G.R. No. 172690. March 3, 2010.* profits and losses among them.
A contract of partnership is defined
HEIRS OF JOSE LIM, represented by ELENITO LIM,
petitioners, vs. JULIET VILLA LIM, respondent.
Remedial Law; Appeals; When supported by substantial
evidence, the findings of fact of the Court of Appeals are conclusive
and binding on the parties and are not reviewable by the Court;
Exceptions.—The evaluation and calibration of the evidence
necessarily involves consideration of factual issues—an exercise
that is not appropriate for a petition for review on certiorari under
Rule 45. This rule provides that the parties may raise only
questions of law, because the Supreme Court is not a trier of facts.
Generally, we are not duty-bound to analyze again and weigh the
evidence introduced in and considered by the tribunals below.
When supported by substantial evidence, the findings of fact of the
CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the
following recognized exceptions: (1) When the conclusion is a
finding grounded entirely on speculation, surmises and
conjectures; (2) When the inference made is manifestly mistaken,
absurd or impossible; (3) Where there is a grave abuse of
discretion; (4) When the judgment is based on a misapprehension
of facts; (5) When the findings of fact are conflicting; (6) When the
Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both
appellant and appellee; (7) When the findings are contrary to those
of the trial court; (8) When the findings of fact are conclusions
without citation of specific evidence on which they are based; (9)
When the facts set forth in the petition as well as in the
petitioners’ main and reply briefs are not disputed by the
respondents; and (10) When the findings of fact of the Court of
Appeals are premised on the supposed absence of evidence and
contradicted by the evidence on record.
Civil Law; Partnership; 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 among them;
Definition of a Contract of Partnership.—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
by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Same; In civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence; Meaning of
Preponderance of Evidence.—Petitioners heavily rely on Jimmy’s
testimony. But that testimony is just one piece of evidence against
respondent. It must be considered and weighed along with
petitioners’ other evidence vis-à-vis respondent’s contrary
evidence. In civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence. “Preponderance
of evidence” is the weight, credit, and value of the aggregate
evidence on either side and is usually considered synonymous with
the term “greater weight of the evidence” or “greater weight of the
credible evidence.” “Preponderance of evidence” is a phrase that, in
the last analysis, means probability of the truth. It is evidence that
is more convincing to the court as worthy of belief than that which
is offered in opposition thereto.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Abesamis Law Offices for petitioners.
Agabin, Verzola, Hermoso & Layaoen Law Offices for
respondent.
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under
Rule 45 of the Rules of Civil Procedure, assailing the Court of
Appeals (CA) Decision2 dated June 29, 2005, which reversed and
set aside the decision3 of the Regional Trial Court (RTC) of Lucena
City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
widow Cresencia Palad (Cresencia); and their children Elenito,
Evelia, Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim (Elenito). They filed a
Complaint4 for Partition, Accounting and Damages against
respondent Juliet Villa Lim (respondent), widow of the late Elfledo
Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood
Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose,
together with his friends Jimmy Yu (Jimmy) and Norberto Uy
(Norberto), formed a partnership to engage in the trucking
business. Initially, with a contribution of ₱50,000.00 each, they
purchased a truck to be used in the hauling and transport of
lumber of the sawmill. Jose managed the operations of this
trucking business until his death on August 15, 1981. Thereafter,
Jose's heirs, including Elfledo, and partners agreed to continue the
business under the management of Elfledo. The shares in the
partnership profits and income that formed part of the estate of
Jose were held in trust by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh
commerce graduate serving as his father’s driver in the trucking
business. He was never a partner or an investor in the business
and merely supervised the purchase of additional trucks using the
income from the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all registered in
Elfledo's name. Petitioners asseverated that it was also through
Elfledo’s management of the partnership that he was able to
purchase numerous real properties by using the profits derived
therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also acquired
five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole
surviving heir. Petitioners claimed that respondent took over the
administration of the aforementioned properties, which belonged
to the estate of Jose, without their consent and approval. Claiming
that they are co-owners of the properties, petitioners required
respondent to submit an accounting of all income, profits and
rentals received from the estate of Elfledo, and to surrender the
administration thereof. Respondent refused; thus, the filing of this
case.
Respondent traversed petitioners' allegations and claimed that
Elfledo was himself a partner of Norberto and Jimmy. Respondent
also claimed that per testimony of Cresencia, sometime in 1980,
Jose gave Elfledo ₱50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When Elfledo and
respondent got married in 1981, the partnership only had one
truck; but through the efforts of Elfledo, the business flourished.
Other than this trucking business, Elfledo, together with
respondent, engaged in other business ventures. Thus, they were
able to buy real properties and to put up their own car assembly
and repair business. When Norberto was ambushed and killed on
July 16, 1993, the trucking business started to falter. When
Elfledo died on May 18, 1995 due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no
longer run the business. Jimmy suggested that three out of the
nine trucks be given to him as his share, while the other three
trucks be given to the heirs of Norberto. However, Norberto's wife,
Paquita Uy, was not interested in the vehicles. Thus, she sold the
same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no
known assets, and the partnership with Jimmy and Norberto
ceased upon his demise. Respondent also stressed that Jose left no
properties that Elfledo could have held in trust. Respondent
maintained that all the properties involved in this case were
purchased and acquired through her and her husband’s joint
efforts and hard work, and without any participation or
contribution from petitioners or from Jose. Respondent submitted
that these are conjugal partnership properties; and thus, she had
the right to refuse to render an accounting for the income or profits
of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered
its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
 2) Ordering the defendant to submit an accounting of all
incomes, profits and rentals received by her from said
properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's
decision, dismissing petitioners' complaint for lack of merit.
Undaunted, petitioners filed their Motion for
Reconsideration,5 which the CA, however, denied in its
Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF
ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT
THAN THAT BY A FORMER PARTNER ON THE ISSUE OF
THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of
Jimmy, the sole surviving partner, Elfledo was not a partner; and
that he and Norberto entered into a partnership with Jose. Thus,
the CA erred in not giving that testimony greater weight than that
of Cresencia, who was merely the spouse of Jose and not a party to
the partnership.8
Respondent counters that the issue raised by petitioners is not
proper in a petition for review on certiorari under Rule 45 of the
Rules of Civil Procedure, as it would entail the review, evaluation,
calibration, and re-weighing of the factual findings of the CA.
Moreover, respondent invokes the rationale of the CA decision
that, in light of the admissions of Cresencia and Edison and the
testimony of respondent, the testimony of Jimmy was effectively
refuted; accordingly, the CA's reversal of the RTC's findings was
fully justified.9
We resolve first the procedural matter regarding the propriety of
the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily
involves consideration of factual issues — an exercise that is not
appropriate for a petition for review on certiorari under Rule 45.
This rule provides that the parties may raise only questions of law,
because the Supreme Court is not a trier of facts. Generally, we
are not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.10 When
supported by substantial evidence, the findings of fact of the CA
are conclusive and binding on the parties and are not reviewable
by this Court, unless the case falls under any of the following
recognized exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken,
absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of
facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial
court;
(8) When the findings of fact are conclusions without
citation of specific evidence on which they are based;
 (9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and
contradicted by the evidence on record.11
We note, however, that the findings of fact of the RTC are contrary
to those of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is
bereft of merit.
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 among them. A contract of partnership is
defined by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves.12
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is
none in this case, because the alleged partnership was never
formally organized. Nonetheless, we are asked to determine who
between Jose and Elfledo was the "partner" in the trucking
business.
A careful review of the records persuades us to affirm the CA
decision. The evidence presented by petitioners falls short of the
quantum of proof required to establish that: (1) Jose was the
partner and not Elfledo; and (2) all the properties acquired by
Elfledo and respondent form part of the estate of Jose, having been
derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony
is just one piece of evidence against respondent. It must be
considered and weighed along with petitioners' other evidence vis-
à-vis respondent's contrary evidence. In civil cases, the party
having the burden of proof must establish his case by a
preponderance of evidence. "Preponderance of evidence" is the
weight, credit, and value of the aggregate evidence on either side
and is usually considered synonymous with the term "greater
weight of the evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last analysis,
means probability of the truth. It is evidence that is more
convincing to the court as worthy of belief than that which is
offered in opposition thereto.13 Rule 133, Section 1 of the Rules of
Court provides the guidelines in determining preponderance of
evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil
cases, the party having burden of proof must establish his case by
a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which
they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal
credibility so far as the same may legitimately appear upon the
trial. The court may also consider the number of witnesses, though
the preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of
Appeals14 is enlightening. Therein, we cited Article 1769 of the
Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these
rules shall apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as to third
persons;
 (2) Co-ownership or co-possession does not of itself establish
a partnership, whether such co-owners or co-possessors do
or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is a prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if such
profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.
Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner
of Jimmy and Norberto: 1) Cresencia testified that Jose gave
Elfledo ₱50,000.00, as share in the partnership, on a date that
coincided with the payment of the initial capital in the
partnership;15 (2) Elfledo ran the affairs of the partnership,
wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners
herein;16 (3) all of the properties, particularly the nine trucks of the
partnership, were registered in the name of Elfledo; (4) Jimmy
testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares
of the profits of the business;17 and (5) none of the petitioners, as
heirs of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime. As repeatedly stressed in Heirs of
Tan Eng Kee,18 a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show
that the real and personal properties acquired and registered in
the names of Elfledo and respondent formed part of the estate of
Jose, having been derived from Jose's alleged partnership with
Jimmy and Norberto. They failed to refute respondent's claim that
Elfledo and respondent engaged in other businesses. Edison even
admitted that Elfledo also sold Interwood lumber as a
sideline.19 Petitioners could not offer any credible evidence other
than their bare assertions. Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the former
carries more weight.20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help
but one of the partners in the trucking business, active and visible
in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control,
administration and management of the partnership and its
business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners,
are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how
the business was ran. Evidently it was through Elfredo’s efforts
and hard work that the partnership was able to acquire more
trucks and otherwise prosper. Even the appellant participated in
the affairs of the partnership by acting as the bookkeeper sans
salary.1avvphi1
It is notable too that Jose Lim died when the partnership was
barely a year old, and the partnership and its business not only
continued but also flourished. If it were true that it was Jose Lim
and not Elfledo who was the partner, then upon his death the
partnership should have
been dissolved and its assets liquidated. On the contrary, these
were not done but instead its operation continued under the helm
of Elfledo and without any participation from the heirs of Jose
Lim.
Whatever properties appellant and her husband had acquired, this
was through their own concerted efforts and hard work. Elfledo did
not limit himself to the business of their partnership but engaged
in other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the
ruling of the CA as they are amply supported by the law and by
the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed
Court of Appeals Decision dated June 29, 2005 is AFFIRMED.
Costs against petitioners.
SO ORDERED.
G.R. No. 183374. June 29, 2010.*
MARSMAN DRYSDALE LAND, INC., petitioner, vs.PHILIPPINE
GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC.,
respondents.
G.R. No. 183376. June 29, 2010.*
GOTESCO PROPERTIES, INC., petitioner, vs. MARSMAN
DRYSDALE LAND, INC. AND PHILIPPINE GEOANALYTICS,
INC., respondents.
Civil Law; Contracts; Partnership; Joint Ventures; A joint
venture being a form of partnership it is to be governed by the laws
on partnership.—A joint venture being a form of partnership, it is
to be governed by the laws on partnership.
PETITION for review on certiorari of the decision and resolution of
the Court of Appeals.
The facts are stated in the opinion of the Court.
Chavez, Miranda, Aseoche Law Offices for Marsman Drysdale
Land, Inc.
Pacheco Law Offices for respondent Gotesco Properties, Inc.
Yorac, Arroyo, Chua, Caedo & Coronel Law Offices for
Philippines Geoanalytics, Inc.
CARPIO-MORALES, J.:
On February 12, 1997, Marsman Drysdale Land, Inc.
(Marsman Drysdale) and Gotesco Properties, Inc. (Gotesco)
entered into a Joint Venture Agreement (JVA) for the construction
and development of an office building on a land owned by
Marsman Drysdale in Makati City.[1]
The JVA contained the following pertinent
provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to
implement this Agreement by investing in the
PROJECT on a FIFTY (50%) PERCENT- FIFTY
(50%) PERCENT basis.
4.1. Contribution of [Marsman Drysdale]-[Marsman
Drysdale] shall contribute the Property.
The total appraised value of the Property is PESOS:
FOUR HUNDRED TWENTY MILLION
(P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver
the Property in a buildable condition within ninety
(90) days from signing of this Agreement barring
any unforeseen circumstances over which [Marsman
Drysdale] has no control. Buildable condition shall
mean that the old building/structure which stands
on the Property is demolished and taken to ground
level.
4.2. Contribution of [Gotesco]- [Gotesco] shall
contribute the amount of PESOS: FOUR
HUNDRED TWENTY MILLION
(P420,000,000.00) in cash which shall be
payable as follows:
4.2.1. The amount of PESOS: FIFTY
MILLION (P50,000,000.00) upon
signing of this Agreement.
4.2.2. The balance of PESOS: THREE
HUNDRED SEVENTY MILLION
(P370,000,000.00) shall be paid based
on progress billings, relative to the
development and construction of the
Building, but shall in no case exceed
ten (10) months from delivery of the
Property in a Buildable condition as
defined in section 4.1.
A joint account shall be opened and
maintained by both Parties for
handling of said balance, among other
Project concerns.
4.3. Funding and Financing
4.3.1 Construction funding for the
Project shall be obtained from the
cash contribution of [Gotesco].
4.3.2 Subsequent funding shall be
obtained from the pre-selling of units
in the Building or, when necessary,
from loans from various banks or
financial institutions. [Gotesco] shall
arrange the required funding from
such banks or financial institutions,
under such terms and conditions
which will provide financing rates
favorable to the Parties.
4.3.3 [Marsman Drysdale] shall not
be obligated to fund the Project as
its contribution is limited to the
Property.
4.3.4 If the cost of the Project exceeds the
cash contribution of [Gotesco], the
proceeds obtained from the pre-selling
of units and proceeds from loans, the
Parties shall agree on other sources
and terms of funding such excess as
soon as practicable.
4.3.5 x x x x.
4.3.6 x x x x.
4.3.7 x x x x.
4.3.8 All funds advanced by a
Party (or by third parties in
substitution for advances from a
Party) shall be repaid by the JV.
4.3.9 If any Party agrees to make an
advance to the Project but fails to
do so (in whole or in part) the
other party may advance the
shortfall and the Party in default
shall indemnify the Party making
the substitute advance on demand
for all of its losses, costs and
expenses incurred in so doing.
(emphasis supplied; underscoring in
the original)
 Gotesco which, under the JVA, was solely liable for the monetary
Via Technical Services Contract (TSC) dated July 14, expenses of the project.[7]
1997,[2] the joint venture engaged the services of Philippine
Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, Gotesco, on the other hand, countered that PGI has no
laboratory testing, seismic study and geotechnical engineering for cause of action against it as PGI had yet to complete the services
the project. PGI, was, however, able to drill only four of five enumerated in the contract; and that Marsman Drysdale failed to
boreholes needed to conduct its subsurface soil exploration and clear the property of debris which prevented PGI from completing
laboratory testing, justifying its failure to drill the remaining its work.[8]
borehole to the failure on the part of the joint venture partners to
clear the area where the drilling was to be made.[3] PGI was able By Decision of June 2, 2004,[9] Branch 226 of the Quezon
to complete its seismic study though. City RTC rendered judgment in favor of PGI, disposing as follows:
PGI then billed the joint venture on November 24, 1997
WHEREFORE, in view of all the foregoing,
for P284,553.50 representing the cost of partial subsurface soil judgment is hereby rendered in favor of plaintiff
exploration; and on January 15, 1998 for P250,800 representing [PGI].
the cost of the completed seismic study.[4]
The defendants [Gotesco] and [Marsman
Drysdale] are ordered to pay plaintiff, jointly:
Despite repeated demands from PGI,[5] the joint venture
(1) the sum of P535,353.50 with legal
failed to pay its obligations.
interest from the date of this decision
until fully paid;
Meanwhile, due to unfavorable economic conditions at the
(2) the sum of P200,000.00 as
time, the joint venture was cut short and the planned building exemplary damages;
project was eventually shelved.[6]
(3) the sum of P200,000.00 as and for
attorneys fees; and
PGI subsequently filed on November 11, 1999 a complaint
for collection of sum of money and damages at the Regional Trial (4) costs of suit.
Court (RTC) of Quezon City against Marsman Drysdale and
The cross-claim of defendant [Marsman
Gotesco. Drysdale] against defendant [Gotesco] is hereby
GRANTED as follows:
In its Answer with Counterclaim and Cross-claim,
Marsman Drysdale passed the responsibility of paying PGI to
 a) Defendant [Gotesco] is ordered aggregate sum due [PGI], instead of the lump sum
to reimburse co-defendant [Marsman P535,353.00 awarded by the RTC.The rest of the
Drysdale] in the amount of Decision stands.
P535,353.[50] in accordance with the
[JVA]. SO ORDERED. (capitalization and
emphasis in the original; underscoring supplied)
b) Defendant [Gotesco] is further
ordered to pay co-defendant [Marsman
Drysdale] the sum of P100,000.00 as
and for attorneys fees. In partly affirming the trial courts decision, the appellate
court ratiocinated that notwithstanding the terms of the JVA, the
SO ORDERED. (underscoring in the
joint venture cannot avoid payment of PGIs claim since [the JVA]
original; emphasis supplied)
could not affect third persons like [PGI] because of the basic civil
law principle of relativity of contracts which provides that
Marsman Drysdale moved for partial reconsideration,
contracts can only bind the parties who entered into it, and it
contending that it should not have been held jointly liable with
cannot favor or prejudice a third person, even if he is aware of
Gotesco on PGIs claim as well as on the awards of exemplary
such contract and has acted with knowledge thereof.[11]
damages and attorneys fees. The motion was, by Resolution of
October 28, 2005, denied.
Their motions for partial reconsideration having been
denied,[12] Marsman Drysdale and Gotesco filed separate petitions
Both Marsman Drysdale and Gotesco appealed to the
for review with the Court which were docketed as G.R. Nos.
Court of Appeals which, by Decision of January 28,
183374 and 183376, respectively. By Resolution of September 8,
2008,[10] affirmed with modification the decision of the trial
2008, the Court consolidated the petitions.
court.Thus the appellate court disposed:

WHEREFORE, premises considered, the In G.R. No. 183374, Marsman Drysdale imputes error on
instant appeal is PARTLY GRANTED. The the appellate court in
assailed Decision dated June 2, 2004 and the
Resolution dated October 28, 2005 of the RTC of
A. ADJUDGING [MARSMAN DRYSDALE]
Quezon City, Branch 226, in Civil Case No. Q99-
WITH JOINT LIABILITY AFTER CONCEDING
39248 are hereby AFFIRMED with
THAT [GOTESCO] SHOULD ULTIMATELY BE
MODIFICATION deleting the award of exemplary
SOLELY LIABLE TO [PGI].
damages in favor of [PGI] and the P100,000.00
attorneys fees in favor of [Marsman Drysdale] and
B. AWARDING ATTORNEYS FEES IN
ordering defendant-appellant [Gotesco]
FAVOR OF [PGI]
to REIMBURSE [Marsman Drysdale] 50% of the
 the findings of facts are contradicted by the evidence on
C. IGNORING THE FACT THAT [PGI] DID
NOT COMPLY WITH THE REQUIREMENT OF record,[15] these extenuating grounds find no application in the
SATISFACTORY PERFORMANCE OF ITS present petitions.
PRESTATION WHICH, PURSUANT TO THE
TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO AT ALL EVENTS, the Court is convinced that PGI had
COMPENSATION. more than sufficiently established its claims against the joint
venture. In fact, Marsman Drysdale had long recognized PGIs
D. DISREGARDING CLEAR EVIDENCE
SHOWING [MARSMAN DRYSDALES] contractual claims when it (PGI) received a Certificate of
ENTITLEMENT TO AN AWARD OF ATTORNEYS Payment[16] from the joint ventures project manager[17] which was
FEES.[13]
endorsed to Gotesco for processing and payment.[18]
On the other hand, in G.R. No. 183376, Gotesco peddles
that the appellate court committed error when it
The core issue to be resolved then is which between joint

ORDERED [GOTESCO] TO PAY venturers Marsman Drysdale and Gotesco bears the liability to
P535,353.50 AS COST OF THE WORK pay PGI its unpaid claims.
PERFORMED BY [PGI] AND P100,000.00 [AS] To Marsman Drysdale, it is Gotesco since, under the JVA,
ATTORNEYS FEES [AND] TO REIMBURSE
[MARSMAN DRYSDALE] 50% OF P535,353.50 construction funding for the project was to be obtained from
AND PAY [MARSMAN DRYSDALE] P100,000.00 Gotescos cash contribution, as its (Marsman Drysdales)
AS ATTORNEYS FEES. [14] participation in the venture was limited to the land.

Gotesco maintains, however, that it has no liability to pay

On the issue of whether PGI was indeed entitled to the
PGI since it was due to the fault of Marsman Drysdale that PGI
payment of services it rendered, the Court sees no imperative to
was unable to complete its undertaking.
re-examine the congruent findings of the trial and appellate
courts thereon. Undoubtedly, the exercise involves an
The Court finds Marsman Drysdale and
examination of facts which is normally beyond the ambit of the
Gotesco jointly liable to PGI.
Courts functions under a petition for review, for it is well-settled
that this Court is not a trier of facts. While this judicial tenet
PGI executed a technical service contract with the joint
admits of exceptions, such as when the findings of facts of the
venture and was never a party to the JVA. While the JVA clearly
appellate court are contrary to those of the trial courts, or when
spelled out, inter alia, the capital contributions of Marsman
the judgment is based on a misapprehension of facts, or when
Drysdale (land) and Gotesco (cash) as well as the funding and
financing mechanism for the project, the same cannot be used to
defeat the lawful claim of PGI against the two joint venturers-
partners.
The TSC clearly listed the joint venturers Marsman
Drysdale and Gotesco as the beneficial owner of the
project,[19] and all billing invoices indicated the consortium
therein as the client.
As the appellate court held, Articles 1207 and 1208 of the
Civil Code, which respectively read:
Art. 1207. The concurrence of two or more
creditors or of two or more debtors in one and
the same obligation does not imply that each
one of the former has a right to demand, or
that each one of the latter is bound to render,
entire compliance with the prestations. There is
a solidary liability only when the obligation
expressly so states, or when the law or nature of the
obligation requires solidarity.
Art. 1208. If from the law, or the nature or
the wording of the obligations to which the preceding
article refers the contrary does not appear, the
credit or debt shall be presumed to be divided
into as many equal shares as there are
creditors or debtors, the credits or debts being
considered distinct from one another, subject to the
Rules of Court governing the multiplicity of suits.
(emphasis and underscoring supplied),
presume that the obligation owing to PGI is joint between
Marsman Drysdale and Gotesco.
The only time that the JVA may be made to apply in the
present petitions is when the liability of the joint venturers to
each other would set in.
A joint venture being a form of partnership, it is to be
governed by the laws on partnership.[20] Article 1797 of the Civil
Code provides:
Art. 1797. The losses and profits shall be
distributed in conformity with the agreement. If
only the share of each partner in
the profits has been agreed upon, the share of
each in the lossesshall be in the same
proportion.
In the absence of stipulation, the share of
each in the profits and losses shall be in proportion
to what he may have contributed, but the industrial
partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such
share as may be just and equitable under the
circumstances. If besides his services he has
contributed capital, he shall also receive a share in
the profits in proportion to his capital. (emphasis
and underscoring supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a
50-50 ratio on the proceeds of the project.[21] They did not provide
for the splitting of losses, however. Applying the above-quoted
provision of Article 1797 then, the same ratio applies in splitting
the P535,353.50 obligation-loss of the joint venture.
The appellate courts decision must be modified,
however. Marsman Drysdale and Gotesco being jointly liable,
there is no need for Gotesco to reimburse Marsman Drysdale for
50% of the aggregate sum due to PGI.
Allowing Marsman Drysdale to recover from Gotesco what
it paid to PGI would not only be contrary to the law on
partnership on division of losses but would partake of a clear case
of unjust enrichment at Gotescos expense. The grant by the lower
courts of Marsman Drysdale cross-claim against Gotesco was thus
erroneous.
Marsman Drysdales supplication for the award of
attorneys fees in its favor must be denied. It cannot claim that it
was compelled to litigate or that the civil action or proceeding
against it was clearly unfounded, for the JVA provided that, in
the event a party advances funds for the project, the joint venture
shall repay the advancing party. [22]
Marsman Drysdale was thus not precluded from
advancing funds to pay for PGIs contracted services to abate any
legal action against the joint venture itself. It was in fact hardline
insistence on Gotesco having sole responsibility to pay for the
obligation, despite the fact that PGIs services redounded to the
benefit of the joint venture, that spawned the legal action against
it and Gotesco.
Finally, an interest of 12% per annum on the outstanding
obligation must be imposed from the time of demand[23] as the
delay in payment makes the obligation one of forbearance of
money, conformably with this Courts ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals.[24] Marsman Drysdale and Gotesco
should bear legal interest on their respective obligations.
WHEREFORE, the assailed Decision and Resolution of the
Court of Appeals are AFFIRMED with MODIFICATION in that
the order for Gotesco to reimburse Marsman Drysdale
is DELETED, and interest of 12% per annum on the respective
obligations of Marsman Drysdale and Gotesco is imposed,
computed from the last demand or on January 5, 1999 up to the
finality of the Decision.
If the adjudged amount and the interest remain unpaid
thereafter, the interest rate shall be 12% per annum computed
from the time the judgment becomes final and executory until it is
fully satisfied. The appealed decision is, in all other respects,
affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.
G.R. No. 154486. December 1, 2010.*
FEDERICO JARANTILLA, JR., petitioner, vs.ANTONIETA
JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS
JARANTILLA, respondents.
Remedial Law; Civil Procedure; Appeals; Petition for Review
on Certiorari; It is a settled rule that in a petition for review on
certiorari under Rule 45 of the Rules of Civil Procedure, only
questions of law may be raised by the parties and passed upon by
this Court.—It is a settled rule that in a petition for review
on certiorari under Rule 45 of the Rules of Civil Procedure, only
questions of law may be raised by the parties and passed upon by
this Court. A question of law arises when there is doubt as to what
the law is on a certain state of facts, while there is a question of
fact when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by
the litigants or any of them.
Same; Same; Same; Same; Factual findings of the trial court,
when confirmed by the Court of Appeals, are final and conclusive.—
Factual findings of the trial court, when confirmed by the Court of
Appeals, are final and conclusive except in the following cases: (1)
when the inference made is manifestly mistaken, absurd or
impossible; (2) when there is a grave abuse of discretion; (3) when
the finding is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is
based on misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of
the Court of Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of
specific evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of the Court
of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.
Civil Law; Property; Words and Phrases; Co-ownership; There
is a co-ownership when an undivided thing or right belongs to
different persons.—There is a co-ownership when an undivided
thing or right belongs to different persons. It is a partnership when
two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Same; Contracts; Partnership; There are two essential
elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties.—Under
Article 1767 of the Civil Code, there are two essential elements in
a contract of partnership: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties.
Land Titles; Tax Declarations; While tax declarations and
realty tax receipts do not conclusively prove ownership, they may
constitute strong evidence of ownership when accompanied by
possession for a period sufficient for prescription.—Petitioner has
not presented evidence, other than these unsubstantiated
testimonies, to prove that the respondents did not have the means
to fund their other businesses and real properties without the
partnership’s income. On the other hand, the respondents have not
only, by testimonial evidence, proven their case against the
petitioner, but have also presented sufficient documentary
evidence to substantiate their claims, allegations and defenses.
They presented preponderant proof on how they acquired and
funded such properties in addition to tax receipts and tax
declarations. It has been held that “while tax declarations and
realty tax receipts do not conclusively prove ownership, they may
constitute strong evidence of ownership when accompanied by
possession for a period sufficient for prescription.”
Same; Torrens Title; Registration in the Torrens system does
not create or vest title as registration is not a mode of acquiring
ownership.—It is true that a certificate of title is merely an
evidence of ownership or title over the particular property
described therein. Registration in the Torrens system does not
create or vest title as registration is not a mode of acquiring
ownership; hence, this cannot deprive an aggrieved party of a
remedy in law.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Quisumbing, Torres for petitioner.
Felimon L. Fernandez for respondent C. Remotigue, D.
Jarantilla and T. Jarantilla.
Teodulfo L.C. Castro for respondent A. Jarantilla.
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari1 seeks to modify the
Decision2 of the Court of Appeals dated July 30, 2002 in CA-G.R.
CV No. 40887, which set aside the Decision3 dated December 18,
1992 of the Regional Trial Court (RTC) of Quezon City, Branch 98
in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by
eight children: Federico, Delfin, Benjamin, Conchita, Rosita,
Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is
the grandchild of the late Jarantilla spouses by their son Federico
Jarantilla, Sr. and his wife Leda Jamili.5 Petitioner also has two
other brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the
RTC while Antonieta Jarantilla, his aunt, was the plaintiff
therein. His co-respondents before he joined his aunt Antonieta in
her complaint, were his late aunt Conchita Jarantilla’s husband
Buenaventura Remotigue, who died during the pendency of the
case, his cousin Cynthia Remotigue, the adopted daughter of
Conchita Jarantilla and Buenaventura Remotigue, and his
brothers Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst
themselves the real properties of their deceased parents.7 With the
exception of the real property adjudicated to Pacita Jarantilla, the
heirs also agreed to allot the produce of the said real properties for
the years 1947-1949 for the studies of Rafael and Antonieta
Jarantilla.8
In the same year, the spouses Rosita Jarantilla and Vivencio
Deocampo entered into an agreement with the spouses
Buenaventura Remotigue and Conchita Jarantilla to provide
mutual assistance to each other by way of financial support to any
commercial and agricultural activity on a joint business
arrangement. This business relationship proved to be successful as
they were able to establish a manufacturing and trading business,
acquire real properties, and construct buildings, among other
things.9 This partnership ended in 1973 when the parties, in an
"Agreement,"10 voluntarily agreed to completely dissolve their
"joint business relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita
Remotigue executed a document wherein they acknowledged that
while registered only in Buenaventura Remotigue’s name, they
were not the only owners of the capital of the businesses Manila
Athletic Supply (712 Raon Street, Manila), Remotigue Trading
(Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In
this same "Acknowledgement of Participating Capital," they stated
the participating capital of their co-owners as of the year 1952,
with Antonieta Jarantilla’s stated as eight thousand pesos
(₱8,000.00) and Federico Jarantilla, Jr.’s as five thousand pesos
(₱5,000.00).12
The present case stems from the amended complaint13 dated April
22, 1987 filed by Antonieta Jarantilla against Buenaventura
Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets
and income of the co-ownership, for its partition and the delivery of
her share corresponding to eight percent (8%), and for damages.
Antonieta claimed that in 1946, she had entered into an agreement
with Conchita and Buenaventura Remotigue, Rafael Jarantilla,
and Rosita and Vivencio Deocampo to engage in business.
Antonieta alleged that the initial contribution of property and
money came from the heirs’ inheritance, and her subsequent
annual investment of seven thousand five hundred pesos
(₱7,500.00) as additional capital came from the proceeds of her
farm. Antonieta also alleged that from 1946-1969, she had helped
in the management of the business they co-owned without
receiving any salary. Her salary was supposedly rolled back into
the business as additional investments in her behalf. Antonieta
further claimed co-ownership of certain properties14 (the subject
real properties) in the name of the defendants since the only way
the defendants could have purchased these properties were
through the partnership as they had no other source of income.
The respondents, including petitioner herein, in their
Answer,15 denied having formed a partnership with Antonieta in
1946. They claimed that she was in no position to do so as she was
still in school at that time. In fact, the proceeds of the lands they
partitioned were devoted to her studies. They also averred that
while she may have helped in the businesses that her older sister
Conchita had formed with Buenaventura Remotigue, she was paid
her due salary. They did not deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact used this
as evidence to support their claim that Antonieta’s 8% share was
limited to the businesses enumerated therein. With regard to
Antonieta’s claim in their other corporations and businesses, the
respondents said these should also be limited to the number of her
shares as specified in the respective articles of incorporation. The
respondents denied using the partnership’s income to purchase the
subject real properties and said that the certificates of title should
be binding on her.16
During the course of the trial at the RTC, petitioner Federico
Jarantilla, Jr., who was one of the original defendants, entered
into a compromise agreement17 with Antonieta Jarantilla wherein
he supported Antonieta’s claims and asserted that he too was
entitled to six percent (6%) of the supposed partnership in the
same manner as Antonieta was. He prayed for a favorable
judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s
prayer for an accounting from the other defendants, and the
partition of the properties of the co-ownership and the delivery to
the plaintiff and to defendant Federico Jarantilla, Jr. of their
rightful share of the assets and properties in the co-
ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint
Motion to Approve Compromise Agreement20and on December 18,
1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders
judgment in favor of the plaintiff Antonieta Jarantilla and against
defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas
Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent
amount on the real properties covered by TCT Nos. 35655,
338398, 338399 & 335395, all of the Registry of Deeds of
Quezon City; TCT Nos. (18303)23341, 142882 &
490007(4615), all of the Registry of Deeds of Rizal; and TCT
No. T-6309 of the Registry of Deeds of Cotabato based on
their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent
amount on the Remotigue Agro-Industrial Corporation,
Manila Athletic Supply, Inc., MAS Rubber Products, Inc.
and Buendia Recapping Corporation based on the shares of
stocks present book value;
3. to account for the assets and income of the co-ownership
and deliver to plaintiff her rightful share thereof equivalent
to 8%;
4. to pay plaintiff, jointly and severally, the sum of
₱50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of ₱50,000.00 as
attorney’s fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to
the Court of Appeals. The petitioner claimed that the RTC "erred
in not rendering a complete judgment and ordering the partition of
the co-ownership and giving to [him] six per centum (6%) of the
properties."22
While the Court of Appeals agreed to some of the RTC’s factual
findings, it also established that Antonieta Jarantilla was not part
of the partnership formed in 1946, and that her 8% share was
limited to the businesses enumerated in the Acknowledgement of
Participating Capital. On July 30, 2002, the Court of Appeals
rendered the herein challenged decision setting aside the RTC’s
decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December
1992 is SET ASIDE and a new one is hereby entered ordering that:
 (1) after accounting, plaintiff Antonieta Jarantilla be given
her share of 8% in the assets and profits of Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue
Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be
given his share of 6% of the assets and profits of the above-
mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the
following corporations to the extent stated in their Articles
of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial
Reconsideration but the Court of Appeals denied this in a
Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for
review on certiorari25 dated September 16, 2002, assailing the
Court of Appeals’ decision on "similar grounds and similar
assignments of errors as this present case"26 but it was dismissed
on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section
2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground
that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
IN NOT RULING THAT PETITIONER FEDERICO
JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%)
SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES
ACQUIRED BY THE OTHER DEFENDANTS USING COMMON
FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED
SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue
spouses, the Deocampo spouses, Rosita Jarantilla, Rafael
Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as
evidenced by the Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends that from this
partnership, several other corporations and businesses were
established and several real properties were acquired. In this
petition, he is essentially asking for his 6% share in the subject
real properties. He is relying on the Acknowledgement of
Participating Capital, on his own testimony, and Antonieta
Jarantilla’s testimony to support this contention.
The core issue is whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the subject real
properties. In other words, what is the petitioner’s right over these
real properties?
It is a settled rule that in a petition for review on certiorari under
Rule 45 of the Rules of Civil Procedure, only questions of law may
be raised by the parties and passed upon by this Court.29
A question of law arises when there is doubt as to what the law is
on a certain state of facts, while there is a question of fact when
the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an
examination of the probative value of the evidence presented by
the litigants or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. Thus, the test of
whether a question is one of law or of fact is not the appellation
given to such question by the party raising the same; rather, it is
whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings
of the RTC, this Court, in resolving the questions of law that are
now in issue, shall look into the facts only in so far as the two
courts a quo differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since
1946 which was affirmed in the 1957 document, the
"Acknowledgement of Participating Capital." The RTC used this as
its basis for giving Antonieta Jarantilla an 8% share in the three
businesses listed therein and in the other businesses and real
properties of the respondents as they had supposedly acquired
these through funds from the partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as
to Antonieta’s 8% share in the business enumerated in the
Acknowledgement of Participating Capital, but not as to her share
in the other corporations and real properties. The Court of Appeals
ruled that Antonieta’s claim of 8% is based on the
"Acknowledgement of Participating Capital," a duly notarized
document which was specific as to the subject of its coverage.
Hence, there was no reason to pattern her share in the other
corporations from her share in the partnership’s businesses. The
Court of Appeals also said that her claim in the respondents’ real
properties was more "precarious" as these were all covered by
certificates of title which served as the best evidence as to all the
matters contained therein.32 Since petitioner’s claim was
essentially the same as Antonieta’s, the Court of Appeals also
ruled that petitioner be given his 6% share in the same businesses
listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of
Appeals, are final and conclusive except in the following cases: (1)
when the inference made is manifestly mistaken, absurd or
impossible; (2) when there is a grave abuse of discretion; (3) when
the finding is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is
based on misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of
the Court of Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of
specific evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of the Court
of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their
relationship with the respondents as a co-ownership, but in the
same breath, assert that a verbal partnership was formed in 1946
and was affirmed in the 1957 Acknowledgement of Participating
Capital.
There is a co-ownership when an undivided thing or right belongs
to different persons.34 It is a partnership when two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves.35 The Court, in Pascual v. The
Commissioner of Internal Revenue,36 quoted the concurring
opinion of Mr. Justice Angelo Bautista in Evangelista v. The
Collector of Internal Revenue37 to further elucidate on the
distinctions between a co-ownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of
the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property;
 (3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from
which the returns are derived;
From the above it appears that the fact that those who agree to form
a co- ownership share or do not share any profits made by the use of
the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself
establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of
other elements constituting partnership is necessary, such as the
clear intent to form a partnership, the existence of a juridical
personality different from that of the individual partners, and the
freedom to transfer or assign any interest in the property by one
with the consent of the others.
It is evident that an isolated transaction whereby two or more
persons contribute funds to buy certain real estate for profit in the
absence of other circumstances showing a contrary intention cannot
be considered a partnership.
Persons who contribute property or funds for a common enterprise
and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title
to their respective contribution, are not thereby rendered partners.
They have no common stock or capital, and no community of
interest as principal proprietors in the business itself which the
proceeds derived.
A joint purchase of land, by two, does not constitute a co-
partnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the
parties are only tenants in common.
Where plaintiff, his brother, and another agreed to become owners
of a single tract of realty, holding as tenants in common, and to
divide the profits of disposing of it, the brother and the other not
being entitled to share in plaintiff’s commission, no partnership
existed as between the three parties, whatever their relation may
have been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An
intent to form the same; (b) generally participating in both profits
and losses; (c) and such a community of interest, as far as third
persons are concerned as enables each party to make contract,
manage the business, and dispose of the whole property. x x x.
The common ownership of property does not itself create a
partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management, and use
of such property and the application of the proceeds
therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential
elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first
element is undoubtedly present in the case at bar, for, admittedly,
all the parties in this case have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did.39 It is not denied that all
the parties in this case have agreed to contribute capital to a
common fund to be able to later on share its profits. They have
admitted this fact, agreed to its veracity, and even submitted one
common documentary evidence to prove such partnership - the
Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the
Acknowledgement of Participating Capital, it would be instructive
to examine the pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita
Jarantilla de Remotigue, both of legal age, Filipinos and residents
of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the
Remotigue Trading of Calle Real, Iloilo City and the Remotigue
Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic
goods and equipments, and general merchandise are recorded in
their respective books with Buenaventura Remotigue as the
registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three
establishments and their participation in the capital of the three
establishments together with the other co-owners as of the year
1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE
THOUSAND)₱25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE
THOUSAND)… 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00
That aside from the persons mentioned in the next preceding
paragraph, no other person has any interest in the above-
mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of
Manila, P.I., this 29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized
document voluntarily executed by Conchita Jarantilla-Remotigue
and Buenaventura Remotigue in 1957. Petitioner does not dispute
its contents and is actually relying on it to prove his participation
in the partnership. Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be in
the same proportion.
In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital.
(Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his
share as agreed upon, or in the absence of any such stipulations,
then to his share in proportion to his contribution to the
partnership. The petitioner himself claims his share to be 6%, as
stated in the Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically
enumerated the businesses covered by the partnership: Manila
Athletic Supply, Remotigue Trading in Iloilo City and Remotigue
Trading in Cotabato City. Since there was a clear agreement that
the capital the partners contributed went to the three businesses,
then there is no reason to deviate from such agreement and go
beyond the stipulations in the document. Therefore, the Court of
Appeals did not err in limiting petitioner’s share to the assets of
the businesses enumerated in the Acknowledgement of
Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is
a separate juridical entity, the shares to be paid out to the
partners is necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that
must refund the shares of the partners, the amount to be refunded
is necessarily limited to its total resources. In other words, it can
only pay out what it has in its coffers, which consists of all its
assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. After all
the creditors have been paid, whatever is left of the partnership
assets becomes available for the payment of the partners’ shares.42
There is no evidence that the subject real properties were assets of
the partnership referred to in the Acknowledgement of
Participating Capital.
The petitioner further asserts that he is entitled to respondents’
properties based on the concept of trust. He claims that since the
subject real properties were purchased using funds of the
partnership, wherein he has a 6% share, then "law and equity
mandates that he should be considered as a co-owner of those
properties in such proportion."43 In Pigao v. Rabanillo,44 this Court
explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the
parties, while implied trusts come into being by operation of law,
either through implication of an intention to create a trust as a
matter of law or through the imposition of the trust irrespective of,
and even contrary to, any such intention. In turn, implied trusts
are either resulting or constructive trusts. Resulting trusts are
based on the equitable doctrine that valuable consideration and
not legal title determines the equitable title or interest and are
presumed always to have been contemplated by the parties. They
arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes
invested with legal title but is obligated in equity to hold his legal
title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was
created. Noting the need to prove the existence of a trust, this
Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the
party asserting its existence, and such proof must be clear and
satisfactorily show the existence of the trust and its elements.
While implied trusts may be proved by oral evidence, the evidence
must be trustworthy and received by the courts with extreme
caution, and should not be made to rest on loose, equivocal or
indefinite declarations. Trustworthy evidence is required because
oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the
subject real properties. Aside from his bare allegations, he has
failed to show that the respondents used the partnership’s money
to purchase the said properties. Even assuming arguendo that
some partnership income was used to acquire these properties, the
petitioner should have successfully shown that these funds came
from his share in the partnership profits. After all, by his own
admission, and as stated in the Acknowledgement of Participating
Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject
real properties, by relying on his own self-serving testimony and
the equally biased testimony of Antonieta Jarantilla. Petitioner
has not presented evidence, other than these unsubstantiated
testimonies, to prove that the respondents did not have the means
to fund their other businesses and real properties without the
partnership’s income. On the other hand, the respondents have not
only, by testimonial evidence, proven their case against the
petitioner, but have also presented sufficient documentary
evidence to substantiate their claims, allegations and defenses.
They presented preponderant proof on how they acquired and
funded such properties in addition to tax receipts and tax
declarations.47 It has been held that "while tax declarations and
realty tax receipts do not conclusively prove ownership, they may
constitute strong evidence of ownership when accompanied by
possession for a period sufficient for prescription."48 Moreover, it is
a rule in this jurisdiction that testimonial evidence cannot prevail
over documentary evidence.49 This Court had on several occasions,
expressed our disapproval on using mere self-serving testimonies
to support one’s claim. In Ocampo v. Ocampo,50 a case on partition
of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property
was sufficiently proved by their witnesses -- Luisa Ocampo-Llorin
and Melita Ocampo. We disagree. Their testimonies cannot prevail
over the array of documents presented by Belen. A claim of
ownership cannot be based simply on the testimonies of witnesses;
much less on those of interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of
ownership or title over the particular property described therein.
Registration in the Torrens system does not create or vest title as
registration is not a mode of acquiring ownership; hence, this
cannot deprive an aggrieved party of a remedy in law.52 However,
petitioner asserts ownership over portions of the subject real
properties on the strength of his own admissions and on the
testimony of Antonieta Jarantilla.1avvphi1 As held by this Court
in Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of
ownership of the land referred to therein, and a strong
presumption exists that a Torrens title was regularly issued and
valid. A Torrens title is incontrovertible against any informacion
possessoria, of other title existing prior to the issuance thereof not
annotated on the Torrens title. Moreover, persons dealing with
property covered by a Torrens certificate of title are not required to
go beyond what appears on its face.54
As we have settled that this action never really was for partition of
a co-ownership, to permit petitioner’s claim on these properties is
to allow a collateral, indirect attack on respondents’ admitted
titles. In the words of the Court of Appeals, "such evidence cannot
overpower the conclusiveness of these certificates of title, more so
since plaintiff’s [petitioner’s] claims amount to a collateral attack,
which is prohibited under Section 48 of Presidential Decree No.
1529, the Property Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. – A certificate
of title shall not be subject to collateral attack. It cannot be
altered, modified, or cancelled except in a direct proceeding in
accordance with law.
This Court has deemed an action or proceeding to be "an attack on
a title when its objective is to nullify the title, thereby challenging
the judgment pursuant to which the title was decreed."56 In
Aguilar v. Alfaro,57 this Court further distinguished between a
direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a
different relief and as an incident to the present action, an attack
is made against the judgment granting the title. This manner of
attack is to be distinguished from a direct attack against a
judgment granting the title, through an action whose main
objective is to annul, set aside, or enjoin the enforcement of such
judgment if not yet implemented, or to seek recovery if the
property titled under the judgment had been disposed of. x x x.
Petitioner’s only piece of documentary evidence is the
Acknowledgement of Participating Capital, which as discussed
above, failed to prove that the real properties he is claiming co-
ownership of were acquired out of the proceeds of the businesses
covered by such document. Therefore, petitioner’s theory has no
factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision
of the Court of Appeals in CA-G.R. CV No. 40887, dated July 30,
2002 is AFFIRMED.
SO ORDERED.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY
and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the
COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended
decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
05617 which set aside the earlier decision dated June 5, 1986, of
the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc.
(ASI) cannot nominate more than three (3) directors; that the
Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders
can nominate only six (6) candidates and in the event they cannot
agree on the six (6) nominees, they shall vote only among
themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for
the primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went abroad
to look for foreign partners, European or American who could help
in its expansion plans. On August 15, 1962, ASI, a foreign
corporation domiciled in Delaware, United States entered into an
Agreement with Saniwares and some Filipino investors whereby
ASI and the Filipino investors agreed to participate in the
ownership of an enterprise which would engage primarily in the
business of manufacturing in the Philippines and selling here and
abroad vitreous china and sanitary wares. The parties agreed that
the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues
in these cases on the nomination and election of the directors of
the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation
shall be substantially in the form annexed hereto as
 Exhibit A and, insofar as permitted under Philippine
law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard
shall own at least 30% of the outstanding stock of
the Corporation, three of the nine directors shall be
designated by American-Standard, and the other six
shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of
veto powers over a number of corporate acts and the right to
designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the
capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and
the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially
harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected
as it apparently had other subsidiaries of joint joint venture
groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting
was held. The meeting was presided by Baldwin Young. The
minutes were taken by the Secretary, Avelino Cruz. After
disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely;
Wolfgang Aurbach, John Griffin and David P. Whittingham. The
Philippine investors nominated six, namely; Ernesto Lagdameo,
Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.
The chairman, Baldwin Young ruled the last two nominations out
of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual
stockholders' meetings to nominate only nine persons as nominees
for the nine-member board of directors, and the legal advice of
Saniwares' legal counsel. The following events then, transpired:
... There were protests against the action of the
Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of
stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote
on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the
votes present and represented by proxy equally for
the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E.
Salazar and Charles Chamsay. The ASI
representative, Mr. Jaqua protested the decision of
the Chairman and announced that all votes accruing
to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-
G.R. SP No. 05617) were being cumulatively voted
for the three ASI nominees and Charles Chamsay,
and instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that all
the votes owned by and or represented by them
467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617)
were being voted cumulatively in favor of Luciano E.
Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all
votes equally in favor of the three ASI nominees,
namely, Wolfgang Aurbach, John Griffin and David
Whittingham and the six originally nominated by
Rogelio Vinluan, namely, Ernesto Lagdameo, Sr.,
Raul Boncan, Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, and Baldwin Young. The
Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David
Whittingham Ernesto Lagdameo, Sr., Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
Raul A. Boncan, Baldwin Young. The representative
of ASI then moved to recess the meeting which was
duly seconded. There was also a motion to adjourn
(p. 28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin
Young, who announced that the motion was carried
and declared the meeting adjourned. Protests
against the adjournment were registered and having
been ignored, Mr. Jaqua the ASI representative,
stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened
in the next room. The Chairman then threatened to
have the stockholders who did not agree to the
decision of the Chairman on the casting of votes
bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares,
decided to continue the meeting at the elevator lobby
of the American Standard Building. The continued
meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis
of the cumulative votes cast earlier in the meeting,
the ASI Group nominated its four nominees;
Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five directors
were certified as elected directors by the Acting
Secretary, Andres Gatmaitan, with the explanation
that there was a tie among the other six (6)
nominees for the four (4) remaining positions of
directors and that the body decided not to break the
tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the
parties with the Securities and Exchange Commission (SEC). The
first petition filed was for preliminary injunction by Saniwares,
Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated
as SEC Case No. 2417. The second petition was for quo warranto
and application for receivership by Wolfgang Aurbach, John
Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in
SEC Case No. 2417) and Avelino F. Cruz. The case was docketed
as SEC Case No. 2718. Both sets of parties except for Avelino Cruz
claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing
officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of
Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay (docketed as AC-G.R.
SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP
No. 05617). The petitions were consolidated and the appellate
court in its decision ordered the remand of the case to the
Securities and Exchange Commission with the directive that a new
stockholders' meeting of Saniwares be ordered convoked as soon as
possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo
Group) the appellate court (Court of Appeals) rendered the
questioned amended decision. Petitioners Wolfgang Aurbach, John
Griffin, David P. Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT,
UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE
BOARD OF DIRECTORS OF SANIWARES WHEN
IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE
STOCKHOLDERS FROM EXERCISING THEIR
FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS
OF LAW.
III. THE COURT OF APPEALS IMPOSES
CONDITIONS AND READS PROVISIONS INTO
THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the
amended decision on the following grounds:
11.1.
ThatAmendedDecisionwouldsanctiontheCA'sdisrega
rd of binding contractual agreements entered into by
stockholders and the replacement of the conditions
of such agreements with terms never contemplated
by the stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction
the deprivation of the property rights of stockholders
without due process of law in order that a favored
group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a
corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE
RESPONDENT COURT, WHILE RECOGNIZING
THAT THE STOCKHOLDERS OF SANIWARES
ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT
CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY
ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are
discussed jointly.
The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders'
meeting held on March 8, 1983. To answer this question the
following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture
or a corporation and (2) whether or not the ASI Group may vote
their additional 10% equity during elections of Saniwares' board of
directors.
The rule is that whether the parties to a particular contract have
thereby established among themselves a joint venture or some
other relation depends upon their actual intention which is
determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares,
Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal
Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd
668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76)
contend that the actual intention of the parties should be viewed
strictly on the "Agreement" dated August 15,1962 wherein it is
clearly stated that the parties' intention was to form a corporation
and not a joint venture.
They specifically mention number 16 under Miscellaneous
Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint
venturers in respect of any transaction hereunder.
(At P. 66, Rollo-GR No. 75875)
They object to the admission of other evidence which tends to show
that the parties' agreement was to establish a joint venture
presented by the Lagdameo and Young Group on the ground that
it contravenes the parol evidence rule under section 7, Rule 130 of
the Revised Rules of Court. According to them, the Lagdameo and
Young Group never pleaded in their pleading that the "Agreement"
failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of
an agreement have been reduced to writing, it is to
be considered as containing all such terms, and
therefore, there can be, between the parties and
their successors in interest, no evidence of the terms
of the agreement other than the contents of the
writing, except in the following cases:
(a) Where a mistake or imperfection of the writing,
or its failure to express the true intent and
agreement of the parties or the validity of the
agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the
writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group
pleaded in their Reply and Answer to Counterclaim in SEC Case
No. 2417 that the Agreement failed to express the true intent of
the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would
make it appear that the parties thereto disclaim
being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with,
and does not preclude, the existence of two distinct
groups of stockholders in Saniwares one of which
(the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the
minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint
venture enterprise, and if some words in the
Agreement appear to be contrary to the evident
intention of the parties, the latter shall prevail over
the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted
together attributing to the doubtful ones that sense
which may result from all of them taken jointly (Art.
1374, New Civil Code). Moreover, in order to judge
the intention of the contracting parties, their
contemporaneous and subsequent acts shall be
principally considered. (Art. 1371, New Civil Code).
(Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending
to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the
question whether they intended by their agreement
 to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of
the Agreement as well as the testimonial evidence presented by
the Lagdameo and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which
govern its policy making body are all consistent with a joint
venture and not with an ordinary corporation. As stated by the
SEC:
According to the unrebutted testimony of Mr.
Baldwin Young, he negotiated the Agreement with
ASI in behalf of the Philippine nationals. He
testified that ASI agreed to accept the role of
minority vis-a-vis the Philippine National group of
investors, on the condition that the Agreement
should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain
provisions were included to protect the interests of
ASI as the minority. For example, the vote of 7 out of
9 directors is required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a) of the Agreement].
ASI is contractually entitled to designate a member
of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority
vote for the amendment of the articles and by-laws
of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also
given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further
provides that the sales policy of Saniwares shall be
that which is normally followed by ASI [Sec. 13 (a)]
and that Saniwares should not export "Standard"
products otherwise than through ASI's Export
Marketing Services [Sec. 13 (6)]. Under the
Agreement, ASI agreed to provide technology and
know-how to Saniwares and the latter paid royalties
for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the
Agreement requiring a 7 out of 9 votes of the board
of directors for certain actions, in effect gave ASI
(which designates 3 directors under the Agreement)
an effective veto power. Furthermore, the grant to
ASI of the right to designate certain officers of the
corporation; the super-majority voting requirements
for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9
directors and the other stockholders shall designate
the other 6, clearly indicate that there are two
distinct groups in Saniwares, namely ASI, which
owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%,
and that 2) ASI is given certain protections as the
minority stockholder.
Premises considered, we believe that under the
Agreement there are two groups of stockholders who
established a corporation with provisions for a
special contractual relationship between the parties,
i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a
six to three ratio. Each group is assured of a fixed number of
directors in the board.
Moreover, ASI in its communications referred to the enterprise as
joint venture. Baldwin Young also testified that Section 16(c) of
the Agreement that "Nothing herein contained shall be construed
to constitute any of the parties hereto partners or joint venturers
in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the
industrial and manufacturing capacities of a local firm are
constrained to seek the technology and marketing assistance of
huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a
minority owner of a firm in exchange for its manufacturing
expertise, use of its brand names, and other such assistance.
However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole
or monopolistic operations and merely uses the joint venture
arrangement to gain a foothold or test the Philippine waters, so to
speak. Or the covetousness may come later. As the Philippine firm
enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to
say the least. To the extent that such subversive actions can be
lawfully prevented, the courts should extend protection especially
in industries where constitutional and legal requirements reserve
controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court
of Appeal
In fact, the Philippine Corporation Code itself
recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting
rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders,
if in writing and signed by the parties thereto, may
provide that in exercising any voting rights, the
shares held by them shall be voted as therein
provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is
included in the Corporation Code's chapter on close
corporations and Saniwares cannot be a close
corporation because it has 95 stockholders. Firstly,
although Saniwares had 95 stockholders at the time
of the disputed stockholders meeting, these 95
stockholders are not separate from each other but
are divisible into groups representing a single
Identifiable interest. For example, ASI, its nominees
and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13
stockholders, the Chamsay family for 8 stockholders,
the Santos family for 9 stockholders, the Dy family
for 7 stockholders, etc. If the members of one family
and/or business or interest group are considered as
one (which, it is respectfully submitted, they should
be for purposes of determining how closely held
Saniwares is there were as of 8 March 1983,
practically only 17 stockholders of Saniwares.
(Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984
and Annex "A" thereof).
Secondly, even assuming that Saniwares is
technically not a close corporation because it has
more than 20 stockholders, the undeniable fact is
that it is a close-held corporation. Surely, appellants
cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a
realistic approach to joint venture corporations and
have not rigidly applied principles of corporation law
designed primarily for public issue corporations.
These courts have indicated that express
arrangements between corporate joint ventures
should be construed with less emphasis on the
ordinary rules of law usually applied to corporate
entities and with more consideration given to the
nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator
Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v.
Des Moines Union Ry; 254 Ass'n. 247 US. 490';
Seaboard Airline Ry v. Atlantic Coast Line Ry; 240
N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool,
Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v.
Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p.
680,1958). These American cases dealt with legal
questions as to the extent to which the requirements
arising from the corporate form of joint venture
corporations should control, and the courts ruled
that substantial justice lay with those litigants who
relied on the joint venture agreement rather than
the litigants who relied on the orthodox principles of
corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in
organizing the joint venture deviate from the
traditional pattern of corporation management. A
noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint
venture corporations often contain provisions which
do one or more of the following: (1) require greater
than majority vote for shareholder and director
action; (2) give certain shareholders or groups of
shareholders power to select a specified number of
directors; (3) give to the shareholders control over
the selection and retention of employees; and (4) set
up a procedure for the settlement of disputes by
arbitration (See I O' Neal, Close Corporations, 1971
ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation
Code does not necessarily imply that agreements
regarding the exercise of voting rights are allowed
only in close corporations. As Campos and Lopez-
Campos explain:
Paragraph 2 refers to pooling and voting agreements
in particular. Does this provision necessarily imply
that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and
therefore cannot qualify as a close corporation under
section 96, can some of them enter into an
agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for
denying stockholders of corporations other than
close ones the right to enter into not voting or
pooling agreements to protect their interests, as long
as they do not intend to commit any wrong, or fraud
on the other stockholders not parties to the
agreement. Of course, voting or pooling agreements
are perhaps more useful and more often resorted to
in close corporations. But they may also be found
necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the
requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close
corporation will not come within the definition. In
such case, its stockholders should not be precluded
from entering into contracts like voting agreements
if these are otherwise valid. (Campos & Lopez-
Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the
Agreement relating to the designation or nomination
 of directors restricts the right of the Agreement's
signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include
appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may
vote their additional equity during elections of Saniwares' board of
directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of
ASI's participation in the management of the
corporation is spelled out in the Agreement. Section
5(a) hereof says that three of the nine directors shall
be designated by ASI and the remaining six by the
other stockholders, i.e., the Filipino stockholders.
This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual
relationship, it is imperative that the parties should
honor and adhere to their respective rights and
obligations thereunder. Appellants seem to contend
that any allocation of board seats, even in joint
venture corporations, are null and void to the extent
that such may interfere with the stockholder's rights
to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be
prepared to hold that any agreement which curtails
in any way cumulative voting should be struck
down, even if such agreement has been freely
entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may
well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the
decision appealed from, that cumulative voting
rights may be voluntarily waived by stockholders
who enter into special relationships with each other
to pursue and implement specific purposes, as in
joint venture relationships between foreign and local
stockholders, so long as such agreements do not
adversely affect third parties.
In any event, it is believed that we are not here
called upon to make a general rule on this question.
Rather, all that needs to be done is to give life and
effect to the particular contractual rights and
obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority
position of ASI and the contractual allocation of
board seats Cannot be disregarded. On the other
hand, the rights of the stockholders to cumulative
voting should also be protected.
In our decision sought to be reconsidered, we opted
to uphold the second over the first. Upon further
reflection, we feel that the proper and just solution
to give due consideration to both factors suggests
itself quite clearly. This Court should recognize and
uphold the division of the stockholders into two
groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting
in the process of determining who the group's
nominees would be. In practical terms, as suggested
by appellant Luciano E. Salazar himself, this means
that if the Filipino stockholders cannot agree who
their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During
this voting, each Filipino stockholder can cumulate
his votes. ASI, however, should not be allowed to
interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate
under the Agreement, and may even be able to get a
majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
 Such a ruling will give effect to both the allocation of
the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875,
pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory
that the ASI Group has the right to vote their additional equity
pursuant to Section 24 of the Corporation Code which gives the
stockholders of a corporation the right to cumulate their votes in
electing directors. Petitioner Salazar adds that this right if granted
to the ASI Group would not necessarily mean a violation of the
Anti-Dummy Act (Commonwealth Act 108, as amended). He cites
section 2-a thereof which provides:
And provided finally that the election of aliens as
members of the board of directors or governing body
of corporations or associations engaging in partially
nationalized activities shall be allowed in proportion
to their allowable participation or share in the
capital of such entities. (amendments introduced by
Presidential Decree 715, section 1, promulgated May
28, 1975)
The ASI Group's argument is correct within the context of Section
24 of the Corporation Code. The point of query, however, is
whether or not that provision is applicable to a joint venture with
clearly defined agreements:
The legal concept of ajoint venture is of common law
origin. It has no precise legal definition but it has
been generally understood to mean an organization
formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their
elements are similar community of interest in the
business, sharing of profits and losses, and a mutual
right of control. Blackner v. Mc Dermott, 176 F. 2d.
498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.
2d. 12 289 P. 2d. 242 [1955]). The main distinction
cited by most opinions in common law jurisdictions
is that the partnership contemplates a general
business with some degree of continuity, while the
joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature.
(Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d.
74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a
particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a
joint venture is a form of partnership and should
thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction
between these two business forms, and has held that
although a corporation cannot enter into a
partnership contract, it may however engage in a
joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the construction and
operations of contracts generally apply to a contract of joint
venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that
the resolution of the question of whether or not the ASI Group may
vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the
agreement of the parties as regards the allocation of director seats
under Section 5 (a) of the "Agreement," and the right of each group
of stockholders to cumulative voting in the process of determining
who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the
Agreement relates to the manner of nominating the members of
the board of directors while Section 3 (a) (1) relates to the manner
of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as
regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect
even a Filipino director who would be beholden to them would
obliterate their minority status as agreed upon by the parties. As
aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in
the voting within the Filipino group. Otherwise, ASI
would be able to designate more than the three
directors it is allowed to designate under the
Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary
to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of
the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also
give due consideration to the issue raised by the
appellees on possible violation or circumvention of
the Anti-Dummy Law (Com. Act No. 108, as
amended) and the nationalization requirements of
the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo,
75875)
Equally important as the consideration of the contractual intent of
the parties is the consideration as regards the possible domination
by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and
circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI
group to elect board directors in proportion to their share in the
capital of the entity. It is to be noted, however, that the same law
also limits the election of aliens as members of the board of
directors in proportion to their allowance participation of said
entity. In the instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable participation of the
ASI Group. Hence, in future dealings, this limitation of six to three
board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board
seats in the 9-man board of directors there are provisions already
agreed upon and embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer
and SEC which were impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John Griffin, David P
Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A.
Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George
F. Lee as the duly elected directors of Saniwares at the March
8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in
G.R. No. 75951) object to a cumulative voting during the election of
the board of directors of the enterprise as ruled by the appellate
court and submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus pursuant to section 5
(a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take
control of the enterprise if the Filipino stockholders are allowed to
select their nominees separately and not as a common slot
determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in
the allocation of board directors should not be interpreted in
isolation. This should be construed in relation to section 3 (a) (1) of
the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative
voting while section 5(a) relates to the manner of nominating the
members of the board of directors. The petitioners in G.R. No.
75951 agreed to this procedure, hence, they cannot now impugn its
legality.
The insinuation that the ASI Group may be able to control the
enterprise under the cumulative voting procedure cannot,
however, be ignored. The validity of the cumulative voting
procedure is dependent on the directors thus elected being genuine
members of the Filipino group, not voters whose interest is to
increase the ASI share in the management of Saniwares. The joint
venture character of the enterprise must always be taken into
account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to
enable ASI to achieve stealthily or indirectly what they cannot
accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of
the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be
maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No.
75875 are DISMISSED and the petition in G.R. No. 75951 is partly
GRANTED. The amended decision of the Court of Appeals is
MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George
F. Lee are declared as the duly elected directors of Saniwares at
the March 8,1983 annual stockholders' meeting. In all other
respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY
CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS, BORDER MACHINERY &
HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO
M. MAGLANA and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER INSURANCE AND
SURETY CORPORATION, BORDER MACHINERY and
HEAVY EQUIPMENT CO., INC,, FRANCISCO and
MODESTO CERVANTES and CONSTANCIO
MAGLANA, respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
GUTIERREZ, JR., J.:
The subject matter of these consolidated petitions is the decision of
the Court of Appeals in CA-G.R. CV No. 66195 which modified the
decision of the then Court of First Instance of Manila in Civil Case
No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197)
against all defendants (respondents in G.R. No. 84197) was
dismissed but in all other respects the trial court's decision was
affirmed.
The dispositive portion of the trial court's decision reads as follows:
WHEREFORE, judgment is rendered against
defendant Jacob S. Lim requiring Lim to pay
plaintiff the amount of P311,056.02, with interest at
the rate of 12% per annum compounded monthly;
plus 15% of the amount awarded to plaintiff as
attorney's fees from July 2,1966, until full payment
is made; plus P70,000.00 moral and exemplary
damages.
It is found in the records that the cross party
plaintiffs incurred additional miscellaneous
expenses aside from Pl51,000.00,,making a total of
P184,878.74. Defendant Jacob S. Lim is further
required to pay cross party plaintiff, Bormaheco, the
Cervanteses one-half and Maglana the other half,
the amount of Pl84,878.74 with interest from the
filing of the cross-complaints until the amount is
fully paid; plus moral and exemplary damages in the
amount of P184,878.84 with interest from the filing
of the cross-complaints until the amount is fully
paid; plus moral and exemplary damages in the
amount of P50,000.00 for each of the two
Cervanteses.
Furthermore, he is required to pay P20,000.00 to
Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as attorney's
fees.
xxx xxx xxx
WHEREFORE, in view of all above, the complaint of
plaintiff Pioneer against defendants Bormaheco, the
Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify
the defendants Bormaheco and the Cervanteses the
amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal
rate of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay
Constancio B. Maglana the amount of P20,000.00 as
attorney's fees and costs.
No moral or exemplary damages is awarded against
plaintiff for this action was filed in good faith. The
fact that the properties of the Bormaheco and the
Cervanteses were attached and that they were
required to file a counterbond in order to dissolve the
attachment, is not an act of bad faith. When a man
tries to protect his rights, he should not be saddled
with moral or exemplary damages. Furthermore, the
rights exercised were provided for in the Rules of
Court, and it was the court that ordered it, in the
exercise of its discretion.
No damage is decided against Malayan Insurance
Company, Inc., the third-party defendant, for it only
secured the attachment prayed for by the plaintiff
Pioneer. If an insurance company would be liable for
damages in performing an act which is clearly
within its power and which is the reason for its
being, then nobody would engage in the insurance
business. No further claim or counter-claim for or
against anybody is declared by this Court. (Rollo -
G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged
in the airline business as owner-operator of Southern Air Lines
(SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA)
and Lim entered into and executed a sales contract (Exhibit A) for
the sale and purchase of two (2) DC-3A Type aircrafts and one (1)
set of necessary spare parts for the total agreed price of US
$109,000.00 to be paid in installments. One DC-3 Aircraft with
Registry No. PIC-718, arrived in Manila on June 7,1965 while the
other aircraft, arrived in Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation
(Pioneer, petitioner in G.R. No. 84197) as surety executed and
issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in
behalf of its principal, Lim, for the balance price of the aircrafts
and spare parts.
It appears that Border Machinery and Heavy Equipment
Company, Inc. (Bormaheco), Francisco and Modesto Cervantes
(Cervanteses) and Constancio Maglana (respondents in both
petitions) contributed some funds used in the purchase of the
above aircrafts and spare parts. The funds were supposed to be
their contributions to a new corporation proposed by Lim to
expand his airline business. They executed two (2) separate
indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer,
one signed by Maglana and the other jointly signed by Lim for
SAL, Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save
harmless Pioneer from and against any/all damages, losses, costs,
damages, taxes, penalties, charges and expenses of whatever kind
and nature which Pioneer may incur in consequence of having
become surety upon the bond/note and to pay, reimburse and make
good to Pioneer, its successors and assigns, all sums and amounts
of money which it or its representatives should or may pay or
cause to be paid or become liable to pay on them of whatever kind
and nature.
On June 10, 1965, Lim doing business under the name and style of
SAL executed in favor of Pioneer as deed of chattel mortgage as
security for the latter's suretyship in favor of the former. It was
stipulated therein that Lim transfer and convey to the surety the
two aircrafts. The deed (Exhibit D) was duly registered with the
Office of the Register of Deeds of the City of Manila and with the
Civil Aeronautics Administration pursuant to the Chattel
Mortgage Law and the Civil Aeronautics Law (Republic Act No.
776), respectively.
Lim defaulted on his subsequent installment payments prompting
JDA to request payments from the surety. Pioneer paid a total
sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the
said chattel mortgage before the Sheriff of Davao City. The
Cervanteses and Maglana, however, filed a third party claim
alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial foreclosure
with an application for a writ of preliminary attachment against
Lim and respondents, the Cervanteses, Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses filed
cross-claims against Lim alleging that they were not privies to the
contracts signed by Lim and, by way of counterclaim, sought for
damages for being exposed to litigation and for recovery of the
sums of money they advanced to Lim for the purchase of the
aircrafts in question.
After trial on the merits, a decision was rendered holding Lim
liable to pay Pioneer but dismissed Pioneer's complaint against all
other defendants.
As stated earlier, the appellate court modified the trial court's
decision in that the plaintiffs complaint against all the defendants
was dismissed. In all other respects the trial court's decision was
affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS
GRIEVOUSLY ERRED WHEN IT DISMISSED
THE APPEAL OF PETITIONER ON THE SOLE
GROUND THAT PETITIONER HAD ALREADY
COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF
THE JDA AND THAT IT CANNOT REPRESENT A
REINSURER TO RECOVER THE AMOUNT FROM
HEREIN PRIVATE RESPONDENTS AS
DEFENDANTS IN THE TRIAL COURT. (Rollo - G.
R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate
court:
We find no merit in plaintiffs appeal. It is
undisputed that plaintiff Pioneer had reinsured its
risk of liability under the surety bond in favor of
JDA and subsequently collected the proceeds of such
reinsurance in the sum of P295,000.00. Defendants'
alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiffs instant action for the
recovery of the amount of P298,666.28 from
defendants will no longer prosper. Plaintiff Pioneer
is not the real party in interest to institute the
instant action as it does not stand to be benefited or
injured by the judgment.
Plaintiff Pioneer's contention that it is representing
the reinsurer to recover the amount from
defendants, hence, it instituted the action is utterly
devoid of merit. Plaintiff did not even present any
evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an
action for and in behalf of the latter. To qualify a
person to be a real party in interest in whose name
an action must be prosecuted, he must appear to be
the present real owner of the right sought to be
enforced (Moran, Vol. I, Comments on the Rules of
Court, 1979 ed., p. 155). It has been held that the
real party in interest is the party who would be
benefited or injured by the judgment or the party
entitled to the avails of the suit (Salonga v. Warner
Barnes & Co., Ltd., 88 Phil. 125, 131). By real party
in interest is meant a present substantial interest as
distinguished from a mere expectancy or a future,
contingent, subordinate or consequential interest
(Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield
Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers
v. Germans, 1 NW 2d 424; Weber v. City of Cheye,
97 P. 2d 667, 669, quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff Pioneer
cannot be considered as the real party in interest as
it has already been paid by the reinsurer the sum of
P295,000.00 — the bulk of defendants' alleged
obligation to Pioneer.
In addition to the said proceeds of the reinsurance
received by plaintiff Pioneer from its reinsurer, the
former was able to foreclose extra-judicially one of
the subject airplanes and its spare engine, realizing
the total amount of P37,050.00 from the sale of the
mortgaged chattels. Adding the sum of P37,050.00,
to the proceeds of the reinsurance amounting to
P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72 considering
that the total amount it had paid to JDA totals to
only P298,666.28. To allow plaintiff Pioneer to
recover from defendants the amount in excess of
P298,666.28 would be tantamount to unjust
enrichment as it has already been paid by the
reinsurance company of the amount plaintiff has
paid to JDA as surety of defendant Lim vis-a-vis
defendant Lim's liability to JDA. Well settled is the
rule that no person should unjustly enrich himself at
the expense of another (Article 22, New Civil Code).
(Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where respondent
court based its finding that petitioner was paid by its reinsurer in
the aforesaid amount, as this matter has never been raised by any
of the parties herein both in their answers in the court below and
in their respective briefs with respondent court; (Rollo, p. 11) (2)
even assuming hypothetically that it was paid by its reinsurer,
still none of the respondents had any interest in the matter since
the reinsurance is strictly between the petitioner and the re-
insurer pursuant to section 91 of the Insurance Code; (3) pursuant
to the indemnity agreements, the petitioner is entitled to recover
from respondents Bormaheco and Maglana; and (4) the principle of
unjust enrichment is not applicable considering that whatever
amount he would recover from the co-indemnitor will be paid to
the reinsurer.
The records belie the petitioner's contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that
two of the issues threshed out were:
xxx xxx xxx
1. Has Pioneer a cause of action against defendants
with respect to so much of its obligations to JDA as
has been paid with reinsurance money?
2. If the answer to the preceding question is in the
negative, has Pioneer still any claim against
defendants, considering the amount it has realized
from the sale of the mortgaged properties? (Record
on Appeal, p. 359, Annex B of G.R. No. 84157).
In resolving these issues, the trial court made the following
findings:
It appearing that Pioneer reinsured its risk of
liability under the surety bond it had executed in
favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid with
the said amount the bulk of its alleged liability to
JDA under the said surety bond, it is plain that on
this score it no longer has any right to collect to the
extent of the said amount.
On the question of why it is Pioneer, instead of the
reinsurance (sic), that is suing defendants for the
amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter,
Pioneer says: The reinsurers opted instead that the
Pioneer Insurance & Surety Corporation shall
pursue alone the case.. . . . Pioneer Insurance &
Surety Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as the
amount paid to it by the reinsurers Pioneer is suing
defendants as their attorney-in-fact.
But in the first place, there is not the slightest
indication in the complaint that Pioneer is suing as
attorney-in- fact of the reinsurers for any amount.
Lastly, and most important of all, Pioneer has no
right to institute and maintain in its own name an
action for the benefit of the reinsurers. It is well-
settled that an action brought by an attorney-in-fact
in his own name instead of that of the principal will
not prosper, and this is so even where the name of
the principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old Rules of
Court provides that 'Every action
must be prosecuted in the name of the
real party in interest.' This provision
is mandatory. The real party in
interest is the party who would be
benefitted or injured by the judgment
or is the party entitled to the avails of
the suit.
This Court has held in various cases
that an attorney-in-fact is not a real
party in interest, that there is no law
permitting an action to be brought by
an attorney-in-fact. Arroyo v. Granada
and Gentero, 18 Phil. Rep. 484;
Luchauco v. Limjuco and Gonzalo, 19
Phil. Rep. 12; Filipinos Industrial
Corporation v. San Diego G.R. No. L-
22347,1968, 23 SCRA 706, 710-714.
The total amount paid by Pioneer to JDA is
P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured
 portion of what it paid to JDA is the difference
between the two amounts, or P3,666.28. This is the
amount for which Pioneer may sue defendants,
assuming that the indemnity agreement is still valid
and effective. But since the amount realized from
the sale of the mortgaged chattels are P35,000.00 for
one of the airplanes and P2,050.00 for a spare
engine, or a total of P37,050.00, Pioneer is still
overpaid by P33,383.72. Therefore, Pioneer has no
more claim against defendants. (Record on Appeal,
pp. 360-363).
The payment to the petitioner made by the reinsurers was not
disputed in the appellate court. Considering this admitted
payment, the only issue that cropped up was the effect of payment
made by the reinsurers to the petitioner. Therefore, the
petitioner's argument that the respondents had no interest in the
reinsurance contract as this is strictly between the petitioner as
insured and the reinsuring company pursuant to Section 91
(should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires
the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss
(Universal Ins. Co. v. Old Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in actions on original insurance
policies are in general applicable to actions or
contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380,
7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to
wit:
Art. 2207. If the plaintiffs property has been
insured, and he has received indemnity from the
insurance company for the injury or loss arising out
of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person
who has violated the contract. If the amount paid by
the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled
to recover the deficiency from the person causing the
loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil.
Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which
we subsequently applied in Manila Mahogany Manufacturing
Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner
receives the indemnity from the insurer, it is
provided in said article that the insurer is deemed
subrogated to the rights of the insured against the
wrongdoer and if the amount paid by the insurer
does not fully cover the loss, then the aggrieved
party is the one entitled to recover the
deficiency. Evidently, under this legal provision, the
real party in interest with regard to the portion of the
indemnity paid is the insurer and not the insured.
(Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and
not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error
in dismissing the petitioner's complaint as against the respondents
for the reason that the petitioner was not the real party in interest
in the complaint and, therefore, has no cause of action against the
respondents.
Nevertheless, the petitioner argues that the appeal as regards the
counter indemnitors should not have been dismissed on the
premise that the evidence on record shows that it is entitled to
recover from the counter indemnitors. It does not, however, cite
any grounds except its allegation that respondent "Maglanas
defense and evidence are certainly incredible" (p. 12, Rollo) to back
up its contention.
On the other hand, we find the trial court's findings on the matter
replete with evidence to substantiate its finding that the counter-
indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity
agreement ceased to be valid and effective after the
execution of the chattel mortgage.
Testimonies of defendants Francisco Cervantes and
Modesto Cervantes.
Pioneer Insurance, knowing the value of the
aircrafts and the spare parts involved, agreed to
issue the bond provided that the same would be
mortgaged to it, but this was not possible because
the planes were still in Japan and could not be
mortgaged here in the Philippines. As soon as the
aircrafts were brought to the Philippines, they would
be mortgaged to Pioneer Insurance to cover the
bond, and this indemnity agreement would be
cancelled.
The following is averred under oath by Pioneer in
the original complaint:
The various conflicting claims over the
mortgaged properties have impaired
and rendered insufficient the security
under the chattel mortgage and there
is thus no other sufficient security for
the claim sought to be enforced by this
action.
This is judicial admission and aside from the chattel
mortgage there is no other security for the claim
sought to be enforced by this action, which
necessarily means that the indemnity agreement
had ceased to have any force and effect at the time
this action was instituted. Sec 2, Rule 129, Revised
Rules of Court.
Prescinding from the foregoing, Pioneer, having
foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against
the defendants as indemnitors to recover any unpaid
balance of the price. The indemnity agreement was
ipso jure extinguished upon the foreclosure of the
chattel mortgage. These defendants, as indemnitors,
would be entitled to be subrogated to the right of
Pioneer should they make payments to the latter.
Articles 2067 and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition Pioneer's
election of the remedy of foreclosure precludes any
further action to recover any unpaid balance of the
price.
SAL or Lim, having failed to pay the second to the
eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the
alternative remedies open to Pioneer were as
provided in Article 1484 of the New Civil Code,
known as the Recto Law.
Pioneer exercised the remedy of foreclosure of the
chattel mortgage both by extrajudicial foreclosure
and the instant suit. Such being the case, as
provided by the aforementioned provisions, Pioneer
shall have no further action against the purchaser to
recover any unpaid balance and any agreement to
the contrary is void.' Cruz, et al. v. Filipinas
Investment & Finance Corp. No. L- 24772, May
27,1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be
escaped from through the contention that Pioneer is
not the vendor but JDA. The reason is that Pioneer
is actually exercising the rights of JDA as vendor,
having subrogated it in such rights. Nor may the
application of the provision be validly opposed on the
ground that these defendants and defendant
Maglana are not the vendee but indemnitors.
Pascual, et al. v. Universal Motors Corporation, G.R.
No. L- 27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim,
thru the change of their maturity dates discharged
these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the
obligations of Lim, or SAL extinguish the original
obligations thru novations thus discharging the
indemnitors.
The principal hereof shall be paid in
eight equal successive three months
interval installments, the first of
which shall be due and payable 25
August 1965, the remainder of which
... shall be due and payable on the
26th day x x x of each succeeding three
months and the last of which shall be
due and payable 26th May 1967.
However, at the trial of this case, Pioneer produced a
memorandum executed by SAL or Lim and JDA,
modifying the maturity dates of the obligations, as
follows:
The principal hereof shall be paid in
eight equal successive three month
interval installments the first of which
shall be due and payable 4 September
1965, the remainder of which ... shall
be due and payable on the 4th day ...
of each succeeding months and the
last of which shall be due and payable
4th June 1967.
Not only that, Pioneer also produced eight purported
promissory notes bearing maturity dates different
from that fixed in the aforesaid memorandum; the
due date of the first installment appears as October
15, 1965, and those of the rest of the installments,
the 15th of each succeeding three months, that of the
last installment being July 15, 1967.
These restructuring of the obligations with regard to
their maturity dates, effected twice, were done
without the knowledge, much less, would have it
believed that these defendants Maglana (sic).
Pioneer's official Numeriano Carbonel would have it
believed that these defendants and defendant
Maglana knew of and consented to the modification
of the obligations. But if that were so, there would
have been the corresponding documents in the form
of a written notice to as well as written conformity of
these defendants, and there are no such document.
The consequence of this was the extinguishment of
the obligations and of the surety bond secured by the
indemnity agreement which was thereby also
extinguished. Applicable by analogy are the rulings
of the Supreme Court in the case of Kabankalan
Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case
of Asiatic Petroleum Co. v. Hizon David, 45 Phil.
532, 538.
Art. 2079. An extension granted to the
debtor by the creditor without the
consent of the guarantor extinguishes
the guaranty The mere failure on the
part of the creditor to demand
payment after the debt has become
due does not of itself constitute any
extension time referred to herein,
(New Civil Code).'
 Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp.
562-563, M.F. Stevenson & Co., Ltd., v. Climacom et
al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already
prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of action to
recover from these defendants, as supposed
indemnitors, what it has paid to JDA. By virtue of
an express stipulation in the surety bond, the failure
of JDA to present its claim to Pioneer within ten
days from default of Lim or SAL on every
installment, released Pioneer from liability from the
claim.
Therefore, Pioneer is not entitled to exact
reimbursement from these defendants thru the
indemnity.
Art. 1318. Payment by a solidary
debtor shall not entitle him to
reimbursement from his co-debtors if
such payment is made after the
obligation has prescribed or became
illegal.
These defendants are entitled to recover damages
and attorney's fees from Pioneer and its surety by
reason of the filing of the instant case against them
and the attachment and garnishment of their
properties. The instant action is clearly unfounded
insofar as plaintiff drags these defendants and
defendant Maglana.' (Record on Appeal, pp. 363-369,
Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is
not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-
investors whose agreement was to do business
through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to
invest? How are the losses to be treated in situations
where their contributions to the intended
'corporation' were invested not through the corporate
form? This Petition presents these fundamental
questions which we believe were resolved
erroneously by the Court of Appeals ('CA'). (Rollo, p.
6).
These questions are premised on the petitioner's theory that as a
result of the failure of respondents Bormaheco, Spouses Cervantes,
Constancio Maglana and petitioner Lim to incorporate, a de
facto partnership among them was created, and that as a
consequence of such relationship all must share in the losses
and/or gains of the venture in proportion to their contribution. The
petitioner, therefore, questions the appellate court's findings
ordering him to reimburse certain amounts given by the
respondents to the petitioner as their contributions to the intended
corporation, to wit:
However, defendant Lim should be held liable to pay
his co-defendants' cross-claims in the total amount of
P184,878.74 as correctly found by the trial court,
with interest from the filing of the cross-complaints
until the amount is fully paid. Defendant Lim should
pay one-half of the said amount to Bormaheco and
the Cervanteses and the other one-half to defendant
Maglana. It is established in the records that
defendant Lim had duly received the amount of
Pl51,000.00 from defendants Bormaheco and
Maglana representing the latter's participation in
the ownership of the subject airplanes and spare
parts (Exhibit 58). In addition, the cross-party
 plaintiffs incurred additional expenses, hence, the
total sum of P 184,878.74.
We first state the principles.
While it has been held that as between themselves
the rights of the stockholders in a defectively
incorporated association should be governed by the
supposed charter and the laws of the state relating
thereto and not by the rules governing partners
(Cannon v. Brush Electric Co., 54 A. 121, 96 Md.
446, 94 Am. S.R. 584), it is ordinarily held that
persons who attempt, but fail, to form a corporation
and who carry on business under the corporate name
occupy the position of partners inter se (Lynch v.
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A
1065). Thus, where persons associate themselves
together under articles to purchase property to carry
on a business, and their organization is so defective
as to come short of creating a corporation within the
statute, they become in legal effect partners inter se,
and their rights as members of the company to the
property acquired by the company will be recognized
(Smith v. Schoodoc Pond Packing Co., 84 A. 268,109
Me. 555; Whipple v. Parker, 29 Mich. 369). So,
where certain persons associated themselves as a
corporation for the development of land for irrigation
purposes, and each conveyed land to the corporation,
and two of them contracted to pay a third the
difference in the proportionate value of the land
conveyed by him, and no stock was ever issued in the
corporation, it was treated as a trustee for the
associates in an action between them for an
accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds
distributed among them in proportion to the value of
the property contributed by each (Shorb v. Beaudry,
56 Cal. 446). However, such a relation does not
necessarily exist, for ordinarily persons cannot be
made to assume the relation of partners, as between
themselves, when their purpose is that no partnership
shall exist (London Assur. Corp. v. Drennen, Minn.,
6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it
should be implied only when necessary to do justice
between the parties; thus, one who takes no part
except to subscribe for stock in a proposed
corporation which is never legally formed does not
become a partner with other subscribers who engage
in business under the name of the pretended
corporation, so as to be liable as such in an action for
settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A
partnership relation between certain stockholders
and other stockholders, who were also directors, will
not be implied in the absence of an agreement, so as
to make the former liable to contribute for payment
of debts illegally contracted by the latter (Heald v.
Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was
declared non-suited for his failure to appear during the pretrial
despite notification. In his answer, the petitioner denied having
received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court,
however, found through Exhibit 58, that the petitioner received
the amount of P151,000.00 representing the participation of
Bormaheco and Atty. Constancio B. Maglana in the ownership of
the subject airplanes and spare parts. The record shows that
defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru
the Cervanteses.
It is therefore clear that the petitioner never had the intention to
form a corporation with the respondents despite his
representations to them. This gives credence to the cross-claims of
the respondents to the effect that they were induced and lured by
the petitioner to make contributions to a proposed corporation
which was never formed because the petitioner reneged on their
agreement. Maglana alleged in his cross-claim:
 ... that sometime in early 1965, Jacob Lim proposed
to Francisco Cervantes and Maglana to expand his
airline business. Lim was to procure two DC-3's from
Japan and secure the necessary certificates of public
convenience and necessity as well as the required
permits for the operation thereof. Maglana sometime
in May 1965, gave Cervantes his share of P75,000.00
for delivery to Lim which Cervantes did and Lim
acknowledged receipt thereof. Cervantes, likewise,
delivered his share of the undertaking. Lim in an
undertaking sometime on or about August 9,1965,
promised to incorporate his airline in accordance
with their agreement and proceeded to acquire the
planes on his own account. Since then up to the
filing of this answer, Lim has refused, failed and still
refuses to set up the corporation or return the money
of Maglana. (Record on Appeal, pp. 337-338).
claim. Notwithstanding repeated oral demands
made by defendants Bormaheco and Cervanteses, to
defendant Lim, to surrender the possession of the
two planes and their accessories and or return the
amount advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted
and refused to comply with them. (Record on Appeal,
pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of
the case, necessarily, no de facto partnership was created among
the parties which would entitle the petitioner to a reimbursement
of the supposed losses of the proposed corporation. The record
shows that the petitioner was acting on his own and not in behalf
of his other would-be incorporators in transacting the sale of the
airplanes and spare parts.

while respondents Bormaheco and the Cervanteses alleged in their WHEREFORE, the instant petitions are DISMISSED. The
answer, counterclaim, cross-claim and third party complaint: questioned decision of the Court of Appeals is AFFIRMED.

Sometime in April 1965, defendant Lim lured and SO ORDERED.

induced the answering defendants to purchase two
airplanes and spare parts from Japan which the
latter considered as their lawful contribution and
participation in the proposed corporation to be
known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were
advanced by defendants Bormaheco and the
Cervanteses and Constancio Maglana (Exh. E- 1).
Contrary to the agreement among the defendants,
defendant Lim in connivance with the plaintiff,
signed and executed the alleged chattel mortgage
and surety bond agreement in his personal capacity
as the alleged proprietor of the SAL. The answering
defendants learned for the first time of this trickery
and misrepresentation of the other, Jacob Lim, when
the herein plaintiff chattel mortgage (sic) allegedly
executed by defendant Lim, thereby forcing them to
file an adverse claim in the form of third party