g 00 7.14

F- Phil.
84
59
0

British

Assco. I- 70,00 16,628.

Co. Buildin 0 00
g

II-
Buildi
ng

FFF & 50,00 24,918.

PE 0 79

PV SSS Accred
C- ited
15
18
1

Group
of

Insure Buildin 25,00 5,938.5

rs g 0 0

F- Insure I-Ref 30,00 14,467.

59 rs 0 31
9
DV

Multi II- 70,00 16,628.

Buildin 0 00
g

Totals P295. P90,25

000 7.81

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.

37 | P a g e
 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 131 6 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.

38 | P a g e
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.

18. G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants,

vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.

Office of the Solicitor General for defendant-appellee.

DIZON, J.:

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and Tan Siong against the
Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could extend for five years the term of the
partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-partnership."

The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic Act No. 1180.

It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a
term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was "to maintain the business
of general merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other construction materials
for commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the
Securities & Exchange Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its
enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term.

On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after the enactment of
the Republic Act 1180, the partners already mentioned amended the original articles of part ownership (Exhibit B) so as to extend the
term of life of the partnership to another five years. When the amended articles were presented for registration in the Office of the
Securities & Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension was in violation of
the aforesaid Act.

39 | P a g e
From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.

The question before us is too clear to require an extended discussion. To organize a corporation or a partnership that could claim a
juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed
only under such terms as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by
law, had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos
may engage in the retail business can not be seriously disputed. That this provision was clearly intended to apply to partnership already
existing at the time of the enactment of the law is clearly showing by its provision giving them the right to continue engaging in their
retail business until the expiration of their term or life.

To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the
provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision
constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement
contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In
the present case, as already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were
already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their
partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid.

WHEREFORE, the judgment appealed from is affirmed, with costs.

19. 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.

40 | P a g e
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:

41 | P a g e
 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;

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 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.

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

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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

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 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);
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 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

46 | P a g e
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.
47 | P a g e
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.

21. 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.

48 | P a g e
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;

49 | P a g e
 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

50 | P a g e
 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 Cristobal

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

6. Jose Silva
D-6 .08 1,875 360 1,515
....................................................

7. Tomasa Mercado
D-7 .07 1,875 360 1,515
.......................................

51 | P a g e
 8. Julio Gatchalian by Beatriz Guzman
D-8 .13 3,150 240 2,910
.......

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; color: rgb(0, 0, 128); font-family: arial,
2.00 50,000
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.

52 | P a g e
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.

22. 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 respected 4 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.1äwphï1.ñëtConsequently
they allege that the reliance by respondent Court of Tax Appeals was unwarranted and the 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

53 | P a g e
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.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.

54 | P a g e
23. 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

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 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

56 | P a g e
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,

57 | P a g e
 acting in a representative capacity. It is immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership association, and any other type of organization
(by whatever name known) which is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens
Law of Federal Income Taxation, p. 788; emphasis supplied.).

Similarly, the American Law.

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

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

For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships — with the exception only
of duly registered general copartnerships — within the purview of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations.

As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how created or organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and an annual additional tax
which in no case, shall exceed one thousand pesos, in accordance with the following schedule: . . .

The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or organized. (emphasis supplied.)

Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our National Internal Revenue
Code (commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and "partnership" are used in both statutes
with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations.

Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for a period of over twelve
years, and that the yearly gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are
subject to the tax provided in section 193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant
to section 194 (s) thereof:

'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property or
his own account as principal and holding himself out as a full or part time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year. . .
(emphasis supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the petitioners herein. It is so
ordered.

Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a common fund with express purpose of engaging in real
estate business for profit. The series of transactions which they had undertaken attest to this. This appears in the following portion of
the decision:

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a
lot for P100,000. On April 3, 1944, they purchase 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real state for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The
number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the
last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and
58 | P a g e
 preservation of the aforementioned common fund or even of the property acquired by the petitioner in February, 1943, In
other words, we cannot but perceive a character of habitually peculiar to business transactions engaged in for purposes of
gain.

I wish however to make to make the following observation:

Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-
ownership. Said article paragraphs 2 and 3, provides:

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

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

From the above it appears that the fact that those who agree to form a co-ownership shared or do not share any profits made by the
use of property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of
itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This
only means that, aside from the circumstance of profit, the presence of other elements constituting partnership is necessary, such as
the clear intent to form a partnership, the existence of a judicial personality different from that of the individual partners, and the
freedom to transfer or assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines
Annotated, Vol. I, 1953 ed., pp. 635- 636).

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary intention cannot be considered a partnership.

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

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

Where plaintiff, his brother, and another agreed to become owners of a single tract of reality, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to third parties. (Magee vs. Magee, 123 N.
E. 6763, 233 Mass. 341.)

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

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

This is impliedly recognized in the following portion of the decision: "Although, taken singly, they might not suffice to establish the
intent necessary to constitute a partnership, the collective effect of these circumstances (referring to the series of transactions) such
as to leave no room for doubt on the existence of said intent in petitioners herein."

24. 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.

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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).

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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.

25. [G.R. Nos. L-11483-84. 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, v. MARIA HELEN CHRISTENSEN GARCIA and BERNARDA
CAMPOREDONDO, Oppositors-Appellees.

BERNARDA CAMPOREDONDO, Plaintiff-Appellee, v. 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 Helen Christensen Garcia.

Pedro P. Suarez and Oscar Breva for appellee Bernarda Camporedondo.

SYLLABUS

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1. NATIONAL CHILDREN; ACKNOWLEDGMENT OF; FACTORS TO BE CONSIDERED IN DETERMINING THE STATUS OF THE CHILD. —
Where, as in the recent case, the child had established that she had been in continuous possession of the status of natural child of the
deceased, the latter’s act in disavowing his paternity to the child cannot be made the criterion in determining whether the child was
his or not, for human frailty and parental arrogance sometimes may draw a person to adopt unnatural or harsh measures against an
erring child or one who displeases him just so the weight of his authority could be felt. In the consideration of a claim that one is a
natural child, the attitude or direct acts of the person against them whom such motion is directed or that of his family before the
controversy arose or during his lifetime if he predeceases the claimant, and not at a single opportunity or on 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 compulsory recognition. (Art. 2833, Civil Code).

2. ID.; ID.; ID.; EFFECT OF COURT’S DECLARATION THAT THE CHILD HAS ACQUIRED STATUS OF NATURAL CHILD. — 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 ode, a child has acquired the status
of a natural child of the presumptive parent and as such is entitled to all the rights granted to it by law, for such declaration is by itself
already a judicial recognition of the paternity of the parent concerned which the heirs of the latter against whom the action is directed,
are bound to respect.

3. INFORMAL CIVIL PARTNERSHIP; REQUISITE BEFORE A PARTY MAY BE ENTITLED TO SHARE IN THE PROPERTIES ACQUIRED DURING
THE COHABITATION; CASE AT BAR. — Before Republic Act No. 386 (Civil Code of the Philippines) went into operation on August 30,
1950, this court had already 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 each of them has an equal interest in the properties acquired during said
union and is entitled to participate therein if said properties were the product of their JOINT effort (Marata v. Diono G.R. No. 24449,
December 31, 1925; Lecasa v. Felix Vda. de Lesaca, 91 Phil., 135; Flores v. Rehabilitation Finance Corporation, 94 Phil., 451, 50 Off.
Gaz. 1029). In the case at bar, aside from the observation of the trial court that appellee was an illiterate woman, there appears no
evidence to prove appellee’s contribution or participation in the acquisition of the properties involved; therefore, following the
aforecited ruling of this Court, appellee’s claim for 1/2 of the properties cannot be granted. Even assuming for the sake of argument
that this case falls under the provisions of Article 144 of the Civil Code which recognizes the parties as co-owners of the properties
acquires during the union, the law would be applicable only as far as properties acquired after the Act are concerned and to no other,
for such law cannot be given retroactive effect to govern those already possessed before August 30, 1950.

DECISION

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 the 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 Camporedondo, who became an assistant to the cook.
Thereafter, this girl and Edward E. Christensen, who was also unmarried started living together as husband and wife and although the
records failed to establish the exact date when such relationship commenced, the lower court found the same to have been continuous
for over 30 years until the death of Christensen occurred 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:chanrob1es virtual 1aw library

x x x

"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 now have no living ascendants and no descendants except my above named daughter MARIA LUCY
CHRISTENSEN DANEY.

x x x

"7. I give devise and bequeath unto MARIA HELEN CHRISTENSEN, now married to Eduardo Garcia about eighteen years of age and who
62 | P a g e
notwithstanding the fact that she was baptized Christensen, is not in any way related to me, nor has she been at any time adopted by
me, and who, from all information I have now resides in Egpit, Digos, Davao, Philippines, the sum of THREE THOUSAND SIX HUNDRED
PESOS (P3,600) Philippine Currency, the same to be deposited in trust for the said Maria Helen Christensen with the Davao Branch of
the Philippine National Bank, and paid to her at the rate of One Hundred Pesos (P100), Philippine Currency per month until the principal
thereof as well as any interest which may have accrued thereon, is exhausted.

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

x x x

"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, and wheresoever
situated, of which I may be possessed at my death and which may have come to me from any source whatsoever, during her lifetime,
Provided, however, 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 terminatad, 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 effect
as if I had originally so given, devised and bequeathed it to her; and provided, further, that should the said Maria Lucy Christensen
Daney 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 LOUISE 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. CHRISTENSEN, . . . .

"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.

x x x

(Exh. A)

Oppositions to the probate of this will were separately filed by Maria Helen Christensen Garcia and Bernarda Camporedondo, the first
contending that the will lacked the formalities required by law; that granting that it had, the dispositions made therein were illegal
because although she and Lucy Christensen were both children had by the deceased with Bernarda Camporedondo, 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
that of the estate. It was therefore prayed by this 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-half of the entire estate in virtue of her relationship with
the deceased, it being alleged that she and the testator having lived together as husband and wife 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 she had 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 the will, 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 administrator of the estate after filing a bond for P5,000 pending the
appointment of a regular one, and letters of special administration 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 she was conceived during the time when
her mother Bernarda Camporedondo was living with the deceased as his common-law wife; that she had been in continuous
possession of the status of a natural child of the deceased; that she 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 Christensen had been in
continuous possession of the status of a natural child of the deceased Edward Christensen notwithstanding the fact that she was
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disowned by him in his will, for such action must have been brought about by the latter’s disapproval of said oppositor’s marriage to
a man he did not like. But taking into consideration that such possession of the status of a natural child did not of itself constitute
acknowledgment but may only be availed of to compel acknowledgment, the lower Court directed Maria Lucy Christensen Daney to
acknowledge the oppositor as a natural child of Edward E. Christensen. The will was, however, allowed and letters testamentary
consequently issued to Adolfo 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 elevated the 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 continuous possession of the status of a natural child of the deceased Edward E. Christensen and in directing Maria Lucy
Christensen Daney, recognized daughter and instituted heir of the decedent, to acknowledge the former as such 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.
Christensen. 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. In 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, like Lucy, was a natural child of the deceased and, therefore, entitled to the hereditary share corresponding to such
descendant. Several witnesses testified in her favor, including her mother Bernarda Camporedondo, her former teachers and other
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 her assertion 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 her claim by introducing evidence to prove that on or about
the period when she was 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 decedent’s solicitations for Helen’s welfare and the help extended to her merely sprang out of 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
Camporedondo 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 Christensen plantation.
Even granting that Zosimo Silva at this stage fitted himself into the picture, it cannot be denied that Helen’s mother and the deceased
were generally and publicly known to be living together as husband and wife. This must have been the reason why Christensen from
Helen’s birth in 1934 provided for her maintenance; shouldered the expenses for her education to the extent that she was even
enrolled as an intern in an exclusive college for girls in Manila; tolerated or allowed her carrying the surname "Christensen", and in
effect gave her the attention and care that a father would only do to his offspring. We should take note that nothing appears on record
to show that Christensen ever entertained any doubt or disputed Helen’s paternity. His repudiations of her relationship with him came
about only after he and Bernarda Camporedondo parted ways in March, 1950, and apparently after Helen took sides with her mother.
Furthermore, it seems that despite the decedent’s desire that she continue her studies, Helen ignored the same and got married to a
man for whom Christensen held no high esteem. We may state at this juncture that while it is true that herein appellants introduced
witnesses to disprove oppositor’s claim, the lower Court that had the opportunity to observe the conduct of the witnesses while
testifying and could better gauge their credibility and impartiality in the case, arrived at the conclusion that Maria Helen Christensen
had established that she had been in continuous possession 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’s last acts cannot be made the criterion in
determining whether oppositor was his child or not, for human frailty and parental arrogance sometimes may draw a person to adopt
unnatural or harsh measures against an erring child or one who displeases him just so the weight of his authority could be felt. In the
consideration of a claim that one is a natural child, the attitude or direct acts 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 at a single opportunity or
on 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 compulsory recognition. (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 provides for 2 kinds of acknowledgment 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 if 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 on the rights
of the child so recognized is the same, to maintain the view of the lower 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 recognition is brought against the heirs of the deceased, as in the instant case, the situation would take an
absurd turn for, the heirs would be compelled to recognize such child as a natural child of the deceased without a proper provision 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
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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 such is entitled to all rights granted to it by law, for such declaration is by itself already a judicial recognition
of the paternity of the parent concerned which is hers 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 Camporedondo claimed in her complaint � of
the properties of the deceased as co-owner thereof in virtue of her relations with the deceased. She alleged as basis for her action
that she and the deceased Edward E. Christensen had lived and cohabited as husband and wife, continuously and openly for a period
of 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
for and 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 seemed just and equitable in the premises.
In his answer, the executor denied the averments of the complaint, contending that the decedent was the sole owner of the properties
left by him as they were acquired through his own efforts; that plaintiff 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 clandestine because 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 of P70,000.00 representing actual, moral and exemplary damages.

Due hearing was conducted thereon and after the parties had submitted their respective memoranda, the lower Court on August 25,
1954, rendered judgment finding that the deceased Edward Christensen and Bernarda Camporedondo, not otherwise suffering from
any impediment to contract marriage, lived together as husband and wife without marital ties continuously for over 30 years until the
former’s death in 1953; that out of such relations 2 children were born; and that the properties in controversy were acquired by either
or both of them through their work or industry. Relying on Section 144 of the Civil Code which said court considered to have created
another mode of acquiring ownership, plaintiff was held to be entitled to one-half of said properties as co-owner thereof in view of
her relationship with the deceased and ordered the executor to account for and deliver the same to her. From this decision, defendant
Aznar, as Executor of the will, perfected an appeal to the Court of Appeals, but as the property involved in the litigation exceeds
P50,000.00, said tribunal elevated the case to its 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 of necessity be modified to conform with the evidence if the reviewing
tribunal were to arrive at the proper and just solution of the controversy. In the instant 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
Camporedondo had some sort of quarrel or misunderstanding and parted ways as of March, 1950, a fact which appellee was not able
to overcome. Taking into account the circumstances of this case as 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, by reason of such relationship, may be considered as a co-owner of the properties acquired by the deceased during
said period and thus entitled to 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 bringing properties unto said union, and probably
realizing that while same may not be acceptable from the moral point of view they are as much entitled to the protection of the laws
as any other property owners, the lawmakers incorporated Article 144 in Republic Act No. 386 (Civil Code of the Philippines) to govern
their property relations. Said article read as follows:chanrob1es virtual 1aw library

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 on 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 those whose marriages are by provision of
law declared void ab initio. 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 it ever existed, same may be considered terminated upon their separation or desistance to
continue said relations. The Spanish Civil Code which was then in force contains to counterpart of Article 144 and as the records in the
instant case failed to show that a subsequent reconciliation ever took place and considering that Republic Act No. 386 which
recognized such form of co-ownership went into operation only on August 30, 1950, evidently, this later enactment cannot be invoked
as basis for appellee’s claim.

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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 interest in the
properties acquired during said union and is entitled to participate therein if said properties were the product of their JOINT efforts
(Marata v. Dionio G. R. No. 24449, Dec. 31, 1925). In another case, this Court similarly held that although there is no technical marital
partnership between persons living maritally without being lawfully married, nevertheless there is between them an informal civil
partnership, and the parties would be entitled to an equal interest where the property is acquired through their JOINT efforts (Lesaca
v. Felix Vda. 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 laid down in the aforementioned cases, would lead Us to believe that her help was solicited or she took a hand in the
management and/or acquisition of the same. But such assertion appears incredible if We consider that she was observed by the trial
Court as an illiterate woman who cannot even remember simple things as the date when she arrived at the Mindanao Estate, when
she commenced relationship with the deceased, not even her approximate age or that of her children. And considering that aside
from her own declaration, which We find to be highly improbable, there appears no evidence to prove her alleged contribution or
participation in the acquisition of the properties involved therein, and that in view of the holding of this Court that for a claim to one-
half of such property to be allowed it must be proved that same was acquired through their joint efforts and labor (Flores v.
Rehabilitation Finance Corporation, * 50 Off. Gaz. 1029), We have no recourse but reverse the holding of the lower Court and deny
the claim of Bernarda Camporedondo. We may further state that, even granting, for the sake of argument, that this case falls under
the provisions of Article 144 of the Civil Code, same would be applicable only as far as properties acquired after the effectivity of
Republic Act 386 are concerned and to no other, for such law cannot be given retroactive effect to govern those already possessed
before 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 to enforce such right. Article 2252 of the same Code is explicit in this respect when it states:chanrob1es virtual 1aw
library

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 no retroactive effect.

x x x

As it cannot be denied that the rights and legitimes of the compulsory heirs of the deceased Edward Christensen would be impaired
or diminished if the claim of herein appellee would succeed, the answer to such argument would be 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 Maria Lucy Christensen Deney 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.

26. G.R. No. L-2484 April 11, 1906

JOHN FORTIS, plaintiff-appellee,

vs.
GUTIERREZ HERMANOS, defendants-appellants.

Hartigan, Rohde and Gutierrez, for appellants.

W. A. Kincaid, for appellee.

WILLARD, J.:

Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to recover a balance due him as salary
for the year 1902. He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business of the defendants for said

66 | P a g e
year. The complaint also contained a cause of action for the sum of 600 pesos, money expended by plaintiff for the defendants during
the year 1903. The court below, in its judgment, found that the contract had been made as claimed by the plaintiff; that 5 per cent of
the net profits of the business for the year 1902 amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had received on
account of such salary 12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for the sum 13,566.93 pesos,
Mexican currency, with interest thereon from December 31, 1904. The court also ordered judgment against the defendants for the
600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against the defendants in favor of the
plaintiff, reduced to Philippine currency, amounted to P13,025.40. The defendants moved for a new trial, which was denied, and they
have brought the case here by bill of exceptions.

(1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked for the defendants during
the year 1902 under a contract by which he was to receive as compensation 5 per cent of the net profits of the business. The contract
was made on the part of the defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one
of the managers of the company, with full power to transact all of the business thereof. As such manager he had authority to make a
contract of employment with the plaintiff.

(2) Before answering in the court below, the defendants presented a motion that the complaint be made more definite and certain.
This motion was denied. To the order denying it the defendants excepted, and they have assigned as error such ruling of the court
below. There is nothing in the record to show that the defendants were in any way prejudiced by this ruling of the court below. If it
were error it was error without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)

(3) It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner of the defendants in the
business which they were carrying on. This contention can not bo sustained. It was a mere contract of employnent. The plaintiff had
no voice nor vote in the management of the affairs of the company. The fact that the compensation received by him was to be
determined with reference to the profits made by the defendants in their business did not in any sense make by a partner therein.
The articles of partnership between the defendants provided that the profits should be divided among the partners named in a certain
proportion. The contract made between the plaintiff and the then manager of the defendant partnership did not in any way vary or
modify this provision of the articles of partnership. The profits of the business could not be determined until all of the expenses had
been paid. A part of the expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted before
the net profits of the business, which were to be divided among the partners, could be ascertained. It was undoubtedly necessary in
order to determine what the salary of the plaintiff was, to determine what the profits of the business were, after paying all of the
expenses except his, but that determination was not the final determination of the net profits of the business. It was made for the
purpose of fixing the basis upon which his compensation should be determined.

(4) It was no necessary that the contract between the plaintiff and the defendants should be made in writing. (Thunga Chui vs. Que
Bentec,1 1 Off. Gaz., 818, October 8, 1903.)

(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the contract, had died prior to the trial of the action,
and the defendants claim that by reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure, plaintiff could
not be a witness at the trial. That paragraph provides that parties to an action against an executor or aministrator upon a claim or
demand against the estate of a deceased person can not testify as to any matter of fact occurring before the death of such deceased
person. This action was not brought against the administrator of Miguel Alonzo, nor was it brought upon a claim against his estate. It
was brought against a partnership which was in existence at the time of the trial of the action, and which was juridical person. The
fact that Miguel Alonzo had been a partner in this company, and that his interest therein might be affected by the result of this suit,
is not sufficient to bring the case within the provisions of the section above cited.

(6) The plaintiff was allowed to testify against the objection and exception of the defendants, that he had been paid as salary for the
year 1900 a part of the profits of the business. This evidence was competent for the purpose of corroborating the testimony of the
plaintiff as to the existence of the contract set out in the complaint.

(7) The plaintiff was allowed to testify as to the contents of a certain letter written by Miguel Glutierrez, one of the partners in the
defendant company, to Miguel Alonzo Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not
necessary to inquire whether the court committed an error in admitting this evidence. The case already made by the plaintiff was in
itself sufficient to prove the contract without reference to this letter. The error, if any there were, was not prejudicial, and is not
ground for revesal. (Sec. 503, Code of Civil Procedure.)

(8) For the purpose of proving what the profits of the defendants were for the year 1902, the plaintiff presented in evidence the ledger
of defendants, which contained an entry made on the 31st of December, 1902, as follows:

Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades liquidas obtenidas durante el ano y que
abonamos conforme a la proporcion que hemos establecido segun el convenio de sociedad.

The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants, who testiffied, among other
things, that there were no profits during the year 1902, but, on the contrary, that the company suffered considerable loss during that
year. We do not think the evidence of this witnees sufficiently definite and certain to overcome the positive evidence furnished by the
books of the defendants themselves.

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(9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ of the defendants on the
19th of Macrh, 1903; that at their request he went to Hongkong, and was there for about two months looking after the business of
the defendants in the matter of the repair of a certain steamship. The appellants in their brief say that the plaintiff is entitled to no
compensation for his services thus rendered, because by the provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not applicable to this case, because the
amount of 600 pesos not claimed as compensation for services but as a reimbursment for money expended by the plaintiff in the
business of the defendants. The article of the code that is applicable is article 1728.

The judgment of the court below is affirmed, with the costs, of this instance against the appellants. After the expiration of twenty days
from the date of this decision let final judgment be entered herein, and ten days thereafter let the case be remanded to the lower
court for execution. So ordered.

27. G.R. No. L-47045 November 22, 1988

NOBIO SARDANE, petitioner,

vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.

Y.G. Villaruz & Associates for petitioner.

Pelagio R. Lachica for private respondent.

REGALADO, J.:

The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should have written finis to this case
without further recourse to Us. The assignment of errors and arguments raised in the respondent Court by herein private respondent,
as the petitioner therein, having been correctly and justifiedly sustained by said court without any reversible error in its conclusions,
the present petition must fail.

The assailed decision details the facts and proceedings which spawned the present controversy as follows:

Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.25 based on promissory
notes executed by the herein private respondent Nobio Sardane in favor of the herein petitioner. Petitioner bases
his right to collect on Exhibits B, C, D, E, F, and G executed on different dates and signed by private respondent Nobio
Sardane. Exhibit B is a printed promissory note involving Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a
printed promissory note and denotes on its face that the sum loaned was Pl,400.00. Exhibit D is also a printed
promissory note dated May 31, 1977 involving an amount of P100.00. Exhibit E is what is commonly known to the
layman as 'vale' which reads: 'Good for: two hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following
tenor: 'Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY, to be paid
on or before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales' involving the same amount
of one hundred pesos, and dated August 25, 1972 and September 12, 1972 respectively.

It has been established in the trial court that on many occasions, the petitioner demanded the payment of the total
amount of P5,217.25. The failure of the private respondent to pay the said amount prompted the petitioner to seek
the services of lawyer who made a letter (Exhibit 1) formally demanding the return of the sum loaned. Because of
the failure of the private respondent to heed the demands extrajudicially made by the petitioner, the latter was
constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion by the
petitioner, the City Court of Dipolog issued an order dated May 18, 1976 declaring the private respondent in default
and allowed the petitioner to present his evidence ex-parte. Based on petitioner's evidence, the City Court of Dipolog
rendered judgment by default in favor of the petitioner.

Private respondent filed a motion to lift the order of default which was granted by the City Court in an order dated
May 24, 1976, taking into consideration that the answer was filed within two hours after the hearing of the evidence
presented ex-parte by the petitioner.

After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the dispositive
portion of which reads:

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 IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant as
follows:

(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred Seventeen Pesos and
Twenty-five centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when this case was filed in
court; and

(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost of this
proceeding. 3

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the decision of the lower
court by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00 each for actual
damages, moral damages, exemplary damages and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the
review of said decision by petition to the respondent Court.

The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly, whether the oral testimony for
the therein private respondent Sardane that a partnership existed between him and therein petitioner Acojedo are admissible to vary
the meaning of the abovementioned promissory notes; and, secondly, whether because of the failure of therein petitioner to cross-
examine therein private respondent on his sur-rebuttal testimony, there was a waiver of the presumption accorded in favor of said
petitioner by Section 8, Rule 8 of the Rules of Court.

On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in issue the imperfection or
ambiguity of the documents in question", hence "the appellant can avail of the parol evidence rule to prove his side of the case, that
is, the said amount taken by him from appellee is or was not his personal debt to appellee, but expenses of the partnership between
him and appellee."

Consequently, said trial court concluded that the promissory notes involved were merely receipts for the contributions to said
partnership and, therefore, upheld the claim that there was ambiguity in the promissory notes, hence parol evidence was allowable
to vary or contradict the terms of the represented loan contract.

The parol evidence rule in Rule 130 provides:

Sec. 7. Evidence of written agreements.—When the terms of an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there can be, between the parties and their successors in
interest, no evidence of the terms of the agreement other than the contents of the writing except in the following
cases:

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

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

As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as there is no ambiguity in the
writings in question, thus:

In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum certain in
money, payable on demand and the promise to bear the costs of litigation in the event of the private respondent's
failure to pay the amount loaned when demanded extrajudicially. Likewise, the vales denote that the private
respondent is obliged to return the sum loaned to him by the petitioner. On their face, nothing appears to be vague
or ambigous, for the terms of the promissory notes clearly show that it was incumbent upon the private respondent
to pay the amount involved in the promissory notes if and when the petitioner demands the same. It was clearly the
intent of the parties to enter into a contract of loan for how could an educated man like the private respondent be
deceived to sign a promissory note yet intending to make such a writing to be mere receipts of the petitioner's
supposed contribution to the alleged partnership existing between the parties?

It has been established in the trial court that, the private respondent has been engaged in business for quite a long
period of time--as owner of the Sardane Trucking Service, entering into contracts with the government for the
construction of wharfs and seawall; and a member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-
58).<äre||anº•1àw> It indeed puzzles us how the private respondent could have been misled into signing a
document containing terms which he did not mean them to be. ...

xxx xxx xxx

69 | P a g e
 The private respondent admitted during the cross-examination made by petitioner's counsel that he was the one
who was responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How could he purportedly
rely on such a flimsy pretext that the promissory notes were receipts of the petitioner's contribution? 4

The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes may be admitted to alter the
meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties hereto.

As manager of the basnig Sarcado naturally some degree of control over the operations and maintenance thereof had to be exercised
by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the
private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits were received in
payment as wages of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of the basnig. Under
similar facts, this Court in the early case of Fortis vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was a
partner in the business of the defendant, declared:

This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice nor vote in
the management of the affairs of the company. The fact that the compensation received by him was to be
determined with reference to the profits made by the defendant in their business did not in any sense make him a
partner therein. ...

The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension that he was a partner and not
a mere employee indebted to the present private respondent. Thus, in an action for damages filed by herein private respondent
against the North Zamboanga Timber Co., Inc. arising from the operations of the business, herein petitioner did not ask to be joined
as a party plaintiff. Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet it is the
latter who is demanding an accounting. The advertence of the Court of First Instance to the fact that the casco bears the name of
herein petitioner disregards the finding of the respondent Court that it was just a concession since it was he who obtained the engine
used in the Sardaco from the Department of Local Government and Community Development. Further, the use by the parties of the
pronoun "our" in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative of the camaraderie and
not evidentiary of a partnership, between them.

The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not express the true intent and
agreement of the parties, are binding on Us since there is no showing that they fall within the exceptions to the rule limiting the scope
of appellate review herein to questions of law.

On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:

Sec. 8. How to contest genuineness of such documents.—When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the
adverse party does not appear to be a party to the instrument or when compliance with an order for the inspection
of the original instrument is refused.

The record shows that herein petitioner did not deny under oath in his answer the authenticity and due execution of the promissory
notes which had been duly pleaded and attached to the complaint, thereby admitting their genuineness and due execution. Even in
the trial court, he did not at all question the fact that he signed said promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes by alleging that they were mere receipts of his contribution to
the alleged partnership.

His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished from the rule on actionable
documents. As the respondent Court correctly explained to herein petitioner, what he presented in the trial Court was testimonial
evidence that the promissory notes were receipts of his supposed contributions to the alleged partnership which testimony, in the
light of Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due execution of said promissory notes were not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not at all questioned but, on the contrary, were admitted by herein petitioner.

Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was reiterated in Central Surety & Insurance Co. vs.
C. N. Hodges, et al. 8 does not sustain his thesis that the herein private respondent had "waived the mantle of protection given him
by Rule 8, Sec. 8". It is true that such implied admission of genuineness and due execution may be waived by a party but only if he acts
in a manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or ignored the fact that, as
held in Yu Chuck, and the same is true in other cases of Identical factual settings, such a finding of waiver is proper where a case has
been tried in complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the

70 | P a g e
due execution of the document and no objections are made to the defendant's evidence in refutation. This situation does not obtain
in the present case hence said doctrine is obviously inapplicable.

Neither did the failure of herein private respondent to cross-examine herein petitioner on the latter's sur-rebuttal testimony constitute
a waiver of the aforesaid implied admission. As found by the respondent Court, said sur-rebuttal testimony consisted solely of the
denial of the testimony of herein private respondent and no new or additional matter was introduced in that sur-rebuttal testimony
to exonerate herein petitioner from his obligations under the aforesaid promissory notes.

On the foregoing premises and considerations, the respondent Court correctly reversed and set aside the appealed decision of the
Court of First Instance of Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog City in Civil Case No. A-
1838, dated September 14, 1976.

Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner, as the private respondent
therein, raised a third unresolved issue that the petition for review therein should have been dismissed for lack of jurisdiction since
the lower Court's decision did not affirm in full the judgment of the City Court of Dipolog, and which he claimed was a sine qua non for
such a petition under the law then in force. He raises the same point in his present appeal and We will waive the procedural
technicalities in order to put this issue at rest.

Parenthetically, in that same motion for reconsideration he had sought affirmative relief from the respondent Court praying that it
sustain the decision of the trial Court, thereby invoking and submitting to its jurisdiction which he would now assail. Furthermore, the
objection that he raises is actually not one of jurisdiction but of procedure. 9

At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29, Republic Act 296 as amended by
Republic Act 5433 effective September 9, 1968. Subsequently, the procedure for appeal to the Court of Appeals from decisions of the
then courts of first instance in the exercise of their appellate jurisdiction over cases originating from the municipal courts was provided
for by Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969. The requirement for affirmance in full of
the inferior court's decision was not adopted or reproduced in Republic Act 6031. Also, since Republic Act 6031 failed to provide for
the procedure or mode of appeal in the cases therein contemplated, the Court of Appeals en banc provided thereof in its Resolution
of August 12, 1971, by requiring a petition for review but which also did not require for its availability that the judgment of the court
of first instance had affirmed in full that of the lower court. Said mode of appeal and the procedural requirements thereof governed
the appeal taken in this case from the aforesaid Court of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint
on this issue is, therefore, devoid of merit.

WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein petitioner.

SO ORDERED.

28. G.R. No. L-35840 March 31, 1933

FRANCISCO BASTIDA, plaintiff-appellee,

vs.
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.

Romualdez Brothers and Harvey and O'Brien for appellant.

Jose M. Casal, Alberto Barretto and Gibbs and McDonough for appellee.

VICKERS, J.:

This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First Instance of Manila. The case was
tried on the amended complaint dated May 26, 1928 and defendants' amended answer thereto of September 1, 1928. For the sake
of clearness, we shall incorporate herein the principal allegations of the parties.

FIRST CAUSE OF ACTION

Plaintiff alleged:

That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of the capital stock of the
defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore believes that the defendant J.M. Menzi, his wife and

71 | P a g e
daughter, together with the defendant P.C. Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant,
Menzi & Co., Inc.;

II

That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M. Menzi, under the authority
of the board of directors, entered into a contract with the plaintiff to engage in the business of exploiting prepared fertilizers, as
evidenced by the contract marked Exhibit A, attached to the original complaint as a part thereof, and likewise made a part of the
amended complaint, as if it were here copied verbatim;

III

That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture prepared fertilizers, the former
superintending the work of actual preparation, and the latter, through defendants J.M. Menzi and P. C. Schlobohm, managing the
business and opening an account entitled "FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of
the partnership business were supposed to be kept; the plaintiff had no participation in the making of these entries, which were wholly
in the defendants' charge, under whose orders every entry was made;

IV

That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged to render annual balance sheets
to be plaintiff upon the 30th day of June of each year; that the plaintiff had no intervention in the preparation of these yearly balances,
nor was he permitted to have any access to the books of account; and when the balance sheets were shown him, he, believing in good
faith that they contained the true statement of the partnership business, and relying upon the good faith of the defendants, Menzi &
Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last balance sheet having been rendered in the year 1926;

That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the plaintiff was kept in ignorance of
the defendants' acts relating to the management of the partnership funds, and the keeping of accounts, until he was informed and so
believes and alleges, that the defendants had conspired to conceal from him the true status of the business, and to his damage and
prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature and amount of which it is
impossible to ascertain, even after the examination of the books of the business, due to the defendants' refusal to furnish all the books
and data required for the purpose, and the constant obstacles they have placed in the way of the examination of the books of account
and vouchers;

VI

That when the plaintiff received the information mentioned in the preceding paragraph, he demanded that the defendants permit
him to examine the books and vouchers of the business, which were in their possession, in order to ascertain the truth of the alleged
false entries in the books and balance sheets submitted for his approval, but the defendants refused, and did not consent to the
examination until after the original complaint was filed in this case; but up to this time they have refused to furnish all the books, data,
and vouchers necessary for a complete and accurate examination of all the partnership's accounts; and

VII

That as a result of the partial examination of the books of account of the business, the plaintiff has, through his accountants, discovered
that the defendants, conspiring and confederating together, presented to the plaintiff during the period covered by the partnership
contract false and incorrect accounts,

(a) For having included therein undue interest;

(b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and were in fact paid by the
defendant Menzi & Co., Inc.;

(c) For having collected from the partnership the income tax which should have been paid for its own account by Menzi &
Co., Inc.;

(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of materials for the
manufacture of fertilizers;

(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the sale of fertilizers
belonging to the partnership and bought with its own funds; and

72 | P a g e
 (f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon materials for fertilizer bought
abroad, no entries of said rebates having been made on the books to the credit of the partnership.

Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:

1. To prohibit the defendants, each and every one of them, from destroying and concealing the books and papers of the
partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;

2. To summon each and every defendant to appear and give a true account of all facts relating to the partnership between
the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and transaction connected with the business of
said partnership from the beginning to April 27, 1927, and a true statement of all merchandise of whatever description,
purchased for said partnership, and of all the expenditures and sale of every kind, together with the true amount thereof,
besides the sums received by the partnership from every source together with their exact nature, and a true and complete
account of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;

3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to 1926, both inclusive;

4. To order the defendants to give a true statement of all receipts and disbursements of the partnership during the period of
its existence, besides granting the plaintiff any other remedy that the court may deem just and equitable.

EXHIBIT A

CONTRATO

que se celebra entre los Sres. Menzi y Compañia, de Manila, como Primera Parte, y D. Francisco Bastada, tambien de Manila,
como Segunda Parte, bajo las siguientes

CONDICIONES

1.ª El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para diversas aplicaciones
agricolas;

2.ª La duracion de este contrato sera de cinco años, a contrar desde la fecha de su firma;

3.ª La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio;

4.ª La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion del negocio;

5.ª La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras personas, o de manera
alguna que no sea con la Primera Parte, al negecio de Abonos, simples o preparados, o de materia alguna que se aplique
comunmente a la fertilizacion de suelos y plantas, durante la vigencia de este contrato, a menos que obtenga autorizacion
expresa de la Primera Parte para ello;

6.ª La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas o entidades, ni de otro
modo que en sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes preparados, ya sean ellos importados, ya
preparados en las Islas Fllipinas; tampoco podra dedicarse a la venta o negocio de materias o productos que tengan aplicacion
como fertilizantes, o que se usen en la composicion de fertilizantes o abonos, si ellos son productos de suelo de la
manufactura filipinos, pudiendo sin embargo vender o negociar en materim fertilizantes simples importados de los Estados
Unidos o del Extranjero;

7.ª La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y cinco por ciento) de las
utilidades netas del negocio de abonos, liquidables el 30 de junio de cada año;

8.ª La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a cuenta de su parte de
beneficios.

9.ª Durante el año 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas por un periodo de
tiempo que no exceda de un año, sin menoscabo para derechos de la Segunda Parte con arreglo a este contrato.

En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de 1922.

MENZI & CO., INC.

Por (Fdo.) J. MENZI

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 General Manager
Primera Parte

(Fdo.) F. BASTIDA
Segunda Parte

MENZI & CO., INC.

(Fdo.) MAX KAEGI
Acting Secretary

Defendants denied all the allegations of the amended complaint, except the formal allegations as to the parties, and as a special
defense to the first cause of action alleged:

1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise business in the Philippine
Islands since its organization in October, 1921, including the importation and sale of all kinds of goods, wares, and
merchandise, and especially simple fertilizer and fertilizer ingredients, and as a part of that business, it has been engaged
since its organization in the manufacture and sale of prepared fertilizers for agricultural purposes, and has used for that
purpose trade-marks belonging to it;

2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an employment agreement
with the plaintiff, who represented that he had had much experience in the mixing of fertilizers, to superintend the mixing of
the ingredients in the manufacture of prepared fertilizers in its fertilizer department and to obtain orders for such prepared
fertilizers subject to its approval, for a compensation of 50 per cent of the net profits which it might derive from the sale of
the fertilizers prepared by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and received
the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi & Co., Inc., and the said
Francisco Bastida made and entered into the written agreement, which is marked Exhibit A, and made a part of the amended
complaint in this case, whereby they mutually agreed that the employment of the said Francisco Bastida by the said Menzi &
Co., Inc., in the capacity stated, should be for a definite period of five years from that date and under the other terms and
conditions stated therein, but with the understanding and agreement that the said Francisco Bastida should receive as
compensation for his said services only 35 per cent of the net profits derived from the sale of the fertilizers prepared by him
during the period of the contract instead of 50 per cent of such profits, as provided in his former agreement; that the said
Francisco Bastida was found to be incompetent to do anything in relation to its said fertilizer business with the exception of
over-seeing the mixing of the ingredients in the manufacture of the same, and on or about the month of December, 1922,
the defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did assume the full
management and direction of said business;

3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept in the regular books
of its general business, in the ordinary course thereof, up to June 30, 1923, and that after that time and during the remainder
of the period of said agreement, for the purpose of convenience in determining the amount of compensation due to the
plaintiff under his agreement, separate books of account for its said fertilizer business were duly, kept in the name of 'Menzi
& Co., Inc., Fertilizer', and used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida
and the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said business due to the
said plaintiff as compensation for his services under said agreement would be made as of December 31st, instead of June
30th, of each year, during the period of said agreement; that the accounts of the business of its said fertilizer department, as
recorded in its said books, and the vouchers and records supporting the same, for each year of said business have been duly
audited by Messrs. White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the
end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit and loss account
and balance sheet, showing the status of said business and the share of the net profits pertaining to the plaintiff as his
compensation under said agreement; that after the said manufacturing and profit and the loss account and balance sheet for
each year of the business of its said fertilizer department up to and including the year 1926, had been prepared by the said
auditors and certified by them, they were shown to and examined by the plaintiff, and duly accepted, and approved by him,
with full knowledge of their contents, and as evidence of such approval, he signed his name on each of them, as shown on
the copies of said manufacturing and profit and loss account and balance sheet for each year up to and including the year
1926, which are attached to the record of this case, and which are hereby referred to and made a part of this amended
answer, and in accordance therewith, the said plaintiff has actually received the portion of the net profits of its said business
for those years pertaining to him for his services under said agreement; that at no time during the course of said fertilizer
business and the liquidation thereof has the plaintiff been in any way denied access to the books and records pertaining
thereto, but on the contrary, said books and records have been subject to his inspection and examination at any time during
business hours, and even since the commencement of this action, the plaintiff and his accountants, Messrs. Haskins & Sells,
of Manila, have been going over and examining said books and records for months and the defendant, Menzi & Co. Inc.,
through its officers, have turned over to said plaintiff and his accountant the books and records of said business and even
furnished them suitable accommodations in its own office to examine the same;

4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly notified the plaintiff
that it would not under any conditions renew his said agreement or continue his said employment with it after its expiration,
and after the termination of said agreement of April 27, 1927, the said Menzi & Co., Inc., had the certified public accountants,
74 | P a g e
 White, Page & Co., audit the accounts of the business of its said fertilizer department for the four months of 1927 covered by
plaintiff's agreement and prepare a manufacturing and profit and loss account and balance sheet of said business showing
the status of said business at the termination of said agreement, a copy of which was shown to and explained to the plaintiff;
that at that time there were accounts receivable to be collected for business covered by said agreement of over P100,000,
and there was guano, ashes, fine tobacco and other fertilizer ingredients on hand of over P75,000, which had to be disposed
of by Menzi & Co., Inc., or valued by the parties, before the net profits of said business for the period of the agreement could
be determined; that Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of the other
properties for the purpose of determining the profits of said business for that period, and to pay to the plaintiff at that time
his proportion of such profits on that basis, which the plaintiff refused to accept, and being disgruntled because the said
Menzi & Co., Inc., would not continue him in its service, the said plaintiff commenced this action, including therein not only
Menzi & Co. Inc., but also it managers J.M. Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious
allegations against the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts receivable
and disposing of the stocks on hand, and there is still on hand old stock of approximately P25,000, which it has been unable
to dispose of up to this time; that as soon as possible a final liquidation and amounting of the net profits of the business
covered by said agreement for the last four months thereof will be made and the share thereof appertaining to the plaintiff
will be paid to him; that the plaintiff has been informed from time to time as to the status of the disposition of such properties,
and he and his auditors have fully examined the books and records of said business in relation thereto.

SECOND CAUSE OF ACTION

As a second cause of action plaintiff alleged:

I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were furnished by the
defendants disclosed the fact that said defendants had charged to "purchases" of the business, undue interest, the amount
of which the plaintiff is unable to determine, as he has never had at his disposal the books and vouchers necessary for that
purpose, and especially, owning to the fact that the partnership constituted between the plaintiff and the defendant Menzi
& Co., Inc., never kept its own cash book, but that its funds were maliciously included in the private funds of the defendant
entity, neither was there a separate BANK ACCOUNT of the partnership, such account being included in the defendant's bank
account.

III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the partnership between
himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants by way of interest in an amount of
approximately P184,432.51, of which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively.

Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally to pay him the sum of
P64,551.38, or any amount which may finally appear to be due and owing from the defendants to the plaintiff upon this ground, with
legal interest from the filing of the original complaint until payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer;

2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi & Co., Inc., only
undertook and agreed to facilitate financial aid in carrying on the said fertilizer business, as it had been doing before the
plaintiff was employed under the said agreement; that the said defendant, Menzi & Co., Inc., in the course of the said business
of its fertilizer department, opened letters of credit through the banks of Manila, accepted and paid drafts drawn upon it
under said letters of credit, and obtained loans and advances of moneys for the purchase of materials to be used in mixing
and manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans naturally provided for
interest at the banking rate from the dates thereof until paid, as is the case in all, such business enterprises, and that such
payments of interest as were actually made on such drafts, loans and advances during the period of the said employment
agreement constituted legitimate expenses of said business under said agreement.

THIRD CAUSE OF ACTION

As third cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm, nor the defendant
Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever by way of salary for services rendered
to the partnership between the plaintiff and the defendant, inasmuch as such services were compensated with the 65% of
the net profits of the business constituting their share.

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 III. That the plaintiff has, on his on account and with his own money, paid all the employees he has placed in the service of
the partnership, having expended for their account, during the period of the contract, over P88,000, without ever having
made any claim upon the defendants for this sum because it was included in the compensation of 35 per cent which he was
to receive in accordance with the contract Exhibit A.

IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and excessive salaries for
themselves, have made the partnership, or the fertilizer business, pay the salaries of a number of the employees of the
defendant Menzi & Co., Inc.

V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership funds, of which 35
per cent, or P15,372 belongs exclusively to the plaintiff.

Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and severally to the plaintiff the
amount of P15,372, with legal interest from the date of the filing of the original complaint until the date of payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special defense the first cause of
action in this amended answer;

2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its said fertilizer business,
in which the plaintiff was to receive 35 percent of the net profits as compensation for this services, as hereinbefore alleged,
from on or about January 1, 1923, when its other departments had special experienced Europeans in charge thereof, who
received not only salaries but also a percentage of the net profits of such departments; that its said fertilizer business, after
its manager took charge of it, became very successful, and owing to the large volume of business transacted, said business
required great deal of time and attention, and actually consumed at least one-half of the time of the manager and certain
employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co., furnished office space, stationery and other
incidentals, for said business, and had its employees perform the duties of cashiers, accountants, clerks, messengers, etc., for
the same, and for that reason the said Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business,
which pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional part of the
overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the several departments of the business
of Menzi & Co., Inc., that each and every year from and after 1922, a just proportion of said overhead expenses were charged
to said fertilizer departments and entered on the books thereof, with the knowledge and consent of the plaintiff, and included
in the auditors' reports, which were examined, accepted and approved by him, and he is now estopped from saying that such
expenses were not legitimate and just expenses of said business.

FOURTH CAUSE OF ACTION

As fourth cause of action, the plaintiff alleged:

I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.

II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C. Schlobohm, has paid, with the funds of
the partnership between the defendant entity and the plaintiff, the income tax due from said defendant entity for the
fertilizer business, thereby defrauding the partnership in the amount of P10,361.72 of which 35 per cent belongs exclusively
to the plaintiff, amounting to P3,626.60.

III. That the plaintiff has, during the period of the contract, paid with his own money the income tax corresponding to his
share which consists in 35 per cent of the profits of the fertilizer business, expending about P5,000 without ever having made
any claim for reimbursement against the partnership, inasmuch as it has always been understood among the partners that
each of them would pay his own income tax.

Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff the sum of P3,362.60, with
legal interest from the date of the filing of the original complaint until its payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer;

2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the Government of the Philippine
Islands each year during the period of the agreement, Exhibit A, of the income of its whole business, including its fertilizer
department; that the proportional share of such income taxes found to be due on the business of the fertilizer department
was charged as a proper and legitimate expense of that department, in the same manner as was done in the other
departments of its business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was
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 required to make his own return under the Income Tax Law and to pay his own income taxes, instead of having them paid at
the source, as might be done under the law, so that he would be entitled to the personal exemptions allowed by the law; that
the income taxes paid by the said Menzi & Co., Inc., pertaining to the business, were duly entered on the books of that
department, and included in the auditors' reports hereinbefore referred to, which reports were examined, accepted and
approved by the plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are not
a legitimate expense of said business.

FIFTH CAUSE OF ACTION

As fifth cause of action, plaintiff alleged:

I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the period of the contract
Exhibit A, from foreign firms selling fertilizing material, a secret commission equivalent to 5 per cent of the total value of the
purchases of fertilizing material made by the partnership constituted between the plaintiff and the defendant Menzi Co., Inc.,
and that said 5 per cent commission was not entered by the defendants in the books of the business, to the credit and benefit
of the partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi Co., Inc.,
which appropriated it to itself.

III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff cannot be determined,
because the entries referring to these items do not appear in the partnership books, although the plaintiff believes and alleges
that they do appear in the private books of the defendant Menzi & Co., Inc., which the latter has refused to furnish,
notwithstanding the demands made therefore by the auditors and the lawyers of the plaintiff.

IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership during the first four
years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission collected by the defendant Menzi Co.,
Inc., to the damage and prejudice of the plaintiff, amounts to P127,375.77 of which 35 per cent belongs exclusively to the
plaintiff.

Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff the amount of P44,581.52,
or the exact amount owed upon this ground, after both parties have adduced their evidence upon the point.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer;

2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and has now what is called
a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B., of Berlin, which is a manufacturer of potash,
by virtue of which said Menzi & Co., Inc., was to receive for its propaganda work in advertising and bringing about sales of its
potash a commission of 5 per cent on all orders of potash received by it from the Philippine Islands; that during the period of
said agreement, Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the agent of
the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission, amounting in all to
P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands; that said commissioners were not in
any sense discounts on the purchase price of said potash, and have no relation to the fertilizer business of which the plaintiff
was to receive a share of the net profits for his services, and consequently were not credited to that department;

3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of commissions, which were
received from the United Supply Co., of San Francisco, in the total of sum $66.51, which through oversight, were not credited
on the books of the fertilizer department of Menzi & Co., Inc., but due allowance has now been given to the department for
such item.

SIXTH CAUSE OF ACTION

As sixth cause of action, plaintiff alleged:

I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.

II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C. Schlobohm and their
assistants, has tampered with the books of the business making fictitious transfers in favor of the defendant Menzi & Co.,
Inc., of merchandise belonging to the partnership, purchased with the latter's money, and deposited in its warehouses, and
then sold by Menzi & Co., Inc., to third persons, thereby appropriating to itself the profits obtained from such resale.

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 III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the real amount
obtained from such sales can only be ascertained from the examination of the private books of the defendant entity, which
the latter has refused to permit notwithstanding the demand made for the purpose by the auditors and the lawyers of the
plaintiff, and no basis of computation can be established, even approximately, to ascertain the extent of the fraud sustained
by the plaintiff in this respect, by merely examining the partnership books.

Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to all
the profits received from the sale to third persons of the fertilizers pertaining to the partnership, and the profits they have
appropriated, ordering them jointly and severally to pay 35 per cent of the net amount, with legal interest from the filing of the original
complaint until the payment thereof.

Defendant alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer:

2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., had the right to
import into the Philippine Islands in the course of its fertilizer business and sell fro its exclusive account and benefit simple
fertilizer ingredients; that the only materials imported by it and sold during the period of said agreement were simple fertilizer
ingredients, which had nothing whatever to do with the business of mixed fertilizers, of which the plaintiff was to receive a
share of the net profits as a part of his compensation.

SEVENTH CAUSE OF ACTION

As seventh cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account of the partnership
constituted between itself and the plaintiff, and with the latter's money, purchased from a several foreign firms various simple
fertilizing material for the use of the partnership.

III. That in the paid invoices for such purchases there are charged, besides the cost price of the merchandise, other amounts
for freight, insurance, duty, etc., some of which were not entirely thus spent and were later credited by the selling firms to
the defendant Menzi & Co., Inc.

IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and P.C. Schlobohm upon
receipt of the credit notes remitted by the selling firms of fertilizing material, for rebates upon freight, insurance, duty, etc.,
charged in the invoice but not all expended, did not enter them upon the books to the credit of the partnership constituted
between the defendant and the plaintiff, but entered or had them entered to the credit on Menzi & Co., Inc., thereby
defrauding the plaintiff of 35 per cent of the value of such reductions.

V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without an examination of
the private books of Menzi & Co., Inc., which the latter has refused to permit notwithstanding the demand to this effect made
upon them by the auditors and the lawyers of the plaintiff.

Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to the
total amount of such rebates, and to sentence the defendants to pay the plaintiff jointly and severally 35 per cent of the net amount.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer:

2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., received from its agent,
C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business in the profits of which the plaintiff was
interested, by way of refunds of German Export Taxes, in the total sum of P1,402.54; that all of department as received, but
it has just recently been discovered that through error an additional sum of P216.22 was credited to said department, which
does not pertain to said business in the profits of which the plaintiff is interested.

EIGHT CAUSE OF ACTION

A eighth cause of action, plaintiff alleged:

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 I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.

II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint, the defendant
Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said defendant and the plaintiff, entered
into a contract with the Compañia General de Tabacos de Filipinas for the sale of said entity of three thousand tons of
fertilizers of the trade mark "Corona No. 1", at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they
were delivered, according to information received by the plaintiff, during the months of November and December, 1927, and
January, February, March, and April, 1928.

III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff estimates at P90,000,
Philippine currency, belongs to the fertilizer business constituted between the plaintiff and the defendant, of which 35 per
cent, or P31,500, belongs to said plaintiff.

IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the defendants have not
rendered a true accounting of the profits obtained by the business during the last four months thereof, as the purposed
balance submitted to the plaintiff was incorrect with regard to the inventory of merchandise, transportation equipment, and
the value of the trade marks, for which reason such proposed balance did not represent the true status of the business of the
partnership on April 30, 1927.

V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during the last four
months of its existence, was likewise incorrect, inasmuch as it did not include the profit realized or to be realized from the
contract entered into with the Compañia General de Tabacos de Filipinas, notwithstanding the fact that this contract was
negotiated during the existence of the partnership, and while the defendant Menzi & Co., Inc., was the manager thereof.

VI. That the defendant entity now contends that the contract entered into with the Compañia General de Tabacos de Filipinas
belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35 per cent of the profits produced thereby.

Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed account of the business
during the last four months of the existence of the partnership, i. e., from January 1, 1927 to April 27, 1927, and to sentence them
likewise to pay the plaintiff 35 per cent of the net profits.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer;

2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compañia General de Tabacos
Filipinas on April 21, 1927, was taken by it in the regular course of its fertilizer business, and was to be manufactured and
delivered in December, 1927, and up to April, 1928; that the employment agreement of the plaintiff expired by its own terms
on April 27, 1927, and he has not been in any way in the service of the defendant, Menzi & Co., Inc., since that time, and he
cannot possibly have any interest in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the
expiration of his contract for any service rendered to it.

NINTH CAUSE OF ACTION

As ninth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the Bureau of Commerce
and Industry the trade marks "CORONA NO. 1", CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the defendant having
by their efforts succeeded in making them favorably known in the market.

III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business a prosperous
concern to such an extent that the profits obtained from the business during the five years it has existed, amount to
approximately P1,000,000, Philippine currency.

IV. That the value of the good will and the trade marks of a business of this nature amounts to at least P1,000,000, of which
sum 35 per cent belongs to the plaintiff, or, P350,000.

V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and in spite of the
plaintiff's insistent opposition, has assumed the charge of liquidating the fertilizing business, without having rendered a
monthly account of the state of the liquidation, as required by law, thereby causing the plaintiff damages.

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 VI. That the damages sustained by the plaintiff, as well as the amount of his share in the remaining property of the plaintiff,
and may only be truly and correctly ascertained by compelling the defendants J. M. Menzi and P. C. Schlobohm to declare
under oath and explain to the court in detail the sums obtained from the sale of the remaining merchandise, after the
expiration of the partnership contract.

VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the good-will and trade
marks belonging to the partnership, as well as its transportation equipment and other machinery, thereby indicating its
intention to retain such good-will, trade marks, transportation equipment and machinery, for the manufacture of fertilizers,
by virtue of which the defendant is bound to pay the plaintiff 35 per cent of the value of said property.

VIII. That the true value of the transportation equipment and machinery employed in the preparation of the fertilizers
amounts of P20,000, 35 per cent of which amount to P7,000.

IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed account of the state of
the liquidation of the partnership business, but said defendants has ignored such demands, so that the plaintiff does not, and
this date, know whether the liquidation of the business has been finished, or what the status of it is at present.

Wherefore, the plaintiff prays the Honorable Court:

1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the status of business in
liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants to pay the plaintiff jointly and severally
35 per cent of the net amount.

2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35 per cent of the value
of the goodwill and the trade marks of the fertilizer business;

3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per cent of the value of
the transportation equipment and machinery of the business; and

4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this Honorable Court may
deem just and equitable.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause
of action in this amended answer;

2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains exclusively to it, and the
plaintiff can have no interest therein of any nature under his said employment agreement; that the trade-marks mentioned
by the plaintiff in his amended complaint, as a part of such good-will, belonged to and have been used by the said Menzi &
Co., Inc., in its fertilizer business from and since its organization, and the plaintiff can have no rights to or interest therein
under his said employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi &
Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and reasonable compensation
for its use has been allowed to said business; that the machinery pertaining to the said fertilizer business was destroyed by
fire in October, 1926, and the value thereof in the sum of P20,000 was collected from the Insurance Company, and the plaintiff
has been given credit for 35 per cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed
by it, and the costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it taken into
consideration in arriving at the net profits due to him under his said employment agreement.

The dispositive part of the decision of the trial court is as follows:

Wherefore, let judgment be entered:

(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general regular commercial
partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner;

(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C to C-8, is not estopped
from questioning the statements of the accounts therein contained;

(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P 60,385.67 with legal interest
from the date of the filing of the original complaint until paid;

(d) Dismissing the third cause of action;

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 (e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41, with legal interest
from the date of the filing of the original until paid;

(f ) Dismissing the fifth cause of action;

(g) Dismissing the sixth cause of action;

(h) Dismissing the seventh cause of action;

(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum of P6,578.38 with
legal interest from January 1, 1929, the date of the liquidation of the fertilizer business, until paid;

(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20 with legal interest
from the date of the filing of the original complaint until paid;

(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business accruing from January
1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance shown in Exhibits 51 and 51-A, after
deducting the item of P2,410 for income tax, and any other sum charged for interest under the entry "Purchases";

(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A, to pay the plaintiff
the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid;

(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and

(n) Menzi & Co., Inc., shall pay the costs of the trial.

The appellant makes the following assignment of error:

I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective commercial
copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco Bastida, and not a contract
of employment.

II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer
business in question the sum of P10,918.33 as income taxes partners' balances, foreign drafts, local drafts, and on other credit
balances in the sum of P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67, with legal interest thereon from
the date of filing his complaint, corresponds to the plaintiff.

III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer
business in question the sum of P10,918.33 as income taxes for the years 1923, 1924, 1925 and 1926, and that the plaintiff is
entitled to 35 per cent thereof, or the sum of P3,821.41, with legal interest thereon from the date of filing his complaint, and
in disallowing the item of P2,410 charged as income tax in the liquidation in Exhibits 51 and 51 A for the period from January
1 to April 27, 1927.

IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract, Exhibit A was daring the
whole period thereof considered by the parties and performed by them as a contract of employment in relation to the
fertilizer business of the defendant, and that the accounts of said business were kept by the defendant, Menzi & Co., Inc., on
that theory with the knowledge and consent of the plaintiff, and that at the end of each year for five years a balance sheet
and profit and loss statement of said business were prepared from the books of account of said business on the same theory
and submitted to the plaintiff, and that each year said balance sheet and profit and loss statement were examined, approved
and signed by said contract in accordance therewith with full knowledge of the manner in which said business was conducted
and the charges for interest and income taxes made against the same and that by reason of such facts, the plaintiff is now
estopped from raising any question as to the nature of said contract or the propriety of such charges.

V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per cent of the net profits
in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its contract with the Compañia General de
Tabacos de Filipinas, or the sum of P6.578.38, with legal interest thereon from January 1, 1929, the date upon which the
liquidation of said business was terminated.

VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in question was
P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such valuation, or the sum of P196,709.20,
with legal interest thereon from the date of filing his complaint.

VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi & Co., Inc., (a) on the
second cause of action, for the sum of P60,385.67, with legal interest thereon from the date of filing the complaint; (b) on

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 the fourth cause of action, for the sum of P3,821.41, with legal interest thereon from the date of filing the complaint; (c) on
the eight cause of action, for the sum of P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth
cause of action, for the sum of P196,709.20, with legal interest thereon from the date of filing the original complaint; and (e)
for the costs of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and 52-A,
as true and correct, and entering judgment against said defendant only for the amounts admitted therein as due the plaintiff
with legal interest, with the costs against the plaintiff.

VIII. The trial court erred in overruling the defendants' motion for a new trial.

It appears from the evidence that the defendants corporation was organized in 1921 for purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It appears through John Bordman and the Menzi-Bordman Co. the good-
will, trade-marks, business, and other assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its
stocks and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910 until that firm was taken
over the Alien Property Custodian in 1917. Among the trade-marks thus acquired by the appellant were those known as the "ARADO",
"HOZ", and "CORONA". They were registered in the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks
"ARADO" and "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark "CORONA" had
been used in its other business. The "HOZ" trade-mark was used by John Bordman and the Menzi-Bordman Co. in the continuation of
the fertilizer business that had belonged to Behn, Meyer & Co., Ltd.

The business of Menzi & Co., Inc., was divided into several different departments, each of which was in charge of a manager, who
received a fixed salary and a percentage of the profits. The corporation had to borrow money or obtain credits from time to time and
to pay interest thereon. The amount paid for interest was charged against the department concerned, and the interest charges were
taken into account in determining the net profits of each department. The practice of the corporation was to debit or credit each
department with interest at the bank rate on its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in accordance
with this practice under the "Sundries Department" until July, 1923, and after that as a separate department.

In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to see Toehl, the manager of the
sundries department of Menzi & Co., Inc., and told him that he had a written contract with the Philippine Sugar Centrals Agency for
1,250 tons of mixed fertilizers, and that he could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons,
but the he did not have the money to buy the ingredients to fill the order and carry on the on the business. He offered to as sign to
Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain
other orders for fifty per cent of the net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general manager of Menzi
& Co., accepted plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.

On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit B:

MANILA, 10 de enero de 1922

Sr. FRANCISCO BASTIDA

Manila

MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio, tenemos convenido para la explotacion del negocio de abono
y fertilizantes, por la presente venimos en confirmar su derecho de 50 por ciento de las untilidades que se deriven del contrato
obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar Estates, asi como de cuantos
contratos se cierren con definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo que
hacemos para garantia y seguridad de Vd.

MENZI & CO.,

Por (Fdo.) W. TOEHL

Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It ordered ingredients from
the United States and other countries, and the interest on the drafts for the purchase of these materials was changed to the business
as a part of the cost of the materials. The mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under
its "CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer business had no separate
capital. A fertilizer account was opened in the general ledger, and interest at the rate charged by the Bank of the Philippine Islands
was debited or credited to that account on the daily balances of the fertilizer business. This was in accordance with appellant's
established practice, to which the plaintiff assented.

On or about April 24, 1922 the net profits of the business carried on under the oral agreement were determined by Menzi & Co., Inc.,
after deducting interest charges, proportional part of warehouse rent and salaries and wages, and the other expenses of said business,
and the plaintiff was paid some twenty thousand pesos in full satisfaction of his share of the profits.

Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant corporation April 27, 1922
entered a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action.

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The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically the same manner as it was
prior thereto. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.

The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry in the name of Menzi & Co.,
Inc., and the fees were paid by that company. They were not changed to the fertilizer business, in which the plaintiff was interested.
Only the fees for registering the formulas in the Bureau of Science were charged to the fertilizer business, and the total amount thereof
was credited to this business in the final liquidation on April 27, 1927.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps to tobacco that it might need
for its fertilizer business either in the Philippine Islands or for export to other countries. This contract is rendered to in the record as
the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff, paying the salaries of his employees, and other expenses in
performing his contract.

White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the end of each year they
prepared a balance sheet and a profit and loss statement of the fertilizer business. These statements were delivered to the plaintiff
for examination, and after he had had an opportunity of verifying them he approved them without objection and returned them to
Menzi & Co., Inc.

Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer business the following amounts:

1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73

1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62

1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56

1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03

1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98

Total . . . . . . . . . . . . . . . . . . . . P196,483.92

To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927, amounting to P34,766.87, making a
total of P231,250.79.

Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that the contract for his services
would not be renewed.

When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book value of approximately P75,000, and accounts receivable amounting to P103,000. There
were claims outstanding and bills to pay. Before the net profits could be finally determined, it was necessary to dispose of the materials
and equipment, collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss statement for
the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept it, and filed the present action.

Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed to the plaintiff that the old
and damaged stocks on hand having a book value of P40,000, which the defendant corporation had been unable to dispose of, be sold
at public or private sale, or divided between the parties. The plaintiff refused to agree to this. The defendant corporation then applied
to the trial court for an order for the sale of the remaining property at public auction, but apparently the court did not act on the
petition.

The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business was completed in December,
1928 and a final balance sheet and a profit and loss statement were submitted to the plaintiff during the trial. During the liquidation
the books of Menzi & Co., Inc., for the whole period of the contract in question were reaudited by White, Page & Co.., certain errors
of bookkeeping were discovered by them. After making the corrections they found the balance due the plaintiff to be P21,633.20.

Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers of Menzi & Co. Thompson
assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to furnish free of charge all the
capital the partnership should need. He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc.

We come now to a consideration of appellant's assignment of error. After considering the evidence and the arguments of counsel, we
are unanimously of the opinion that under the facts of this case the relationship established between Menzi & Co. and by the plaintiff
was to receive 35 per cent of the net profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising
the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution
justified the finding that it was a contract of copartnership. Exhibit A, as appears from the statement of facts, was in effect a
continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-half
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of the net profits derived by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests. Plaintiff never made any
objection to defendant's manner of keeping the accounts or to the charges. The business was continued in the same manner under
the written agreement, Exhibit A, and for four years the plaintiff never made any objection. On the contrary he approved and signed
every year the balance sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the
defendant corporation had notified him that it would not renew it that the plaintiff began to make objections.

The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by which two or more persons
obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided it has been established in accordance with the provisions of this Code; but in
the case at bar there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The business belonged
to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small
percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his services. Menzi & Co., Inc., was
to advanced him P300 a month on account of his participation in the profits. It will be noted that no provision was made for reimbursing
Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well settled that the old rule that sharing
profits as profits made one a partner is overthrown. (Mechem, second edition, p. 89.)

It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners. Great stress in laid
by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph of Exhibit A the phrase "en sociedad con" is used in
providing that defendant corporation not engage in the business of prepared fertilizers except in association with the plaintiff (en
sociedad con). The fact is that en sociedad con as there used merely means en reunion con or in association with, and does not carry
the meaning of "in partnership with".

The trial judge found that the defendant corporation had not always regarded the contract in question as an employment agreement,
because in its answer to the original complaint it stated that before the expiration of Exhibit A it notified the plaintiff that it would not
continue associated with him in said business. The trial judge concluded that the phrase "associated with", used by the defendant
corporation, indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.

In the first place, the complaint and answer having been superseded by the amended complaint and the answer thereto, and the
answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into
account. "Where amended pleadings have been filed, allegations in the original pleadings are held admissible, but in such case the
original pleadings can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil.,
148.)

In the second place, although the word "associated" may be related etymologically to the Spanish word "socio", meaning partner, it
does not in its common acceptation imply any partnership relation.

The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay to the plaintiff 35 per cent of
the net profits of the fertilizer business, to advance to him P300 a month on account of his share of the profits, and to grant him
permission during 1923 to absent himself from the Philippines for not more than one year are utterly incompatible with the claim that
it was the intention of the parties to form a copartnership. Various other reasons for holding that the parties were not partners are
advanced in appellant's brief. We do not deem it necessary to discuss them here. We merely wish to add that in the Vastago contract,
Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the owners of the fertilizer business in question.

As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges and erroneously disallowed,
and this would true even if the parties had been partners. Although Menzi & Co., Inc., agreed to furnish the necessary financial aid for
the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing
the necessary credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously without merit as not
to merit serious consideration. For instance, they objected to the interest charges on draft for materials purchased abroad. Their
contention is that the corporation should have furnished the money to purchase these materials for cash, overlooking the fact that
the interest was added to the cost price, and that the plaintiff was not prejudiced by the practice complained of. It was also urged,
and this seems to us the height of absurdity, that the defendant corporation should have furnished free of charge such financial
assistance as would have made it unnecessary to discount customers' notes, thereby enabling the business to reap the interest. In
other words, the defendant corporation should have enabled the fertilizer department to do business on a credit instead of a cash
basis.

The charges now complained of, as we have already stated, are the same as those made under the verbal agreement, upon the
termination of which the parties made a settlement; the charges in question were acquiesced in by the plaintiff for years, and it is now
too late for him to contest them. The decision of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A
portion of the syllabus of that case reads as follows:

1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. — Acts done by the parties to a contract in the
course of its performance are admissible in evidence upon the question of its meaning, as being their own contemporaneous
interpretation of its terms.

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 2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. — In an action upon a contract containing a provision a doubtful
application it appeared that under a similar prior contract the parties had, upon the termination of said contract, adjusted
their rights and made a settlement in which the doubtful clause had been given effect in conformity with the interpretation
placed thereon by one of the parties. Held: That this action of the parties under the prior contract could properly be
considered upon the question of the interpretation of the same clause in the later contract.

3. ID.; ID.; ACQUIESCENCE. — Where one of the parties to a contract acquiesces in the interpretation placed by the other
upon a provision of doubtful application, the party so acquiescing is bound by such interpretation.

4. ID.; ID.; ILLUSTRATION. — One of the parties to a contract, being aware at the time of the execution thereof that the other
placed a certain interpretation upon a provision of doubtful application, nevertheless proceeded, without raising any question
upon the point, to perform the services which he was bound to render under the contract. Upon the termination of the
contract by mutual consent a question was raised as to the proper interpretation of the doubtful provision. Held: That the
party raising such question had acquiesced in the interpretation placed upon the contract by the other party and was bound
thereby.

The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by Menzi & Co., Inc., from its
contract for fertilizers with the Tabacalera. This finding in our opinion is not justified by the evidence. This contract was obtained by
Menzi & Co., Inc., shortly before plaintiff's contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera
contract for himself. When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to participate
in the profits derived therefrom.

Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the fertilizer business in
question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or P196,709.20. In reaching this conclusion the trial
court unfortunately relied on the opinion of the accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the
plaintiff and Menzi & Co., Inc., were partners; but even if they had been partners there would have been no good-will to dispose of.
The defendant corporation had a fertilizer business before it entered into any agreement with the plaintiff; plaintiff's agreement was
for a fixed period, five years, and during that time the business was carried on in the name of Menzi & Co., Inc., and in Menzi & Co.'s
warehouses and after the expiration of plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect right
to do. There was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks used in the
fertilizer business during the time that he was connected with it acquired great value, and that they have been appropriated by the
appellant to its own use. That seems to be the only basis of the alleged good-will, to which a fabulous valuation was given. As we have
seen, the trade- marks were not new. They had been used by Behn, Meyer & Co. in its business for other goods and one of them for
fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of registering the formulas in the
Bureau of Science was charged to the business in which the plaintiff was interested. These trade-marks remained the exclusive
property of Menzi & Co., and the plaintiff had no interest therein on the expiration of his contract.

The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence that said balance is correct.

For the foregoing reasons, the decision appealed from is modified and the defendant corporation is sentenced to pay the plaintiff
twenty-one thousand, six hundred and thirty-three pesos and twenty centavos (P21,633.20), with legal interest thereon from the date
of the filing of the complaint on June 17, 1927, without a special finding as to costs.

29. G.R. No. L-1256 October 23, 1903

VICENTE W. PASTOR, plaintiff-appellant,

vs.
MANUEL GASPAR, ET AL., defendants-appellees.

Alfredo Chicote for appellant.

F. Ortigas and Hartigan, Marple and Solignac for appellees.

WILLARD, J.:

There was no motion for a new trial in this case.

From the facts admitted by the pleadings and those found by the court, it appears that in November, 1900, there existed in Manila a
partnership composed of Macario Nicasio and the defendant Gaspar under the name "Nicasio and Gaspar." It owned the steam
launch Luisa, and its only business was the relating to this launch.

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Desiring to increase this business, on the 24th day of November, 1900, a contract was made between the firm of Nicasio and Gaspar
on the one side, and on the other side the plaintiff, the defendants Eguia, Iboleon, and Monserrat, and one Hermoso. This contract
recites that Nicasio and Gaspar, by writing of the same date, have enlarged the business of their partnership; have bought six lorchas,
which are named, and that, needing money with which to pay for the lorchas and the necessary repairs thereon, the parties of the
second part have furnished them 28,000 pesos as loan, the amount furnished by each being named. The firm of Nicasio and Gaspar
then acknowledges the receipt of these amounts. The fifth clause of the contract is as follows:

Fifth. The partnership of Nicasio and Gaspar undertakes to return to the said Eguia, Monserrat, Iboleon, Pastor, and Hermoso
the said total sum of 28,000 pesos within the period of ten years from the date of the instrument, and to guarantee the
fulfillment of said payment they pledge to said parties the said lorchas Pepay, Lola, Consuelo, India, Niceta, and Castellana,
in the sums respectively which said parties have furnished for the purchase and repair of said vessels, as before stated, ceding
and assigning to said parties, in like proportions the profits and gains which may be realized from the exploitation of said
vessels; the said vessels to be the property of said Eguia, Monserrat, Iboleon, Pastor, and Hermoso, and of the parties of the
first part, proportionate with the sums which the said parties have invested in said vessels; the management of said vessels
during the time in which said debt remains unpaid to remain with the partnership of Nicasio and Gaspar, with the
understanding that whatever may be the result of the business of said vessels, neither the said partnership nor the parties of
the first part shall become responsible for the payment of said debt, except in so far as the said vessels shall respond therefor,
and in no event shall they respond therefor with any other property; injuries to and all losses of said lorchas to be shared by
all the parties hereto, as well as crews' expenses and other outlays necessary for the preservation of said vessels, in the
proportion which corresponds to each party hereto according to his investment; the parties of the first part binding
themselves not to encumber or pledge said vessels while said debt remains unsatisfied to the parties of the second part.

It was provided in the seventh clause that the launch Luisa was not included in this contract.

It is alleged in the complaint, and not denied by the answer, that the contract thus entered into on November 24, 1900, was in July,
1901, dissolved and terminated, and the lorchas sold by mutual consent.

The cause of action set forth in the complaint is that there was actually a partnership between the parties to the contract of November
24, and that the consent of the agent of the plaintiff to its dissolution and the sale of the lorchas was obtained by fraud of the
defendants. The prayer of the complaint is that the dissolution of the partnership and the sale of the lorchas be declared null, and that
the plaintiff be restored to his rights therein, and if this can not be done that he recover of the defendants damages in the sum of
42,500 pesos.

1. The plaintiff, who was defeated in the court below and who has appealed, claims that the contract of November 24, 1900, created
a partnership between the parties to it.

While all the court are of the opinion that the judgment should be affirmed, we are not agreed as to the proper construction to be put
upon this document. The opinion of the writer is that held by the court below, viz, that upon the face of the contract the plaintiff was
a creditor and not a partner. The contract is not clearly drawn, but the following seem to indicate that the transaction was rather a
loan than a contract of partnership: (1) In the beginning it is twice stated positively that Nicasio and Gaspar are the only partners and
the only persons interested in the partnership of Nicasio and Gaspar. These statements the plaintiff assented to when he signed the
document. (2) In the second paragraph, and again in the fourth, it is stated, also, distinctly and positively, that the money has been
furnished as a loan. (3) In the fifth paragraph, hereinbefore quoted, Nicasio and Gaspar bind themselves to repay the amount,
something that they would not be bound to do were the contract one of partnership. (4) In the same paragraph Nicasio and Gaspar
create in favor of the plaintiff and his associates a right of pledge over the lorchas, a thing inconsistent with the idea of partnership.
this paragraph should not be construed as transferring the ownership of the lorchas themselves to the second parties. Although the
words "las cuales" would grammatically refer to the preceding word "embarcaciones," yet such a construction would be inconsistent
with what has been before stated in the same paragraph as to the pledge. (5) By the same paragraph Nicasio and Gaspar are to be
considered consignees only as long as they do not pay the debt. This indicates that they had a right to pay it. (6) By the last clause of
this paragraph they bind themselves not to alienate the lorchas until they had paid the debt, indicating clearly that by paying the debt
they could do so, a thing consistent with the idea of a partnership. (7) By the seventh paragraph of this contract it is stated that the
launch Luisa is not included in the contract.

The claim of the plaintiff that by this document he became a partner in the firm of Nicasio and Gaspar can not in any event be sustained.
That firm was engaged in business with the launch Luisa. With this the plaintiff and his associates had nothing to do.

It appears, also, from this contract that when Nicasio and Gaspar enlarged their business they could devote themselves not only to
the launch Luisa and the six lorchas in question but also to other craft. With such other business the plaintiff would have nothing to
do. The most that he can claim is not that he was a partner in the firm of Nicasio and Gaspar, but that he and his associates, in
connection with that firm, had formed another partnership to manage these lorchas. The fact that the plaintiff was to share in the
profits and losses of the business and that Nicasio and Gaspar should answer for the payment of the debt only with the lorchas, and
not with their own property, indicates that the plaintiff was a partner. But these provisions are not conclusive. This is a suit between
the parties to the contract. The rights of third persons are not concerned. Whether the plaintiff would be a partner as to such third
persons is not to be determined. As between themselves the parties could make any contract that pleased them, provided that it was
not illegal (art. 1255, Civil Code). They could, in making this contract, if they chose, take some provision from the law of partnership

86 | P a g e
and others from the law of loans. Loans with a right to receive a part of the profits in lieu of interest are not uncommon. As between
the parties, such contract is not one of partnership.

The question on this branch of the case is whether the contract on its face creates a partnership or not. The court finds that the plaintiff
believed that he could not be a partner because he was a Spanish subject. There can therefore be no doubt as to his intention in
signing this contract. He did not believe that on its face it made him a partner. If he had so believed, he would not have signed it. If he
was willing to sign a contract which on its face made him a partner, he and his associates would have joined with Nicasio and Gaspar
in the amended articles of partnership which they signed on this very day, and this second document would have been entirely
unnecessary. The inference from these facts is so strong that it can not be overcome by the fact that in subsequent dealings the parties
called themselves partners. The plaintiff undoubtedly wished to secure, as far as he could, the rights of a partner without making
himself one.

The contract, in the opinion of the writer, was that Nicasio and Gaspar should take the money of the other parties to the contract,
manage the business as they saw fit, pay the investors their share of the profits as long as the business continued, and not to sell the
lorchas until they had been so repaid. Anything more than this would have made the investors partners according to the instrument
itself, the one thing which they were seeking to avoid. It may be added that, in a similar contract which the plaintiff made with Nicasio
in April, 1900, he in 1902 considered himself a creditor and made a demand on Nicasio for the payment of the debt.

It is claimed by the plaintiff that even if the transaction was a loan, it could not be terminated without his consent until the expiration
of the period of ten years. Article 1127 of the Civil Code does not say that the period allowed for the performance of an obligation is
for the benefit of the creditor as well as the debtor. It says that it shall be so presumed unless the contrary appears. In this case the
contrary does appear in two clauses hereinbefore cited under (5) and (6). Upon paying the loan at the end of ten years, they would
have had the undoubted right to mortgage or sell the lorchas, and then by the mere act of payment would have ceased to be
consignees thereof. No declaration of that kind in the contract was at all necessary. These rights would result as a matter of law. The
insertion of these clauses can only be explained on the theory that the period was for the benefit of the debtors alone, and that they
would be at liberty at any time, even before the expiration of ten years, to sell the property, provided they repaid the loan.

2. It is further claimed by the plaintiff that, even if the contract itself did not make them partners, there was a verbal agreement that
they should be partners. The court refused to allow him to answer certain questions relating to this matter. His exception is stated as
follows in the bill of exceptions: "The plaintiff in his first testimony attempted to set forth the verbal agreements by virtue of which
he was in reality a partner in the firm of Nicasio and Gaspar. The court ruled this evidence out for the reason that the name of the
plaintiff does not appear in the articles of partnership of Nicasio and Gaspar. The plaintiff excepted to the ruling."

There are several reasons why the court was correct in its ruling.

(1) Although the offer was to show that he was a partner in the firm of Nicasio and Gaspar — something not claimed in the complaint
— it is probable that the purpose was to show a contract of partnership between Nicasio and Gaspar on the one hand and the plaintiff
and his associates on the other. The statements at the trial indicates this. The bill of exceptions does not show what verbal agreements
the plaintiff, would have testified to if he had been allowed to do so. But in his brief in this court he says:

(b) That the firm was organized verbally on said date for a period of ten years; (c) that the rights and obligations of the
partners were set forth in document No. 945 of the said date, although it may be stated in said document that the contract
in reference was a contract of pledge.

If, as thus appears, all the rights and obligations which were verbally agreed to were afterwards embodied in a written instrument
which was offered in evidence, the plaintiff has not been prejudiced by not being allowed to testify that these agreements were first
made verbally. All of them having been included in the written document, he could testify to nothing more. If all the agreements as to
the rights and obligations of the parties were embodied in the written contract, the additional verbal agreement that they should be
partners would be but their opinion as to the nature of the said written contract and would add nothing to it.

(2) The parties made a verbal agreement which they afterwards reduced to writing. Section 285 of the Code of Civil Procedure prohibits
any parol evidence as to other terms not contained in the writing. Under this section, even if there had been agreements other than
those contained in the instrument and inconsistent therewith, the plaintiff could not testify to them. The plaintiff claims that this
section does not prohibit evidence as to the surrounding circumstances. This is true, and the plaintiff was the trial allowed to testify
that he brought the lorchas himself in Iloilo; that he was paid $500 for so doing; that $20,000 was borrowed from the Banco Español
-- Filipino for the purpose of paying for them; and as to other details. There was no intrinsic ambiguity in the contract which required
explanation. When a written contract is vague and indefinite, it can be explained by showing what the surrounding circumstances
were (sec. 289), but not by showing by parol what the prior agreement in fact was.

3. The court refused to receive in evidence a letter written by Hermoso to the plaintiff, and the latter excepted. there was no error in
this ruling. The plaintiff could not prove the facts stated in this letter in this way. He should have called Hermoso or other persons as
witnesses to do so, and given the defendants the right to cross-examine them. (Sec. 381, Code of Civil Procedure.)

4. The following exception appears in the record:

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 During the examination of Lino Eguia, he was asked by the plaintiff to state, either by means of the document or the answer
to the complaint, who was intrusted with the purchase of the lorchas. The court ruled out the question and the plaintiff
excepted.

This ruling was correct for two reasons: (1) The documents themselves showed the facts. (2) The plaintiff had already testified without
objection that he brought the lorchas in Iloilo by direction of Nicasio and Gaspar. The refusal to allow this witness to testify, on a
matter as to which there was no dispute, could not have prejudiced the plaintiff.

5. Nicasio was asked if the capital in Nicasio and Gaspar which stood in his name was all his own. This question was ruled out and the
plaintiff excepted. If the question referred to the original contract of partnership, and the plaintiff desired to show that he had
contributed money thereto, he could not have been prejudiced by the ruling because the witness had already testified that it was
contributed in fact by the plaintiff. This fact also appeared during the trial from the document No. 325 of April 26, 1900, between the
witness and the plaintiff. If he wished to show that a part of the capital standing in the name of Nicasio, in the amended articles of
partnership, was furnished by the plaintiff and others, he was not prejudiced by the ruling, for this all appeared from the contract of
November 24, 1900, so many times referred to. If he desired to show that Nicasio had borrowed a part of his capital from some person
not connected with this suit, the question was immaterial and was properly excluded. In such a case it would be no concern of the
plaintiff whose money this was.

6. The following exception appears in the record:

During the examination of the witness Joaquin Salvador, he was asked on cross-examination by plaintiff to state if he, as
attorney in fact of the partner Hermoso in the meetings of the partners preliminary to the sale of the lorchas, would have
consented to the dissolution of the partnership had he known that the partnership would be immediately reorganized with
the same lorchas and the same partners with the exception of Nicasio, Hermoso, and Pastor. The court ruled the question
out and the plaintiff excepted.

This ruling was correct. What Salvador would have done was of no importance. The plaintiff's agent was allowed to testify that he
would not have given the plaintiff's consent if he had known that the defendants intended to continue the business.

7. The assignment of error as to the bills of Warner, Barnes and Co. is not sustained by the bill of exceptions. It is stated therein (fol.
25) that these documents were admitted.

8. The question as to whether the power of attorney given by the plaintiff to Nicasio was sufficient to authorize the latter to consent
for the plaintiff to the cancellation of the contract was not raised by any exception at the trial and is not the subject of any assignment
of error in this court.

9. The claim of the plaintiff, as has been said before, was (1) that he was a partner, and (2) that the cancellation of the agreement of
partnership had been procured by fraud. The judge made a finding upon the first claim, but not upon the second; although the finding
that he made was sufficient to determine the case before him, yet he should have found upon all the issues presented by the pleadings.
But this omission does not require a reversal of the judgment. If the court below was right in the construction of the document, it of
course does not, for the decision would then contain facts sufficient to justify the judgment. But even if it were not, the same thing
would result. It is a fact clearly admitted by the pleadings, and therefore not required to be stated in the decision, that this contract
of November 24, 1900, was canceled and the arrangement, whatever it was, dissolved. To this dissolution the plaintiff through his
agent consented. This is alleged in the complaint, although it is there stated that such consent was obtained by fraud. The facts
admitted in the pleadings and stated in the decision showing, therefore, that the plaintiff had surrendered his rights, and there being
no finding that such surrender was obtained by fraud, the defendants are, on such admissions and findings, entitled to judgment. We
reach this conclusion the more willingly because a majority of the court is of the opinion that the evidence in the case was not sufficient
to show any fraud on the part of the defendants.lawphil.net

The judgment is affirmed, with the costs of this instance against the appellant. Judgment will be entered accordingly twenty days after
the filing of this decision.

Arellano, C.J., Torres, Mapa, and McDonough, JJ., concur.

Separate Opinions

COOPER, J., concurring:

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The cause of action set forth in the complaint is that there was a partnership between the plaintiff and the defendants, which was, in
July, 1901, dissolved and terminated between the parties thereto, the plaintiff acting through his agent in said dissolution; that the
consent of the agent to the dissolution was obtained by the fraud of the defendant, and the prayer of the complaint is that this
dissolution of the partnership and the sale of the lorchas be declared null and that the plaintiff be restored to this rights therein; and
he prays in the alternative that, if this can not be done, the recover of the defendants damages in the sum of 42,500 pesos. The issues
thus made were determined against the plaintiff by the judgment of the Court of First Instance. It is asked that we review the evidence
taken in the court below and retry the questions of fact involved in the decision of the case — that is, whether the dissolution was
obtained by the fraud of the defendants.

It is expressly provided by section 497, Code of Civil Procedure, that in hearings upon bills of exceptions the Supreme Court shall not
review the evidence taken in the court below, nor retry the questions of fact except in certain cases, one of which is: "If the excepting
party filed a motion in the Court of First Instance for a new trial, upon the grounds that the findings of fact were plainly and manifestly
against the weight of evidence, and the judge overruled said motion and due exception was taken to his overruling same the Supreme
Court may review the evidence and make such finding upon the facts and render such final judgment as justice and equity require."
There was no motion of this character, for a new trial in the Court of First Instance, nor upon the other grounds mentioned in section
497; consequently we can not review the evidence contained in the bill of exceptions. Upon this ground I concur in the decision.

I am of the opinion that the fifth clause of the agreement entered into on the 24th day of November, 1900, set forth in the majority
opinion, is sufficient to show that a partnership existed between Nicasio and Gaspar, Eugia, Monserrat, Iboleon, Pastor, and Hermoso.

A partnership is defined in article 1665 of the Civil Code as "a contract by which two or more persons bind themselves to place money,
property, or industry in common with the intention of dividing the profits among themselves.lawphil.net

The fact that the plaintiff was to share in the profits and loses of the business indicates that the plaintiff was a partner in the business.
It was expressly provided in this clause of the contract that the parties thereto should be entitled "in like proportion to the profits and
gains which may be realized from the exploitation of said vessels" and that "the injuries to and all losses of said lorchas to be shared
by all the parties hereto, as well ad the crew's expense and other outlays necessary for the preservation of said vessels, in the
proportion which corresponds to each party, according to his investment."

The fact that the lorchas were to remain the property of Nicasio and Gaspar, and that these lorchas were pledged for the return of
the 28,000 pesos denominated as a loan, would not have the effect of changing the nature of the agreement.

The stipulations contained in the contract were such as might be lawfully made between the parties themselves, though they may not
have been binding with respect to third persons.

30. [G.R. No. 1472. September 30, 1905. ]

E.J. SMITH AND RAFAEL REYES, proprietors of the Philippine Gas Light Company, Plaintiffs-Appellees, v. JACINTA LOPEZ AND
IGNACIA LOPEZ DE PINEDA, Defendants-Appellants.

Gregorio Pineda, for Appellants.

Lionel D. Hargis, for Appellees.

SYLLABUS

1. PERSONAL ACTION; COOWNERS; HEIRS; EXECUTORS; PARTIES IN INTEREST. — A judgment in a personal action against one or more
defendants having a common interest in the same property shall not bind the heirs of a deceased coowners, where such heirs or the
executor of the testate or intestate estate of such deceased coowners, who are parties in interest in the suit, were not joined as parties
defendant. (Secs. 114 and 277 of the Code of Civil Procedure.)

2. ID.; ID.; PARTNERSHIP. — Where two or more persons having a common interest in a certain business or property bring an action
in court it must be presumed that they prosecute the same in their individual capacity as coowners and not in behalf of a partnership
which does not exist juridically.

3. AGENCY; RECIPROCAL OBLIGATIONS; QUASI CONTRACTS. — Where a person undertakes to act as agent for another, in conformity
with the provisions of the civil law, reciprocal obligations are created between such person and the owner of the property to which
the agency relates, even where the owner has not previously given his consent thereto, by virtue of a quasi contract.

4. IMPROVEMENTS; CONSENT; LIABILITY; JURIDICAL RELATIONS. — The owner is liable for any improvements made by a third person
upon his property, for the reason that even where the parties have not given their express consent thereto a juridical relation is
created between them with the same force and effect as though a mutual agreement existed.

5. SERVICES; COMPENSATION; CUSTOM AND USAGES; EXPERTS. — It has been settled by our jurisprudence that in contracts relating
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to the performance of services or labor it is to be presumed that a certain and definite compensation was agreed upon, not only where
there is an express stipulation to this effect but where the same may be ascertained from the custom and usages of the place where
such services or labor were performed, except where the parties have agreed that such compensation be fixed by a third person or
where the same should be determined by the courts of Spain of October 18, 1899.)

DECISION

TORRES, J. :

On November 19, 1902, Messrs. Smith and Reyes, as proprietors of the Philippine Gas Light Company, brought this action against the
defendant sisters, Jacinta and Ignacia Lopez de Pineda, to recover from them the sum of 3,270 pesos, Mexican currency, with interest
due thereon and costs of proceedings, for work performed in connection with the installation of a water system, urinals, closets,
shower baths, and drain pipes in the house at No. 142 Calle Dulumbayan, district of Santa Cruz, the same being the property of the
defendants. The plaintiffs alleged that they had complied with the agreement made with the father of the defendants, the
administrator of the property, and that the labor performed and the material used were reasonably worth the sum of 4,020 pesos,
Mexican currency, of which sum they acknowledged having received 750 pesos, and prayed that judgment be entered against the
defendants and in favor of the plaintiffs for the sum of 3,270 pesos, together with accrued interest and costs of proceedings,
defendants having refused to pay the same as agreed.

Attorney Gregorio Pineda appeared in behalf of the defendants, denied all the facts set out in the complaint, and alleged that it did
not appear from the pleadings that plaintiffs had ever entered into a mercantile partnership under the aforesaid name and style, or
that any such partnership legally existed; that Nicasio Lopez was not the administrator nor was he empowered by the defendants to
make any contract for repairs and improvements to and in the said house; that there was no allegation as to the extent and importance
of the work performed on the premises nor as to the quality or quantity of the materials used; that the work was not reasonably worth
4,020 pesos; and that, assuming that plaintiffs had performed work in the said house pursuant to an agreement with Nicasio Lopez,
without defendants’ authority, the defendants set up a counterclaim for 600 pesos, Mexican currency, for damages caused to the
house as a result of said work. Defendants finally prayed that the complaint he dismissed and that plaintiffs be ordered to pay the
costs of proceedings and the amount of the counterclaim.

The court, after considering the allegations made and the evidence introduced by both parties, on April 3, 1903, entered judgment
against the defendants and in favor of the complaints for the sum of 2,717.40 pesos, local currency, and accrued interest thereon at
the legal rate of 6 per cent per annum, from November 19, 1902, and costs of proceedings. to this judgment defendants duly excepted,
having first moved for a new trial.

This is an action upon a contract to recover for labor performed on the premises, No. 142 Calle Dulumbayan, district of Santa Cruz, in
connection with the installation of a water system, urinals, water-closets, shower baths, and drain pipes. The contract in question was
entered into between one of the plaintiffs and Nicasio Lopez, the father of the defendants, who was at the time in charge of the house
and cared for the same for the defendant sisters. There was no stipulation in the contract as to the specific cost of the work to be
performed.

There is no doubt that the work was actually performed as alleged. It thus appears from the answer of the defendants to plaintiffs’
complaint, and it was also admitted by the witness Nicasio Enrico Lopez, who among other things, testified under oath, that if Mr.
Smith had presented to him a bill for 1,500 or, at most, 2,000 pesos for the work performed he would have paid him with pleasure. In
view of the foregoing the court made the statement during the course of the trial that the only question was the reasonable value of
the work.

One of the errors assigned by counsel for defendants and appellants in this court is that court below erred in recognizing plaintiffs’
capacity to sue as a partnership, there being evidence to show that they were legally organized as such.

There was no such error. Messrs. Smith and Reyes executed the contract in their own individual capacity and not in the name of any
partnership. They acted as coowners of the Philippine Gas Light Company. In their complaint they sought to enforce a legitime right
which they had as such coowners. (Arts. 392 et seq., and 1669 of the Civil Code.)

The plaintiffs were not seeking to enforce a right pertaining to a legal entity. They were not obliged to register in the Mercantile
Registry. They were merely merchants having a common interest in the business. They were under no obligation to register. (Arts. 16
and 17 of the Code of Commerce.)

As to the second, third, and fourth errors, it must be borne in mind that Nicasio Lopez, the father of the defendants, was the
administrator of the property; that having been notified of an order of the Board of Health he took the necessary steps to comply with
the same, calling upon one of the plaintiffs to do the work required, and that he made certain payments on account. He, the father of
the defendants, did all this as a voluntary agent of the actual owners of the house, and, although there is no proof of an express power
of attorney, it can not be denied that there was an implied power, because the defendants did not object to the work being done on
the house, which was really benefited and improved by such work. For this reason it is evidently and improved by such work. For this
reason it is evidently just that the owners be held liable for the cost of the work and the value of the material used therein. They can
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not now allege that there was no contract and that they did not agree to pay for such labor and material. There was a quasi contract
which created certain reciprocal obligations between them and the plaintiffs. (Arts. 1887, 1888, 1892, and 1893 of the Civil Code.)

At the request of Nicasio Lopez there were installed in the house of defendants a water-supply system, baths, water-closets, and drain
pipes pursuant to orders from the Board of Health, for the purpose of bettering the sanitary condition of the premises, and the
defendants never objected to the performance of the necessary work. It therefore must be presumed that they, the defendants,
approved of the work done upon the house and ratified the action of their father in the premises as though he acted under an express
power from them. (Art. 1892 of the Civil Code.)

But, even assuming that the defendants did not expressly ratify or approve the action of their father, Nicasio Lopez, the fact remains
that the house was improved by said work, and, for this reason, the owners of the premises are liable for the obligations incurred by
their agent, Lopez, for their benefit and advantage.

Furthermore, if the work had not been done as required by the Board of Health, it would have been to the disadvantage of the
defendants because the work would have been eventually undertaken by the authorities and at the expense of the said defendants.
(Art. 1893 of the Civil Code.)

As to the second error relating to the price of the work fixed by the court in the judgment, it should be noticed that when no price has
been expressly stipulated in a contract of this nature, it is understood that the contracting parties have impliedly agreed to pay and
receive the usual and reasonable value of the services rendered. Otherwise it must be presumed that the parties intended that the
price be fixed by experts in case they fail to agree as to the same.

The rule as laid down by the authorities is to the effect that in a contract for services it shall be presumed that a certain compensation
was intended to be fixed, although there may not be any express stipulation in regard thereto; taking into consideration the law in
force and the customs of the country where the contract was executed, except where such compensation is to be fixed by a third
person or by a competent court upon the testimony of experts.

A contract for services or work to be performed exists not only where a certain and definite compensation has been expressly agreed
upon, but also where the same can be ascertained from the customs and usages of the place in which such services were rendered.
(Judgment of the supreme court of Spain of October 18, 1899.)

The foregoing disposes of the second, third, and fourth assignments of error.

It appears from the bill of exceptions that the defendants were the owners of one-half of the house in question, the other half
belonging to the heirs of the deceased, Vicente Faustino Cruz. The action, however, was brought solely against these defendants.
Neither the executor of the deceased coowner of the house nor his surviving heirs having an interest in the property were joined as
parties defendant in this case.

Section 114 of the Code of Civil Procedure provides, among other things, that every must be prosecuted in the name of the real party
in interest and that an executor or administrator of a deceased person may sue or be used without joining with him the person for
whose benefit the action is prosecuted or defended.

This action was prosecuted without the intervention of the executor or legal representatives of the deceased Vicente F. Cruz, one of
the coowners of the house in question. Therefore this decision can not, under section 277 of the Code of Civil Procedure, affect, the
rights of the successors or legal heirs of the said deceased.

For this reason, which is a perfectly legal one, a judgment against the defendants in this case enforcing the obligation incurred by them
under article 1893 of the Civil Code would be of no effect as to the successors or heirs of the deceased Vicente F. Cruz, but a separate
action must be commenced against such successors or legal heirs. It would not be just or proper that the defendants should pay the
whole amount of the claim but only one-half thereof, since they only owned half of the house wherein the work was done; the recovery
of the cost of such work being the subject-matter of this action.

As to the fifth and sixth assignments of error, it must be said that the bill tendered by the plaintiffs for material furnished and labor
performed on the premises in question, was made up from the books kept by the plaintiffs, and was admitted in evidence by the court
for what it might be worth, as shown by the bill of exceptions, and that notwithstanding defendants’ objection, the fact is that they
introduced no evidence tending to prove (1) that less material was used in the work than that stated in the bill; (2) that the work done
was worth less than the amount charged in the bill. Therefore, after a consideration of the evidence of record in this case, we find that
3,467.40 pesos and not 4,020 pesos, Mexican currency, as alleged in the complaint was the reasonable value of the work performed,
plaintiffs having agreed that the 552.60 pesos claimed by them as interest be deducted from the latter amount. They have expressly
waived any right to the recovery of such amount.

From the sum of 3,467 pesos and 40 cents there should be deducted 750 pesos paid to the plaintiffs on account of their claim, thus
leaving a balance of 2,717 pesos and 40 cents. One-half of this latter amount, to wit, 1,358 pesos and 70 cents, Mexican currency, plus
interest due thereon at the rate of 6 per cent per annum from the 19th of November, 1902, is the total sum which the plaintiffs are
entitled to recover from the defendants in this case.

For the foregoing reasons it is hereby adjudged and decreed that the defendants, Jacinta Lopez and Ignacia Lopez de Pineda, pay to
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the plaintiffs in this case the sum of 1,358 pesos and 70 cents, Mexican currency, or its equivalent in Philippine currency, said amount
representing one-half of the total sum awarded by the judgment of the court below. The defendants shall further pay to the plaintiffs
whatever interest may have accrued from the 19th of November, 1902, at the rate of 6 per cent per annum on the said sum.
Defendants shall also pay the costs of proceedings in both instances. The judgment appealed from, thus modified, is in all other
respects hereby affirmed, without prejudice to the right of the plaintiffs to institute a separate action against the heirs and successors
of the deceased Vicente F. Cruz for the recovery of the other half of the value of the work performed in and upon the premises No.
142 Calle Dulumbayan. After the expiration of twenty days let judgment be entered in accordance herewith and the case be remanded
to the Court of First Instance for action in accordance with the law. So ordered.

31. Rodriguez vs Ravalan (case not found)

32. G.R. No. 5837 September 15, 1911

CATALINO GALLEMIT, plaintiff-appellant,

vs.
CEFERINO TABILIRAN, defendant-appellee.

Troadio Galicano, for appellant.

Emilio Pineda, for appellee.

TORRES, J.:

This is an appeal raised by the plaintiff from the judgment rendered by the Honorable Judge Ramon Avanceña.

On March, 10, 1908, the plaintiff filed a written complaint, twice amended with the permission of the court, wherein, after its second
amendment, he alleged that the plaintiff and the defendant, while residents of the municipality of Dapitan, had acquired, in joint
tenancy, in or about the month of January, 1904, a parcel of land from its original owner, Lui Ganong, under a verbal, civil contract of
partnership, for the price of P44; that it was stipulated that each of the said purchasers should pay one-half of the price, or P22, and
that an equal division should be made between them of the land thus purchased, situate in the place called Tangian, of the barrio of
Dohinob, municipality of Dapitan, sub-district of the same name, Moro Province, and bounded on the north and east by the Tangian
river, on the south and west by government forests, and containing 19.968 square meters, approximately, planted with 200 abaca
plants; that, notwithstanding the demands he had repeatedly made upon the defendant to divide the said land, the latter, after having
promised him on several occasions that he would make such partition, finally refused, without good reason, and still continued to
refuse to divide the land and, moreover, without the knowledge and consent of the plaintiff, gathered the abaca crops of the years
1904, 1905 and 1906, produced on the land in question, and extracted the hemp therefrom in the amount of about 12 arrobas to each
crop, he being the sole beneficiary of the fiber obtained; that the plaintiff, relying upon the several promises made him by the
defendant to divide the said land, took to the latter 1,500 seeds to be planted in the part thereof which would have fallen to the
plaintiff in the division, all of which seeds died, as an indirect result of the defendant's never having made the partition he offered to
make; and, that since the year 1904, up to the time of the complaint, he alone had been paying the taxes on the land, without the
defendant's having contributed to their payment. There fore the plaintiff petitioned the court render judgment in his favor by ordering
a partition to be made of the said land through the mediation of commissioners appointed for the purpose, and by sentencing the
defendant to pay to the plaintiff, as damages, the total value of the seed lost, amounting to P50, to restore to him one-half of the
abaca harvested or the value thereof, and to the payment of the costs of the case. Defendant's counsel received a copy of this amended
complaint.

The defendant, Ceferino Tabiliran, having been notified and summoned, in his answer to the preceding amended complaint denied
each and all of the facts alleged in each and all of the paragraphs thereof and asked that he be absolved from the complaint, with the
costs against the plaintiff.

After the hearing of the case and the production of oral evidence by the parties thereto, the court, on the 10th of the same month,
rendered judgment by absolving the defendant from the complaint, with the costs against the plaintiff. Counsel for the latter excepted
to this judgment and by a written motion asked for its annulment, and the holding of a new trial on the ground that the findings of
the court were contrary to law. This motion was denied by an order of March 11, 1909, excepted to by the plaintiff's counsel, and the
proper bill of exceptions having been duly filed, the same was certified and forwarded to the clerk of this court.

This suit concerns the partition of a piece of land held pro indiviso which the plaintiff and the defendant had acquired in common from
its original owner. By the refusal of the defendant to divide the property, the plaintiff was compelled to bring the proper action for
the enforcement of partition, referred to in section 181 and following of the Code of Civil Procedure.

The record shows it to have been duly proved that Catalino Gallemit and Ceferino Tabiliran by mutual agreement acquired by purchase
the land concerned, situate in Tangian, municipality of Dapitan, from its original owner, Luis Ganong, for the sum of P44. It was
stipulated between the purchasers that they each should pay one-half of the price and that the property should be divided equally

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between them. The vendor testified under oath that the plaintiff Gallemit paid him the sum of P22, one-half of the price that it was
incumbent upon him to pay, and that four months afterwards the defendant paid his part of the price, although, owing to the refusal
of the defendant, who was then the justice of the peace of the pueblo, to comply with the stipulation made, the deed of sale was not
executed, nor was a partition effected of the land which they had acquired. The defendant, instead of delivering to the plaintiff the
share that belonged to the latter, the proportionate price for which the plaintiff had already paid, kept all the land which belonged to
them in common, in violation of the stipulations agreed upon, notwithstanding that he paid the vendor only one-half of the price
thereof.

There is community of property when the ownership of a thing belongs to different persons undividedly. (Art. 392, Civil Code.) No
coownership shall be obliged to remain a party to the community. Each of them may ask at any time the division of the thing owned
in common. (Art. 400 of the same code.)

Considering the terms of the claim made by the plaintiff and those of the defendant's answer, and the relation of facts contained in
the judgment appealed from, it does not appear that any contract of partnership whatever was made between them for the purposes
expressed in article 1665 of the Civil Code, for the sole transaction performed by them was the acquisition jointly by mutual agreement
of the land in question, since it was undivided, under the condition that they each should pay one-half of the price thereof and that
the property so acquired should be divided between the two purchasers; and as, under this title, the plaintiff and the defendant are
the coowners of the said land, the partition or division of such property held in joint tenancy must of course be allowed, and the
present possessor of the land has no right to deny the plaintiff's claim on grounds or reasons unsupported by proof.

The circumstance of the plaintiff's to present any document whatever to prove that he and the defendant did actually purchase jointly
the land in litigation can not be a successful defense in the action for partition, notwithstanding the provision contained in paragraph
5 of section 335 of the Code of Civil Procedure, inasmuch as the trial record discloses that testimony was adduced, unobjected to on
the part of the defendant, to prove that the purchase was actually made by both litigants of the land in question from its original
owner, Luis Ganong; furthermore, it was proved that after the contract was made the deed of sale was not drawn up on account of
the opposition of the defendant, Tabiliran, to this being done, with the indubitable purpose, as has been seen, of his keeping the whole
of the land purchased, though he paid but one-half of its price.

In the decision rendered in the case of Conlu et al. vs. Araneta and Guanko (15 Phil. Rep., 387), the following appears in the syllabus:

The decision in the case of Thunga Chui vs. Que Bentec (1 Phil. Rep., 561) and Couto vs. Cortes (8 Phil. Rep., 459) followed to
the extent of holding that "an oral contract for the sale of real estate, made prior to the enactment of the Code of Civil
Procedure in Civil Actions, is binding between the parties thereto." The contract exists and is valid though it may not be
clothed with the necessary form, and the effect of a noncompliance with the provisions of the statute (sec. 335 of the Code
of Civil Procedure in Civil Actions) is simply complied with; but a failure to except to the evidence because it does not conform
with the statute, is a waiver of the provisions of the law. If the parties to the action, during the trial, made no objection to
the admissibility of oral evidence to support the contract of sale of real property, thus permitting the contract to be proved,
it will be just as binding upon the parties as if it had been reduced to writing.

So that, once it has been proven by the testimony of witnesses that the purchase of a piece of real estate was made by a verbal
contract between the interested parties, if the oral evidence was taken at the petition of one of them without opposition on the part
of the other, such proven verbal contract, as the one herein concerned, must be held to be valid. On these premises it is, therefore,
not indispensable that a written instrument be presented in order to prove a contract of purchase and sale of real estate; neither it is
necessary that the record show proof of a contract of partnership, in order that a demand may be made for the division of a real
property acquired jointly and undividedly by two or more interested parties, inasmuch as the land was acquired by the two purchasers,
not for the purpose of undertaking any business, nor for its cultivation in partnership, but solely to divide it equally between
themselves. Therefore, it is sufficient to show proof of the fact that a real property was actually purchased by them jointly, in order to
insure a successful issue of an action brought to enforce partition, in accordance with the provisions of sections 181 to 196 of the Code
of Civil Procedure in Civil Actions, since the plaintiff is really a coowner of the undivided land.

It is neither just nor permissible for the defendant to violate a contract made, even though verbally, with the plaintiff, and to keep
without good reason, for his exclusive benefit and to the prejudice only of his coowner, the plaintiff, the whole of the land belonging
to both of them in common, because each paid a half of the value thereof.

"Contracts shall be binding," prescribes article 1278 of the Civil Code, "whatever may be the form in which they may have been
executed, provided the essential conditions required for their validity exist." These conditions are enumerated in article 1261 of the
same code, and they are also requisite in a verbal contract that has been proved.

As the plaintiff suffered damage through the loss of the seed which could not be planted in the part of the land belonging to him, on
account of the refusal of the defendant to accede to division of the property, in accordance with the agreement made, it is right and
just that the latter be compelled to make indemnity for the amount of the damage occasioned through his fault.

With respect to the abaca obtained by the defendant, to his exclusive benefit, from the land of joint ownership: inasmuch as the
amount and value of the fiber gathered is not shown in the trial record, there are no means available in law whereby a proper
determination may be reached in the matter.

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Therefore, we are of opinion that the judgment appealed from should be, as it is hereby, reversed. It is held to be proper to effect the
partition of the land in question, and the judge of the Court of First Instance is directed to decree, through the proceedings prescribed
by law, the division of the said land in conformity with the petition made by the plaintiff, and an indemnity, in behalf of the latter, in
the sum of P50, the value of the seed lost. The delivery to the plaintiff of one-half of the abaca harvested on the land, or the value
thereof, can not be ordered, on account of the lack of proof in the premises. No special finding is made as to costs. So ordered.

33. 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

94 | P a g e
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.

95 | P a g e
 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.

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

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

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

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

Ruiz Law Offices for defendant-appellant.

CASTRO, J.:

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

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

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

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

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

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

Because of the threat poised upon his position by the above applicants who entered upon and spread themselves within the area,
Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes, in
order to prevent old and new squatters from usurping the land. But lacking financial resources at that time, he sought financial aid
from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed improvements
on the fishpond. Hence, a wide productive fishpond was built.

Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel immediately
filed the corresponding protests. Consequently, two administrative cases ensued involving the area in question, to wit: DANR Case
353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio,
applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant
versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner, lawful applicant and
occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its
order of June 26, 1961.

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the material averments
of the plaintiffs' complaint. A reply to the defendants' amended answer was filed by the plaintiffs on January 31, 1952.

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

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

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

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

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

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

This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion is filed by the counsel for
the defendants and has the conformity of the counsel for the plaintiffs.
98 | P a g e
 An examination of the records of this case shows that this case was initiated as early as April 1951 and that the same has
been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since September 24, 1953,
and that various incidents have already been considered and resolved by Judge Fernandez on various occasions. The last
order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing of this case.

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

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.

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

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

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

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (½) del "fishpond" en cuestion
con todas las mejoras existentes dentro de la misma;

(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto de danos a contar de la
fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta que entregue la posesion y administracion de
la porcion del "fishpond" en conflicto;

(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado beneficiados, mas los intereses
legales de la fecha de la incoacion de la demanda de autos hasta el completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos incurridos por aquella durante la
pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se refiere al demandado
Juan Depra;

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

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

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

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

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

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

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

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

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is hereby denied.
99 | P a g e
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final determination on the
ground that it involves only questions of law.

Casteel raises the following issues:

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

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

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

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

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

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

Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage from one sala to another
without authority or order from the court where the case originated and was being tried. He had neither the duty nor prerogative to
re-assign the trial of the case to a different branch of the same court. His duty as such clerk of court, in so far as the incident in question
was concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of court and not upon the "special
deputy clerk of court" who purportedly signed the notice of hearing.

It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The postponement of hearings
does not depend upon agreement of the parties, but upon the court's discretion. 3

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

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

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

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

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

100 | P a g e
for hearing. Finally, whereas the cited case did not spend for a long time, the case at bar was only finally and intransferably set for
hearing on March 21, 1956 — after almost five years had elapsed from the filing of the complaint on April 3, 1951.

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

2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte of a writ of preliminary
injunction against him, and in not dismissing the appellee's complaint. We find this contention meritorious.

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

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

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

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

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

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

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

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to maintain his petition for the
reinvestigation of Casteel's application. Thus by letter 14 dated March 15, 1950 addressed to the Secretary of Agriculture and Natural
Resources, he withdrew his petition on the alleged ground that he was no longer interested in the area, but stated however that he
wanted his interest to be protected and his capital to be reimbursed by the highest bidder.

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

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

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

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that

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

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

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

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

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

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

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

102 | P a g e
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond so that he could
administer his own share, such division to be subject to the approval of the Secretary of Agriculture and Natural Resources. By letter
dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's proposition because there were allegedly no
appropriate grounds to support the same and, moreover, the conflict over the fishpond had not been finally resolved.

The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former expressed his determination
to administer the fishpond himself because the decision of the Government was in his favor and the only reason why administration
had been granted to the Deluaos was because he was indebted to them. In the same letter, the appellant forbade Felipe Deluao from
sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a letter 20 dated January 5, 1951
in which he reiterated his refusal to grant the administration of the fishpond to the appellant, stating as a ground his belief "that only
the competent agencies of the government are in a better position to render any equitable arrangement relative to the present case;
hence, any action we may privately take may not meet the procedure of legal order."

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

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

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

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

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

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

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

35. 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.

104 | P a g e
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.

105 | P a g e
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.

36. G.R. No. 19892 September 6, 1923

TECK SEING AND CO., LTD., petitioner-appellee.

SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.

Del Rosario & Del Rosario and Block, Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici curiae.

MALCOLM, J.:

Following the presentation of an application to be adjudged an insolvent by the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the
creditors, the Pacific Commercial Company, Piñol & Company, Riu Hermanos, and W. H. Anderson & Company, filed a motion in which
the Court was prayed to enter an order: "(A) Declaring the individual partners as described in paragraph 5 parties to this proceeding;
(B) to require each of said partners to file an inventory of his property in the manner required by section 51 of Act No. 1956; and (C)
that each of said partners be adjudicated insolvent debtors in this proceeding." The trial judge first granted the motion, but,
subsequently, on opposition being renewed, denied it. It is from this last order that an appeal was taken in accordance with section
82 of the Insolvency Law.

There has been laid before us for consideration and decision a question of some importance and of some intricacy. The issue in the
case relates to a determination of the nature of the mercantile establishment which operated under the name of Teck Seing & co.,
Ltd., and this issue requires us to look into, and analyze, the document constituting Teck Seing & Co., Ltd. It reads:

ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA

Sepan todos por la presente:

Que nosotros, Santiago Jo Chung Cang, mayor de edad comerciante, vecino y residente del municipio de Tabogon Provincia
de Cebu, Islas Filipinas, Go Tayco, mayor de edad, comerciante, vecino y residente del municipio de Cebu Provincia de Cebu,
Islas Filipinas, Yap Gueco, mayor de edad, comerciante, vecino y residente del municipio y Provincia de Cebu, Islas Filipinas,
Lim Yogsing, mayor de edad comerciante, vecino y residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo
Ybec, mayor de edad, comerciante, vecino y residente del municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemos
constar por la presente, que constituimos y formamos una sociedad mercantil limitada, bajo las leyes vigentes en las Islas
Filipinas y para ser registrada de acuerdo con los reglamentos vigentes del Codigo de Comercio en Filipinas.

Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra su domicilio principal en la Calle Magallanes No. 94, de la
Ciudad de Cebu, Provincia de Cebu, Islas Filipinas.

Que el capital social sera de treinta mil pesos (P30,000) moneda legal de las Islas Filipinas, dividido en cinco acciones de a
P6,000 como sigue:

Santiago Jo Chung Cang . . . . . . . . . . . . . P6,000.00

Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

106 | P a g e
 Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . 6,000.00

Total . . . . . . . . . . . . . . . . . . . . . . 30,000.00

Que la duracion de la sociedad sera la de seis años, a contar de la fecha de esta escritura, pudiendo prorrogarse este tiempo
a discrecion unanime de todos los accionistas.

El objeto de la sociedad sera la compra y venta de mercaderias en general.

El administrador o administradores de la sociedad podran, previa conformidad de los accionistas, establecer cuantas
sucursales o establecimientos considere necesarios para facilitar sus negocios y el mayor desarrollo del comercio a que se
dedica la sociedad, verificando todas las operaciones que crean convenientes para el fomento de su capital.

Las ganancias o perdidas que resultaren durante cada año comercial, se distribuiran proporcionalmente entre los accionistas,
de acuerdo con el capital aportado por cada uno de los mismos.

Las ganancias que resultaren en cada año comercial, si resultaren algunas ganancias, no podran ser retiradas pors los
accionistas hasta dentro del termino de tres años a contar de la fecha del primer balance anual del negocio, quedadno por
tanto estas ganancias en reserva, para ampliar el capital aportado opor los accionistas y ampliar por tanto la esfera de accion
emprendida por la misma sociedad. Al pasar o expirar el termino de tres años, cada accionista podra retirar o depositar en
poder de la sociedad, las ganancias que le debiera corresponder durante dicho termino de tres años.

Que los accionistas no podran extraer ni disponer en ningun tiempo cualesquiera cantidad o cantidades de la sociedad, que
haya sido aportado por los mismos, para atender sus gastos particulares ni aun pagando redito alguno sobre la cantidad que
intenen disponer o extraer de dicha sociedad.

El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente Jocson Jo, la administracion de la Compañia, quienes
podran usar indistintamente la firma social, quedando por consiguiente autorizados amobs para hacer en nombre de ella
toda calse de operaciones, negocios y especulaciones mercantiles, practicando judicial y extra-judicialment cuantos actos se
requieran para el bien de la sociedad, nombrar procuradores o abogados para reclamaciones y cobro de creditos y proponer
ante los tribunales las demandas, convenios, transacciones y excepciones procdentes. En caso de ausencia, enfermedad o
cualquier otro impedimento del accionista administrador Sr. Lim Yogsing, este podra conferir poder general o especial al
accionista que crea conveniente para que en union del administrador auxiliar Sr. Vicente Jocson Jo, pudieran ambos
administrar convenientemente los negocios de la sociedad. Que los administradores podran tener los empleados necesarios
para el mejor que debieran percibir dichos empleados por servicios rendidos a la sociedad.

Que ambos administradores podran disponer de mil discientos pesos (P1,200) moneda filipina, anualmente, para sus gastos
particulares, siendo dicha cantidad de P1,200 la que corresponde a cada uno de dichos administradores, como emolumentos
o salarios que se les asigna a cas uno, por sus trabajos en la administracion de la sociedad. Entendiendose, que, los accionistas
podran disponer cada fin de añola gratificacion quese concedera a cada administrador, si los negocios del año fueran
boyantes y justifiquen la concesion de una gratificacion especial, aparte del salario aqui dispuesto y especificado.

Que pasado el termino de seis años, y es de la conveniencia de los accionistas la continuacion del negocio de esta sociedad,
dicho termino sera prorrogado por igual numero de años, sin necesidas del otorgamiento de ulteriores escrituras, quedando
la presente en vigor hasta el termino dispuesto por todos los accionistas.

Que las diferencias que pudieran suscitarse entre los accionistas, bien sea por razon de lo estipulado en esta en ella
comprendidos, se procurara arreglar entre los mismos amistosa y extrajudicialmente, y si no se consiguiere un arreglo de
este modo, dichos accionistas nombraran un arbitro, cuya resolucion estan todos obligados y por la presente se comprometen
y se obligan a acatarla en todas sus partes, renunciando ulteriores recursos.

En cuyos terminos dejamos formalizada esta escritura de sociedad mercantillimitada, y prometemos cumplirla fiel y
estrictamente segun los pactos que hemos establecido.

En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de mil
novecientos diez y nueve.

(Fdos.) "LIM YOGSING

"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
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 Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ

"ESTADOS UNIDOS DE AMERCA

"ISLAS FILIPINAS
"PROVINCIA DE CEBU

En el Municipio de Cebu, de la Provincia antes mencionada, I.F., hoy 31 de octubre de 1919, A.D., ante mi, Notario Publico
que subscribe, comprecieron personalmente Santiago Jo Chung Cang, Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec,
representado este ultimo por Ho Seng Sian, segun autorizacion hecha en telegrama de fecha 27 de septiembre de 1919 que
se me ha presentado en este mismo acto, de quienes doy fe de que les conozco por ser las mismas personas que otorgaron
el preinserto documento, ratificando ant emi su contenido y manifestando ser el mismo un acto de su libre y voluntario
otorgamiento. El Sr. Santiago Jo Chung Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F. el dia 19 de
septiembre de 1919 bajo el No. H77742, Go Tayco tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9 de octubre
de 1919 bajo el No. G2042490, Yap Gueco tambien me exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero de
1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919
bajo el No. F1455662, y Ho Seng Sian representante de Jo Ybec, me exhibio su cedula personal expedida en Cebu, Cebu, I.f.
el dia 4 de febrero de 1919 bajo el No. F1453733.

Ante mi,

(Fdo.) "F.V.ARIAS
"Notario Publico
"Hasta el 1.º de enero de 1920

"Asiento No. 157

Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2.º

Presentado a las diez y cuarenta y tres minutos de la mañana de hoy, segun el asiento No. 125, pagina 9 del Tomo 1.º del
Libro Diario. Cebu, 11 de febrero de 1920.

(Fdo.) "QUIRICO ABETO

[SELLO] "Registrador Mercantil Ex-Officio"

Inscrito el documento que preced al folio 84 hoja No. 188, inscripcion 1.a del Tomo 3.º del Libro Registro de Sociedades
Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo
Administrativo.

(Fdo.) "QUIRICO ABETO

[SELLO] "Registrador Mercantil Ex-Officio"

Proceeding by process of elimination, it is self-evident that Teck Seing & Co., Ltd., is not a corporation. Neither is it contended by any
one that Teck Seing & Co., Ltd., is accidental partnership denominated cuenta en participacion (joint account association).

Counsel for the petitioner and appellee described his client in once place in his opposition to the motion of the creditors as "una
verdadera sociedad anonima" (a true sociedad anonima). The provisions of the Code of Commerce relating to sociedades
anonimas were, however, repealed by section 191 of the Corporation Law (Act No. 1459), with the exceptions the sociedades
anonimas lawfully organized at the time of the passage of the Corporation Law were recognized, which is not our case.

The document providing for the partnership contract purported to form "una sociedad mercantil limitada," and counsel for the
petitioner's first contention was that Teck Seing & Co., Ltd., was not "una sociedad regular colectiva, ni siquiera comanditaria, sino
una sociedad mercantil limitada." Let us see if the partnership contract created a "sociedad en comandita," or, as it is known in English,
and will hereafter be spoken of, "a limited partnership."

To establish a limited partnership there must be, at least, one general partner and the name of the least one of the general partners
must appear in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.) But neither of these requirements have been fulfilled. The
general rule is, that those who seek to avail themselves of the protection of laws permitting the creation of limited partnerships must
show a substantially full compliance with such laws. A limited partnership that has not complied with the law of its creation is not

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considered a limited partnership at all, but a general partnership in which all the members are liable. (Mechem, Elements of
Partnership, p. 412; Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)

The contention of the creditors and appellants is that the partnership contract established a general partnership.

Article 125 of the Code of Commerce provides that the articles of general copartnership must estate the names, surnames, and
domiciles of the partners; the firm name; the names, and surnames of the partners to whom the management of the firm and the use
of its signature is instrusted; the capital which each partner contributes in cash, credits, or property, stating the value given the latter
or the basis on which their appraisement is to be made; the duration of the copartnership; and the amounts which, in a proper case,
are to be given to each managing partner annually for his private expenses, while the succeeding article of the Code provides that the
general copartnership must transact business under the name of all its members, of several of them, or of one only. Turning to the
document before us, it will be noted that all of the requirements of the Code have been met, with the sole exception of that relating
to the composition of the firm name. We leave consideration of this phase of the case for later discussion.

The remaining possibility is the revised contention of counsel for the petitioners to the effect that Teck Seing & Co., Ltd., is "una
sociedad mercantil "de facto" solamente" (only a de facto commercial association), and that the decision of the Supreme court in the
case of Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling. It was this argument which convinced the trial judge,
who gave effect to his understanding of the case last cited and which here must be given serious attention.

The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that the firm Kieng-Chiong-Seng was not organized by means
of any public document; that the partnership had not been recorded in the mercantile registry; and that Kieng-Chiong-Seng was not
proven to be the firm name, but rather the designation of the partnership. The conclusion then was, that the partnership in question
was merely de facto and that, therefore, giving effect to the provisions of article 120 of the Code of Commerce, the right of action was
against the persons in charge of the management of the association.

Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, side by side with the facts before us, a marked difference
is at once disclosed. In the cited case, the organization of the partnership was not evidenced by any public document; here, it is by a
public document. In the cited case, the partnership naturally could not present a public instrument for record in the mercantile registry;
here, the contract of partnership has been duly registered. But the two cases are similar in that the firm name failed to include the
name of any of the partners.

We come then to the ultimate question, which is, whether we should follow the decision in Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, or whether we should differentiate the two cases, holding Teck Seing & Co., Ltd., a general copartnership, notwithstanding
the failure of the firm name to include the name of one of the partners. Let us now notice this decisive point in the case.

Article 119 of the Code of Commerce requires every commercial association before beginning its business to state its article,
agreements, and conditions in a public instrument, which shall be presented for record in the mercantile registry. Article 120, next
following, provides that the persons in charge of the management of the association who violate the provisions of the foregoing article
shall be responsible in solidum to the persons not members of the association with whom they may have transacted business in the
name of the association. Applied to the facts before us, it would seem that Teck Seing & Co., Ltd. has fulfilled the provisions of article
119. Moreover, to permit the creditors only to look to the person in charge of the management of the association, the partner Lim
Yogsing, would not prove very helpful to them.

What is said in article 126 of the Code of Commerce relating to the general copartnership transacting business under the name of all
its members or of several of them or of one only, is wisely included in our commercial law. It would appear, however, that this provision
was inserted more for the protection of the creditors than of the partners themselves. A distinction could well be drawn between the
right of the alleged partnership to institute action when failing to live up to the provisions of the law, or even the rights of the partners
as among themselves, and the right of a third person to hold responsible a general copartnership which merely lacks a legal firm name
in order to make it a partnership de jure.

The civil law and the common law alike seem to point to a difference between the rights of the partners who have failed to comply
with the law and the rights of third persons who have dealt with the partnership.

The supreme court of Spain has repeatedly held that notwithstanding the obligation of the members to register the articles of
association in the commercial registry, agreements containing all the essential requisites are valid as between the contracting parties,
whatever the form adopted, and that, while the failure to register in the commercial registry necessarily precludes the members from
enforcing rights acquired by them against third persons, such failure cannot prejudice the rights of third persons. (See decisions of
December 6, 1887, January 25, 1888, November 10, 1890, and January 26, 1900.) The same reasoning would be applicable to the less
formal requisite pertaining to the firm name.

The common law is to the same effect. The State of Michigan had a statute prohibiting the transaction of business under an assumed
name or any other than the real name of the individual conducting the same, unless such person shall file with the county clerk a
certificate setting forth the name under which the business is to be conducted and the real name of each of the partners, with their
residences and post-office addresses, and making a violation thereof a misdemeanor. The supreme Court of Michigan said:

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 The one object of the act is manifestly to protect the public against imposition and fraud, prohibiting persons from concealing
their identity by doing business under an assumed name, making it unlawful to use other than their real names in transacting
business without a public record of who they are, available for use in courts, and to punish those who violate the prohibition.
The object of this act is not limited to facilitating the collection of debts, or the protection of those giving credit to persons
doing business under an assumed name. It is not unilateral in its application. It applies to debtor and creditor, contractor and
contractee, alike. Parties doing business with those acting under an assumed name, whether they buy or sell, have a right,
under the law, to know who they are, and who to hold responsible, in case the question of damages for failure to perform or
breach of warranty should arise.

The general rule is well settled that, where statutes enacted to protect the public against fraud or imposition, or to safeguard
the public health or morals, contain a prohibition and impose a penalty, all contracts in violation thereof are void. . . .

As this act involves purely business transactions, and affects only money interests, we think it should be construed as
rendering contracts made in violation of it unlawful and unforceable at the instance of the offending party only, but not as
designed to take away the rights of innocent parties who may have dealt with the offenders in ignorance of their having
violated the statute. (Cashin vs. Pliter [1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)

The early decision of our Supreme Court in the case of Prautch Scholes & Co. vs. Hernandez [1903], 1 Phil., 705), contains the following
pertinent observations:

Another case may be supposed. A partnership is organized for commercial purposes. It fails to comply with the requirements
of article 119. A creditor sues the partnership for a debt contracted by it, claiming to hold the partners severally. They answer
that their failure to comply with the Code of Commerce makes them a civil partnership and that they are in accordance with
article 1698 of the Civil Code only liable jointly. To allow such liberty of action would be to permit the parties by a violation
of the Code to escape a liability which the law has seen fit to impose upon persons who organized commercial partnership;
"Because it would be contrary to all legal principles that the nonperformance of a duty should redound to the benefit of the
person in default either intentional or unintentional." (Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs.
Lichauco [1916], 33 Phil., 350, 360.)

Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the following comment after articles 121 and 126 of the Code:

From the decisions cited in this and in the previous comments, the following is deduced: 1st. Defects in the organization
cannot affect relations with third persons. 2d. Members who contract with other persons before the association is lawfully
organized are liable to these persons. 3d. The intention to form an association is necessary, so that if the intention of mutual
participation in the profits and losses in a particular business is proved, and there are no articles of association, there is no
association. 4th. An association, the articles of which have not been registered, is valid in favor of third persons. 5th. The
private pact or agreement to form a commercial association is governed not by the commercial law but by the civil law. 6th.
Secret stipulations expressed in a public instrument, but not inserted in the articles of association, do not affect third persons,
but are binding on the parties themselves. 7th. An agreement made in a public instrument, other than the articles of
association, by means of which one of the partners guarantees to another certain profits or secures him from losses, is valid
between them, without affecting the association. 8th. Contracts entered into by commercial associations defectively
organized are valid when they are voluntarily executed by the parties, if the only controversy relates to whether or not they
complied with the agreement.

xxx xxx xxx

The name of the collective merchant is called firm name. By this name, the new being is distinguished from others, its sphere
of action fixed, and the juridical personality better determined, without constituting an exclusive character of the general
partnership to such an extent as to serve the purpose of giving a definition of said kind of a mercantile partnership, as is the
case in our Code.

Having in mind that these partnerships are prevailingly of a personal character, article 126 says that they must transact
business under the name of all its members, of some of them, or of one only, the words "and company" to be added in the
latter two cases.

It is rendered impossible for the general partnership to adopt a firm name appropriate to its commercial object; the law wants
to link, and does link, the solidary and unlimited responsibility of the members of this partnership with the formation of its
name, and imposes a limitation upon personal liberty in its selection, not only by prescribing the requisites, but also by
prohibiting persons not members of the company from including their names in its firm name under penalty of civil solidary
responsibility.

Of course, the form required by the Code for the adoption of the firm name does not prevent the addition thereto of any
other title connected with the commercial purpose of the association. The reader may see our commentaries on the
mercantile registry about the business names and firm names of associations, but it is proper to establish here that, while

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 the business name may be alienated by any of the means admitted by the law, it seems impossible to separate the firm names
of general partnerships from the juridical entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)

On the question of whether the fact that the firm name "Teck Seing & Co., Ltd." does not contain the name of all or any of the partners
as prescribed by the Code of Commerce prevents the creation of a general partnership, Professor Jose A. Espiritu, as amicus curiæ,
states:

My opinion is that such a fact alone cannot and will not be a sufficient cause of preventing the formation of a general
partnership, especially if the other requisites are present and the requisite regarding registration of the articles of association
in the Commercial Registry has been complied with, as in the present case. I do not believe that the adoption of a wrong
name is a material fact to be taken into consideration in this case; first, because the mere fact that a person uses a name not
his own does not prevent him from being bound in a contract or an obligation he voluntarily entered into; second, because
such a requirement of the law is merely a formal and not necessarily an essential one to the existence of the partnership, and
as long as the name adopted sufficiently identity the firm or partnership intended to use it, the acts and contracts done and
entered into under such a name bind the firm to third persons; and third, because the failure of the partners herein to adopt
the correct name prescribed by law cannot shield them from their personal liabilities, as neither law nor equity will permit
them to utilize their own mistake in order to put the blame on third persons, and much less, on the firm creditors in order to
avoid their personal possibility.

The legal intention deducible from the acts of the parties controls in determining the existence of a partnership. If they intend to do a
thing which in law constitutes a partnership, they are partners, although their purpose was to avoid the creation of such relation.
Here, the intention of the persons making up Teck Seing & co., Ltd. was to establish a partnership which they erroneously denominated
a limited partnership. If this was their purpose, all subterfuges resorted to in order to evade liability for possible losses, while assuming
their enjoyment of the advantages to be derived from the relation, must be disregarded. The partners who have disguised their identity
under a designation distinct from that of any of the members of the firm should be penalized, and not the creditors who presumably
have dealt with the partnership in good faith.

Articles 127 and 237 of the Code of Commerce make all the members of the general copartnership liable personally and in solidum with
all their property for the results of the transactions made in the name and for the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of the partnership and also all the separate property of each of the partners liable. In
other words, if a firm be insolvent, but one or more partners thereof are solvent, the creditors may proceed both against the firm and
against the solvent partner or partners, first exhausting the assets of the firm before seizing the property of the partners. (Brandenburg
of Bankcruptcy, sec. 108; De los Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda & Co. vs.
Pacific Commercial Co. [1922], 44 Phil., 916).

We reach the conclusion that the contract of partnership found in the document hereinbefore quoted established a general
partnership or, to be more exact, a partnership as this word is used in the Insolvency Law.

Wherefore, the order appealed from is reversed, and the record shall be returned to the court of origin for further proceedings
pursuant to the motion presented by the creditors, in conformity with the provisions of the Insolvency Law. Without special findings
as to the costs in this instance, it is ordered.

37. 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

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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.

38. G.R. No. L-44059 October 28, 1977

THE INSULAR LIFE ASSURANCE COMPANY, LTD., plaintiff-appellee,

vs.
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, defendants-appellants.

MARTIN, J.:

This is a novel question in insurance law: Can a common-law wife named as beneficiary in the life insurance policy of a legally married
man claim the proceeds thereof in case of death of the latter?

On September 1, 1968, Buenaventura Cristor Ebrado was issued by The Life Assurance Co., Ltd., Policy No. 009929 on a whole-life for
P5,882.00 with a, rider for Accidental Death for the same amount Buenaventura C. Ebrado designated T. Ebrado as the revocable
beneficiary in his policy. He to her as his wife.

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On October 21, 1969, Buenaventura C. Ebrado died as a result of an t when he was hit by a failing branch of a tree. As the policy was
in force, The Insular Life Assurance Co., Ltd. liable to pay the coverage in the total amount of P11,745.73, representing the face value
of the policy in the amount of P5,882.00 plus the additional benefits for accidental death also in the amount of P5,882.00 and the
refund of P18.00 paid for the premium due November, 1969, minus the unpaid premiums and interest thereon due for January and
February, 1969, in the sum of P36.27.

Carponia T. Ebrado filed with the insurer a claim for the proceeds of the Policy as the designated beneficiary therein, although she
admits that she and the insured Buenaventura C. Ebrado were merely living as husband and wife without the benefit of marriage.

Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She asserts that she is the one entitled to the
insurance proceeds, not the common-law wife, Carponia T. Ebrado.

In doubt as to whom the insurance proceeds shall be paid, the insurer, The Insular Life Assurance Co., Ltd. commenced an action for
Interpleader before the Court of First Instance of Rizal on April 29, 1970.

After the issues have been joined, a pre-trial conference was held on July 8, 1972, after which, a pre-trial order was entered reading
as follows: ñé+.£ªwph!1

During the pre-trial conference, the parties manifested to the court. that there is no possibility of amicable
settlement. Hence, the Court proceeded to have the parties submit their evidence for the purpose of the pre-trial
and make admissions for the purpose of pretrial. During this conference, parties Carponia T. Ebrado and Pascuala
Ebrado agreed and stipulated: 1) that the deceased Buenaventura Ebrado was married to Pascuala Ebrado with
whom she has six — (legitimate) namely; Hernando, Cresencio, Elsa, Erlinda, Felizardo and Helen, all surnamed
Ebrado; 2) that during the lifetime of the deceased, he was insured with Insular Life Assurance Co. Under Policy No.
009929 whole life plan, dated September 1, 1968 for the sum of P5,882.00 with the rider for accidental death benefit
as evidenced by Exhibits A for plaintiffs and Exhibit 1 for the defendant Pascuala and Exhibit 7 for Carponia Ebrado;
3) that during the lifetime of Buenaventura Ebrado, he was living with his common-wife, Carponia Ebrado, with whom
she had 2 children although he was not legally separated from his legal wife; 4) that Buenaventura in accident on
October 21, 1969 as evidenced by the death Exhibit 3 and affidavit of the police report of his death Exhibit 5; 5) that
complainant Carponia Ebrado filed claim with the Insular Life Assurance Co. which was contested by Pascuala Ebrado
who also filed claim for the proceeds of said policy 6) that in view ofthe adverse claims the insurance company filed
this action against the two herein claimants Carponia and Pascuala Ebrado; 7) that there is now due from the Insular
Life Assurance Co. as proceeds of the policy P11,745.73; 8) that the beneficiary designated by the insured in the
policy is Carponia Ebrado and the insured made reservation to change the beneficiary but although the insured made
the option to change the beneficiary, same was never changed up to the time of his death and the wife did not have
any opportunity to write the company that there was reservation to change the designation of the parties agreed
that a decision be rendered based on and stipulation of facts as to who among the two claimants is entitled to the
policy.

Upon motion of the parties, they are given ten (10) days to file their simultaneous memoranda from the receipt of
this order.

SO ORDERED.

On September 25, 1972, the trial court rendered judgment declaring among others, Carponia T. Ebrado disqualified from becoming
beneficiary of the insured Buenaventura Cristor Ebrado and directing the payment of the insurance proceeds to the estate of the
deceased insured. The trial court held: ñé+.£ªwph!1

It is patent from the last paragraph of Art. 739 of the Civil Code that a criminal conviction for adultery or concubinage
is not essential in order to establish the disqualification mentioned therein. Neither is it also necessary that a finding
of such guilt or commission of those acts be made in a separate independent action brought for the purpose. The
guilt of the donee (beneficiary) may be proved by preponderance of evidence in the same proceeding (the action
brought to declare the nullity of the donation).

It is, however, essential that such adultery or concubinage exists at the time defendant Carponia T. Ebrado was made
beneficiary in the policy in question for the disqualification and incapacity to exist and that it is only necessary that
such fact be established by preponderance of evidence in the trial. Since it is agreed in their stipulation above-quoted
that the deceased insured and defendant Carponia T. Ebrado were living together as husband and wife without being
legally married and that the marriage of the insured with the other defendant Pascuala Vda. de Ebrado was valid
and still existing at the time the insurance in question was purchased there is no question that defendant Carponia
T. Ebrado is disqualified from becoming the beneficiary of the policy in question and as such she is not entitled to
the proceeds of the insurance upon the death of the insured.

From this judgment, Carponia T. Ebrado appealed to the Court of Appeals, but on July 11, 1976, the Appellate Court certified the case
to Us as involving only questions of law.

113 | P a g e
We affirm the judgment of the lower court.

1. It is quite unfortunate that the Insurance Act (RA 2327, as amended) or even the new Insurance Code (PD No. 612, as amended)
does not contain any specific provision grossly resolutory of the prime question at hand. Section 50 of the Insurance Act which provides
that "(t)he insurance shag be applied exclusively to the proper interest of the person in whose name it is made" 1 cannot be validly
seized upon to hold that the mm includes the beneficiary. The word "interest" highly suggests that the provision refers only to the
"insured" and not to the beneficiary, since a contract of insurance is personal in character. 2 Otherwise, the prohibitory laws against
illicit relationships especially on property and descent will be rendered nugatory, as the same could easily be circumvented by modes
of insurance. Rather, the general rules of civil law should be applied to resolve this void in the Insurance Law. Article 2011 of the New
Civil Code states: "The contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall
be regulated by this Code." When not otherwise specifically provided for by the Insurance Law, the contract of life insurance is
governed by the general rules of the civil law regulating contracts. 3 And under Article 2012 of the same Code, "any person who is
forbidden from receiving any donation under Article 739 cannot be named beneficiary of a fife insurance policy by the person who
cannot make a donation to him. 4 Common-law spouses are, definitely, barred from receiving donations from each other. Article 739
of the new Civil Code provides: ñé+.£ªwph!1

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or
donee; and the guilt of the donee may be proved by preponderance of evidence in the same action.

2. In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon
the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out
of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of
the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person
who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the
donation. 5 Under American law, a policy of life insurance is considered as a testament and in construing it, the courts will, so far as
possible treat it as a will and determine the effect of a clause designating the beneficiary by rules under which wins are interpreted. 6

3. Policy considerations and dictates of morality rightly justify the institution of a barrier between common law spouses in record to
Property relations since such hip ultimately encroaches upon the nuptial and filial rights of the legitimate family There is every reason
to hold that the bar in donations between legitimate spouses and those between illegitimate ones should be enforced in life insurance
policies since the same are based on similar consideration As above pointed out, a beneficiary in a fife insurance policy is no different
from a donee. Both are recipients of pure beneficence. So long as manage remains the threshold of family laws, reason and morality
dictate that the impediments imposed upon married couple should likewise be imposed upon extra-marital relationship. If legitimate
relationship is circumscribed by these legal disabilities, with more reason should an illicit relationship be restricted by these disabilities.
Thus, in Matabuena v. Cervantes, 7 this Court, through Justice Fernando, said: ñé+.£ªwph!1

If the policy of the law is, in the language of the opinion of the then Justice J.B.L. Reyes of that court (Court of
Appeals), 'to prohibit donations in favor of the other consort and his descendants because of and undue and
improper pressure and influence upon the donor, a prejudice deeply rooted in our ancient law;" por-que no se
enganen desponjandose el uno al otro por amor que han de consuno' (According to) the Partidas (Part IV, Tit. XI,
LAW IV), reiterating the rationale 'No Mutuato amore invicem spoliarentur' the Pandects (Bk, 24, Titl. 1, De donat,
inter virum et uxorem); then there is very reason to apply the same prohibitive policy to persons living together as
husband and wife without the benefit of nuptials. For it is not to be doubted that assent to such irregular connection
for thirty years bespeaks greater influence of one party over the other, so that the danger that the law seeks to avoid
is correspondingly increased. Moreover, as already pointed out by Ulpian (in his lib. 32 ad Sabinum, fr. 1), 'it would
not be just that such donations should subsist, lest the condition 6f those who incurred guilt should turn out to be
better.' So long as marriage remains the cornerstone of our family law, reason and morality alike demand that the
disabilities attached to marriage should likewise attach to concubinage.

It is hardly necessary to add that even in the absence of the above pronouncement, any other conclusion cannot
stand the test of scrutiny. It would be to indict the frame of the Civil Code for a failure to apply a laudable rule to a
situation which in its essentials cannot be distinguished. Moreover, if it is at all to be differentiated the policy of the
law which embodies a deeply rooted notion of what is just and what is right would be nullified if such irregular
relationship instead of being visited with disabilities would be attended with benefits. Certainly a legal norm should
not be susceptible to such a reproach. If there is every any occasion where the principle of statutory construction
that what is within the spirit of the law is as much a part of it as what is written, this is it. Otherwise the basic purpose

114 | P a g e
 discernible in such codal provision would not be attained. Whatever omission may be apparent in an interpretation
purely literal of the language used must be remedied by an adherence to its avowed objective.

4. We do not think that a conviction for adultery or concubinage is exacted before the disabilities mentioned in Article 739 may
effectuate. More specifically, with record to the disability on "persons who were guilty of adultery or concubinage at the time of the
donation," Article 739 itself provides: ñé+.£ªwph!1

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or
donee; and the guilty of the donee may be proved by preponderance of evidence in the same action.

The underscored clause neatly conveys that no criminal conviction for the offense is a condition precedent. In fact, it cannot even be
from the aforequoted provision that a prosecution is needed. On the contrary, the law plainly states that the guilt of the party may be
proved "in the same acting for declaration of nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt
of the consort for the offense indicated. The quantum of proof in criminal cases is not demanded.

In the caw before Us, the requisite proof of common-law relationship between the insured and the beneficiary has been conveniently
supplied by the stipulations between the parties in the pre-trial conference of the case. It case agreed upon and stipulated therein
that the deceased insured Buenaventura C. Ebrado was married to Pascuala Ebrado with whom she has six legitimate children; that
during his lifetime, the deceased insured was living with his common-law wife, Carponia Ebrado, with whom he has two children.
These stipulations are nothing less than judicial admissions which, as a consequence, no longer require proof and cannot be
contradicted. 8 A fortiori, on the basis of these admissions, a judgment may be validly rendered without going through the rigors of a
trial for the sole purpose of proving the illicit liaison between the insured and the beneficiary. In fact, in that pretrial, the parties even
agreed "that a decision be rendered based on this agreement and stipulation of facts as to who among the two claimants is entitled
to the policy."

ACCORDINGLY, the appealed judgment of the lower court is hereby affirmed. Carponia T. Ebrado is hereby declared disqualified to be
the beneficiary of the late Buenaventura C. Ebrado in his life insurance policy. As a consequence, the proceeds of the policy are hereby
held payable to the estate of the deceased insured. Costs against Carponia T. Ebrado.

SO ORDERED.

39. Tuason vs Bolanos (refer to case #6)

40. 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.

115 | P a g e
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,
116 | P a g e
 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 .

117 | P a g e
 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

118 | P a g e
 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

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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

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 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

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 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.

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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.

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