G.R. No. 100152 March 31, 2000 2.

Acebedo cannot examine and/or prescribe reading and

ACEBEDO OPTICAL COMPANY, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS,
At bar is a petition for review under Rule 45 of the Rules of
Court seeking to nullify the dismissal by the Court of Appeals of
the original petition for certiorari, prohibition
and mandamus filed by the herein petitioner against the City
Mayor and City Legal Officer of Iligan and the Samahang
Optometrist sa Pilipinas — Iligan Chapter (SOPI, for brevity).
The antecedent facts leading to the filing of the instant petition
are as follows:
Petitioner applied with the Office of the City Mayor of Iligan for
a business permit. After consideration of petitioner's application
and the opposition interposed thereto by local optometrists,
respondent City Mayor issued Business Permit No. 5342 subject
to the following conditions:
1. Since it is a corporation, Acebedo cannot put up an
optical clinic but only a commercial store;
similar optical glasses for patients, because these are
functions of optical clinics;
3. Acebedo cannot sell reading and similar eyeglasses
without a prescription having first been made by an
independent optometrist (not its employee) or independent
optical clinic. Acebedo can only sell directly to the public,
without need of a prescription, Ray-Ban and similar
eyeglasses;
4. Acebedo cannot advertise optical lenses and eyeglasses,
but can advertise Ray-Ban and similar glasses and frames;
5. Acebedo is allowed to grind lenses but only upon the
prescription of an independent optometrist. 1
On December 5, 1988, private respondent Samahan ng
Optometrist Sa Pilipinas (SOPI), Iligan Chapter, through its
Acting President, Dr. Frances B. Apostol, lodged a complaint
against the petitioner before the Office of the City Mayor,
alleging that Acebedo had violated the conditions set forth in its
business permit and requesting the cancellation and/or revocation Pilipinas-Iligan City Chapter (SOPI), docketed as Civil Case No.
of such permit. 1497 before the Regional Trial Court of Iligan City, Branch I.
Petitioner alleged that (1) it was denied due process because it
Acting on such complaint, then City Mayor Camilo P. Cabili
was not given an opportunity to present its evidence during the
designated City Legal Officer Leo T. Cahanap to conduct an
investigation conducted by the City Legal Officer; (2) it was
investigation on the matter. On July 12, 1989, respondent City
denied equal protection of the laws as the limitations imposed on
Legal Officer submitted a report to the City Mayor finding the
its business permit were not imposed on similar businesses in
herein petitioner guilty of violating all the conditions of its
Iligan City; (3) the City Mayor had no authority to impose the
business permit and recommending the disqualification of
special conditions on its business permit; and (4) the City Legal
petitioner from operating its business in Iligan City. The report
Officer had no authority to conduct the investigation as the
further advised that no new permit shall be granted to petitioner
matter falls within the exclusive jurisdiction of the Professional
for the year 1989 and should only be given time to wind up its
Regulation Commission and the Board of Optometry.
affairs.
Respondent SOPI interposed a Motion to Dismiss the Petition on
On July 19, 1989, the City Mayor sent petitioner a Notice of
the ground of non-exhaustion of administrative remedies but on
Resolution and Cancellation of Business Permit effective as of
November 24, 1989, Presiding Judge Mamindiara P. Mangotara
said date and giving petitioner three (3) months to wind up its
deferred resolution of such Motion to Dismiss until after trial of
affairs.
the case on the merits. However, the prayer for a writ of
On October 17, 1989, petitioner brought a petition for certiorari, preliminary injunction was granted. Thereafter, respondent SOPI
prohibition and mandamus with prayer for restraining filed its answer.1âwphi1.nêt
order/preliminary injunction against the respondents, City
Mayor, City Legal Officer and Samahan ng Optometrists sa
On May 30, 1990, the trial court dismissed the petition for failure ACTED BEYOND HIS AUTHORITY IN IMPOSING
to exhaust administrative remedies, and dissolved the writ of THE SPECIAL CONDITIONS IN THE PERMIT AS
preliminary injunction it earlier issued. Petitioner's motion for THEY HAD NO BASIS IN ANY LAW OR
reconsideration met the same fate. It was denied by an Order ORDINANCE, ERRED IN HOLDING THAT THE SAID
dated June 28, 1990. SPECIAL CONDITIONS NEVERTHELESS BECAME
BINDING ON PETITIONER UPON ITS ACCEPTANCE
On October 3, 1990, instead of taking an appeal, petitioner filed
THEREOF AS A PRIVATE AGREEMENT OR
a petition for certiorari, prohibition and mandamus with the
CONTRACT.
Court of Appeals seeking to set aside the questioned Order of
Dismissal, branding the same as tainted with grave abuse of B.
discretion on the part of the trial court.
THE RESPONDENT COURT OF APPEALS ERRED IN
On January 24, 1991, the Ninth Division 2 of the Court of HOLDING THAT THE CONTRACT BETWEEN
Appeals dismissed the petition for lack of merit. Petitioner's PETITIONER AND THE CITY OF ILIGAN WAS
motion reconsideration was also denied in the Resolution dated ENTERED INTO BY THE LATTER IN THE
May 15, 1991. PERFORMANCE OF ITS PROPRIETARY
FUNCTIONS.
Undaunted, petitioner has come before this court via the present
petition, theorizing that: The petition is impressed with merit.

A. Although petitioner agrees with the finding of the Court of

Appeals that respondent City Mayor acted beyond the scope of
THE RESPONDENT COURT, WHILE CORRECTLY
his authority in imposing the assailed conditions in subject
HOLDING THAT THE RESPONDENT CITY MAYOR
business permit, it has excepted to the ruling of the Court of
Appeals that the said conditions nonetheless became binding on
petitioner, once accepted, as a private agreement or contract.
Petitioner maintains that the said special conditions are null and
void for being ultra vires and cannot be given effect; and
therefore, the principle of estoppel cannot apply against it.
On the other hand, the public respondents, City Mayor and City
Legal Officer, private respondent SOPI and the Office of the
Solicitor General contend that as a valid exercise of police
power, respondent City Mayor has the authority to impose, as he
did, special conditions in the grant of business permits.
Police power as an inherent attribute of sovereignty is the power
to prescribe regulations to promote the health, morals, peace,
education, good order or safety and general welfare of the
Sec. 6. General Welfare. — Every local government unit
shall exercise the powers expressly granted, those
necessarily implied therefrom, as well as powers
necessary, appropriate, or incidental for its efficient and
effective governance, and those which are essential to the
promotion of the general welfare. Within their respective
territorial jurisdictions, local government units shall ensure
and support, among other things, the preservation and
enrichment of culture, promote health and safety, enhance
the right of the people to a balanced ecology, encourage
and support the development of appropriate and self-
reliant scientific and technological capabilities, improve
public morals, enhance economic prosperity and social
justice, promote full employment among their residents,
maintain peace and order, and preserve the comfort and

people. 9 The State, through the legislature, has delegated the convenience of their inhabitants.

exercise of police power to local government units, as agencies

The scope of police power has been held to be so comprehensive
of the State, in order to effectively accomplish and carry out the
as to encompass almost all matters affecting the health, safety,
declared objects of their creation. 4 This delegation of police
peace, order, morals, comfort and convenience of the
power is embodied in the general welfare clause of the Local
community. Police power is essentially regulatory in nature and
Government Code which provides:
the power to issue licenses or grant business permits, if exercised
for a regulatory and not revenue-raising purpose, is within the
ambit of this power. 5
The authority of city mayors to issue or grant licenses and
business permits is beyond cavil. It is provided for by law.
Section 171, paragraph 2 (n) of Batas Pambansa Bilang 337
otherwise known as the Local Government Code of 1983, reads:
Sec. 171. The City Mayor shall:
xxx xxx xxx
n) Grant or refuse to grant, pursuant to law, city licenses or
permits, and revoke the same for violation of law or
ordinance or the conditions upon which they are granted.
However, the power to grant or issue licenses or business permits
must always be exercised in accordance with law, with utmost
observance of the rights of all concerned to due process and
equal protection of the law.
Succinct and in point is the ruling of this Court, that:
. . . While a business may be regulated, such regulation
must, however, be within the bounds of reason, i.e., the
regulatory ordinance must be reasonable, and its provision
cannot be oppressive amounting to an arbitrary
interference with the business or calling subject of
regulation. A lawful business or calling may not, under the
guise of regulation, be unreasonably interfered with even
by the exercise of police power. . . .
xxx xxx xxx
. . . The exercise of police power by the local government
is valid unless it contravenes the fundamental law of the
land or an act of the legislature, or unless it is against
public policy or is unreasonable, oppressive, partial,
discriminating or in derogation of a common right. 6
In the case under consideration, the business permit granted by
respondent City Mayor to petitioner was burdened with several
conditions. Petitioner agrees with the holding by the Court of
Appeals that respondent City Mayor acted beyond his authority
in imposing such special conditions in its permit as the same
have no basis in the law or ordinance. Public respondents and
private respondent SOPI, on the other hand, are one in saying
that the imposition of said special conditions on petitioner's
business permit is well within the authority of the City Mayor as
a valid exercise of police power.
As aptly discussed by the Solicitor General in his Comment, the
power to issue licenses and permits necessarily includes the
corollary power to revoke, withdraw or cancel the same. And the
power to revoke or cancel, likewise includes the power to restrict
through the imposition of certain conditions. In the case
of Austin-Hardware, Inc. vs. Court of Appeals, 7 it was held that
the power to license carries with it the authority to provide
reasonable terms and conditions under which the licensed
business shall be conducted. As the Solicitor General puts it:
If the City Mayor is empowered to grant or refuse to grant
a license, which is a broader power, it stands to reason that
he can also exercise a lesser power that is reasonably
incidental to his express power, i.e. to restrict a license
through the imposition of certain conditions, especially so
that there is no positive prohibition to the exercise of such
prerogative by the City Mayor, nor is there any particular
official or body vested with such authority. 8
However, the present inquiry does not stop there, as the Solicitor
General believes. The power or authority of the City Mayor to
impose conditions or restrictions in the business permit is
indisputable. What petitioner assails are the conditions imposed
in its particular case which, it complains, amount to a
confiscation of the business in which petitioner is engaged.
Distinction must be made between the grant of a license or
permit to do business and the issuance of a license to engage in
the practice of a particular profession. The first is usually granted
by the local authorities and the second is issued by the Board or
Commission tasked to regulate the particular profession. A
business permit authorizes the person, natural or otherwise, to
engage in business or some form of commercial activity. A
professional license, on the other hand, is the grant of authority
to a natural person to engage in the practice or exercise of his or
her profession.
In the case at bar, what is sought by petitioner from respondent
City Mayor is a permit to engage in the business of running an
optical shop. It does not purport to seek a license to engage in the
practice of optometry as a corporate body or entity, although it
does have in its employ, persons who are duly licensed to
practice optometry by the Board of Examiners in Optometry.
The case of Samahan ng Optometrists sa Pilipinas
vs. Acebedo International Corporation, G.R. No.
117097, 9promulgated by this Court on March 21, 1997, is in
point. The factual antecedents of that case are similar to those of
the case under consideration and the issue ultimately resolved
therein is exactly the same issue posed for resolution by this
Court en banc.
In the said case, the Acebedo International Corporation filed
with the Office of the Municipal Mayor an application for a
business permit for the operation of a branch of Acebedo Optical
in Candon, Ilocos Sur. The application was opposed by the
Samahan ng Optometrists sa Pilipinas-Ilocos Sur Chapter,
theorizing that Acebedo is a juridical entity not qualified to
practice optometry. A committee was created by the Office of
the Mayor to study private respondent's application. Upon
recommendation of the said committee, Acebedo's application
for a business permit was denied. Acebedo filed a petition with
the Regional Trial Court but the same was dismissed. On appeal,
however, the Court of Appeals reversed the trial court's
disposition, prompting the Samahan ng Optometrists to elevate
the matter to this Court.
The First Division of this Court, then composed of Honorable
Justice Teodoro Padilla, Josue Bellosillo, Jose Vitug and
Santiago Kapunan, with Honorable Justice Regino Hermosisima,
Jr. as ponente, denied the petition and ruled in favor of
respondent Acebedo International Corporation, holding that "the
fact that private respondent hires optometrists who practice their
profession in the course of their employment in private
respondent's optical shops, does not translate into a practice of
optometry by private respondent itself," 10 The Court further
elucidated that in both the old and new Optometry Law, R.A.
No. 1998, superseded by R.A. No. 8050, it is significant to note
that there is no prohibition against the hiring by corporations of
optometrists. The Court concluded thus:
All told, there is no law that prohibits the hiring by
corporations of optometrists or considers the hiring by
 corporations of optometrists as a practice by the The proponent of the bill, former Senator Freddie Webb,
corporation itself of the profession of optometry. admitted thus:

In the present case, the objective of the imposition of subject Senator Webb: xxx xxx xxx
conditions on petitioner's business permit could be attained by
The focus of contention remains to be the proposal of
requiring the optometrists in petitioner's employ to produce a
prohibiting the indirect practice of optometry by
valid certificate of registration as optometrist, from the Board of
corporations.1âwphi1 We took a second look and even a
Examiners in Optometry. A business permit is issued primarily
third look at the issue in the bicameral conference, but a
to regulate the conduct of business and the City Mayor cannot,
compromise remained elusive. 11
through the issuance of such permit, regulate the practice of a
profession, like that of optometry. Such a function is within the Former Senator Leticia Ramos-Shahani likewise voted her
exclusive domain of the administrative agency specifically reservation in casting her vote:
empowered by law to supervise the profession, in this case the
Professional Regulations Commission and the Board of Senator Shahani: Mr. President.

Examiners in Optometry.
The optometry bills have evoked controversial views from

It is significant to note that during the deliberations of the the members of the panel. While we realize the need to

bicameral conference committee of the Senate and the House of uplift the standards of optometry as a profession, the

Representatives on R.A. 8050 (Senate Bill No. 1998 and House consesnsus of both Houses was to avoid touching sensitive

Bill No. 14100), the committee failed to reach a consensus as to issues which properly belong to judicial determination.

the prohibition on indirect practice of optometry by corporations. Thus, the bicameral conference committee decided to
leave the issue of indirect practice of optometry and the
use of trade names open to the wisdom of the Courts
 which are vested with the prerogative of interpreting the
laws. 12
From the foregoing, it is thus evident that Congress has not
adopted a unanimous position on the matter of prohibition of
indirect practice of optometry by corporations, specifically on
the hiring and employment of licensed optometrists by optical
corporations. It is clear that Congress left the resolution of such
issue for judicial determination, and it is therefore proper for this
Court to resolve the issue.
Even in the United States, jurisprudence varies and there is a
conflict of opinions among the federal courts as to the right of a
corporation or individual not himself licensed, to hire and
13
employ licensed optometrists.
Courts have distinguished between optometry as a learned
The primary purpose of the statute regulating the practice of
optometry is to insure that optometrical services are to be
rendered by competent and licensed persons in order to protect
the health and physical welfare of the people from the dangers
engendered by unlicensed practice. Such purpose may be fully
accomplished although the person rendering the service is
employed by a corporation. 15
Furthermore, it was ruled that the employment of a qualified
optometrist by a corporation is not against public
policy. 16 Unless prohibited by statutes, a corporation has all the
contractual rights that an individual has 17 and it does not become
the practice of medicine or optometry because of the presence of
a physician or optometrist. 18 The manufacturing, selling, trading
and bartering of eyeglasses and spectacles as articles of
merchandise do not constitute the practice of optometry. 19

profession in the category of law and medicine, and optometry as

In the case of Dvorine vs. Castelberg Jewelry
a mechanical art. And, insofar as the courts regard optometry as
Corporation, 20 defendant corporation conducted as part of its
merely a mechanical art, they have tended to find nothing
business, a department for the sale of eyeglasses and the
objectionable in the making and selling of eyeglasses, spectacles
furnishing of optometrical services to its clients. It employed a
and lenses by corporations so long as the patient is actually
registered optometrist who was compensated at a regular salary
14
examined and prescribed for by a qualified practitioner.
and commission and who was furnished instruments and
appliances needed for the work, as well as an office. In holding
that corporation was not engaged in the practice of optometry,
the court ruled that there is no public policy forbidding the
commercialization of optometry, as in law and medicine, and
recognized the general practice of making it a commercial
business by advertising and selling eyeglasses.
To accomplish the objective of the regulation, a state may
provide by statute that corporations cannot sell eyeglasses,
spectacles, and lenses unless a duly licensed physician or a duly
qualified optometrist is in charge of, and in personal attendance
at the place where such articles are sold. 21 In such a case, the
patient's primary and essential safeguard lies in the optometrist's
control of the "treatment" by means of prescription and
preliminary and final examination. 22
In analogy, it is noteworthy that private hospitals are maintained
by corporations incorporated for the purpose of furnishing
medical and surgical treatment. In the course of providing such
treatments, these corporations employ physicians, surgeons and
medical practitioners, in the same way that in the course of
manufacturing and selling eyeglasses, eye frames and optical
lenses, optical shops hire licensed optometrists to examine,
prescribe and dispense ophthalmic lenses. No one has ever
charged that these corporations are engaged in the practice of
medicine. There is indeed no valid basis for treating corporations
engaged in the business of running optical shops differently.
It also bears stressing, as petitioner has pointed out, that the
public and private respondents did not appeal from the ruling of
the Court of Appeals. Consequently, the holding by the Court of
Appeals that the act of respondent City Mayor in imposing the
questioned special conditions on petitioner's business permit
is ultra vires cannot be put into issue here by the respondents. It
is well-settled that:
A party who has not appealed from the decision may not
obtain any affirmative relief from the appellate court other
than what he had obtain from the lower court, if any,
whose decision is brought up on appeal. 23
. . . an appellee who is not an appellant may assign errors
in his brief where his purpose is to maintain the judgment
on other grounds, but he cannot seek modification or
 reversal of the judgment or affirmative relief unless he has
also appealed. 24
Thus, respondents' submission that the imposition of subject
special conditions on petitioner's business permit is not ultra
vires cannot prevail over the finding and ruling by the Court of
Appeals from which they (respondents) did not appeal.
Anent the second assigned error, petitioner maintains that its
business permit issued by the City Mayor is not a contract
entered into by Iligan City in the exercise of its proprietary
functions, such that although petitioner agreed to such
conditions, it cannot be held in estoppel since ultra vires acts
cannot be given effect.
Respondents, on the other hand, agree with the ruling of the
Court of Appeals that the business permit in question is in the
nature of a contract between Iligan City and the herein petitioner,
the terms and conditions of which are binding upon agreement,
and that petitioner is estopped from questioning the same.
Moreover, in the Resolution denying petitioner's motion for
reconsideration, the Court of Appeals held that the contract
between the petitioner and the City of Iligan was entered into by
the latter in the performance of its proprietary functions.
This Court holds otherwise. It had occasion to rule that a license
or permit is not in the nature of a contract but a special privilege.
. . . a license or a permit is not a contract between the
sovereignty and the licensee or permitee, and is not a
property in the constitutional sense, as to which the
constitutional proscription against impairment of the
obligation of contracts may extend. A license is rather in
the nature of a special privilege, of a permission or
authority to do what is within its terms. It is not in any
way vested, permanent or absolute. 25
It is therefore decisively clear that estoppel cannot apply in this
case. The fact that petitioner acquiesced in the special conditions
imposed by the City Mayor in subject business permit does not
preclude it from challenging the said imposition, which is ultra
vires or beyond the ambit of authority of respondent City
Mayor. Ultra vires acts or acts which are clearly beyond the
scope of one's authority are null and void and cannot be given
any effect. The doctrine of estoppel cannot operate to give effect
to an act which is otherwise null and void or ultra vires.

The Court of Appeals erred in adjudging subject business permit

as having been issued by responded City Mayor in the
performance of proprietary functions of Iligan City. As
hereinabove elaborated upon, the issuance of business licenses
and permits by a municipality or city is essentially regulatory in
nature. The authority, which devolved upon local government
units to issue or grant such licenses or permits, is essentially in
the exercise of the police power of the State within the
contemplation of the general welfare clause of the Local
Government Code.

WHEREFORE, the petition is GRANTED; the Decision of the

Court of Appeals in CA-GR SP No. 22995 REVERSED: and the
respondent City Mayor is hereby ordered to reissue petitioner's
business permit in accordance with law and with this disposition.
No pronouncement as to costs.

SO ORDERED.
 G.R. No. L-45425 April 29, 1939 1. That plaintiff are all residents of the municipality of
Pulilan, Bulacan, and that defendant is the Collector of
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
Internal Revenue of the Philippines;
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant- 2. That prior to December 15, 1934 plaintiffs, in order to
appellee. enable them to purchase one sweepstakes ticket valued at
two pesos (P2), subscribed and paid therefor the amounts
The plaintiff brought this action to recover from the defendant
as follows:
Collector of Internal Revenue the sum of P1,863.44, with legal
interest thereon, which they paid under protest by way of income 1. Jose Gatchalian
tax. They appealed from the decision rendered in the case on P0.1
..............................................................................................
October 23, 1936 by the Court of First Instance of the City of 8
......
Manila, which dismissed the action with the costs against them.
2. Gregoria Cristobal
The case was submitted for decision upon the following .............................................................................................. .18
stipulation of facts: .

Come now the parties to the above-mentioned case, 3. Saturnina Silva

through their respective undersigned attorneys, and hereby .............................................................................................. .08

agree to respectfully submit to this Honorable Court the ......

case upon the following statement of facts: 4. Guillermo Tapia

.13
..............................................................................................
..... 11. Francisco Cabral
.............................................................................................. .13
5. Jesus Legaspi
.
.............................................................................................. .15
........ 12. Gonzalo Javier
.............................................................................................. .14
6. Jose Silva
......
.............................................................................................. .07
............... 13. Maria Santiago
.............................................................................................. .17
7. Tomasa Mercado
.....
.............................................................................................. .08
.. 14. Buenaventura Guzman
.13
......................................................................................
8. Julio Gatchalian
.............................................................................................. .13 15. Mariano Santos
..... .............................................................................................. .14
...
9. Emiliana Santiago
.............................................................................................. .13 Total
.. ..............................................................................................
2.00
..........
10. Maria C. Legaspi
.............................................................................................. .16
3. That immediately thereafter but prior to December 15,
.
1934, plaintiffs purchased, in the ordinary course of
business, from one of the duly authorized agents of the
National Charity Sweepstakes Office one ticket bearing
No. 178637 for the sum of two pesos (P2) and that the said
ticket was registered in the name of Jose Gatchalian and
Company;
4. That as a result of the drawing of the sweepstakes on
December 15, 1934, the above-mentioned ticket bearing
No. 178637 won one of the third prizes in the amount of
P50,000 and that the corresponding check covering the
above-mentioned prize of P50,000 was drawn by the
National Charity Sweepstakes Office in favor of Jose
Gatchalian & Company against the Philippine National
Bank, which check was cashed during the latter part of
December, 1934 by Jose Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was
required by income tax examiner Alfredo David to file the
corresponding income tax return covering the prize won
by Jose Gatchalian & Company and that on December 29,
1934, the said return was signed by Jose Gatchalian, a
copy of which return is enclosed as Exhibit A and made a
part hereof;
6. That on January 8, 1935, the defendant made an
assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving to
said Jose Gatchalian & Company until January 20, 1935
within which to pay the said amount of P1,499.94, a copy
of which letter marked Exhibit B is enclosed and made a
part hereof;
7. That on January 20, 1935, the plaintiffs, through their
attorney, sent to defendant a reply, a copy of which
marked Exhibit C is attached and made a part hereof,
requesting exemption from payment of the income tax to
which reply there were enclosed fifteen (15) separate
individual income tax returns filed separately by each one
of the plaintiffs, copies of which returns are attached and
marked Exhibit D-1 to D-15, respectively, in order of their
names listed in the caption of this case and made parts
hereof; a statement of sale signed by Jose Gatchalian
showing the amount put up by each of the plaintiffs to
cover up the attached and marked as Exhibit E and made a
part hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and
marked Exhibit F and made part thereof;
8. That the defendant in his letter dated January 28, 1935,
a copy of which marked Exhibit G is enclosed, denied
plaintiffs' request of January 20, 1935, for exemption from
the payment of tax and reiterated his demand for the
payment of the sum of P1,499.94 as income tax and gave
plaintiffs until February 10, 1935 within which to pay the
said tax;
9. That in view of the failure of the plaintiffs to pay the
amount of tax demanded by the defendant,
notwithstanding subsequent demand made by defendant
upon the plaintiffs through their attorney on March 23,
1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint
and levy against the property of the plaintiffs, a copy of
which warrant marked Exhibit I is enclosed and made a
part hereof;
10. That to avoid embarrassment arising from the embargo
of the property of the plaintiffs, the said plaintiffs on June
15, 1935, through Gregoria Cristobal, Maria C. Legaspi
and Jesus Legaspi, paid under protest the sum of P601.51
as part of the tax and penalties to the municipal treasurer
of Pulilan, Bulacan, as evidenced by official receipt No.
7454879 which is attached and marked Exhibit J and made
a part hereof, and requested defendant that plaintiffs be
allowed to pay under protest the balance of the tax and
penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax
and penalties was granted by defendant subject to the
condition that plaintiffs file the usual bond secured by two
solvent persons to guarantee prompt payment of each
installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of
which marked Exhibit K is enclosed and made a part
hereof, to guarantee the payment of the balance of the
alleged tax liability by monthly installments at the rate of
P118.70 a month, the first payment under protest to be
effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally
protested against the payment of the sum of P602.51, a
copy of which protest is attached and marked Exhibit L,
but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund of
the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the
monthly installments in accordance with the terms and
conditions of bond filed by them, the defendant in his
letter dated July 23, 1935, copy of which is attached and
marked Exhibit M, ordered the municipal treasurer of
Pulilan, Bulacan to execute within five days the warrant of
distraint and levy issued against the plaintiffs on May 13,
1935;
15. That in order to avoid annoyance and embarrassment
arising from the levy of their property, the plaintiffs on
August 28, 1936, through Jose Gatchalian, Guillermo
Tapia, Maria Santiago and Emiliano Santiago, paid under
protest to the municipal treasurer of Pulilan, Bulacan the
sum of P1,260.93 representing the unpaid balance of the
income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is
attached and marked Exhibit N and made a part hereof;
and that on September 3, 1936, the plaintiffs formally
protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is
attached and marked Exhibit O and made part hereof; but
that on September 4, 1936, the defendant overruled the
protest and denied the refund thereof; copy of which is
attached and marked Exhibit P and made a part hereof;
and
16. That plaintiffs demanded upon defendant the refund of
the total sum of one thousand eight hundred and sixty
three pesos and forty-four centavos (P1,863.44) paid under
protest by them but that defendant refused and still refuses
to refund the said amount notwithstanding the plaintiffs'
demands.
 17. The parties hereto reserve the right to present other and ..............................................
additional evidence if necessary.
5. Francisco Cabral
.13 - Do -
Exhibit E referred to in the stipulation is of the following tenor: ..........................................

To whom it may concern: 6. Maria C. Legaspi

.16 - Do -
..........................................
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married,
7. Emiliana Santiago
of age, hereby certify, that on the 11th day of August, .13 - Do -
.........................................
1934, I sold parts of my shares on ticket No. 178637 to the
persons and for the amount indicated below and the part of 8. Julio Gatchalian
.13 - Do -
may share remaining is also shown to wit: ............................................

9. Jose Silva
Purchaser Amount Address .07 - Do -
......................................................
1. Mariano Santos Pulilan,
P0.14 10. Tomasa Mercado
........................................... Bulacan. .08 - Do -
.......................................
2. Buenaventura Guzman
.13 - Do - 11. Jesus Legaspi
............................... .15 - Do -
.............................................
3. Maria Santiago
.17 - Do - 12. Guillermo Tapia
............................................ .13 - Do -
...........................................
4. Gonzalo Javier .14 - Do -
13. Saturnina Silva 1935 SUBMITTED TO THE COLLECTOR OF
.08 - Do -
............................................ INTERNAL REVENUE.

14. Gregoria Cristobal Exhi Purch Pric Net

.18 - Do - Expense
....................................... Name bit ase e priz
s
15. Jose Gatchalian No. Price Won e
.18 - Do -
............................................ 1. Jose Gatchalian P4,4 3,9
D-1 P0.18 P 480
Total cost of .......................................... 25 45
2.00 said 2. Gregoria Cristobal 4,57 2,5
D-2 .18 2,000
...................................... 5 75
ticket; and that, therefore, the persons named above are
entitled to the parts of whatever prize that might be won 3. Saturnina Silva
1,87 1,5
by said ticket. .......................................... D-3 .08 360
5 15
...
Pulilan, Bulacan, P.I.
4. Guillermo Tapia 3,32 2,9
D-4 .13 360
(Sgd.) JOSE GATCHALIAN .......................................... 5 65

And a summary of Exhibits D-1 to D-15 is inserted in the bill of 5. Jesus Legaspi by Maria 3,82 3,1
D-5 .15 720
exceptions as follows: Cristobal ......... 5 05

6. Jose Silva 1,87 1,5

RECAPITULATIONS OF 15 INDIVIDUAL INCOME D-6 .08 360
.......................................... 5 15
TAX RETURNS FOR 1934 ALL DATED JANUARY 19,
.......... 15. Mariano Santos 3,32 2,9
D-15 .14 360
........................................ 5 65
7. Tomasa Mercado 1,87 1,5
D-7 .07 360
....................................... 5 15 <=""
td=""
8. Julio Gatchalian by 3,15 2,9
D-8 .13 240 style="f
Beatriz Guzman ....... 0 10
ont-size:
9. Emiliana Santiago 3,32 2,9 14px;
D-9 .13 360
...................................... 5 65 text-
10. Maria C. Legaspi 4,10 3,1 decorati
D-10 .16 960
...................................... 0 40 on:
50,0 none;
11. Francisco Cabral 3,32 2,9 2.00
D-11 .13 360 00 color:
...................................... 5 65
rgb(0, 0,
12. Gonzalo Javier 3,32 2,9 128);
D-12 .14 360
.......................................... 5 65 font-

13. Maria Santiago 4,35 3,9 family:

D-13 .17 360 arial,
.......................................... 0 90
verdana;
14. Buenaventura 3,32 2,9
D-14 .13 360 ">
Guzman ........................... 5 65
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 circumstances repel the idea that the plaintiffs organized and
received by every taxable corporation, joint-stock formed a community of property only.
company, partnership, joint account (cuenta en
Having organized and constituted a partnership of a civil nature,
participacion), association, or insurance company in the
the said entity is the one bound to pay the income tax which the
calendar year nineteen hundred and twenty and in each
defendant collected under the aforesaid section 10 (a) of Act No.
year thereafter.
2833, as amended by section 2 of Act No. 3761. There is no
There is no doubt that if the plaintiffs merely formed a merit in plaintiff's contention that the tax should be prorated
community of property the latter is exempt from the payment of among them and paid individually, resulting in their exemption
income tax under the law. But according to the stipulation facts from the tax.
the plaintiffs organized a partnership of a civil nature because
In view of the foregoing, the appealed decision is affirmed, with
each of them put up money to buy a sweepstakes ticket for the
the costs of this instance to the plaintiffs appellants. So ordered.
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
 G.R. No. L-19342 May 25, 1972
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES,
namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA,
JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
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- latter with the approval of the Court (see p. 3 of
70, BIR rec.) shows that the heirs have undivided Exhibit K; or see p. 74, BIR rec.).
one-half (1/2) interest in ten parcels of land with a
Although the project of partition was approved by
total assessed value of P87,860.00, six houses with
the Court on May 16, 1949, no attempt was made to
a total assessed value of P17,590.00 and an
divide the properties therein listed. Instead, the
undetermined amount to be collected from the War
properties remained under the management of
Damage Commission. Later, they received from
Lorenzo T. Oña who used said properties in
said Commission the amount of P50,000.00, more
business by leasing or selling them and investing the
or less. This amount was not divided among them
income derived therefrom and the proceeds from the
but was used in the rehabilitation of properties
sales thereof in real properties and securities. As a
owned by them in common (t.s.n., p. 46). Of the ten
result, petitioners' properties and investments
parcels of land aforementioned, two were acquired
gradually increased from P105,450.00 in 1949 to
after the death of the decedent with money
P480,005.20 in 1956 as can be gleaned from the
borrowed from the Philippine Trust Company in the
following year-end balances:
amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp.
31-34 BIR rec.).
Y Inv L B

The project of partition also shows that the estate e est a ui

shares equally with Lorenzo T. Oña, the a me n ld

administrator thereof, in the obligation of r nt d in

P94,973.00, consisting of loans contracted by the g

 Acc A A From said investments and properties petitioners

oun cc cc derived such incomes as profits from installment

t o o sales of subdivided lots, profits from sales of stocks,

u u dividends, rentals and interests (see p. 3 of Exhibit

nt nt 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said

incomes are recorded in the books of account kept
1949 — P87,860.00 P17,590.00
by Lorenzo T. Oña where the corresponding shares
1950 P24,657.65 128,566.72 96,076.26 of the petitioners in the net income for the year are
also known. Every year, petitioners returned for
1951 51,301.31 120,349.28 110,605.11
income tax purposes their shares in the net income
1952 67,927.52 87,065.28 152,674.39 derived from said properties and securities and/or
from transactions involving them (Exhibit 3, supra;
1953 61,258.27 84,925.68 161,463.83
t.s.n., pp. 25-26). However, petitioners did not
1954 63,623.37 99,001.20 167,962.04 actually receive their shares in the yearly income.

1955 100,786.00 120,249.78 169,262.52 (t.s.n., pp. 25-26, 40, 98, 100). The income was
always left in the hands of Lorenzo T. Oña who, as
1956 175,028.68 135,714.68 169,262.52
heretofore pointed out, invested them in real
properties and securities. (See Exhibit 3, t.s.n., pp.
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50,
50, 102-104).
102-104)
On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and 8,042.00
therefore, subject to the corporate income tax, 25% surcharge ..............................................
pursuant to Section 24, in relation to Section 84(b), 2,010.50
of the Tax Code. Accordingly, he assessed against Compromise for non-filing .......................... 50.00
the petitioners the amounts of P8,092.00 and Total ...............................................................
P13,899.00 as corporate income taxes for 1955 and P10,102.50
1956, respectively. (See Exhibit 5, amended by
1956
Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners
protested against the assessment and asked for Net income as per investigation
reconsideration of the ruling of respondent that they ................ P69,245.23
have formed an unregistered partnership. Finding no
merit in petitioners' request, respondent denied it Income tax due thereon ...............................

(See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, 13,849.00

Memorandum for Respondent, June 12, 1961). 25% surcharge ..............................................

3,462.25
The original assessment was as follows: Compromise for non-filing .......................... 50.00
Total ...............................................................
1955
P17,361.25
Net income as per investigation
(See Exhibit 13, page 50, BIR records)
................ P40,209.89
Upon further consideration of the case, the 25%
Income tax due thereon ............................... surcharge was eliminated in line with the ruling of
 the Supreme Court in Collector v. Batangas WERE CO-OWNERS OF THE PROPERTIES
Transportation Co., G.R. No. L-9692, Jan. 6, 1958, INHERITED AND (THE) PROFITS DERIVED
so that the questioned assessment refers solely to the FROM TRANSACTIONS THEREFROM (sic);
income tax proper for the years 1955 and 1956 and
III.
the "Compromise for non-filing," the latter item
obviously referring to the compromise in lieu of the THE COURT OF TAX APPEALS ERRED IN
criminal liability for failure of petitioners to file the HOLDING THAT PETITIONERS WERE LIABLE
corporate income tax returns for said years. (See FOR CORPORATE INCOME TAXES FOR 1955
Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C AND 1956 AS AN UNREGISTERED
to Petition) PARTNERSHIP;

Petitioners have assigned the following as alleged errors of the IV.

Tax Court:
ON THE ASSUMPTION THAT THE
I. PETITIONERS CONSTITUTED AN
UNREGISTERED PARTNERSHIP, THE COURT
THE COURT OF TAX APPEALS ERRED IN
OF TAX APPEALS ERRED IN NOT HOLDING
HOLDING THAT THE PETITIONERS FORMED
THAT THE PETITIONERS WERE AN
AN UNREGISTERED PARTNERSHIP;
UNREGISTERED PARTNERSHIP TO THE
II. EXTENT ONLY THAT THEY INVESTED THE
PROFITS FROM THE PROPERTIES OWNED IN
THE COURT OF TAX APPEALS ERRED IN
COMMON AND THE LOANS RECEIVED
NOT HOLDING THAT THE PETITIONERS
 USING THE INHERITED PROPERTIES AS Internal Revenue Code? (2) Assuming they have formed an
COLLATERALS; unregistered partnership, should this not be only in the sense that
they invested as a common fund the profits earned by the
V.
properties owned by them in common and the loans granted to
ON THE ASSUMPTION THAT THERE WAS AN them upon the security of the said properties, with the result that
UNREGISTERED PARTNERSHIP, THE COURT as far as their respective shares in the inheritance are concerned,
OF TAX APPEALS ERRED IN NOT the total income thereof should be considered as that of co-
DEDUCTING THE VARIOUS AMOUNTS PAID owners and not of the unregistered partnership? And (3)
BY THE PETITIONERS AS INDIVIDUAL assuming again that they are taxable as an unregistered
INCOME TAX ON THEIR RESPECTIVE partnership, should not the various amounts already paid by them
SHARES OF THE PROFITS ACCRUING FROM for the same years 1955 and 1956 as individual income taxes on

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
their respective shares of the profits accruing from the properties
they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such
unregistered partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the
Court is that whereas petitioners' predecessor in interest died way
back on March 23, 1944 and the project of partition of her estate
was judicially approved as early as May 16, 1949, and
presumably petitioners have been holding their respective shares
in their inheritance since those dates admittedly under the
administration or management of the head of the family, the
widower and father Lorenzo T. Oña, the assessment in question
refers to the later years 1955 and 1956. We believe this point to
be important because, apparently, at the start, or in the years
1944 to 1954, the respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to corporate tax, and
it was only from 1955 that he considered them as having formed
an unregistered partnership. At least, there is nothing in the
record indicating that an earlier assessment had already been
made. Such being the case, and We see no reason how it could
be otherwise, it is easily understandable why petitioners' position
that they are co-owners and not unregistered co-partners, for the
purposes of the impugned assessment, cannot be upheld. Truth to
tell, petitioners should find comfort in the fact that they were not
similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the
estate of the deceased among themselves pursuant to the project
of partition approved in 1949, "the properties remained under the
management of Lorenzo T. Oña who used said properties in
business by leasing or selling them and investing the income
derived therefrom and the proceed from the sales thereof in real
properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land
account" and P17,590.00 in "building account" in 1949 to
P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956. And all
these became possible because, admittedly, petitioners never
actually received any share of the income or profits from
Lorenzo T. Oña and instead, they allowed him to continue using
said shares as part of the common fund for their ventures, even
as they paid the corresponding income taxes on the basis of their
respective shares of the profits of their common business as
reported by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to
their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that during
the material years herein involved, some of the said properties
were sold at considerable profit, and that with said profit,
petitioners engaged, thru Lorenzo T. Oña, in the purchase and
sale of corporate securities. It is likewise admitted that all the
profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the
inheritance. In these circumstances, it is Our considered view
that from the moment petitioners allowed not only the incomes
from their respective shares of the inheritance but even the
inherited properties themselves to be used by Lorenzo T. Oña as
a common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by
them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect, they
thereby formed an unregistered partnership within the purview of
the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a
period when the heirs can be considered as co-owners rather than
unregistered co-partners within the contemplation of our
corporate tax laws aforementioned. Before the partition and
distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them
becoming thereby unregistered co-partners, but it does not
necessarily follow that such status as co-owners continues until
the inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue
holding said shares under the common management of the
administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be
allowed, it would be the easiest thing for heirs in any inheritance
to circumvent and render meaningless Sections 24 and 84(b) of
the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was
stated, among the reasons for holding the appellants therein to be
unregistered co-partners for tax purposes, that their common
fund "was not something they found already in existence" and
that "it was not a property inherited by them pro indiviso," but it
is certainly far fetched to argue therefrom, as petitioners are
doing here, that ergo, in all instances where an inheritance is not
actually divided, there can be no unregistered co-partnership. As
already indicated, for tax purposes, the co-ownership of inherited
properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a project
partition either duly executed in an extrajudicial settlement or
approved by the court in the corresponding testate or intestate clearly differentiated the concept of partnerships under the Civil
proceeding. The reason for this is simple. From the moment of Code from that of unregistered partnerships which are
such partition, the heirs are entitled already to their respective considered as "corporations" under Sections 24 and 84(b) of the
definite shares of the estate and the incomes thereof, for each of National Internal Revenue Code. Mr. Justice Roberto
them to manage and dispose of as exclusively his own without Concepcion, now Chief Justice, elucidated on this point thus:
the intervention of the other heirs, and, accordingly he becomes
To begin with, the tax in question is one imposed
liable individually for all taxes in connection therewith. If after
upon "corporations", which, strictly speaking, are
such partition, he allows his share to be held in common with his
distinct and different from "partnerships". When our
co-heirs under a single management to be used with the intent of
Internal Revenue Code includes "partnerships"
making profit thereby in proportion to his share, there can be no
among the entities subject to the tax on
doubt that, even if no document or instrument were executed for
"corporations", said Code must allude, therefore, to
the purpose, for tax purposes, at least, an unregistered
organizations which are not
partnership is formed. This is exactly what happened to
necessarily "partnerships", in the technical sense of
petitioners in this case.
the term. Thus, for instance, section 24 of said
In this connection, petitioners' reliance on Article 1769, Code exempts from the aforementioned tax "duly
paragraph (3), of the Civil Code, providing that: "The sharing of registered general partnerships," which constitute
gross returns does not of itself establish a partnership, whether or precisely one of the most typical forms of
not the persons sharing them have a joint or common right or partnerships in this jurisdiction. Likewise, as
interest in any property from which the returns are derived," and, defined in section 84(b) of said Code, "the term
for that matter, on any other provision of said code on corporation includes partnerships, no matter how
partnerships is unavailing. In Evangelista, supra, this Court created or organized." This qualifying expression
clearly indicates that a joint venture need not be ... provides its own concept of a
undertaken in any of the standard forms, or in partnership. Under the term
confirmity with the usual requirements of the law on "partnership" it includes not only a
partnerships, in order that one could be deemed partnership as known in common law
constituted for purposes of the tax on corporation. but, as well, a syndicate, group,
Again, pursuant to said section 84(b),the term pool, joint venture, or other
"corporation" includes, among others, "joint unincorporated organization which
accounts,(cuentas en participacion)" and carries on any business, financial
"associations", none of which has a legal personality operation, or venture, and which is not,
of its own, independent of that of its members. within the meaning of the Code, a trust,
Accordingly, the lawmaker could not have regarded estate, or a corporation. ... . (7A
that personality as a condition essential to the Merten's Law of Federal Income
existence of the partnerships therein referred to. In Taxation, p. 789; emphasis ours.)
fact, as above stated, "duly registered general co-
The term "partnership" includes a
partnerships" — which are possessed of the
syndicate, group, pool, joint venture or
aforementioned personality — have been expressly
other unincorporated organization,
excluded by law (sections 24 and 84[b]) from the
through or by means of which any
connotation of the term "corporation." ....
business, financial operation, or
xxx xxx xxx venture is carried on. ... . (8 Merten's
Law of Federal Income Taxation, p.
Similarly, the American Law
562 Note 63; emphasis ours.)
 For purposes of the tax on corporations, our
National Internal Revenue Code includes these
partnerships — with the exception only of duly
registered general copartnerships — within the
purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and
are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July
29, 1968, 24 SCRA 198, wherein the Court ruled against a
theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the
segregation, for the purposes of the corporate taxes in question,
of their inherited properties from those acquired by them
subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for
reconsideration:
In connection with the second ground, it is alleged
that, if there was an unregistered partnership, the
holding should be limited to the business engaged in
apart from the properties inherited by petitioners. In
other words, the taxable income of the partnership
should be limited to the income derived from the
acquisition and sale of real properties and corporate
securities and should not include the income derived
from the inherited properties. It is admitted that the
inherited properties and the income derived
therefrom were used in the business of buying and
selling other real properties and corporate securities.
Accordingly, the partnership income must include
not only the income derived from the purchase and
sale of other properties but also the income of the
inherited properties.
Besides, as already observed earlier, the income derived from
inherited properties may be considered as individual income of
the respective heirs only so long as the inheritance or estate is
not distributed or, at least, partitioned, but the moment their
respective known shares are used as part of the common assets of
the heirs to be used in making profits, it is but proper that the
income of such shares should be considered as the part of the
taxable income of an unregistered partnership. This, We hold, is
the clear intent of the law.
Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned
resolution denying petitioners' motion for reconsideration of the
decision of said court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for
petitioners alleges:
Even if we were to yield to the decision
of this Honorable Court that the herein
petitioners have formed an unregistered
partnership and, therefore, have to be
taxed as such, it might be recalled that
the petitioners in their individual
income tax returns reported their shares
of the profits of the unregistered
partnership. We think it only fair and
equitable that the various amounts paid
by the individual petitioners as income
tax on their respective shares of the
unregistered partnership should be
deducted from the deficiency income
tax found by this Honorable Court
against the unregistered partnership.
(page 7, Memorandum for the
Petitioner in Support of Their Motion
for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that
the taxable income of the partnership must be
reduced by the amounts of income tax paid by each
petitioner on his share of partnership profits. This is
not correct; rather, it should be the other way
around. The partnership profits distributable to the
partners (petitioners herein) should be reduced by
the amounts of income tax assessed against the
partnership. Consequently, each of the petitioners in
his individual capacity overpaid his income tax for
the years in question, but the income tax due from
the partnership has been correctly assessed. Since
the individual income tax liabilities of petitioners
 are not in issue in this proceeding, it is not proper the taxpayers failed to make the proper return and payment of the
for the Court to pass upon the same. corporate taxes legally due from them. In principle, it is but
proper not to allow any relaxation of the tax laws in favor of
Petitioners insist that it was error for the Tax Court to so rule that
persons who are not exactly above suspicion in their conduct vis-
whatever excess they might have paid as individual income tax
a-vis their tax obligation to the State.
cannot be credited as part payment of the taxes herein in
question. It is argued that to sanction the view of the Tax Court IN VIEW OF ALL THE FOREGOING, the judgment of the
is to oblige petitioners to pay double income tax on the same Court of Tax Appeals appealed from is affirm with costs against
income, and, worse, considering the time that has lapsed since petitioners.
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
 THIRD DIVISION
[G.R. No. 136448. November 3, 1999.]
LIM TONG LIM, Petitioner, v. PHILIPPINE FISHING
GEAR INDUSTRIES, INC, Respondent.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree
to borrow money to pursue a business and to divide the profits or
losses that may arise therefrom, even if it is shown that they have
not contributed any capital of their own to a "common fund."
Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners, they are all
liable for debts incurred by or on behalf of the partnership. The
liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a
person who may not have directly transacted on its behalf, but
reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong
Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477, 1 which disposed as follows:
"WHEREFORE, [there being] no reversible error in the appealed
decision, the same is hereby affirmed." 2
The decretal portion of the Quezon City Regional Trial Court
(RTC) ruling, which was affirmed by the CA, reads as follows:
"WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment
issued by this Court on September 20, 1990
2. That defendants are jointly liable to plaintiff for the following
amounts, subject to the modifications as hereinafter made by
reason of the special and unique facts and circumstances and the
proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the
fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said
Agreement;
b. 12% interest per annum counted from date of plaintiff’s
invoices and computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for
P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for
P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney’s fees, plus P8,500.00
representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale)
e. Cost of suit.
"With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the amount
of P532,045.00 and P68,000.00, respectively, or for the total
amount of P600,045.00, this Court noted that these items were
attached to guarantee any judgment that may be rendered in
favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this
case, it was ordered sold at public auction for not less than
P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was
deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership
and possession of the nets and floats awarded and delivered by
the sheriff to plaintiff as the highest bidder in the public auction
sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as
stipulated in the invoices; hence, in effect, the plaintiff attached
its own properties. It [was] for this reason also that this Court
earlier ordered the attachment bond filed by plaintiff to guaranty
damages to defendants to be cancelled and for the P900,000.00
cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants. On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract dated February 7, 1990,
"From the foregoing, it would appear therefore that whatever
for the purchase of fishing nets of various sizes from the
judgment the plaintiff may be entitled to in this case will have to
Philippine Fishing Gear Industries, Inc. (herein respondent).
be satisfied from the amount of P900,000.00 as this amount
They claimed that they were engaged in a business venture with
replaced the attached nets and floats. Considering, however, that
Petitioner Lim Tong Lim, who however was not a signatory to
the total judgment obligation as computed above would amount
the agreement. The total price of the nets amounted to P532,045.
to only P840,216.92, it would be inequitable, unfair and unjust to
Four hundred pieces of floats worth P68,000 were also sold to
award the excess to the defendants who are not entitled to
the Corporation. 4
damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the
The buyers, however, failed to pay for the fishing nets and the
owners of the nets and floats. For this reason, the defendants are
floats; hence, private respondent filed a collection suit against
hereby relieved from any and all liabilities arising from the
Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ
monetary judgment obligation enumerated above and for
of preliminary attachment. The suit was brought against the three
plaintiff to retain possession and ownership of the nets and floats
in their capacities as general partners, on the allegation that
and for the reimbursement of the P900,000.00 deposited by it
"Ocean Quest Fishing Corporation" was a nonexistent
with the Clerk of Court.
corporation as shown by a Certification from the Securities and
SO ORDERED." 3 Exchange Commission. 5 On September 20, 1990, the lower
court issued a Writ of Preliminary Attachment, which the sheriff
The Facts
enforced by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port, Navotas, Metro
Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within
which to pay. He also turned over to respondent some of the nets
which were in his possession. Peter Yao filed an Answer, after
which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his
failure to appear in subsequent hearings. Lim Tong Lim, on the
other hand, filed an Answer with Counterclaim and Crossclaim
and moved for the lifting of the Writ of Attachment. 6 The trial
court maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision,
ruling that Philippine Fishing Gear Industries was entitled to the
Writ of Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay Respondent.
The trial court ruled that a partnership among Lim, Chua and
Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by the
three 9 in Civil Case No. 1492-MN which Chua and Yao had
brought against Lim in the RTC of Malabon, Branch 72, for (a) a
declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of
fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided
"a) That the parties plaintiffs & Lim Tong Lim agree to have the
four (4) vessels sold in the amount of P5,750,000.00 including
the fishing net. This P5,750,000.00 shall be applied as full
payment for P3,250,000.00 in favor of JL Holdings Corporation
and/or Lim Tong Lim;
"b) If the four (4) vessel[s] and the fishing net will be sold at a
higher price than P5,750,000.00 whatever will be the excess will
be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao;
8 "c) If the proceeds of the sale the vessels will be less than
P5,750,000.00 whatever the deficiency shall be shouldered and
paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao." 11
The trial court noted that the Compromise Agreement was silent
as to the nature of their obligations, but that joint liability could
be presumed from the equal distribution of the profit and loss.
12
Lim appealed to the Court of Appeals (CA) which, as already
stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a
partner of Chua and Yao in a fishing business and may thus be
held liable as such for the fishing nets and floats purchased by
and for the use of the partnership. The appellate court
ruled:jgc:chanrobles.com.ph
"The evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing . . . . Obviously, the
ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is . . . .
By a contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among
themselves (Article 1767, New Civil Code)."
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse
the assailed Decision on the following grounds:
"I THE COURT OF APPEALS ERRED IN HOLDING, BASED
ON A COMPROMISE AGREEMENT THAT CHUA, YAO
AND PETITIONER LIM ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED
AMONG THEM.
"II SINCE IT WAS ONLY CHUA WHO REPRESENTED
THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER
LIM AS WELL.
"III THE TRIAL COURT IMPROPERLY ORDERED THE
SEIZURE AND ATTACHMENT OF PETITIONER LIM’S
GOODS."
In determining whether petitioner may be held liable for the
fishing nets and floats purchased from respondent, the Court
must resolve this key issue: whether by their acts, Lim, Chua and
Yao could be deemed to have entered into a partnership.
This Court’s Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership and Petitioner’s Liability
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA
finding that a partnership existed between him, Peter Yao and
Antonio Chua. He asserts that the CA based its finding on the
Compromise Agreement alone. Furthermore, he disclaims any
direct participation in the purchase of the nets, alleging that the
negotiations were conducted by Chua and Yao only, and that he
has not even met the representatives of the respondent company.
Petitioner further argues that he was a lessor, not a partner, of
Chua and Yao, for the "Contract of Lease" dated February 1,
1990, showed that he had merely leased to the two the main asset
of the purported partnership — the fishing boat F/B Lourdes.
The lease was for six months, with a monthly rental of P37,500
plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts
as found by the two lower courts clearly showed that there
existed a partnership among Chua, Yao and him, pursuant to
Article 1767 of the Civil Code which provides:
"ARTICLE 1767. By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the (5) That Lim, Chua and Yao agreed that the refurbishing , re-
profits among themselves." equipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;
Specifically, both lower courts ruled that a partnership among
the three existed based on the following factual findings: 15 (6) That because of the "unavailability of funds," Jesus Lim
again extended a loan to the partnership in the amount of P1
(1) That Petitioner Lim Tong Lim requested Peter Yao who was million secured by a check, because of which, Yao and Chua
engaged in commercial fishing to join him, while Antonio Chua entrusted the ownership papers of two other boats, Chua’s FB
was already Yao’s partner; Lady Anne Mel and Yao’s FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and
(2) That after convening for a few times, Lim Chua, and Yao Antonio Chua bought nets from Respondent Philippine Fishing
verbally agreed to acquire two fishing boats, the FB Lourdes and Gear, in behalf of "Ocean Quest Fishing Corporation," their
the FB Nelson for the sum of P3.35 million; purported business name.

(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation,
which executed a Deed of Sale over these two (2) boats in favor
of Petitioner Lim Tong Lim only to serve as security for the loan
extended by Jesus Lim;
(8) That subsequently, Civil Case No. 1492-MN was filed in the
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and (e)
damages.

(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of
which are already enumerated above.
From the factual findings of both lower courts, it is clear that
Chua, Yao and Lim had decided to engage in a fishing business,
which they started by buying boats worth P3.35 million, financed
by a loan secured from Jesus Lim who was petitioner’s brother.
In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the
boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed
with borrowed money, fell under the term "common fund" under
Article 1767. The contribution to such fund need not be cash or
fixed assets; it could be an intangible like credit or industry. That
the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats.
The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would
have been inconceivable for Lim to involve himself so much in
buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds from
the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the
present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding on
this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. 16 In assailing the
factual findings of the two lower courts, petitioner effectively
goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate court’s sole basis for
assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered into
only to end the dispute among them, but not to adjudicate their
preexisting rights and obligations. His arguments are baseless.
The Agreement was but an embodiment of the relationship
extant among the parties prior to its execution.
A proper adjudication of claimants’ rights mandates that courts
must review and thoroughly appraise all relevant facts. Both
lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document
alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the
possible consequential combinations in harmony with law, logic
and fairness. Verily, the two lower courts’ factual findings
mentioned above nullified petitioner’s argument that the
existence of a partnership was based only on the Compromise
Agreement.chanrobles law library
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioner’s argument that he was
merely the lessor of the boats to Chua and Yao, not a partner in
the fishing venture. His argument allegedly finds support in the
Contract of Lease and the registration papers showing that he
was the owner of the boats, including F/B Lourdes where the
nets were found.
His allegation defies logic. In effect, he would like this Court to
believe that he consented to the sale of his own boats to pay a
debt of Chua and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor would do what
petitioner did. Indeed, his consent to the sale proved that there
was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a
business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the upgrading
of the vessels which would be used in their fishing business. The
sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves
beyond cavil that F/B Lourdes, though registered in his name,
was not his own property but an asset of the partnership. It is not
uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the
petitioner himself. After all, he is the brother of the creditor,
Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-
lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by
estoppel, liability can be imputed only to Chua and Yao, and not
to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
"SECTION 21. Corporation by estoppel. — All persons who
assume to act as a corporation knowing it to be without authority
to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on
any transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
"One who assumes an obligation to an ostensible corporation as
such, cannot resist performance thereof on the ground that there
was in fact no corporation."
Thus, even if the ostensible corporate entity is proven to be
legally nonexistent, a party may be estopped from denying its
corporate existence. "The reason behind this doctrine is obvious
— an unincorporated association has no personality and would
be incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot create
agents or confer authority on another to act in its behalf; thus,
those who act or purport to act as its representatives or agents do
so without authority and at their own risk. And as it is an
elementary principle of law that a person who acts as an agent
without authority or without a principal is himself regarded as transaction made by the ostensible corporation, despite
the principal, possessed of all the right and subject to all the knowledge of its legal defects, may be held liable for contracts
liabilities of a principal, a person acting or purporting to act on they impliedly assented to or took advantage of.
behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for There is no dispute that the respondent, Philippine Fishing Gear
contracts entered into or for other acts performed as such agent." Industries, is entitled to be paid for the nets it sold. The only
17 question here is whether petitioner should be held jointly 18
liable with Chua and Yao. Petitioner contests such liability,
The doctrine of corporation by estoppel may apply to the alleged insisting that only those who dealt in the name of the ostensible
corporation and to a third party. In the first instance, an corporation should be held liable. Since his name does not
unincorporated association, which represented itself to be a appear on any of the contracts and since he never directly
corporation, will be estopped from denying its corporate capacity transacted with the respondent corporation, ergo, he cannot be
in a suit against it by a third person who relied in good faith on held liable.
such representation. It cannot allege lack of personality to be
sued to evade its responsibility for a contract it entered into and Unquestionably, petitioner benefited from the use of the nets
by virtue of which it received advantages and benefits. found inside F/B Lourdes, the boat which has earlier been proven
to be an asset of the partnership. He in fact questions the
On the other hand, a third party who, knowing an association to attachment of the nets, because the Writ has effectively stopped
be unincorporated, nonetheless treated it as a corporation and his use of the fishing vessel.
received benefits from it, may be barred from denying its
corporate existence in a suit brought against the alleged It is difficult to disagree with the RTC and the CA that Lim,
corporation. In such case, all those who benefited from the Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does unlike duels, are not to be won by a rapier’s thrust. Technicality,
not preclude the liabilities of the three as contracting parties in when it deserts its proper office as an aid to justice and becomes
representation of it. Clearly, under the law on estoppel, those its great hindrance and chief enemy, deserves scant consideration
acting on behalf of a corporation and those benefited by it, from courts. There should be no vested rights in
knowing it to be without valid existence, are held liable as technicalities."cralaw virtua1aw library
general partners.
Third Issue:chanrob1es virtual 1aw library
Technically, it is true that petitioner did not directly act on behalf
of the corporation. However, having reaped the benefits of the Validity of Attachment
contract entered into by persons with whom he previously had an
existing relationship, he is deemed to be part of said association Finally, petitioner claims that the Writ of Attachment was
and is covered by the scope of the doctrine of corporation by improperly issued against the nets. We agree with the Court of
estoppel. We reiterate the ruling of the Court in Alonso v. Appeals that this issue is now moot and academic. As previously
Villamor: 19chanrobles.com.ph : virtual law library discussed, F/B Lourdes was an asset of the partnership and that it
was placed in the name of petitioner, only to assure payment of
"A litigation is not a game of technicalities in which one, more the debt he and his partners owed. The nets and the floats were
deeply schooled and skilled in the subtle art of movement and specifically manufactured and tailor-made according to their own
position, entraps and destroys the other. It is, rather, a contest in design, and were bought and used in the fishing venture they
which each contending party fully and fairly lays before the agreed upon. Hence, the issuance of the Writ to assure the
court the facts in issue and then, brushing aside as wholly trivial payment of the price stipulated in the invoices is proper. Besides,
and indecisive all imperfections of form and technicalities of by specific agreement, ownership of the nets remained with
procedure, asks that justice be done upon the merits. Lawsuits, Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.chanrobles virtual
lawlibrary

SO ORDERED.
G.R. No. 75875 December 15, 1989 only among themselves to determine who the six (6) nominees
will be, with cumulative voting to be allowed but without
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
interference from ASI.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs. The antecedent facts can be summarized as follows:
SANITARY WARES MANUFACTURING
In 1961, Saniwares, a domestic corporation was incorporated for
CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO
the primary purpose of manufacturing and marketing sanitary
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
wares. One of the incorporators, Mr. Baldwin Young went
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
abroad to look for foreign partners, European or American who
YOUNG and AVELINO V. CRUZ, respondents.
could help in its expansion plans. On August 15, 1962, ASI, a
These consolidated petitions seek the review of the amended foreign corporation domiciled in Delaware, United States entered
decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and into an Agreement with Saniwares and some Filipino investors
05617 which set aside the earlier decision dated June 5, 1986, of whereby ASI and the Filipino investors agreed to participate in
the then Intermediate Appellate Court and directed that in all the ownership of an enterprise which would engage primarily in
subsequent elections for directors of Sanitary Wares the business of manufacturing in the Philippines and selling here
Manufacturing Corporation (Saniwares), American Standard Inc. and abroad vitreous china and sanitary wares. The parties agreed
(ASI) cannot nominate more than three (3) directors; that the that the business operations in the Philippines shall be carried on
Filipino stockholders shall not interfere in ASI's choice of its by an incorporated enterprise and that the name of the
three (3) nominees; that, on the other hand, the Filipino corporation shall initially be "Sanitary Wares Manufacturing
stockholders can nominate only six (6) candidates and in the Corporation."
event they cannot agree on the six (6) nominees, they shall vote
The Agreement has the following provisions relevant to the
issues in these cases on the nomination and election of the
directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation
shall be substantially in the form annexed hereto as
Exhibit A and, insofar as permitted under Philippine
law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist
of nine individuals. As long as American-Standard
shall own at least 30% of the outstanding stock of
the Corporation, three of the nine directors shall be
designated by American-Standard, and the other six
shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of
veto powers over a number of corporate acts and the right to
designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments
for availment of incentives with the condition that at least 60%
of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors
and the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially
harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI
objected as it apparently had other subsidiaries of joint joint
venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders'
meeting was held. The meeting was presided by Baldwin Young.
The minutes were taken by the Secretary, Avelino Cruz. After
disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of
the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo,
Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza
then nominated Mr. Luciano E. Salazar, who in turn nominated
Mr. Charles Chamsay. The chairman, Baldwin Young ruled the
last two nominations out of order on the basis of section 5 (a) of
the Agreement, the consistent practice of the parties during the
past annual stockholders' meetings to nominate only nine persons
as nominees for the nine-member board of directors, and the
legal advice of Saniwares' legal counsel. The following events
then, transpired:
... There were protests against the action of the
Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of
stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote
on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the
votes present and represented by proxy equally for
the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E.
Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of
the Chairman and announced that all votes accruing
to ASI shares, a total of 1,329,695 (p. 27, Rollo,
AC-G.R. SP No. 05617) were being cumulatively
voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote.
Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo,
AC-G.R. SP No. 05617) were being voted
cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed
the Secretary to cast all votes equally in favor of the
three ASI nominees, namely, Wolfgang Aurbach,
John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
and Baldwin Young. The Secretary then certified
for the election of the following Wolfgang Aurbach,
John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then
moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p.
28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin
Young, who announced that the motion was carried
and declared the meeting adjourned. Protests against
the adjournment were registered and having been
ignored, Mr. Jaqua the ASI representative, stated
that the meeting was not adjourned but only
recessed and that the meeting would be reconvened
in the next room. The Chairman then threatened to
have the stockholders who did not agree to the
decision of the Chairman on the casting of votes
bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares,
decided to continue the meeting at the elevator
lobby of the American Standard Building. The
continued meeting was presided by Luciano E.
Salazar, while Andres Gatmaitan acted as Secretary.
On the basis of the cumulative votes cast earlier in
the meeting, the ASI Group nominated its four
nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five
directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other six
(6) nominees for the four (4) remaining positions of
directors and that the body decided not to break the
tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by
the parties with the Securities and Exchange Commission (SEC).
The first petition filed was for preliminary injunction by
Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
George F. Lee against Luciano Salazar and Charles Chamsay.
The case was denominated as SEC Case No. 2417. The second
petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano
E. Salazar and Charles Chamsay against the group of Young and
Lagdameo (petitioners in SEC Case No. 2417) and Avelino F.
Cruz. The case was docketed as SEC Case No. 2718. Both sets
of parties except for Avelino Cruz claimed to be the legitimate
directors of the corporation.
The two petitions were consolidated and tried jointly by a
hearing officer who rendered a decision upholding the election of
the Lagdameo Group and dismissing the quo warranto petition of
Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with
the Intermediate Appellate Court by Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay (docketed as
AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as
AC-G.R. SP No. 05617). The petitions were consolidated and the
appellate court in its decision ordered the remand of the case to
the Securities and Exchange Commission with the directive that
a new stockholders' meeting of Saniwares be ordered convoked
as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees
Lagdameo Group) the appellate court (Court of Appeals)
rendered the questioned amended decision. Petitioners Wolfgang
Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT,
UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF
THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION
AT ALL.
 II. THE COURT OF APPEALS PROHIBITS THE contemplated by the stockholders but merely
STOCKHOLDERS FROM EXERCISING THEIR dictated by the CA .
FULL VOTING RIGHTS REPRESENTED BY
11.2. The Amended decision would likewise
THE NUMBER OF SHARES IN SANIWARES,
sanction the deprivation of the property rights of
THUS DEPRIVING PETITIONERS AND THE
stockholders without due process of law in order
CORPORATION THEY REPRESENT OF THEIR
that a favored group of stockholders may be
PROPERTY RIGHTS WITHOUT DUE PROCESS
illegally benefitted and guaranteed a continuing
OF LAW.
monopoly of the control of a corporation. (pp. 14-
III. THE COURT OF APPEALS IMPOSES 15, Rollo-75975-76)
CONDITIONS AND READS PROVISIONS INTO
On the other hand, the petitioners in G.R. No. 75951 contend
THE AGREEMENT OF THE PARTIES WHICH
that:
WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875) I

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the THE AMENDED DECISION OF THE
amended decision on the following grounds: RESPONDENT COURT, WHILE RECOGNIZING
THAT THE STOCKHOLDERS OF SANIWARES
11.1.
ARE DIVIDED INTO TWO BLOCKS, FAILS TO
ThatAmendedDecisionwouldsanctiontheCA'sdisreg
FULLY ENFORCE THE BASIC INTENT OF THE
ard of binding contractual agreements entered into
AGREEMENT AND THE LAW.
by stockholders and the replacement of the
conditions of such agreements with terms never II
 THE AMENDED DECISION DOES NOT determined in accordance with the rules governing the
CATEGORICALLY RULE THAT PRIVATE interpretation and construction of contracts. (Terminal Shares,
PETITIONERS HEREIN WERE THE DULY Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
ELECTED DIRECTORS DURING THE 8 Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd
MARCH 1983 ANNUAL STOCKHOLDERS 751, 128 P 2nd 668)
MEETING OF SANTWARES. (P. 24, Rollo-
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76)
75951)
contend that the actual intention of the parties should be viewed
The issues raised in the petitions are interrelated, hence, they are strictly on the "Agreement" dated August 15,1962 wherein it is
discussed jointly. clearly stated that the parties' intention was to form a corporation
and not a joint venture.
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' They specifically mention number 16 under Miscellaneous
meeting held on March 8, 1983. To answer this question the Provisions which states:
following factors should be determined: (1) the nature of the
xxx xxx xxx
business established by the parties whether it was a joint venture
or a corporation and (2) whether or not the ASI Group may vote c) nothing herein contained shall be construed to
their additional 10% equity during elections of Saniwares' board constitute any of the parties hereto partners or joint
of directors. venturers in respect of any transaction hereunder.
(At P. 66, Rollo-GR No. 75875)
The rule is that whether the parties to a particular contract have
thereby established among themselves a joint venture or some They object to the admission of other evidence which tends to
other relation depends upon their actual intention which is show that the parties' agreement was to establish a joint venture
presented by the Lagdameo and Young Group on the ground that
it contravenes the parol evidence rule under section 7, Rule 130
of the Revised Rules of Court. According to them, the Lagdameo
and Young Group never pleaded in their pleading that the
"Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of
an agreement have been reduced to writing, it is to
be considered as containing all such terms, and
therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of
the agreement other than the contents of the writing,
except in the following cases:
(a) Where a mistake or imperfection of the writing,
or its failure to express the true intent and
agreement of the parties or the validity of the
agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the
writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group
pleaded in their Reply and Answer to Counterclaim in SEC Case
No. 2417 that the Agreement failed to express the true intent of
the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would
make it appear that the parties thereto disclaim
being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with,
and does not preclude, the existence of two distinct
groups of stockholders in Saniwares one of which
(the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint
venture enterprise, and if some words in the
Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over
the former (Art. 1370, New Civil Code). The
 various stipulations of a contract shall be interpreted
together attributing to the doubtful ones that sense
which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to
judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil
Code). (Part I, Original Records, SEC Case No.
2417)
It has been ruled:
In an action at law, where there is evidence tending
to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the
question whether they intended by their agreement
to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa
v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of
the Agreement as well as the testimonial evidence presented by
the Lagdameo and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint
venture and not with an ordinary corporation. As stated by the
SEC:
According to the unrebutted testimony of Mr.
Baldwin Young, he negotiated the Agreement with
ASI in behalf of the Philippine nationals. He
testified that ASI agreed to accept the role of
minority vis-a-vis the Philippine National group of
investors, on the condition that the Agreement
should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that
certain provisions were included to protect the
interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain
enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee
and the vote of this member is required for certain
transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority
vote for the amendment of the articles and by-laws
of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is
also given the right to designate the president and
plant manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be
that which is normally followed by ASI [Sec. 13
(a)] and that Saniwares should not export
"Standard" products otherwise than through ASI's
Export Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and
know-how to Saniwares and the latter paid royalties
for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the board
of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement)
an effective veto power. Furthermore, the grant to
ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements
for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate
the other 6, clearly indicate that there are two
distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%,
and that 2) ASI is given certain protections as the
minority stockholder.
Premises considered, we believe that under the
Agreement there are two groups of stockholders
who established a corporation with provisions for a
 special contractual relationship between the parties,
i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and
not "nominated" or "elected" in the selection of the nine directors
on a six to three ratio. Each group is assured of a fixed number of
directors in the board.
Moreover, ASI in its communications referred to the enterprise
as joint venture. Baldwin Young also testified that Section 16(c)
of the Agreement that "Nothing herein contained shall be
construed to constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder" was merely to
obviate the possibility of the enterprise being treated as
partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the
industrial and manufacturing capacities of a local firm are
constrained to seek the technology and marketing assistance of
huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a
minority owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such assistance.
However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole
or monopolistic operations and merely uses the joint venture
arrangement to gain a foothold or test the Philippine waters, so to
speak. Or the covetousness may come later. As the Philippine
firm enlarges its operations and becomes profitable, the foreign
group undermines the local majority ownership and actively tries
to completely or predominantly take over the entire company.
This undermining of joint ventures is not consistent with fair
dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court
of Appeal
In fact, the Philippine Corporation Code itself
recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting
rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders,
if in writing and signed by the parties thereto, may
provide that in exercising any voting rights, the
shares held by them shall be voted as therein
provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is
included in the Corporation Code's chapter on close
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).

corporations and Saniwares cannot be a close

Secondly, even assuming that Saniwares is
corporation because it has 95 stockholders. Firstly,
technically not a close corporation because it has
although Saniwares had 95 stockholders at the time
more than 20 stockholders, the undeniable fact is
of the disputed stockholders meeting, these 95
that it is a close-held corporation. Surely, appellants
stockholders are not separate from each other but
cannot honestly claim that Saniwares is a public
are divisible into groups representing a single
issue or a widely held corporation.
Identifiable interest. For example, ASI, its nominees
and lawyers count for 13 of the 95 stockholders. In the United States, many courts have taken a
The YoungYutivo family count for another 13 realistic approach to joint venture corporations and
stockholders, the Chamsay family for 8 have not rigidly applied principles of corporation
stockholders, the Santos family for 9 stockholders, law designed primarily for public issue
corporations. These courts have indicated that
express arrangements between corporate joint
ventures should be construed with less emphasis on
the ordinary rules of law usually applied to
corporate entities and with more consideration given
to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American
Refrigerator Transit Co., 7 F 2d 335; Chicago, M &
St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247
US. 490'; Seaboard Airline Ry v. Atlantic Coast
Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v.
Harris, 207 Md., 212,113 A 2d 903; Hathway v.
Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295
N.W. 571; Beardsley v. Beardsley, 138 U.S. 262;
"The Legal Status of Joint Venture Corporations",
11 Vand Law Rev. p. 680,1958). These American
cases dealt with legal questions as to the extent to
which the requirements arising from the corporate
form of joint venture corporations should control,
and the courts ruled that substantial justice lay with
those litigants who relied on the joint venture
agreement rather than the litigants who relied on the
orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in
organizing the joint venture deviate from the
traditional pattern of corporation management. A
noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint
venture corporations often contain provisions which
do one or more of the following: (1) require greater
than majority vote for shareholder and director
action; (2) give certain shareholders or groups of
shareholders power to select a specified number of
directors; (3) give to the shareholders control over
the selection and retention of employees; and (4) set
up a procedure for the settlement of disputes by
arbitration (See I O' Neal, Close Corporations, 1971
ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation
Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed
only in close corporations. As Campos and Lopez-
Campos explain:
Paragraph 2 refers to pooling and voting agreements
in particular. Does this provision necessarily imply
that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and
therefore cannot qualify as a close corporation
under section 96, can some of them enter into an
agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for
denying stockholders of corporations other than
close ones the right to enter into not voting or
pooling agreements to protect their interests, as long
as they do not intend to commit any wrong, or fraud
on the other stockholders not parties to the
agreement. Of course, voting or pooling agreements
are perhaps more useful and more often resorted to
in close corporations. But they may also be found
necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning
of close corporations to those which comply with
the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close
corporation will not come within the definition. In
such case, its stockholders should not be precluded
from entering into contracts like voting agreements
if these are otherwise valid. (Campos & Lopez-
Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the
Agreement relating to the designation or nomination
of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include
appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may
vote their additional equity during elections of Saniwares' board
of directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of
ASI's participation in the management of the
corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall
be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders.
This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should
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.

honor and adhere to their respective rights and

In any event, it is believed that we are not here
obligations thereunder. Appellants seem to contend
called upon to make a general rule on this question.
that any allocation of board seats, even in joint
Rather, all that needs to be done is to give life and
venture corporations, are null and void to the extent
effect to the particular contractual rights and
that such may interfere with the stockholder's rights
obligations which the parties have assumed for
to cumulative voting as provided in Section 24 of
themselves.
the Corporation Code. This Court should not be
On the one hand, the clearly established minority interfere in the voting within the Filipino group.
position of ASI and the contractual allocation of Otherwise, ASI would be able to designate more
board seats Cannot be disregarded. On the other than the three directors it is allowed to designate
hand, the rights of the stockholders to cumulative under the Agreement, and may even be able to get a
voting should also be protected. majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
In our decision sought to be reconsidered, we opted
to uphold the second over the first. Upon further Such a ruling will give effect to both the allocation
reflection, we feel that the proper and just solution of the board seats and the stockholder's right to
to give due consideration to both factors suggests cumulative voting. Moreover, this ruling will also
itself quite clearly. This Court should recognize and give due consideration to the issue raised by the
uphold the division of the stockholders into two appellees on possible violation or circumvention of
groups, and at the same time uphold the right of the the Anti-Dummy Law (Com. Act No. 108, as
stockholders within each group to cumulative voting amended) and the nationalization requirements of
in the process of determining who the group's the Constitution and the laws if ASI is allowed to
nominees would be. In practical terms, as suggested nominate more than three directors. (Rollo-75875,
by appellant Luciano E. Salazar himself, this means pp. 38-39)
that if the Filipino stockholders cannot agree who
The ASI Group and petitioner Salazar, now reiterate their theory
their six nominees will be, a vote would have to be
that the ASI Group has the right to vote their additional equity
taken among the Filipino stockholders only. During
pursuant to Section 24 of the Corporation Code which gives the
this voting, each Filipino stockholder can cumulate
stockholders of a corporation the right to cumulate their votes in
his votes. ASI, however, should not be allowed to
electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation
of the Anti-Dummy Act (Commonwealth Act 108, as amended).
He cites section 2-a thereof which provides:
And provided finally that the election of aliens as
members of the board of directors or governing
body of corporations or associations engaging in
partially nationalized activities shall be allowed in
proportion to their allowable participation or share
in the capital of such entities. (amendments
introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)
The ASI Group's argument is correct within the context of
Section 24 of the Corporation Code. The point of query,
however, is whether or not that provision is applicable to a joint
venture with clearly defined agreements:
The legal concept of ajoint venture is of common
law origin. It has no precise legal definition but it
has been generally understood to mean an
organization formed for some temporary purpose.
(Gates v. Megargel, 266 Fed. 811 [1920]) It is in
fact hardly distinguishable from the partnership,
since their elements are similar community of
interest in the business, sharing of profits and losses,
and a mutual right of control. Blackner v. Mc
Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v.
Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d.
242 [1955]). The main distinction cited by most
opinions in common law jurisdictions is that the
partnership contemplates a general business with
some degree of continuity, while the joint venture is
formed for the execution of a single transaction, and
is thus of a temporary nature. (Tufts v. Mann 116
Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is
not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for
its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under
 Philippine law, a joint venture is a form of
partnership and should thus be governed by the law
of partnerships. The Supreme Court has however
recognized a distinction between these two business
forms, and has held that although a corporation
cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At
p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954])
(Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and
operations of contracts generally apply to a contract of joint
venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that
the resolution of the question of whether or not the ASI Group
may vote their additional equity lies in the agreement of the
parties.
Necessarily, the appellate court was correct in upholding the
agreement of the parties as regards the allocation of director
seats under Section 5 (a) of the "Agreement," and the right of
each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3
(a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a)
of the Agreement relates to the manner of nominating the
members of the board of directors while Section 3 (a) (1) relates
to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties
as regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help
elect even a Filipino director who would be beholden to them
would obliterate their minority status as agreed upon by the
parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise,
ASI would be able to designate more than the three
directors it is allowed to designate under the
Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary
to the contractual intent of the parties.
 Such a ruling will give effect to both the allocation
of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo,
75875)
Equally important as the consideration of the contractual intent
of the parties is the consideration as regards the possible
domination by the foreign investors of the enterprise in violation
of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard,
petitioner Salazar's position is that the Anti-Dummy Act allows
the ASI group to elect board directors in proportion to their share
in the capital of the entity. It is to be noted, however, that the
same law also limits the election of aliens as members of the
board of directors in proportion to their allowance
participation of said entity. In the instant case, the foreign Group
ASI was limited to designate three directors. This is the
allowable participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats should always
be maintained as long as the joint venture agreement exists
considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied
in the parties' Agreement to protect the interests arising from the
minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer
and SEC which were impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John Griffin, David P
Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and
George F. Lee as the duly elected directors of Saniwares at the
March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners
in G.R. No. 75951) object to a cumulative voting during the
election of the board of directors of the enterprise as ruled by the
appellate court and submits that the six (6) directors allotted the
Filipino stockholders should be selected by consensus pursuant
to section 5 (a) of the Agreement which uses the word
"designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take
control of the enterprise if the Filipino stockholders are allowed
to select their nominees separately and not as a common slot
determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates
in the allocation of board directors should not be interpreted in
isolation. This should be construed in relation to section 3 (a) (1)
of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the
members of the board of directors. The petitioners in G.R. No.
75951 agreed to this procedure, hence, they cannot now impugn
its legality.
The insinuation that the ASI Group may be able to control the
enterprise under the cumulative voting procedure cannot,
however, be ignored. The validity of the cumulative voting
procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest
is to increase the ASI share in the management of Saniwares.
The joint venture character of the enterprise must always be
taken into account, so long as the company exists under its
original agreement. Cumulative voting may not be used as a
device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in
the Agreement which are intended to preserve the majority status
of the Filipino investors as well as to maintain the minority status
of the foreign investors group as earlier discussed. They should
be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R.
No. 75875 are DISMISSED and the petition in G.R. No. 75951
is partly GRANTED. The amended decision of the Court of
Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John
Griffin, David Whittingham Emesto V. Lagdameo, Baldwin
Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders'
meeting. In all other respects, the questioned decision is
AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76
and G.R. No. 75875.
SO ORDERED.
G.R. NOS. 166299-300 (December 13, 2005)
AURELIO K. LITONJUA, JR., versus ' EDUARDO K.
LITONJUA, SR.
In this petition for review under Rule 45 of the Rules of Court,
petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside
the Decision of the Court of Appeals (CA) dated March 31,
2004 [1] in consolidated cases C.A. G.R. Sp. No. 76987 and C.A.
G.R. SP. No 78774 and its Resolution dated December 07,
2004, [2] denying petitioner's motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein
respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The
legal dispute between them started when, on December 4, 2002,
in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a
suit against his brother Eduardo and herein respondent Robert T.
Yang (Yang) and several corporations for specific performance
and accounting. In his complaint, [3] docketed as Civil Case No.
69235 and eventually raffled to Branch 68 of the
court, [4] Aurelio alleged that, since June 1973, he and Eduardo
are into a joint venture/partnership arrangement in the Odeon
Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue
Realty, Inc., owner of lands and buildings, among other
corporations. Yang is described in the complaint as petitioner's
and Eduardo's partner in their Odeon Theater investment. [5] The
same complaint also contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered
into a joint venture/partnership for the continuation of their
family business and common family funds '.
3.01.1 This joint venture/[partnership] agreement was contained
in a memorandum addressed by Eduardo to his siblings, parents
and other relatives. Copy of this memorandum is attached hereto
and made an integral part as Annex 'A and the portion referring
to [Aurelio] submarked as Annex 'A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that
in consideration of [Aurelio's ] retaining his share in the
remaining family businesses (mostly, movie theaters, shipping
and land development) and contributing his industry to the
continued operation of these businesses, [Aurelio] will be given
P1 Million or 10% equity in all these businesses and those to be
subsequently acquired by them whichever is greater. . . .
4.01 ' from 22 June 1973 to about August 2001, or [in] a span of
28 years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to
the corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership ' had also
acquired [various other assets], but Eduardo caused to be
registered in the names of other parties' .
xxx xxx ' xxx
4.04 The substantial assets of most of the corporate defendants
consist of real properties '. A list of some of these real properties
is attached hereto and made an integral part as Annex 'B.
xxx ' xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and
Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting
and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe
that Eduardo and/or the corporate defendants as well as Bobby
[Yang], are transferring . . . various real properties of the
corporations belonging to the joint venture/partnership to other
parties in fraud of [Aurelio]. In consequence, [Aurelio] is
therefore causing at this time the annotation on the titles of these
real properties' a notice of lis pendens '. (Emphasis in the
original; underscoring and words in bracket added.)
For ease of reference, Annex 'A-1 of the complaint, which
petitioner asserts to have been meant for him by his brother
Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. '.
I am trying my best to mold you the way I work so you can
follow the pattern '. You will be the only one left with the
company, among us brothers and I will ask you to stay as I want
you to run this office every time I am away. I want you to run it
the way I am trying to run it because I will be all alone and I will
depend entirely to you (sic). My sons will not be ready to help
me yet until about maybe 15/20 years from now. Whatever is left
in the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever
is greater. We two will gamble the whole thing of what I have
and what you are entitled to. '. It will be you and me alone on
this. If ever I pass away, I want you to take care of all of this.
You keep my share for my two sons are ready take over but give
them the chance to run the company which I have built.
'xxx ' xxx xxx
Because you will need a place to stay, I will arrange to give you
first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in
cash or asset, like Lt. Artiaga so you can live better there. The
rest I will give you in form of stocks which you can keep. This
stock I assure you is good and saleable. I will also gladly give
you the share of Wack-Wack 'and Valley Golf ' because you
have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the corporate respondents,
as defendants a quo, filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting
petitioner and Eduardo as having entered into a contract of
partnership. As affirmative defenses, Eduardo, et al., apart from
raising a jurisdictional matter, alleged that the complaint states
no cause of action, since no cause of action may be derived from
the actionable document, i.e., Annex ' A-1',being void under the
terms of Article 1767 in relation to Article 1773 of the Civil
Code, infra.It is further alleged that whatever undertaking
Eduardo agreed to do, if any, under Annex 'A-1', are
unenforceable under the provisions of the Statute of Frauds. [7]
For his part, Yang - who was served with summons long after the
other defendants submitted their answer ' moved to dismiss on
the ground, inter alia, that, as to him, petitioner has no cause of
action and the complaint does not state any. [8] Petitioner
opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve
Affirmative Defenses. [9] To this motion, petitioner interposed
an Opposition with ex-Parte Motion to Set the Case for Pre-
trial. [10]
Acting on the separate motions immediately adverted to above,
the trial court, in an Omnibus Order dated March 5, 2003, denied
the affirmative defenses and, except for Yang, set the case for
pre-trial on April 10, 2003. [11]
In another Omnibus Order of April 2, 2003, the same court
denied the motion of Eduardo, et al., for reconsideration [12] and
Yang's motion to dismiss. The following then transpired insofar
as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly
reserved the right to seek reconsideration of the April 2, 2003
Omnibus Order and to pursue his failed motion to dismiss [13] to
its full resolution.
2. On April 24, 2003, he moved for reconsideration of the
Omnibus Order of April 2, 2003, but his motion was denied in an
Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA)
in a petition for certiorari under Rule 65 of the Rules of Court,
docketed as CA-G.R. SP No. 78774, [15] to nullify the separate
orders of the trial court, the first denying his motion to dismiss
the basic complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention
that grave abuse of discretion and injudicious haste attended the
issuance of the trial court's aforementioned Omnibus Orders
dated March 5, and April 2, 2003, sought relief from the
CA via similar recourse. Their petition for certiorari was
docketed as CA G.R. SP No. 76987 . '
Per its resolution dated October 2, 2003, [16] the CA's
14th Division ordered the consolidation of CA G.R. SP No.
78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective
Memoranda of Authorities, the appellate court came out with the
herein assailed Decision dated March 31, 2004, finding for
Eduardo and Yang, as lead petitioners therein, disposing as
follows:
WHEREFORE, judgment is hereby rendered granting the
issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the
court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003
and the complaint filed by private respondent [now petitioner
Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed .
SO ORDERED. [17] (Emphasis in the original; words in bracket
added.)
Explaining its case disposition, the appellate court stated, inter
alia, that the alleged partnership, as evidenced by the actionable
documents, Annex ' A and ' A-1 attached to the complaint, and
upon which petitioner solely predicates his right/s allegedly
violated by Eduardo, Yang and the corporate defendants a quo is
'void or legally inexistent.
In time, petitioner moved for reconsideration but his motion was
denied by the CA in its equally assailed Resolution of
December 7, 2004. [18] .
Hence, petitioner's present recourse, on the contention that the
CA erred:
A. When it ruled that there was no partnership created by the
actionable document because this was not a public instrument
and immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action
against [respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal
when all that Petitioner had done was to support his pleaded
cause of action by another legal perspective/argument.
The petition lacks merit.
Petitioner's demand, as defined in the petitory portion of his
complaint in the trial court, is for delivery or payment to him, as
Eduardo's and Yang's partner, of his partnership/joint venture
share, after an accounting has been duly conducted of what he
deems to be partnership/joint venture property. [19]
A partnership exists when two or more persons agree to place
their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a
proportionate sharing of the profits and losses between
them. [20] A contract of partnership is defined by the Civil Code
as one where two or more persons bound themselves to
contribute money, property, or industry to a common fund with
the intention of dividing the profits among themselves. [21] A
joint venture, on the other hand, is hardly distinguishable from,
and may be likened to, a partnership since their elements are
similar,i.e., community of interests in the business and sharing of
profits and losses. Being a form of partnership, a joint venture is
generally governed by the law on partnership. [22]
The underlying issue that necessarily comes to mind in this
proceedings is whether or not petitioner and respondent Eduardo
are partners in the theatre, shipping and realty business, as one
claims but which the other denies. And the issue bearing on the
first assigned error relates to the question of what legal provision
is applicable under the premises, petitioner seeking, as it were, to
enforce the actionable document - Annex ' A-1 - which he
depicts in his complaint to be the contract of partnership/joint
venture between himself and Eduardo. Clearly, then, a look at
the legal provisions determinative of the existence, or defining
the formal requisites, of a partnership is indicated. Foremost of
these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirement of the preceding
paragraph shall not affect the liability of the partnership and the
members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached to
the public instrument.
Annex ' A-1 ', on its face, contains typewritten entries, personal
in tone, but is unsigned and undated. As an unsigned document,
there can be no quibbling that Annex ' A-1 does not meet the
public instrumentation requirements exacted under Article 1771
of the Civil Code. Moreover, being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in
money or property, Annex ' A-1 cannot be presented for
notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article
1772 of the Code. And inasmuch as the inventory requirement
under the succeeding Article 1773 goes into the matter of
validity when immovable property is contributed to the
partnership, the next logical point of inquiry turns on the nature
of petitioner's contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that
petitioner's contribution consisted of immovables and real rights.
Wrote that court:
A further examination of the allegations in the complaint would
show that [petitioner's ] contribution to the so-called
'partnership/joint venture was his supposed share in the family
business that is consisting of movie theaters, shipping and land
development under paragraph 3.02 of the complaint. In other
words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and
real rights. '. [23]
Significantly enough, petitioner matter-of-factly concurred with
the appellate court's observation that, prescinding from what he
himself alleged in his basic complaint, his contribution to the
partnership consisted of his share in the Litonjua family
businesses which owned variable immovable properties.
Petitioner's assertion in his motion for reconsideration[24] of the
CA's decision, that 'what was to be contributed to the business
[of the partnership] was [petitioner's ] industry and his share in
the family [theatre and land development] business' leaves no
room for speculation as to what petitioner contributed to the
perceived partnership.
Lest it be overlooked, the contract-validating inventory
requirement under Article 1773 of the Civil Code applies as long
real property or real rights are initially brought into the
partnership. In short, it is really of no moment which of the
partners, or, in this case, who between petitioner and his brother
Eduardo, contributed immovables. In context, the more
important consideration is that real property was contributed, in
which case an inventory of the contributed property duly signed
by the parties should be attached to the public instrument, else
there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article
1773, argues that the immovables in question were not
contributed, but were acquired after the formation of the
supposed partnership. Needless to stress, the Court cannot accord
cogency to this specious argument. For, as earlier stated,
petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development
family businesses which already owned immovables even before
Annex ' A-1 was allegedly executed.
Considering thus the value and nature of petitioner's alleged
contribution to the purported partnership, the Court, even if so
disposed, cannot plausibly extend Annex ' A-1 the legal effects
that petitioner so desires and pleads to be given. Annex ' A-1 , in
fine, cannot support the existence of the partnership sued upon
and sought to be enforced. The legal and factual milieu of the
case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at
least P3,000.00, in which case a public instrument shall be
necessary. [25]And if only to stress what has repeatedly been
articulated, an inventory to be signed by the parties and attached
to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to
it.
Given the foregoing perspective, what the appellate court wrote
in its assailed Decision [26]about the probative value and legal
effect of Annex ' A-1 commends itself for concurrence:
Considering that the allegations in the complaint showed that
[petitioner] contributed immovable properties to the alleged
partnership, the 'Memorandum (Annex 'A of the complaint)
which purports to establish the said 'partnership/joint venture is
NOT a public instrument and there was NO inventory of the
immovable property duly signed by the parties. As such, the said
'Memorandum ' is null and void for purposes of establishing the
existence of a valid contract of partnership. Indeed, because of
the failure to comply with the essential formalities of a valid
contract, the purported 'partnership/joint venture is legally
inexistent and it produces no effect whatsoever. Necessarily, a
void or legally inexistent contract cannot be the source of any
contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto,
clearly demonstrates that [petitioner] has NO valid contractual or
legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner's ] complaint
does NOT state a valid cause of action because NOT all the
essential elements of a cause of action are present. (Underscoring
and words in bracket added.)
Likewise well-taken are the following complementary excerpts
from the CA's equally assailed Resolution of December 7,
2004 [27] denying petitioner's motion for reconsideration:
Further, We conclude that despite glaring defects in the
allegations in the complaint as well as the actionable document
attached thereto (Rollo, p. 191), the [trial] court did not
appreciate and apply the legal provisions which were brought to
its attention by herein [respondents] in the their pleadings. In our
evaluation of [petitioner's ] complaint, the latter alleged inter
alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document
and there was no inventory of immovable properties signed by
the parties. Both the allegations in the complaint and the
actionable documents considered, it is crystal clear that
[petitioner] has no valid or legal right which could be violated by
[respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioner's posture that
Annex ' A-1 ', assuming its inefficacy or nullity as a partnership
document, nevertheless created demandable rights in his favor.
As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-
quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article
1307).
44. It may not be a contract of loan, or a mortgage or whatever,
but surely the contract does create rights and obligations of the
parties and which rights and obligations may be enforceable and
demandable. Just because the relationship created by the
agreement cannot be specifically labeled or pigeonholed into a
category of nominate contract does not mean it is void or
unenforceable.
Petitioner has thus thrusted the notion of an innominate contract
on this' Court - and earlier on the CA after he experienced a
reversal of fortune thereat - as an afterthought. The appellate
court, however, cannot really be faulted for not yielding to
petitioner's dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the
appellate court's certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial
court in grave abuse of discretion. As respondent Yang pointedly
observed, [28] since the parties' basic position had been well-
defined, that of petitioner being that the actionable document
established a partnership/joint venture, it is on those positions
that the appellate court exercised its certiorari jurisdiction.
Petitioner's act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared,
an admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden
twist of stance, he has now contended that the actionable
instrument may be considered an innominate contract . xxx
Verily, this now changes [petitioner's ] theory of the case which
is not only prohibited by the Rules but also is an implied
admission that the very theory he himself ' has adopted, filed and
prosecuted before the respondent court is erroneous.
Be that as it may . '. We hold that this new theory contravenes
[petitioner's ] theory of the actionable document being a
partnership document. If anything, it is so obvious we do have to
test the sufficiency of the cause of action on the basis of
partnership law xxx. [29] (Emphasis in the original; Words in
bracket added).
But even assuming in gratia argumenti that Annex ' A-1 partakes
of a perfected innominate contract, petitioner's complaint would
still be dismissible as against Eduardo and, more so, against
Yang. It cannot be over-emphasized that petitioner points to
Eduardo as the author of Annex ' A-1 . Withal, even on this
consideration alone, petitioner's claim against Yang is doomed
from the very start.
'As it were, the only portion of Annex ' A-1 which could perhaps
be remotely regarded as vesting petitioner with a right to demand
from respondent Eduardo the observance of a determinate
conduct, reads:
' xxx You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office
everytime I am away. I want you to run it the way I am trying to
run it because I will be alone and I will depend entirely to you,
My sons will not be ready to help me yet until about maybe
15/20 years from now. Whatever is left in the corporation, I will
make sure that you get ONE MILLION PESOS (P1,000,000.00)
or ten percent (10%) equity, whichever is greater. (Underscoring
added)
It is at once apparent that what respondent Eduardo imposed
upon himself under the above passage, if he indeed wrote Annex
' A-1 ', is a promise which is not to be performed within one year
from 'contract execution on June 22, 1973. Accordingly, the
agreement embodied in Annex ' A-1 is covered by the Statute of
Frauds and ergo unenforceable for non-compliance
therewith. [30] By force of the statute of frauds, an agreement
that by its terms is not to be performed within a year from the
making thereof shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing
and subscribed by the party charged. Corollarily, no action can
be proved unless the requirement exacted by the statute of frauds
is complied with. [31]
Lest it be overlooked, petitioner is the intended beneficiary of the
P1 Million or 10% equity of the family businesses supposedly
promised by Eduardo to give in the near future. Any suggestion
that the stated amount or the equity component of the promise
was intended to go to a common fund would be to read
something not written in Annex ' A-1 . Thus, even this angle
alone argues against the very idea of a partnership, the creation
of which requires two or more contracting minds mutually
agreeing to contribute money, property or industry to a common
fund with the intention of dividing the profits between or among
themselves. [32]
In sum then, the Court rules, as did the CA, that petitioner's
complaint for specific performance anchored on an actionable
document of partnership which is legally inexistent or void or, at
best, unenforceable does not state a cause of action as against
respondent Eduardo and the corporate defendants. And if no of
action can successfully be maintained against respondent
Eduardo because no valid partnership existed between him and
petitioner, the Court cannot see its way clear on how the same
action could plausibly prosper against Yang. Surely, Yang could
not have become a partner in, or could not have had any form of
business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the
logical nexus that would tie Yang to him as his partner. In fact,
attendant circumstances would indicate the contrary. Consider:
'1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was 'for the continuation of
their family business and common family funds which were
theretofore being mainly managed by Eduardo. [33] But Yang
denies kinship with the Litonjua family and petitioner has not
disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed
to the joint venture/partnership with Eduardo and what his share
in the businesses will be. No allegation is made whatsoever
about what Yang contributed, if any, let alone his proportional
share in the profits. But such allegation cannot, however, be
made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the
name of Yang. How, indeed, could a person be considered a
partner when the document purporting to establish the
partnership contract did not even mention his name.
3. Petitioner states' in par. 2.01 of the complaint that '[he] and
Eduardo are business partners in the [respondent] corporations,
while 'Bobby is his and Eduardo's partner in their Odeon Theater
investment (par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their partner in
their Odeon Theater investment thereafter. Several paragraphs
later, however, petitioner would contradict himself by alleging
that his 'investment and that of Eduardo and Yang in the Odeon
theater business has expanded through a reinvestment of profit
income and direct investments in several corporation including
but not limited to [six] corporate respondents' This simply means
that the 'Odeon Theatre business' came before the corporate
respondents. Significantly enough, petitioner refers to the
corporate respondents as 'progeny of the Odeon Theatre
business. [34]
Needless to stress, petitioner has not sufficiently established in
his complaint the legalvinculum whence he sourced his right to
drag Yang into the fray. The Court of Appeals, in its assailed
decision, captured and formulated the legal situation in the
following wise:
[Respondent] Yang, ' is impleaded because, as alleged in the
complaint, he is a 'partner of [Eduardo] and the [petitioner] in the
Odeon Theater Investment which expanded through
reinvestments of profits and direct investments in several
corporations, thus:
xxx xxx xxx
Clearly, [petitioner's ] claim against ' Yang arose from his
alleged partnership with petitioner and the 'respondent. However,
there was NO allegation in the complaint which directly alleged
how the supposed contractual relation was created between
[petitioner] and 'Yang. More importantly, however, the foregoing
ruling of this Court that the purported partnership between
[Eduardo] is void and legally inexistent directly affects said
claim against 'Yang. Since [petitioner] is trying to establish his
claim against ' Yang by linking him to the legally inexistent
partnership . . . such attempt had become futile because there
was NOTHING that would contractually connect [petitioner] and
' Yang. To establish a valid cause of action, the complaint should
have a statement of fact upon which to connect [respondent]
Yang to the alleged partnership between [petitioner] and
respondent [Eduardo], including their alleged investment in the
Odeon Theater. A statement of facts on those matters is pivotal
to the complaint as they would constitute the ultimate facts
necessary to establish the elements of a cause of action against '
Yang. [35]
Pressing its point, the CA later stated in its resolution denying
petitioner's motion for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable
document attached to the complaint that is controlling. Suffice it
to state, We have not ignored the actionable document ' As a
matter of fact, We emphasized in our decision ' that insofar as
[Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not
mentioned in a document purporting to establish a partnership
could be considered a partner.[36] (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he
changed his theory of the case, as peremptorily determined by
the CA, has been discussed at length earlier and need not detain
us long. Suffice it to say that after the CA has ruled that the
alleged partnership is inexistent, petitioner took a different tack.
Thus, from a joint venture/partnership theory which he adopted
and consistently pursued in his complaint, petitioner embraced
the innominate contract theory. Illustrative of this shift is
petitioner's statement in par. #8 of his motion for reconsideration
of the CA's decision combined with what he said in par. # 43 of
this petition, as follows:
8. Whether or not the actionable document creates a partnership,
joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainant's
allegations, is whether the actionable document bears out an
actionable contract ' be it a partnership, a joint venture or
whatever or some innominate contract ' It may be noted that one
kind of innominate contract is what is known as du ut facias (I
give that you may do). [37]
43. Contrariwise, this actionable document, especially its above-
quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article
1307). [38]
Springing surprises on the opposing party is offensive to the
sporting idea of fair play, justice and due process; hence, the
proscription against a party shifting from one theory at the trial
court to a new and different theory in the appellate court. [39] On
the same rationale, an issue which was neither averred in the
complaint cannot be raised for the first time on appeal. [40] It is
not difficult, therefore, to agree with the CA when it made short
shrift of petitioner's innominate contract theory on the basis of
the foregoing basic reasons.
Petitioner's protestation that his act of introducing the concept of
innominate contract was not a case of changing theories but of
supporting his pleaded cause of action ' that of the existence of a
partnership - by another legal perspective/argument, strikes the
Court as a strained attempt to rationalize an untenable position.
Paragraph 12 of his motion for reconsideration of the CA's
decision virtually relegates partnership as a fall-back theory.
Two paragraphs later, in the same notion, petitioner faults the
appellate court for reading, with myopic eyes, the actionable
document solely as establishing a partnership/joint venture.
Verily, the cited paragraphs are a study of a party hedging on
whether or not to pursue theoriginal cause of action or altogether
abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner],
no immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish
a contractual relationship between [petitioner] and ' Eduardo, Sr.
and Roberto T Yang simply because his document does not
create a partnership or a joint venture. This is ' a myopic reading
of the actionable document. Cost against the petitioner.

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