G.R. No.

L-24193           June 28, 1968

MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

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

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

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

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

Articles 1771 and 1773 of said Code provide:

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

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

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

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

xxx     xxx     xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real
right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be,
as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance
against defendant-appellee, Severino Mabato. It is so ordered.

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

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

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

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

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

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

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

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

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

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

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

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

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

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve
the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeñas says:
 How to establish the demarcation between the ordinary community or co-ownership and society? The differential criterion-according to the
most generalized doctrine-this: by reason of origin, in which society necessarily presupposes the convention, lies that the community can
exist and exists ordinarily without ela; and by reason of the object purpose, in which the object of the society is to obtain profit, while that
of the indivision is only to maintain in its integrity the common thing and favor its conservation. A reflection of this criterion is the
judgment of October 15, 1940, in which it is said that if in our positive law difficulties are sometimes offered when trying to fix the
dividing line between community of goods and contract of society, the modern orientation of the scientific doctrine points as a fundamental
note of differentiation apart from the origin of source from which they arise , not always uniform, the purpose pursued by the interested
parties: common profit in society, and mere conservation and use in the community . (Derecho Civil Espanol, Vol. 2, Part 1, 10
Ed., 1971, 328- 329).

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

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

The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oña vs.

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

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

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

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

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

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

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

SO ORDERED.

G.R. No. 193138

ANICETO G. SALUDO, JR., Petitioner
vs.
PHILIPPINE NATIONAL BANK, Respondent

In this petition, we emphasize that a partnership for the practice of law, constituted in accordance with the Civil Code
provisions on partnership, acquires juridical personality by operation of law. Having a juridical personality distinct and
separate from its partners, such partnership is the real party-in-interest in a suit brought in connection with a contract
entered into in its name and by a person authorized to act on its behalf.

Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for review on certiorari1 assailing the February 8, 2010
Decision2 and August 2, 2010 Resolution3 issued by the Court of Appeals (CA) in CA-G.R. SP No. 98898. The CA
affirmed with modification the January 11, 2007 Omnibus Order4 issued by Branch 58 of the Regional Trial Court (RTC) of
Makati City in Civil Case No. 06-678, and ruled that respondent Philippine National Bank's (PNB) counterclaims against
Saludo and the Saludo Agpalo Fernandez and Aquino Law Office (SAFA Law Office) should be reinstated in its answer.

Records show that on June 11, 1998, SAFA Law Office entered into a Contract of Lease5 with PNB, whereby the latter
agreed to lease 632 square meters of the second floor of the PNB Financial Center Building in Quezon City for a period of
three years and for a monthly rental fee of ₱l89,600.00. The rental fee is subject to a yearly escalation rate of 10%.6 SAFA
Law Office then occupied the leased premises and paid advance rental fees and security deposit in the total amount of
₱l,137,600.00.7

On August 1, 2001, the Contract of Lease expired.8 According to PNB, SAFA Law Office continued to occupy the leased
premises until February 2005, but discontinued paying its monthly rental obligations after December 2002.9 Consequently,
PNB sent a demand letter10 dated July 17, 2003 for SAFA Law Office to pay its outstanding unpaid rents in the amount of
₱4,648,086.34. PNB sent another letter11 demanding the payment of unpaid rents in the amount of ₱5,856,803.53 which
was received by SAFA Law Office on November 10, 2003.

In a letter12 to PNB dated June 9, 2004, SAFA Law Office expressed its intention to negotiate. It claimed that it was
enticed by the former management of PNB into renting the leased premises by promising to: (1) give it a special rate due
to the large area of the place; (2) endorse PNB's cases to the firm with rents to be paid out of attorney's fees; and (3)
retain the firm as one of PNB's external counsels. When new management took over, it allegedly agreed to uphold this
agreement to facilitate rental payments. However, not a single case of significance was referred to the firm. SAFA Law
Office then asked PNB to review and discuss its billings, evaluate the improvements in the area and agree on a
compensatory sum to be applied to the unpaid rents, make good its commitment to endorse or refer cases to SAFA Law
Office under the intended terms and conditions, and book the rental payments due as receivables payable every time
attorney's fees are due from the bank on the cases it referred. The firm also asked PNB to give a 50% discount on its
unpaid rents, noting that while it was waiting for case referrals, it had paid a total amount of ₱13,457,622.56 from January
1999 to December 2002, which included the accelerated rates of 10% per annum beginning August 1999 until July 2003.

In February 2005, SAFA Law Office vacated the leased premises.13 PNB sent a demand letter14 dated July 7, 2005
requiring the firm to pay its rental arrears in the total amount of ₱l0,951,948.32. In response, SAFA Law Office sent a
letter dated June 8, 2006, proposing a settlement by providing a range of suggested computations of its outstanding rental
obligations, with deductions for the value of improvements it introduced in the premises, professional fees due from
Macroasia Corporation, and the 50% discount allegedly promised by Dr. Lucio Tan.15 PNB, however, declined the
settlement proposal in a letter16 dated July 17, 2006, stating that it was not amenable to the settlement's terms. Besides,
PNB also claimed that it cannot assume the liabilities of Macroasia Corporation to SAFA Law Office as Macroasia
Corporation has a personality distinct and separate from the bank. PNB then made a final demand for SAFA Law Office to
pay its outstanding rental obligations in the amount of ₱25,587,838.09.

On September 1, 2006, Saludo, in his capacity as managing partner of SAFA Law Office, filed an amended complaint17 for
accounting and/or recomputation of unpaid rentals and damages against PNB in relation to the Contract of Lease.

On October 4, 2006, PNB filed a motion to include an indispensable party as plaintiff,18 praying that Saludo be ordered to
amend anew his complaint to include SAFA Law Office as principal plaintiff. PNB argued that the lessee in the Contract of
Lease is not Saludo but SAFA Law Office, and that Saludo merely signed the Contract of Lease as the managing partner
of the law firm. Thus, SAFA Law Office must be joined as a plaintiff in the complaint because it is considered an
indispensable party under Section 7, Rule 3 of the Rules of Court.19
On October 13, 2006, PNB filed its answer.20 By way of compulsory counterclaim, it sought payment from SAFA Law
Office in the sum of ₱25,587,838.09, representing overdue rentals.21 PNB argued that as a matter of right and equity, it
can claim that amount from SAFA Law Office in solidum with Saludo.22

On October 23, 2006, Saludo filed his motion to dismiss counterclaims,23 mainly arguing that SAFA Law Office is neither a
legal entity nor party litigant. As it is only a relationship or association of lawyers in the practice of law and a single
proprietorship which may only be sued through its owner or proprietor, no valid counterclaims may be asserted against
it.24

On January 11, 2007, the RTC issued an Omnibus Order denying PNB's motion to include an indispensable party as
plaintiff and granting Saludo's motion to dismiss counterclaims in this wise:

The Court DENIES the motion of PNB to include the SAFA Law Offices. Plaintiff has shown by documents attached to his
pleadings that indeed SAFA Law Offices is a mere single proprietorship and not a commercial and business partnership.
More importantly, plaintiff has admitted and shown sole responsibility in the affairs entered into by the SAFA Law Office.
PNB has even admitted that the SAFA Law Office, being a partnership in the practice of law, is a non-legal entity. Being a
non-legal entity, it cannot be a proper party, and therefore, it cannot sue or be sued.

Consequently, plaintiff's Motion to Dismiss Counterclaims (claimed by defendant PNB) should be GRANTED. The
counterclaims prayed for to the effect that the SAFA Law Offices be made to pay in solidum with plaintiff the amounts
stated in defendant's Answer is disallowed since no counterclaims can be raised against a non-legal entity.25

PNB filed its motion for reconsideration26 dated February 5, 2007, alleging that SAFA Law Office should be included as a
co-plaintiff because it is the principal party to the contract of lease, the one that occupied the leased premises, and paid
the monthly rentals and security deposit. In other words, it was the main actor and direct beneficiary of the contract.
Hence, it is the real party-in-interest.27 The RTC, however, denied the motion for reconsideration in an Order28 dated
March 8, 2007.

Consequently, PNB filed a petition for certiorari29 with the CA. On February 8, 2010, the CA rendered its assailed
Decision,30 the dispositive portion of which reads:

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Omnibus Order dated 11 January 2007 and Order
dated 8 March 2007, issued by respondent Court in Civil Case No. 06-678, respectively, are AFFIRMED with
MODIFICATION in that petitioner's counterclaims should be reinstated in its Answer.

SO ORDERED.31

The CA ruled that an order granting Saludo's motion to dismiss counterclaim, being interlocutory in nature, is not
appealable until after judgment shall have been rendered on Saludo' s complaint. Since the Omnibus Order is
interlocutory, and there was an allegation of grave abuse of discretion, a petition for certiorari is the proper remedy.32

On the merits, the CA held that Saludo is estopped from claiming that SAFA Law Office is his single proprietorship. Under
the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. Here, SAFA Law Office was the one that entered into the lease
contract and not Saludo. In fact, the latter signed the contract as the firm's managing partner. The alleged Memorandum
of Understanding33 (MOU) executed by the partners of SAFA Law Office, which states, among others, that Saludo alone
would be liable for the firm's losses and liabilities, and the letter of Saludo to PNB confirming that SAF,A Law Office is his
single proprietorship did not convert the firm to a single proprietorship. Moreover, SAFA Law Office sent a letter to PNB
regarding its unpaid rentals which Saludo signed as a managing partner. The firm is also registered as a partnership with
the Securities and Exchange Commission (SEC).34

On the question of whether SAFA Law Office is an indispensable party, the CA held that it is not. As a partnership, it may
sue or be sued in its name or by its duly authorized representative. Saludo, as managing partner, may execute all acts of
administration, including the right to sue. Furthermore, the CA found that SAFA Law Office is not a legal entity. A
partnership for the practice of law is not a legal entity but a mere relationship or association for a particular purpose. Thus,
SAFA Law Office cannot file an action in court. Based on these premises, the CA held that the RTC did not gravely abuse
its discretion in denying PNB's motion to include an indispensable party as plaintiff.35
Nonetheless, the CA ruled that PNB's counterclaims against SAFA Law Office should not be dismissed. While SAFA Law
Office is not a legal entity, it can still be sued under Section 15,36 Rule 3 of the Rules of Court considering that it entered
into the Contract of Lease with PNB.37

The CA further ruled that while it is true that SAFA Law Office's liability is not in solidum with Saludo as PNB asserts, it
does not necessarily follow that both of them cannot be made parties to PNB's counterclaims. Neither should the
counterclaims be dismissed on the ground that the nature of the alleged liability is solidary. According to the CA, the
presence of SAFA Law Office is required for the granting of complete relief in the determination of PNB's counterclaim.
The court must, therefore, order it to be brought in as defendant since jurisdiction over it can be obtained pursuant to
Section 12,38 Rule 6 of the Rules of Court.39

Finally, the CA emphasized that PNB's counterclaims are compulsory, as they arose from the filing of Saludo's complaint.
It cannot be made subject of a separate action but should be asserted in the same suit involving the same transaction.
Thus, the Presiding Judge of the RTC gravely abused his discretion in dismissing PNB' s counterclaims as the latter may
forever be barred from collecting overdue rental fees if its counterclaims were not allowed.40

Saludo and PNB filed their respective motions for partial reconsideration dated February 25, 201041 and February 26,
2010.42 In a Resolution dated August 2, 2010, the CA denied both motions on the ground that no new or substantial
matters had been raised therein. Nonetheless, the CA addressed the issue on the joining of SAFA Law Office as a
defendant in PNB's compulsory counterclaim. Pertinent portions of the CA Resolution read:

The Private Respondent claims that a compulsory counterclaim is one directed against an opposing party. The SAFA Law
Office is not a party to the case below and to require it to be brought in as a defendant to the compulsory counterclaim
would entail making it a co-plaintiff. Otherwise, the compulsory counterclaim would be changed into a third-party
complaint. The Private Respondent also argues that Section 15, Rule 3 of the Rules of Court (on entities without juridical
personality) is only applicable to initiatory pleadings and not to compulsory counterclaims. Lastly, it is claimed that since
the alleged obligations of the SAFA Law Office is solidary with the Private Respondent, there is no need to make the
former a defendant to the counterclaim.

We disagree with the reasoning of the Private Respondent. That a compulsory counterclaim can only be brought against
an opposing party is belied by considering one of the requisites of a compulsory counterclaim - it does not require for its
adjudication the presence of third parties of whom the court cannot acquire jurisdiction. This shows that non-parties to a
suit may be brought in as defendants to such a counterclaim. x x x

xx xx

In the case at bench, the trial court below can acquire jurisdiction over the SAFA Law Office considering the amount and
the nature of the counterclaim. Furthermore, the inclusion of the SAFA Law Office as a defendant to the counterclaim will
enable the granting of complete relief in view [of] the liability of a partner to the partnership's creditors under the law.43

Hence, this petition, where Saludo raises the following issues for our resolution:

(1) Whether the CA erred in including SAFA Law Office as defendant to PNB 's counterclaim despite its holding that SAFA
Law Office is neither an indispensable party nor a legal entity;

(2) Whether the CA went beyond the issues in the petition for certiorari and prematurely dealt with the merits of PNB's
counterclaim; and

(3) Whether the CA erred when it gave due course to PNB's petition for certiorari to annul and set aside the RTC's
Omnibus Order dated January 11, 2007.44

The petition is bereft of merit.

We hold that SAFA Law Office is a juridical entity and the real party-in- interest in the suit filed with the RTC by Saludo
against PNB. Hence, it should be joined as plaintiff in that case.

I.

Contrary to Saludo's submission, SAFA Law Office is a partnership and not a single proprietorship.
Article 1767 of the Civil Code provides that by a contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits among
themselves. Two or more persons may also form a partnership for the exercise of a profession. Under Article 1771, a
partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary. Article 1784, on the other hand, provides that a partnership begins
from the moment of the execution of the contract, unless it is otherwise stipulated.

Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as a partnership at the time its partners
signed the Articles of Partnership45 wherein they bound themselves to establish a partnership for the practice of law,
contribute capital and industry for the purpose, and receive compensation and benefits in the course of its operation. The
opening paragraph of the Articles of Partnership reveals the unequivocal intention of its signatories to form a partnership,
to wit:

WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E. AGPALO, FILEMON L. FERNANDEZ, AND AMADO D.
AQUINO, all of legal age, Filipino citizens and members of the Philippine Bar, have this day voluntarily associated
ourselves for the purpose of forming a partnership engaged in the practice of law, effective this date, under the terms and
conditions hereafter set forth, and subject to the provisions of existing laws[.]46

The subsequent registration of the Articles of Partnership with the SEC, on the other hand, was made in compliance with
Article 1772 of the Civil Code, since the initial capital of the partnership was ₱500,000.00.47 Said provision states:

Art. 1772. Every contract of partnership having a capital of Three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

xx xx

The other provisions of the Articles of Partnership also positively identify SAFA Law Office as a partnership. It constantly
used the words "partners" and "partnership." It designated petitioner Saludo as managing partner,48 and Attys. Ruben E.
Agpalo, Filemon L. Fernandez, and Amado D. Aquino as industrial partners.49 It also provided for the term of the
partnership,50 distribution of net profits and losses, and management of the firm in which "the partners shall have equal
interest in the conduct of [its] affairs."51 Moreover, it provided for the cause and manner of dissolution of the
partnership.52 These provisions would not have been necessary if what had been established was a sole proprietorship.
Indeed, it may only be concluded from the circumstances that, for all intents and purposes, SAFA Law Office is a
partnership created and organized in accordance with the Civil Code provisions on partnership.

Saludo asserts that SAFA Law Office is a sole proprietorship on the basis of the MOU executed by the partners of the
firm. The MOU states in full:53

MEMORANDUM OF UNDERSTANDING

WHEREAS, the undersigned executed and filed with the SEC the Articles of Incorporation of SALUDO, AGPALO,
FERNANDEZ and AQUINO on March 13, 1997;

WHEREAS, among the provisions of said Articles of Incorporation are the following:

1. That partners R. E. Agpalo, F L. Fernandez and A. D. Aquino shall be industrial partners, and they
shall not contribute capital to the partnership and shall not in any way be liable for any loss or liability that
may be incurred by the law firm in the course of its operation.

2. That the partnership shall be dissolved by agreement of the partners or for any cause as and in
accordance with the manner provided by law, in which event the Articles of Dissolution of said partnership
shall be filed with the Securities and Exchange Commission. All remaining assets upon dissolution shall
accrue exclusively to A. G. Saluda, Jr. and all liabilities shall be solely for his account.

WHEREAS, the SEC has not approved the registration of the Articles of Incorporation and its Examiner required that the
phrase "shall not in any way be liable for any loss or liability that may be incurred by the law firm in the course of its
operation" in Article VII be deleted;
WHEREAS, the SEC Examiner likewise required that the sentence "All remaining assets upon dissolution shall accrue
exclusively to A. G. Saluda, Jr. and all liabilities shall be solely for his account" in Article X be likewise deleted;

WHEREAS, in order to meet the objections of said Examiner, the objectionable provisions have been deleted and new
Articles of Incorporation deleting said objectionable provisions have been executed by the parties and filed with the SEC.

NOW, THEREFORE, for and in consideration of the premises and the mutual covenant of the parties, the parties hereby
agree as follows:

1. Notwithstanding the deletion of the portions objected to by the said Examiner, by reason of which entirely new Articles
of Incorporation have been executed by the parties removing the objected portions, the actual and real intent of the
parties is still as originally envisioned, namely:

a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall not in any way be liable for any loss or liability that
may be incurred by the law firm in the course of its operation;

b) That all remaining assets upon dissolution shall accrue exclusively to A. G. Saluda, Jr. and all liabilities shall be solely
for his account.

2. That the parties hereof hereby bind and obligate themselves to adhere and observe the real intent of the parties as
above-stated, any provisions in the Articles of Incorporation as filed to meet the objections of the SEC Examiner to the
contrary notwithstanding.

IN WITNESS WHEREOF, we have set our hands this ___ day of May, 1997 at Makati City, Philippines.

[Sgd.]
A.G. SALUDO, JR.

[Sgd.] [Sgd.] [Sgd.]

RUBEN E. AGPALO FILEMON L. FERNANDEZ AMADO D. AQUINO

The foregoing evinces the parties' intention to entirely shift any liability that may be incurred by SAFA Law Office in the
course of its operation to Saludo, who shall also receive all the remaining assets of the firm upon its dissolution. This
MOU, however, does not serve to convert SAFA Law Office into a sole proprietorship. As discussed, SAFA Law Office
was manifestly established as a partnership based on the Articles of Partnership. The MOU, from its tenor, reinforces this
fact. It did not change the nature of the organization of SAFA Law Office but only excused the industrial partners from
liability.

The law, in its wisdom, recognized the possibility that partners in a partnership may decide to place a limit on their
individual accountability. Consequently, to protect third persons dealing with the partnership, the law provides a rule,
embodied in Article 1816 of the Civil Code, which states:

Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter
into a separate obligation to perform a partnership contract.

The foregoing provision does not prevent partners from agreeing to limit their liability, but such agreement may only be
valid as among them. Thus, Article 1817 of the Civil Code provides:

Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the
partners.

The MOU is an agreement forged under the foregoing prov1s1on. Consequently, the sole liability being undertaken by
Saludo serves to bind only the parties to the MOU, but never third persons like PNB.

Considering that the MOU is sanctioned by the law on partnership, it cannot change the nature of a duly-constituted
partnership. Hence, we cannot sustain Saludo's position that SAFA Law Office is a sole proprietorship.
 II.

Having settled that SAFA Law Office is a partnership, we hold that it acquired juridical personality by operation of law. The
perfection and validity of a contract of partnership brings about the creation of a juridical person separate and distinct from
the individuals comprising the partnership. Thus, Article 1768 of the Civil Code provides:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case
of failure to comply with the requirements of Article 1772, first paragraph.

Article 44 of the Civil Code likewise provides that partnerships are juridical persons, to wit:

Art. 44. The following are juridical persons:

(1) The State and its political subdivisions;

(2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as
soon as they have been constituted according to law;

(3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder, partner or member.54

It is this juridical personality that allows a partnership to enter into business transactions to fulfill its purposes. Article 46 of
the Civil Code provides that "[j]uridical persons may acquire and possess property of all kinds, as well as incur obligations
and bring civil or criminal actions, in conformity with the laws and regulations of their organization."

SAFA Law Office entered into a contract of lease with PNB as a juridical person to pursue the objectives of the
partnership.1awp++i1 The terms of the contract and the manner in which the parties implemented it are a glaring
recognition of SAFA Law Office's juridical personality. Thus, the contract stated that it is being executed by PNB as the
lessor and "SALUDO AGPALO FERNANDEZ & AQUINO, a partnership organized and existing under the laws of the
Republic of the Philippines," as the lessee.55 It also provided that the lessee, i.e., SAFA Law Office, shall be liable in case
of default.56 Furthermore, subsequent communications between the parties have always been made for or on behalf of
PNB and SAFA Law Office, respectively.57

In view of the above, we see nothing to support the position of the RTC and the CA, as well as Saludo, that SAFA Law
Office is not a partnership and a legal entity. Saludo's claims that SAFA Law Office is his sole proprietorship and not a
legal entity fail in light of the clear provisions of the law on partnership. To reiterate, SAFA Law Office was created as a
partnership, and as such, acquired juridical personality by operation of law. Hence, its rights and obligations, as well as
those of its partners, are determined by law and not by what the partners purport them to be.

III.

In holding that SAFA Law Office, a partnership for the practice of law, is not a legal entity, the CA cited58 the case
of Petition for Authority to Continue Use of the Firm Name "Sycip, Salazar, Feliciano, Hernandez & Castillo"59 (Sycip case)
wherein the Court held that "[a] partnership for the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. x x x It is not a partnership formed for the purpose of carrying on trade or business or
of holding property."60 These are direct quotes from the US case of In re Crawford's Estate.61 We hold, however, that our
reference to this US case is an obiter dictum which cannot serve as a binding precedent.62

An obiter dictum is an opinion of the court upon a question which was not necessary to the decision of the case before
it.1âwphi1 It is an opinion uttered by the way, not upon the point or question pending, as if turning aside from the main
topic of the case to collateral subjects, or an opinion that does not embody the court's determination and is made without
argument or full consideration of the point. It is not a professed deliberate determination of the judge himself.63

The main issue raised for the court's determination in the Sycip case is whether the two petitioner law firms may continue
using the names of their deceased partners in their respective firm names. The court decided the issue in the negative on
the basis of "legal and ethical impediments."64 To be sure, the pronouncement that a partnership for the practice of law is
not a legal entity does not bear on either the legal or ethical obstacle for the continued use of a deceased partner's name,
inasmuch as it merely describes the nature of a law firm. The pronouncement is not determinative of the main issue. As a
matter of fact, if deleted from the judgment, the rationale of the decision is neither affected nor altered.
Moreover, reference of the Sycip case to the In re Crawford's Estate case was made without a full consideration of the
nature of a law firm as a partnership possessed with legal personality under our Civil Code. First, we note that while the
Court mentioned that a partnership for the practice of law is not a legal entity, it also identified petitioner law firms as
partnerships over whom Civil Code provisions on partnership apply.65 The Court thus cannot hold that a partnership for
the practice of law is not a legal entity without running into conflict with Articles 44 and 1768 of the Civil Code which
provide that a partnership has a juridical personality separate and distinct from that of each of the partners.

Second, our law on partnership does not exclude partnerships for the practice of law from its coverage. Article 1767 of the
Civil Code provides that "[t]wo or more persons may also form a partnership for the exercise of a profession." Article 1783,
on the other hand, states that "[a] particular partnership has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or vocation." Since the law uses the word "profession" in the general
sense, and does not distinguish which professional partnerships are covered by its provisions and which are not, then no
valid distinction may be made.

Finally, we stress that unlike Philippine law, American law does not treat of partnerships as forming a separate juridical
personality for all purposes. In the case of Bellis v. United States,66 the US Supreme Court stated that law firms, as a form
of partnership, are generally regarded as distinct entities for specific purposes, such as employment, capacity to be sued,
capacity to hold title to property, and more.67 State and federal laws, however, do not treat partnerships as distinct entities
for all purposes.68

Our jurisprudence has long recognized that American common law does not treat of partnerships as a separate juridical
entity unlike Philippine law. Hence, in the case of Campos Rueda & Co. v. Pacific Commercial Co.,69 which was decided
under the old Civil Code, we held:

Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all intents and
purposes, which personality is recognized in all its acts and contracts (art. 116, Code of Commerce). This being so and
the juridical personality of a limited partnership being different from that of its members, it must, on general principle,
answer for, and suffer, the consequence of its acts as such an entity capable of being the subject of rights and
obligations.70 xx x

On the other hand, in the case of Commissioner of Internal Revenue v. Suter,71 which was decided under the new Civil
Code, we held:

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct
and separate from that of its partners (unlike American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of our law.72 x x x

Indeed, under the old and new Civil Codes, Philippine law has consistently treated partnerships as having a juridical
personality separate from its partners. In view of the clear provisions of the law on partnership, as enriched by
jurisprudence, we hold that our reference to In re Crawford's Estate in the Sycip case is an obiter dictum.

IV.

Having settled that SAPA Law Office is a juridical person, we hold that it is also the real party-in-interest in the case filed
by Saludo against PNB.

Section 2, Rule 3 of the Rules of Court defines a real party-in-interest as the one "who stands to be benefited or injured by
the judgment in the suit, or the party entitled to the avails of the suit." In Lee v. Romillo, Jr.,73 we held that the "real [party-
in-interest]-plaintiff is one who has a legal right[,] while a real fparty-in-interest]-defendant is one who has a correlative
legal obligation whose act or omission violates the legal rights of the former."74

SAFA Law Office is the party that would be benefited or injured by the judgment in the suit before the RTC. Particularly, it
is the party interested in the accounting and/or recomputation of unpaid rentals and damages in relation to the contract of
lease. It is also the party that would be liable for payment to PNB of overdue rentals, if that claim would be proven. This is
because it is the one that entered into the contract of lease with PNB. As an entity possessed of a juridical personality, it
has concomitant rights and obligations with respect to the transactions it enters into. Equally important, the general rule
under Article 1816 of the Civil Code is that partnership assets are primarily liable for the contracts entered into in the
name of the partnership and by a person authorized to act on its behalf. All partners, including industrial ones, are only
liable pro rata with all their property after all the partnership assets have been exhausted.
In Guy v. Gacott,75 we held that under Article 1816 of the Civil Code, the partners' obligation with respect to the
partnership liabilities is subsidiary in nature. It is merely secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation. Resort to the properties of a partner may be made only after efforts in exhausting
partnership assets have failed or if such partnership assets are insufficient to cover the entire obligation.76

Consequently, considering that SAPA Law Office is primarily liable under the contract of lease, it is the real party-in-
interest that should be joined as plaintiff in the RTC case.

Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted or defended in the name of the real
party-in-interest. As the one primarily affected by the outcome of the suit, SAPA Law Office should have filed the
complaint with the RTC and should be made to respond to any counterclaims that may be brought in the course of the
proceeding.

In Aguila, Jr. v. Court of Appeals,77 a case for declaration of nullity of a deed of sale was filed against a partner of A.C.
Aguila & Sons, Co. We dismissed the complaint and held that it was the partnership, not its partners, which should be imp
leaded for a cause of action against the partnership itself. Moreover, the partners could not be held liable for the
obligations of the partnership unless it was shown that the legal fiction of a different juridical personality was being used
for fraudulent, unfair, or illegal purposes. We held:

Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that "every action
must be prosecuted and defended in the name of the real party in interest." A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the avails of the suit. This ruling is now embodied in Rule 3, §2
of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a person who is not a real party in interest in
the case cannot be executed. Hence, a complaint filed against such a person should be dismissed for failure to state a
cause of action.

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of the
partners." The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction
of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case, private respondent
has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of
Agreement was executed between private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A violation of this rule will result in the dismissal of the complaint.78

In this case, there is likewise no showing that SAPA Law Office, as a separate juridical entity, is being used for fraudulent,
unfair, or illegal purposes. Hence, its partners cannot be held primarily liable for the obligations of the partnership. As it
was SAFA Law Office that entered into a contract of lease with respondent PNB, it should also be impleaded in any
litigation concerning that contract.1âwphi1

Accordingly, the complaint filed by Saludo should be amended to include SAPA Law Office as plaintiff. Section 11,79 Rule
3 of the Rules of Court gives power to the court to add a party to the case on its own initiative at any stage of the action
and on such terms as are just. We have also held in several cases80 that the court has full powers, apart from that power
and authority which are inherent, to amend processes, pleadings, proceedings, and decisions by substituting as party-
plaintiff the real party-in-interest.

In view of the above discussion, we find it unnecessary to discuss the other issues raised in the petition. It is unfortunate
that the case has dragged on for more than 10 years even if it involves an issue that may be resolved by a simple
application of Civil Code provisions on partnership. It is time for trial to proceed so that the parties' substantial rights may
be adjudicated without further unnecessary delay.

WHEREFORE, the petition is DENIED. Petitioner is hereby ordered to amend his complaint to include SAFA Law Office
as plaintiff in Civil Case No. 06-678 pending before Branch 58 of the Regional Trial Court of Makati City, it being the real
party-in-interest.

SO ORDERED.

G.R. NOS. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., et al, Respondents.

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set
aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No.
76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004,2 denying petitioner’s motion for
reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The
legal dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio
filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific
performance and accounting. In his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of
the court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon
Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other
corporations. Yang is described in the complaint as petitioner’s and Eduardo’s partner in their Odeon Theater
investment.5 The same complaint also contained the following material averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their
family business and common family funds ….

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings,
parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex "A" and
the portion referring to [Aurelio] submarked as Annex "A-1".

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s] retaining his share in the
remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the
continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those
to be subsequently acquired by them whichever is greater. . . .

4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in
their joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective
assets.

4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but Eduardo caused to be
registered in the names of other parties….

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of some of these real
properties is attached hereto and made an integral part as Annex "B".

xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and
liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as
Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to
other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of
these real properties… a notice of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by his brother
Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. ….

I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one left with the
company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to
run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be
ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you
get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the
whole thing of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away, I want
you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the
company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100,
000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you
can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack …and Valley
Golf … because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%)
equity. 6

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With
Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion
thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no
cause of action may be derived from the actionable document, i.e., Annex "A-1", being void under the terms of Article
1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to
do, if any, under Annex "A-1", are unenforceable under the provisions of the Statute of Frauds.7

For his part, Yang - who was served with summons long after the other defendants submitted their answer – moved to
dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state
any.8 Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion, petitioner
interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial. 10

Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 2003,
denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.11

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration12 and
Yang’s motion to dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 2003
Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied in an
Order of July 4, 2003.14

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules of
Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial court, the first denying his motion to
dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste
attended the issuance of the trial court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief
from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R. SP No.
78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with
the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing
as follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July
4, 2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein
respondents Eduardo, et al.] with the court a quo is hereby dismissed.

SO ORDERED.17 (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the
actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which petitioner solely predicates his
right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent".

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed Resolution of
December 7, 2004.18 .

Hence, petitioner’s present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was not a public
instrument and immovable properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his
pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him,
as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an accounting has been duly conducted of
what he deems to be partnership/joint venture property.19

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a proportionate sharing of the profits and losses between them.20 A
contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of dividing the profits among themselves.21 A joint
venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are
similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.22

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent
Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue
bearing on the first assigned error relates to the question of what legal provision is applicable under the premises,
petitioner seeking, as it were, to enforce the actionable document - Annex "A-1" - which he depicts in his complaint to be
the contract of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions
determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the
following provisions of the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the
members thereof to third persons.

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

Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned
document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation requirements exacted
under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more
than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of petitioner’s contribution, if any, to the
supposed partnership.

The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of immovables and real
rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioner’s] contribution to the so-called
"partnership/joint venture" was his supposed share in the family business that is consisting of movie theaters, shipping
and land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and real rights. ….23

Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that, prescinding from
what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua
family businesses which owned variable immovable properties. Petitioner’s assertion in his motion for reconsideration24 of
the CA’s decision, that "what was to be contributed to the business [of the partnership] was [petitioner’s] industry and his
share in the family [theatre and land development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long
real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners,
or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by
the parties should be attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not
contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court cannot
accord cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development family businesses which already owned immovables even
before Annex "A-1" was allegedly executed.

Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership, the Court, even if
so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so desires and pleads to be given.
Annex "A-1", in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and
factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable
property or real rights are contributed thereto or when the partnership has a capital of at least ₱3,000.00, in which case a
public instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, an inventory to be
signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the probative value and
legal effect of Annex "A-1" commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged
partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said "partnership/joint
venture" is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As
such, the said "Memorandum" … is null and void for purposes of establishing the existence of a valid contract of
partnership. Indeed, because of the failure to comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally
inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint,
including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or
legal right which could be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does
NOT state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring
and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CA’s equally assailed Resolution of December 7,
200427 denying petitioner’s motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document
attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its
attention by herein [respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the latter alleged inter
alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public
document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint
and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be
violated by [respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or nullity as a
partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract
even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code,
Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations
of the parties and which rights and obligations may be enforceable and demandable. Just because the relationship
created by the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not
mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he
experienced a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for
not yielding to petitioner’s dubious stratagem of altering his theory of joint venture/partnership to an innominate contract.
For, at bottom, the appellate court’s certiorari jurisdiction was circumscribed by what was alleged to have been the order/s
issued by the trial court in grave abuse of discretion. As respondent Yang pointedly observed,28 since the parties’ basic
position had been well-defined, that of petitioner being that the actionable document established a partnership/joint
venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioner’s act of changing his
original theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of
such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable
instrument may be considered an innominate contract. xxx Verily, this now changes [petitioner’s] theory of the case
which is not only prohibited by the Rules but also is an implied admission that the very theory he himself … has adopted,
filed and prosecuted before the respondent court is erroneous.

Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable document being a
partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the basis of
partnership law xxx.29 (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti  that Annex "A-1" partakes of a perfected innominate contract, petitioner’s
complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that
petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this consideration alone, petitioner’s claim
against Yang is doomed from the very start.

As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting petitioner with a right to
demand from respondent Eduardo the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this
office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend
entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever
is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote
Annex "A-1", is a promise which is not to be performed within one year from "contract" execution on June 22, 1973.
Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute of Frauds and ergo unenforceable for non-
compliance therewith.30 By force of the statute of frauds, an agreement that by its terms is not to be performed within a
year from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof,
be in writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by
the statute of frauds is complied with.31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses
supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be to read something not written in Annex "A-1".
Thus, even this angle alone argues against the very idea of a partnership, the creation of which requires two or more
contracting minds mutually agreeing to contribute money, property or industry to a common fund with the intention of
dividing the profits between or among themselves.32

In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance anchored on an actionable
document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as
against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear
on how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could
not have had any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner.
In fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the continuation of
their family business and common family funds which were theretofore being mainly managed by Eduardo." 33 But Yang
denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his
share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his
proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the
actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the [respondent]
corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This means that
the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment
thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his "investment and that
of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate respondents" This simply means that the
"Odeon Theatre business" came before the corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon Theatre business.34

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his
right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation
in the following wise:

[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the
[petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in
several corporations, thus:

xxx xxx xxx

Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the …respondent.
However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was
created between [petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly affects said claim against …Yang. Since [petitioner] is
trying to establish his claim against … Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect [petitioner] and … Yang. To establish a valid
cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A
statement of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against … Yang. 35

Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to
state, We have not ignored the actionable document … As a matter of fact, We emphasized in our decision … that insofar
as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a
person not mentioned in a document purporting to establish a partnership could be considered a partner.36 (Words in
bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily
determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA
has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership
theory which he adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory.
Illustrative of this shift is petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision combined
with what he said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainant’s allegations, is whether the actionable document bears out
an actionable contract – be it a partnership, a joint venture or whatever or some innominate contract … It may be noted
that one kind of innominate contract is what is known as du ut facias (I give that you may do).37

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract
even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code,
Article 1307).38

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the
proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate
court.39 On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on
appeal.40 It is not difficult, therefore, to agree with the CA when it made short shrift of petitioner’s innominate contract
theory on the basis of the foregoing basic reasons.

Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case of changing theories
but of supporting his pleaded cause of action – that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CA’s decision virtually relegates partnership as a fall-back theory. Two paragraphs later,
in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to
pursue the original cause of action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and
[petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not
establish a contractual relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his
document does not create a partnership or a joint venture. This is … a myopic reading of the actionable document.

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

WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of
Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,

vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

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

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

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

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

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

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

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

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

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

"The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence
level of the pay scale of our employees have been thwarted by the other partners. Not only have
they refused to give meaningful increases to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of their self-respect. The result of such
policies is the formation of the union, including the assistant attorneys."
 On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD)
a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the
Commission:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died
on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of
new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648).
He expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the
prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the
partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as
no sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed
or materially impaired.

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

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

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

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

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

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

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

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

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

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

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

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

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an act or will of a partner.6 Among partners,7 mutual agency arises
and the doctrine of delectus personae allows them to have the  power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated
in the carrying on, as might be distinguished from the winding up of, the business.8 Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business culminating in its termination.9

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

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

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

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

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

SO ORDERED.

G.R. No. 10695 December 15, 1916

TEODORO DE LOS REYES, plaintiff-appellee,

vs.
VICENTE LUKBAN and ESPERIDION BORJA, defendants. VICENTE LUKBAN, appellant.

On December 5, 1913, Teodoro de los Reyes brought suit in the Court of First Instance of this city against Vicente Lukban
and Esperidion Borja, to recover from them individually the sum of P853, the balance of a debt of P1,086.65 owing for
merchandise bought on credit in October and November, 1904, by the firm Lukban & Borja, from the plaintiff's ship supply
store, named La Industria.

In case No. 3759, prosecuted in the said court by the creditor Reyes against the said firm of Lukban & Borja, the latter
was ordered by a final judgment of October 19, 1905, to pay the said sum of P1,086.65, together with the interest thereon,
amounting to a total of P1,102.95, in addition to the costs, P46.24.

One of the partner, Esperidion Borja, paid P522.69 on account of the debt.lawphi1.net There still remains to be paid
P610.21, and this sum, together with the costs and legal interest thereon from July 14, 1905, to the date of the complaint,
December 5, 1913, aggregates the total sum of P894.17. The plaintiff prayed the court to order the defendants jointly or
severally to pay him, the plaintiff, this last mentioned amount, together with the legal interest thereon from the date of the
complaint, and the costs.
After due summons the defendants appeared, and one of them, Esperidion Borja, in answer to the complaint entered a
general and specific denial of each and all of the allegations therein contained, and, as a special defense, alleged that it
was res judicata and that the plaintiff's action, if it existed, had already prescribed.

The other defendant, Vicente Lukban, in his amended answer set forth (1) that he denied generally and specifically each
and all of the facts alleged in each and all of the paragraphs of the complaint; (2) that the issues raised by the complaint
had already been decided in case No. 10908, in which the firm of Lukban & Borja was acquitted, without costs; (3) that the
defendant Lukban was merely an industrial partner in the firm of Lukban & Borja, Espiridion Borja being the partner
thereof who furnished the capital; (4) that the assets of the firm of Lukban & Borja had not been exhausted (by
attachment), wherefore the present action is premature; and (5) that the plaintiff Reyes' action, as regards this defendant
Lukban, has prescribed.

At the trial of the case the parties made the following stipulation:

1. That on July 15, 1905, the herein plaintiff Teodoro de los Reyes brought suit against the firm of Lukban & Borja
to recover the sum of P1,086.65 owing for merchandise bought on credit in the months of October and November,
1904, from the ship supply store known by the name of La Industria. The said suit was heard before the
Honorable John C. Sweeney, on October 19, 1905, on which date the said judge sentenced the defendant firm to
pay the sum of P1,086.65, Philippine currency, with legal interest thereon from July 14, 1905, to the date of the
judgment, amounting to P16.30, Philippine currency, and costs amounting to P46.24. It does not appear that this
obligation was set forth in writing. All the preceding has been taken from the record of that court in case No. 3759,
De los Reyes vs, Lukban & Borja.

2. On August 19, 1913, the same plaintiff Teodoro de los Reyes brought suit against Lukban & Borja to recover
the sum of P853, alleging for this purpose that the defendant Espiridion Borja paid P522.69 on account of the sum
of P1,086.65 allowed in the judgment referred to in the preceding paragraph, there remaining unpaid P610.21 of
the principal debt, to which is added the legal interest thereon from January 1, 1906, to the date of the
commencement of the said suit, thus forming the total sum above stated of P853. After hearing the case, the
Honorable Judge Del Rosario, on November 20, 1913, rendered judgment absolving the firm of Lukban & Borja
from the complaint without special finding as to costs. All the facts related in this paragraph appear in case No.
10908 of this court.

3. That several years ago and seven months after its organization, or, more specifically, on April 13, 1909, the firm
of Lukban & Borja was lawfully dissolved, as stated by Borja; and that the five years from the 13th of the same
month of the year 1904, stipulated for its duration had elapsed. (Judgment in case No. 10908.) The articles of
incorporation of the firm of Lukban & Borja are found in the attached document, which, for its identification, is
marked as Exhibit A of this agreement.

4. That the assets of the firm of Lukban & Borja had not been exhausted (by attachment) for the reason that the
plaintiff did not know what property belonged to it.

5. Vicente Lukban and Espiridion Borja, notwithstanding that they alleged themselves to be copartners of the firm
of Lukban & Borja, were not sued by the herein plaintiff in cases Nos. 3759 and 10908, but that plaintiff sued the
firm of Lukban & Borja, represented by Borja.

After hearing the evidence, the court rendered judgment on November 25, 1914, sentencing the defendants Vicente
Lukban and Espiridion Borja jointly and severally to pay to the plaintiff Teodoro de los Reyes the sum of P610.20, together
with the legal interest thereon from December 17, 1913, and the costs. To this judgment Lukban excepted, announced his
intention to file the proper bill of exceptions and moved for a new trial on the grounds that the evidence did not justify the
decision and that the latter was contrary to law. By an order of December 10, the motion for a new trial was overruled and
an exception was entered by this defendant-appellant. The other defendant, Espiridion Borja, made no exception to the
said ruling so the judgment became final with respect to him.

The subject matter of this suit is an acknowledged debt held to be owing by a judicial pronouncement contained in a
judgment rendered in case No. 3759, prosecuted by the creditor Teodor de los Reyes against the general partnership of
Lukban & Borja, which was sentenced to pay the said debt. The creditor was unable to collect it in its entirety but
recovered only a part thereof, to wit, P522.69, which was paid by the partner Borja. In order to demonstrate the propriety
of the judgment appealed from, rendered against the parties who were the partners of the said firm, we shall confine
ourselves in this decision to the four errors assigned to the said judgment by the defendant Lukban, inasmuch as the
other defendant Borja acquiesced in the said judgment and the same became final as to him. These error are the
following:

1. In not holding that the action brought against this defendant is improper, inasmuch as prior to its prosecution no
attachment was levied on the assets of the said partnership.

2. In not holding that the action brought against this appellee [defendant] has not been proven.

3. In not holding that the present is not a true case of res judicata.

4. In not holding that the appellee's action has prescribed in so far as it concerns this appellant.

With respect to the first assignment of error, the contents of the writ and the return of the execution of the final judgment
rendered in the said case No. 3759 show that the dissolved partnership of Lukban & Borja had absolutely no property
whatever of its own. Had any property whatever of the said partnership still remained, the defendant Lukban would have
pointed it out inorder to avoid being obliged to pay in solidum all the balance of the sum which the firm was sentenced to
pay by the said final judgment of October 19, 1905. He did not do so because the firm of Lukban & Borja no longer had
any kind of property or credits, as shown by the document setting forth the agreement made by and between several
creditors of the said firm, a third party named Ramon Tinsay and the former partner of the firm, Espiridion Borja, in which
document it appears that the firm Lukban & Borja owed four creditors, among them the plaintiff De los Reyes, the total
sum of P10,165.01 and these creditors with some difficulty succeeded in collecting the sum of P5,000 through a
transaction with the said Ramon Tinsay who paid this last amount for the account of the partner Espiridion Borja. It
appears that the latter paid to the creditor De los Reyes the aforementioned sum of P522.69, on account of the firm's debt
to Teodoro de los Reyes, a debt which was recognized in the said judgment of October 19, 1905. The attachment, or
recourse to the property, the lack of which proceeding was complained of, is a proceeding that was resorted to when
attempt was made to execute the final judgment rendered against the partnership of Lukban & Borja, which proceeding
gave negative results; therefore, if the requirement of article 237 of the Code of Commerce must be complied with by the
creditor it is evident that it has already been done for the defendant Lukban was unable to show that the partnership to
which he belonged actually possessed any more assets.

With respect to the second assignment of error, if Teodoro de los Reyes is entitled to collect individually from the partners
Lukban and Borja the amount of the debt that the dissolved partnership owed at the time of its dissolution, it is
unquestionable that such a right has given rise to the corresponding right of action to demand the payment of the debt
from the partners individually, or from each of them, by the insolvency of the partnership, inasmuch as they are personally
and severally liable with all their property for the results of the operations of the partnership which they conducted.

Article 127 of the Code of Commerce provides:

All the member of the general copartnership, be they or be they not managing partners of the same, are
personally and severally liable with all their property for the results of the transactions made in the name and for
the account of the partnership, under the signature of the latter, and by a person authorized to make use thereof.

With regard to the third assignment of error. Although the action brought in case No. 10908 by the creditor Teodoro de los
Reyes against the partnership Lukban & Borja be not different from that brought in the present case No. 11296, and
although it be deemed to have arisen out of the right of the plaintiff-creditor to collect his credit, yet the first time it was
brought against the partnership. The action against Vicente Lukban and Espiridion Borja individually ca not be demurred
to on the ground of res judicata by the judgment of acquittal entered in case No. 10908.

Article 1252 of the Civil Code provides:

In order that the presumption of the res judicata may be valid in another suit, it is necessary that, between the
case decided by the sentence and that in which the name is invoked, there must be the most perfect identity
between the things causes, and persons of the litigants, and their capacity as such.

There may be perfect identity between the cause of action and the things demanded in case no. 10908, wherein the said
partnership was absolved from the complaint, and in the present case No. 11296; it is, however, undeniable that the
parties defendant are not the same nor is their capacity as such. In the first case it was the partnership that was sued,
while in the present case it is Lukban and Borja individually, as former members of that dissolved partnership, who are
sued jointly and severally. Therefore, pursuant to the above-cited article of the Civil Code, the provisions of which
harmonize with those of section 307 of the Code of Civil Procedure, the former judgment can not be set up as res
judicata in the present action.

As regards the last assignment of error, alleging prescription of action, suffice it to say that from October 19, 1905, to
December 5, 1913, even without counting the interruption caused by the action brought on August 18th of this latter year,
the ten year period fixed by section 43 of the Code of Civil Procedure has not elapsed. In view of the negative results of
the proceedings had by the sheriff in levying execution of the final judgment rendered against the partnership of Lukban &
Borja, the creditor in the exercise of his rights has brought the proper action against those who were the members of that
firm for the recovery of the unpaid balance of his credit, and he filed his complaint within the period fixed by the law of
procedure and the defendants cannot allege that it is now res judicata.

For the foregoing reasons the judgment appealed from is affirmed with the costs of this instance against the appellant. So
ordered.

G.R. No. L-9996           October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,

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

This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of
the Court of Tax Appeals, the dispositive part of which reads:

FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax
and the residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for
the same in the total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner
is hereby dismissed with costs against petitioners.

It appears from the stipulation submitted by the parties:

1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together with their
personal monies was used by them for the purpose of buying real properties,.

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m.
including improvements thereon from the sum of P100,000.00; this property has an assessed value of P57,517.00
as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of
3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an assessed value of
P82,255.00 as of 1948;

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including
improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements
thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948;

6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their
properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such
payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and
to endorse and deposit all notes and checks for them;

7. That after having bought the above-mentioned real properties the petitioners had the same rented or leases to
various tenants;

8. That from the month of March, 1945 up to an including December, 1945, the total amount collected as rents on
their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental
income of P5,948.33;
 9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount was
deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13;

10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was deducted the
sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35.

It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment of
income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949,
computed, according to assessment made by said officer, as follows:

INCOME TAXES

1945 14.84

1946 1,144.71

1947 10.34

1948 1,912.30

1949 1,575.90

Total including surcharge and P6,157.09

compromise

REAL ESTATE DEALER'S FIXED TAX

1946 P37.50

1947 150.00

1948 150.00

1949 150.00

Total including penalty P527.00

RESIDENCE TAXES OF CORPORATION

1945 P38.75

1946 38.75

1947 38.75

1948 38.75

1949 38.75

Total including surcharge P193.75

TOTAL TAXES DUE P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon
they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained
in his letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes
in question, with costs against the respondent.

After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and a petition
for reconsideration and new trial having been subsequently denied, the case is now before Us for review at the instance of
the petitioners.

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

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

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations or insurance companies, but does not include
duly registered general copartnerships. (compañias colectivas).

Article 1767 of the Civil Code of the Philippines provides:

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

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

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

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

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

4. Since August, 1945, the properties have been under the management of one person, namely Simeon
Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts,
and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if
the same belonged to a corporation or business and enterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years,
since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager.
 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already
adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

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

Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by
them, a legal entity, with a personality independent of that of its members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax
Appeals.

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different
from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly
registered general partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes,
among other, joint accounts, (cuentas en participation)" and "associations," none of which has a legal personality of its
own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general copartnerships" — which are possessed of the aforementioned personality — have been expressly excluded by
law (sections 24 and 84 [b] from the connotation of the term "corporation" It may not be amiss to add that petitioners'
allegation to the effect that their liability in connection with the leasing of the lots above referred to, under the management
of one person — even if true, on which we express no opinion — tends to increase the similarity between the nature of
their venture and that corporations, and is, therefore, an additional argument in favor of the imposition of said tax on
corporations.

Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships". By specific
provisions of said laws, such "corporations" include "associations, joint-stock companies and insurance companies."
However, the term "association" is not used in the aforementioned laws.

. . . in any narrow or technical sense. It includes any organization, created for the transaction of designed affairs,
or the attainment of some object, which like a corporation, continues notwithstanding that its members or
participants change, and the affairs of which, like corporate affairs, are conducted by a single individual, a
committee, a board, or some other group, acting in a representative capacity. It is immaterial whether such
organization is created by an agreement, a declaration of trust, a statute, or otherwise. It includes a voluntary
association, a joint-stock corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law' trust,
and 'investment' trust (whether of the fixed or the management type), an interinsuarance exchange operating
through an attorney in fact, a partnership association, and any other type of organization (by whatever name
known) which is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens Law of
Federal Income Taxation, p. 788; emphasis supplied.).

Similarly, the American Law.

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

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

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

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

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

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

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

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

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

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

G.R. No. L-14606             April 28, 1960

LAGUNA TRANSPORTATION CO., INC., petitioner-appellant,

vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.

On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of Laguna petition
praying that an order be issued by the court declaring that it is not bound to register as a member of respondent Social
Security System and, therefore, not obliged to pay to the latter the contributions required under the Social Security
Act.1 To this petition, respondent filed its answer on February 11, 1958 praying for its dismissal due to petitioner's failure
to exhaust administrative remedies, and for a declaration that petitioner is covered by said Act, since the latter's business
has been in operation for at least 2 years prior to September 1, 1957.

On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that petitioner failed to exhaust
administrative remedies. When the case was called for preliminary hearing, it was postponed by agreement of the parties.
Subsequently, it was set for trial. On the date of the trial, the parties agreed to present, in lieu of any other evidence, a
stipulation of facts, which they did on May 27, 1958, as follows:

1. That petitioner is a domestic corporation duly organized and existing under the laws of the Philippines, with
principal place of business at Biñan, Laguna;

2. That respondent is an agency created under Republic Act No. 1161, as amended by Republic Act No. 1792,
with the principal place of business at the new GSIS Bldg., corner Arroceros and Concepcion Streets, Manila,
where it may be served with summons;
 3. That respondent has served notice upon the petitioner requiring it to register as member of the System and to
remit the premiums due from all the employees of the petitioner and the contribution of the latter to the System
beginning the month of September, 1957;

4. That sometime in 1949, the Biñan Transportation Co., a corporation duly registered with the Securities and
Exchange Commission, sold part of the lines and equipment it operates to Gonzalo Mercado, Artemio Mercado,
Florentino Mata and Dominador Vera Cruz;

5. That after the sale, the said vendees formed an unregistered partnership under the name of Laguna
Transportation Company which continued to operate the lines and equipment bought from the Biñan
Transportation Company, in addition to new lines which it was able to secure from the Public Service
Commission;

6. That the original partners forming the Laguna Transportation Company, with the addition of two new members,
organized a corporation known as the Laguna Transportation Company, Inc., which was registered with the
Securities and Exchange Commission on June 20, 1956, and which corporation is the plaintiff now in this case;

7. That the incorporators of the Laguna Transportation Company, Inc., and their corresponding shares are as
follows:

Name No. of Amount Amount

Shares Subscribed Paid

Dominador Cruz 333 shares P33,300.00 P9,160.81

Maura Mendoza 333 shares 33,300.00 9,160.81

Gonzalo Mercado 66 shares 6,600.00 1,822.49

Artemio Mercado 94 shares 9,400.00 2,565.90

Florentino Mata 110 shares 11,000.00 3,021.54

Sabina Borja     64 shares       6,400.00    

1,750.00

1,000 P100,000.00 P27,481.55

shares

8. That the corporation continued the same transportation business of the unregistered partnership;

9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and a supplemental Information
Sheet . . .;

10. That prior to November 11, 1957, plaintiff requested for exemption from coverage by the System on the
ground that it started operation only on June 20, 1956, when it was registered with the Securities and Exchange
Commission but on November 11, 1957, the Social Security System notified plaintiff that it was covered;

11. On November 14, 1957, plaintiff through counsel sent a letter to the Social Security System contesting the
claim of the System that plaintiff was covered, . . .

12. On November 27, 1957, Carlos Sanchez, Manager of the Production Department of the respondent System
for and in behalf of the Acting Administrator, informed plaintiff that plaintiff's business has been in actual operation
for at least two years, . . .

On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a decision the dispositive part of
which reads:
 Wherefore, the Court is of the opinion and so declares that the petitioner was an employer engaged in business
as common carrier which had been in operation for at least two years prior to the enactment of Republic Act No.
1161, as amended by Republic Act 1792 and by virtue thereof, it was subject to compulsory coverage under said
law. . . .

From this decision, petitioner appealed directly to us, raising purely questions of law.

Petitioner claims that the lower court erred in holding that it is an employer engaged in business as a common carrier
which had been in operation for at least 2 years prior to the enactment of the Social Security Act and, therefore, subject to
compulsory coverage thereunder.

Section 9 of the Social Security Act, in part, provides:

SEC. 9 Compulsory Coverage. — Coverage in the System shall be compulsory upon all employees between the
ages of sixteen and sixty years, inclusive, if they have been for at least six months in the service of an employer
who is a member of the System. Provided, That the Commission may not compel any employer to become a
member of the System unless he shall have been in operation for at least two years . . . . (Italics supplied.).

It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of Gonzalo Mercado,
Artemio Mercado, Florentina Mata, and Dominador Vera Cruz, commenced the operation of its business as a common
carrier on April 1, 1949. These 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the
partnership into a corporate entity, by registering its articles of incorporation with the Securities and Exchange
Commission on June 20, 1956. The firm name "Laguna Transportation Company" was not altered, except with the
addition of the word "Inc." to indicate that petitioner was duly incorporated under existing laws. The corporation continued
the same transportation business of the unregistered partnership, using the same lines and equipment. There was, in
effect, only a change in the form of the organization of the entity engaged in the business of transportation of passengers.
Hence, said entity as an employer engaged in business, was already in operation for at least 3 years prior to the
enactment of the Social Security Act on June 18, 1954 and for at least two years prior to the passage of the amendatory
act on June 21, 1957. Petitioner argues that, since it was registered as a corporation with the Securities and Exchange
Commission only on June 20, 1956, it must be considered to have been in operation only on said date. While it is true that
a corporation once formed is conferred a juridical personality separate and district from the persons composing it, it is but
a legal fiction introduced for purposes of convenience and to subserve the ends of justice. The concept cannot be
extended to a point beyond its reasons and policy, and when invoked in support of an end subversive of this policy, will be
disregarded by the courts. (13 Am. Jur. 160.)

If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as
a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the motion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the
corporation as an association of persons. (1 Fletcher Cyclopedia Corporations [Perm. Ed.] 135-136; U.S.
Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz.,
4604.)

To adopt petitioner's argument would defeat, rather than promote, the ends for which the Social Security Act was enacted.
An employer could easily circumvent the statute by simply changing his form of organization every other year, and then
claim exemption from contribution to the System as required, on the theory that, as a new entity, it has not been in
operation for a period of at least 2 years. the door to fraudulent circumvention of the statute would, thereby, be opened.

Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its operation
commenced on April 1, 1949 while it was a partnership and continued by the corporation upon its formation on June 20,
1956. Unlike in the conveyance made by the Biñan Transportation Company to the partners Gonzalo Mercado, Artemio
Mercado, Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the pleadings or in the
stipulation of facts that the lines and equipment of the unregistered partnership had been sold and transferred to the
corporation, petitioner herein. This omission, to our mind, clearly indicates that there was, in fact, no transfer of interest,
but a mere change in the form of the organization of the employer engaged in the transportation business, i.e., from an
unregistered partnership to that of a corporation. As a rule, courts will look to the substance and not to the form.(Colonial
Trust Co. vs. Montolo Eric Works, 172 Fed. 310; Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612;
Arnold vs. Willits, et al., 44 Phil., 634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)

Finally, the weight of authority supports the view that where a corporation was formed by, and consisted of members of a
partnership whose business and property was conveyed and transferred to the corporation for the purpose of continuing
its business, in payment for which corporate capital stock was issued, such corporation is presumed to have assumed
partnership debts, and is prima facie  liable therefor. (Stowell vs. Garden City News Corps., 57 P. 2d 12; Chicago Smelting
& Refining Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for the rule is
that the members of the partnership may be said to have simply put on a new coat, or taken on a corporate cloak, and the
corporation is a mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations [Perm. Ed.] 402-411.)

Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed, with costs against petitioner-
appellant. So ordered.

G.R. No. L-4935             May 28, 1954

J. M. TUASON & CO., INC., rep. by its Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAÑOS, defendant-appellant.

This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to recover possesion of
registered land situated in barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and description of the land sought to be
recovered. The original complaint described the land as a portion of a lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares more or less.
But the complaint was amended by reducing the area of 6 hectares, more or less, after the defendant had indicated the
plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in another certificate of
title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of trial, after defendant's
surveyor and witness, Quirino Feria, had testified that the area occupied and claimed by defendant was about 13
hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint to make its allegations
conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive and public and
notorious possession (of land in dispute) under claim of ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The answer further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or interest either
personal or thru publication to defendant and/or predecessors in interest." The answer therefore prays that the complaint
be dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof to plaintiff and to pay the latter a monthly rent of P132.62 from
January, 1940, until he vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes the following assignment
or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not brought by the real property
in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the litigation.

V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title Nos. 37686 and
37677.

Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of P132.62 monthly
from January, 1940, until he vacates the premises.
 VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the defendant.

As to the first assigned error, there is nothing to the contention that the present action is not brought by the real party in
interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name
of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring
the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this
case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the
statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized
by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There
is nothing in the record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of either of them.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by mere reference to
section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:

Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise
these issues may be made upon motion of any party at my time, even of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the
pleadings to be amended and shall be so freely when the presentation of the merits of the action will be
subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would
prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable
the objecting party to meet such evidence.

Under this provision amendment is not even necessary for the purpose of rendering judgment on issues proved though
not alleged. Thus, commenting on the provision, Chief Justice Moran says in this Rules of Court:

Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled that where the
facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary,
especially where defendant has himself raised the point on which recovery is based, and that the appellate court
treat the pleadings as amended to conform to the evidence, although the pleadings were not actually amended. (I
Moran, Rules of Court, 1952 ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are without merit..

Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial, that the land in
dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red pencil with the name Quirino
Bolaños," defendant later changed his lawyer and also his theory and tried to prove that the land in dispute was not
covered by plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes that plaintiff
is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square
meters, more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and of lot No.
4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less, covered by transfer certificate of
title No. 37677 of the land records of the same province, both lots having been originally registered on July 8, 1914 under
original certificate of title No. 735. The identity of the lots was established by the testimony of Antonio Manahan and
Magno Faustino, witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established by
the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses clearly shows that the
portion claimed by defendant is made up of a part of lot 4-B-3-C and major on portion of lot 4-B-4, and is well within the
area covered by the two transfer certificates of title already mentioned. This fact also appears admitted in defendant's
answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of
registration can no longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year
has already elapsed from the issuance and entry of the decree. Neither court the decree be collaterally attacked by any
person claiming title to, or interest in, the land prior to the registration proceedings. (Soroñgon vs. Makalintal,1 45 Off.
Gaz., 3819.) Nor could title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription
or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession under claim of
ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45
Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure possession under a decree of registration does
not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that
rendered in the case of Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and
VI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should be sentenced to pay
plaintiff P132.62 monthly from January, 1940, until he vacates the premises.' But it appears from the record that that
reasonable compensation for the use and occupation of the premises, as stipulated at the hearing was P10 a month for
each hectare and that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant. And it cannot be
supposed that defendant has been paying rents, for he has been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous, exclusive and public and notorious possession and under claim
of ownership adverse to the entire world by defendant and his predecessors in interest.' This assignment of error is thus
clearly without merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.

During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to dismiss alleging that
there is pending before the Court of First Instance of Rizal another action between the same parties and for the same
cause and seeking to sustain that allegation with a copy of the complaint filed in said action. But an examination of that
complaint reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of action in the
two suits does not appear. That other case is one for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order action because it is a class suit, the complaint
does not show that such is really the case. On the contrary, it appears that the action seeks relief for each individual
plaintiff and not relief for and on behalf of others. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

G.R. No. L-4811             July 31, 1953

CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
FORTUNATO F. HALILI, defendant-appellant.

On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most important
provisions of which are (1) that they shall organize a partnership for the bottling and distribution of Mision soft drinks,
plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor;
(2) that the defendant was to decide matters of general policy regarding the business, while the plaintiff was to attend to
the operation and development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise
for and in behalf of the proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the net profits of the
business. The above agreement was arrived at after various conferences and consultations by and between them, with
the assistance of their respective attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry
Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its
name, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a
million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal
with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be
transferred to the corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive
bottling and distribution rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at
a meeting on November 27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer
had prepared the draft of the agreement, Exhibit II or OO, but this was not satisfactory because a partnership, instead of a
corporation, was desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears
to be the main basis of the agreement, Exhibit A.

The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without the
agreement being not first signed. On that day plaintiff and defendant went to the United States, and on December 10,
1947, a franchise agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F. Halili and/or
Charles F. Woodhouse, granted defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell
Mision beverages in the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff
reported for duty in January, 1948, but operations were not begun until the first week of February, 1948. In January
plaintiff was given as advance, on account of profits, the sum of P2,000, besides the use of a car; in February, 1948, also
P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, 1948.

When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be
executed. At first defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of the
product had been increased to P50,000. As nothing definite was forthcoming, after this condition was attained, and as
defendant refused to give further allowances to plaintiff, the latter caused his attorneys to take up the matter with the
defendant with a view to a possible settlement. as none could be arrived at, the present action was instituted.

In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share
thereof of 30 per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way of defense
(1) that defendant's consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the
owner, or was about to become owner of an exclusive bottling franchise, which representation was false, and plaintiff did
not secure the franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his undertakings,
but that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the partnership, but
plaintiff failed to do so. He also presented a counter-claim for P200,000 as damages. On these issues the parties went to
trial, and thereafter the Court of First Instance rendered judgment ordering defendant to render an accounting of the
profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 percent thereof. it held that the
execution of the contract of partnership could not be enforced upon the parties, but it also held that the defense of fraud
was not proved. Against this judgment both parties have appealed.

The most important question of fact to be determined is whether defendant had falsely represented that he had an
exclusive franchise to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the
agreement to form the partnership. The trial court found that it is improbable that defendant was never shown the letter,
Exhibit J, granting plaintiff had; that the drafts of the contract prior to the final one can not be considered for the purpose of
determining the issue, as they are presumed to have been already integrated into the final agreement; that fraud is never
presumed and must be proved; that the parties were represented by attorneys, and that if any party thereto got the worse
part of the bargain, this fact alone would not invalidate the agreement. On this appeal the defendant, as appellant, insists
that plaintiff did represent to the defendant that he had an exclusive franchise, when as a matter of fact, at the time of its
execution, he no longer had it as the same had expired, and that, therefore, the consent of the defendant to the contract
was vitiated by fraud and it is, consequently, null and void.

Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's
contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the
exclusive grantee of a franchise, thus:

A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this
matter. I notice from the first draft of the document which I prepared which calls for the organization of a
corporation, that the manager, that is, Mr. Woodhouse, is represented as being the exclusive grantee of a
franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)

As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on
November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states:

Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco,
California, for the bottling of Mission products and their sale to the public throughout the Philippines; . . . .

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his
exclusive right to bottle Mission products and to sell them throughout the Philippines. . . . .

(Exhibit II; emphasis ours)

The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is
inapplicable, since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover
the intent of the parties thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did
plaintiff represent to defendant that he had an exclusive franchise? Certainly, his acts or statements prior to the
agreement are essential and relevant to the determination of said issue. The act or statement of the plaintiff was not
sought to be introduced to change or alter the terms of the agreement, but to prove how he induced the defendant to enter
into it — to prove the representations or inducements, or fraud, with which or by which he secured the other party's
consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs. Cantiveros and
Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev.
ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not
governed by the rules on integration. Were parties prohibited from proving said representations or inducements, on the
ground that the agreement had already been entered into, it would be impossible to prove misrepresentation or fraud.
Furthermore, the parol evidence rule expressly allows the evidence to be introduced when the validity of an instrument is
put in issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.

That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his
letter to Mission Dry Corporation, Exhibit H, he said:.

. . . He told me to come back to him when I was able to speak with authority so that we could come to terms as far
as he and I were concerned. That is the reason why the cable was sent. Without this authority, I am in a poor
bargaining position. . .

I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during
which I may consummate my plants. . . .

By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this
option for an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close
the deal with him, he must have used his said option for the above-indicated purpose, especially as it appears that he was
able to secure, through its use, what he wanted.

Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff called on
the latter, the latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in
the bottling business." (t. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to see the defendant (and at that
time he had already the option), he must have exultantly told defendant that he had the authority already. It is improbable
and incredible for him to have disclosed the fact that he had only an option  to the exclusive franchise, which was to last
thirty days only, and still more improbable for him to have disclosed that, at the time of the signing of the formal
agreement, his option had already expired. Had he done so, he would have destroyed all his bargaining power and
authority, and in all probability lost the deal itself.

The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure
the Mission Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final
agreement does not militate against plaintiff having represented that he had the exclusive franchise; it rather strengthens
belief that he did actually make the representation. How could plaintiff assure defendant that he would get the franchise
for the latter if he had not actually obtained it for himself? Defendant would not have gone into the business unless the
franchise was raised in his name, or at least in the name of the partnership. Plaintiff assured defendant he could get the
franchise. Thus, in the draft prepared by defendant's attorney, Exhibit HH, the above provision is inserted, with the
difference that instead of securing the franchise for the defendant, plaintiff was to secure it for the partnership. To show
that the insertion of the above provision does not eliminate the probability of plaintiff representing himself as the exclusive
grantee of the franchise, the final agreement contains in its third paragraph the following:

. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .

and in paragraph 11 it also expressly states:

1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry Corporation
shall be reassigned to the manager.

These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the grantee of
an exclusive franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the
partnership, and that, upon its dissolution or termination, the same shall be reassigned to the plaintiff.

Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive
franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon.
He could not have had such a feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive
grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud
improbable. Not necessarily, because the alleged representation took place before the conferences were had, in other
words, plaintiff had already represented to defendant, and the latter had already believed in, the existence of plaintiff's
exclusive franchise before the formal negotiations, and they were assisted by their lawyers only when said formal
negotiations actually took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive
franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the franchise, that he had
left the papers evidencing it.(t.s.n., p. 266.)

We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the exclusive
franchise. The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise.
Defendant would not perhaps have gone to California and incurred expenses for the trip, unless he believed that plaintiff
did have that exclusive privilege, and that the latter would be able to get the same from the Mission Dry Corporation itself.
Plaintiff knew what defendant believed about his (plaintiff's) exclusive franchise, as he induced him to that belief, and he
may not be allowed to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules
of Court.)

We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It
must be noted that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a
salesman about the excellence of his wares to those malicious machinations and representations that the law punishes as
a crime. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud,
which may be a ground for the annulment of a contract, and the incidental deceit, which only renders the party who
employs it liable for damages. This Court had held that in order that fraud may vitiate consent, it must be the causal (dolo
causante), not merely the incidental (dolo causante), inducement to the making of the contract. (Article 1270, Spanish
Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the fact that the principal
consideration, the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the ability
of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft
prepared by defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is made not as to the said obligation but as to the grantee.
In the corrected draft the word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains the
substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but
that the same was to be secured for or transferred to the partnership. The plaintiff no longer had the exclusive franchise,
or the option thereto, at the time the contract was perfected. But while he had already lost his option thereto (when the
contract was entered into), the principal obligation that he assumed or undertook was to secure said franchise for the
partnership, as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he was guilty of a
false representation, this was not the causal consideration, or the principal inducement, that led plaintiff to enter into the
partnership agreement.

But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff
gave in exchange for the share of 30 percent granted him in the net profits of the partnership business. Defendant agreed
to give plaintiff 30 per cent share in the net profits because he was transferring his exclusive franchise to the partnership.
Thus, in the draft prepared by plaintiff's lawyer, Exhibit II, the following provision exists:

3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said
corporation his exclusive  right to bottle Mission products and to sell them throughout the Philippines. As a
consideration for such transfer, the CAPITALIST shall transfer to the Manager fully paid non assessable shares
of the said corporation . . . twenty-five per centum of the capital stock of the said corporation. (Par. 3, Exhibit II;
emphasis ours.)

Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As
a matter of fact, when the bottling plant being built, all that he suggested was about the toilet facilities for the laborers.

We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate
defendant's consent to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits;
in other words, by pretending that he had the exclusive franchise and promising to transfer it to defendant, he obtained the
consent of the latter to give him (plaintiff) a big slice in the net profits. This is the dolo incidente defined in article 1270 of
the Spanish Civil Code, because it was used to get the other party's consent to a big share in the profits, an incidental
matter in the agreement.

El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que
concurriendoen el consentimiento, o precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la
 totalidad de la obligacion, sinoen algun extremo o accidente de esta, dando lugar tan solo a una accion para
reclamar indemnizacion de perjuicios. (8 Manresa 602.)

Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes
before us is, May the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership
was already a  fait accompli  from the time of the operation of the plant, as it is evident from the very language of the
agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a
later date. They expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the
time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff himself had been demanding
that defendant comply with the agreement. And plaintiff's present action seeks the enforcement of this agreement.
Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his own conduct and suit.

As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor
execute the partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law
recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls
within what Spanish commentators call a very personal  act (acto personalismo), of which courts may not compel
compliance, as it is considered an act of violence to do so.

Efectos de las obligaciones consistentes en hechos personalismo.—Tratamos de la ejecucion de las obligaciones

de hacer en el solocaso de su incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se
hallen en la facultad de un tercero; porque el complimiento espontaneo de las mismas esta regido por los
preceptos relativos al pago, y en nada les afectan las disposiciones del art. 1.098.

Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el
hecho y porque medios.

Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romano nemo
potest precise cogi ad factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que perciben la
posibilidad de la destruccion deeste principio, añaden que, aun cuando se pudiera obligar al deudor, no deberia
hacerse, porque esto constituiria una violencia, y noes la violenciamodo propio de cumplir las obligaciones (Bigot,
Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que obligar por la violencia seria infrigir
la libertad eimponer una especie de esclavitud.

xxx     xxx     xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya

precisamente porque seconstituya de este modo una especie de esclavitud, segun el dichode Antonio Gomez,
sino porque se supone que el acreedor tuvo encuenta el caracter personalisimo del hecho ofrecido, y calculo
sobre laposibilidad de que por alguna razon no se realizase. Repugna,ademas, a la conciencia social el empleo
de la fuerza publica, mediante coaccion sobre las personas, en las relaciones puramente particulares; porque la
evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad humana, y nose
admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal, sino por motivos que
interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando setrata de las
obligaciones que hemos llamado ex lege, que afectanal orden social y a la entidad de Estado, y aparecen
impuestas sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan tampoco ser
modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular, como sucedeen las
contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con
apoyo dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)

The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of defendant's
refusal to form the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's
representation. (Article 1101, Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages
is the actual loss suffered and the profits reasonably expected to be received, embraced in the terms daño
emergente  and lucro cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the
business. Against this amount of damages, we must set off the damage defendant suffered by plaintiff's misrepresentation
that he had obtained a very high percentage of share in the profits. We can do no better than follow the appraisal that the
parties themselves had adopted.

When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and
which he had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per
cent to 15 per cent only, to which reduction defendant appears to have readily given his assent. It was under this
understanding, which amounts to a virtual modification of the contract, that the bottling plant was established and plaintiff
worked as Manager for the first three months. If the contract may not be considered modified as to plaintiff's share in the
profits, by the decision of defendant to reduce the same to one-half and the assent thereto of plaintiff, then we may
consider the said amount as a fair estimate of the damages plaintiff is entitled to under the principle enunciated in the
case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce plaintiff's share and
plaintiff's consent thereto amount to an admission on the part of each of the reasonableness of this amount as plaintiff's
share. This same amount was fixed by the trial court. The agreement contains the stipulation that upon the termination of
the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court
does not fix the period within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we
declare that plaintiff's share of 15 per cent of the net profits shall continue to be paid while defendant uses the franchise
from the Mission Dry Corporation.

With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.

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

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA
ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(3) As provided by article 1807;

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

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

The judgment appealed from is affirmed, with costs.

G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner
Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute
P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a
commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15,
1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made,
that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were
printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money
and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his
contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of
unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.

After the trial, the Court of First Instance held that: têñ.£îhqwâ£

From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement
entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another sum
 of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of the
posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold at
P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off the
ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each party
is entitled to rescind the contract which right is implied in reciprocal obligations under Article 1385 of the
Civil Code whereunder 'rescission creates the obligation to return the things which were the object of the
contract ...

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to
plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the
complaint on June 19, 1972, and the costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision
against the petitioner. The dispositive portion of the decision reads: têñ.£îhqwâ£

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby
rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E.
Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under
their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is
made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with
law and with Supreme Court decisions when it committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR.
LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED
PROFITS DUE HIM.

II

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR.
LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE
PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.

III

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR.
LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF
INVESTMENT IN A MAGAZINE VENTURE.

IV

ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE
COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.

V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S
COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the
unrealized profits of the partnership. The petitioner contends that the award is highly speculative. The petitioner maintains
that the respondent court did not take into account the great risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact and law.

There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of
partnership. The latter in his complaint alleged that he was induced by the petitioner to enter into a partnership with him
under the following terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the Constitutional Convention;

2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

3. That they will print Ninety Five Thousand (95,000) copies of the said posters;

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15,
1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said 95,000 posters shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which
interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in
favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of
the construction projects in question. This case was decided on a particular set of facts. We awarded compensatory
damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP
construction company derived some profits from its contractors in the construction of roads and bridges despite its
deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from
July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government
contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a
failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private
respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy  contributed much more than what was
expected of him. In this case, however, there was mutual breach. Private respondent failed to give his entire contribution
in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed
only 2,000 copies.

Article 1797 of the Civil Code provides: têñ.£îhqwâ£

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.

Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in
the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an investment of P15,000.00, the respondent was supposed to
earn a guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each
but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take various
factors into account. The failure of the Commission on Elections to proclaim all the 320 candidates of the Constitutional
Convention on time was a major factor. The petitioner undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture
have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from the petitioner. The
records show that the private respondent gave P10,000.00 to the petitioner. The latter used this amount for the printing of
2,000 posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records further show that the 2,000
copies were sold at P5.00 each. The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00
from the gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only
P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And since
only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore
be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's supposed
commission has no justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of
Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly commissions. The agreement does not
state the basis of the commission. The payment of the commission could only have been predicated on relatively
extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture.
Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in holding him liable to
the private respondent in the sum of P7,000.00 as a supposed return of investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the Veterans"
magazine venture, the respondent court ruled that: têñ.£îhqwâ£

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question
the due execution of said note. Must Moran therefore pay the amount of P20,000? The evidence indicates
that the P20,000 was assigned by Moran to cover the following: têñ.£îhqwâ£

(a) P 7,000 — the amount of the PNB check given by Pecson to Moran
representing Pecson's investment in Moran's other project (the
publication and printing of the 'Voice of the Veterans');

(b) P10,000 — to cover the return of Pecson's contribution in the project

of the Posters;

(c) P3,000 — representing Pecson's commission for three months (April,

May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project,
for this project never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this
Court (Amigo v. Teves,  96 Phil. 252), provided they are borne out by the record or are based on substantial evidence
(Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits of certain exceptions. Thus, in Carolina
Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review
and rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd and impossible; (3)
where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the
court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both the
appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that his investment
in the "Voice of Veterans" project amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the
private respondent expected to receive.

The records show the following exhibits- têñ.£îhqwâ£

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant.
Defendant admitted the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4,
Nov. 29, 1972). This exhibit is being offered for the purpose of showing plaintiff's capital investment in the
printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This investment
of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note for P14,000
dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff
as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit),
defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the defendant and
Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the capital
investment and P1,000 partial payment of the promised profit. The P3,000 balance of the promised profit
was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000 promissory note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The
authenticity of the check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n.,
pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the P20,000 promissory note
(t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject
matter of the other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which,
together with the promised profit of P8,000 made up for the consideration of the P14,000 promissory note
(Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is
being offered for the purpose of further showing the transaction as explained in connection with Exhibits E
and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of
P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's explanation in connection with Exhibits E, L, and M to
show the transaction mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of
showing the transaction as explained in connection with Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that: têñ.£îhqwâ£

Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory
note in the amount of P14,000.00 which has been marked as Exhibit 2. Do you know this
promissory note?

A Yes, sir.
Q What is this promissory note, in connection with your transaction with the defendant?

A This promissory note is for the printing of the "Voice of the Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

A It is a book.têñ.£îhqwâ£

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2,
represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the
Philippine National Bank Manager's check and the P8,000.00 profit assured me by Mr.
Moran which I will derive from the printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I
show you Exhibit E, is this the Manager's check that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which you said represented
P6,000.00 of your investment and P8,000.00 promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the
P6,000.00 capital I gave to him.

Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital
you gave to him, what happened to the promised profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in connection with the Balance of
P3,000.00 of your capital investment and the P4,000.00 promised profits?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which
for purposes of Identification I request the same to be marked as Exhibit M. . .

Court têñ.£îhqwâ£

Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was executed by Mr. Moran in
connection with your transaction regarding the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.

Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr.
Moran?
 A Yes, sir.

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00
covered by the promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit
N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00

capital investment and the P1,000.00 represents partial payment of the P4,000.00 profit
that was promised to me by Mr. Moran.

Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the profit was applied as part of the
consideration of the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the project did take place.
Only it failed. It was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans" in
the lower court as Exhibit "L". Therefore, it would be error to state that the project never took place and on this basis
decree the return of the private respondent's investment.

As already mentioned, there are risks in any business venture and the failure of the undertaking cannot entirely be blamed
on the managing partner alone, specially if the latter exercised his best business judgment, which seems to be true in this
case. In view of the foregoing, there is no reason to pass upon the fourth and fifth assignments of errors raised by the
petitioner. We likewise find no valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now Intermediate Appellate
Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay private
respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private respondent's
contribution to the partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing
one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000) copies of the posters,
with interests at the legal rate on both amounts from the date the complaint was filed until full payment is made.

SO ORDERED.1äwphï1.ñët

G.R. No. L-5963             May 20, 1953

THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners,

vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First Instance of Leyte and OLEGARIO
LASTRILLA, respondents.

Labaled "Certiorari and Prohibition with preliminary Injunction" this petition prays for the additional writ of mandamus to
compel the respondent judge to give due course to petitioners' appeal from his order taxing costs. However, inasmuch as
according to the answer, petitioners through their attorney withdrew their cash appeal bond of P60 after the record on
appeal bond of P60 after the record on appeal had been rejected, the matter of mandamus may be summarily be dropped
without further comment.

From the pleadings it appears that,

In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages by the Leyte-Samar Sales Co.
(hereinafter called LESSCO) and Raymond Tomassi against the Far Eastern Lumber & Commercial Co. (unregistered
commercial partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas, judgment against
defendants jointly and severally for the amount of P31,589.14 plus costs was rendered on October 29, 1948. The Court of
Appeals confirmed the award in November 1950, minus P2,000 representing attorney's fees mistakenly included. The
decision having become final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias "all the
rights, interests, titles and participation" of the defendants in certain buildings and properties described in the certificate,
for a total price of eight thousand and one hundred pesos. But on June 4, 1951 Olegario Lastrilla filed in the case a
motion, wherein he claimed to be the owner by purchase on September 29, 1949, of all the "shares and interests" of
defendant Fred Brown in the FELCO, and requested "under the law of preference of credits" that the sheriff be required to
retain in his possession so much of the deeds of the auction sale as may be necessary "to pay his right". Over the
plaintiffs' objection the judge in his order of June 13, 1951, granted Lastrilla's motion by requiring the sheriff to retain 17
per cent of the money "for delivery to the assignee, administrator or receiver" of the FELCO. And on motion of Lastrilla,
the court on August 14, 1951, modified its order of delivery and merely declared that Lastrilla was entitled to 17 per cent of
the properties sold, saying in part:

. . . the Court has found that Mr. Lastrilla's rights with respect to his acquirer of the shares of C. Arnold Hall (Fred Brown) in the Far
Eastern Lumber & Lumber Commercial C. have not been respected because they have been included in the auction. It is true that the
shares acquired by Mr. Lastilla represent 17 percent of the capital of the company "Far Eastern Lumber & Commercial Co., Inc., et
al." but this does not mean that his vlor is not subject to fluctuations in the business where he invests them. Properties of the
corporation "Far Eastern Lumber & Co. Inc.," were sold and only the amount of P8,100 was obtained from the sale. "By virtue of this,
it is declared that 17 per cent of the properties sold at public auction are held by Mr. O Lastrilla and he is entitled to that portion but
with the obligation to pay 17 per cent of the expenses for the preservation of such property by the Sheriff; . . . . (Annex K)

It is from this declaration and the subsequent orders to enforce it1 that the petitioners seek relief by certiorari, their position
being the such orders were null and void for lack of jurisdiction. At their request a writ of preliminary injunction was issued
here.

The record is not very clear, but there are indications, and we shall assume for the moment, that Fred Brown (like Arnold
Hall and Jean Roxas) was a partner of the FELCO, was defendant in Civil Case No. 193 as such partner,  and that the
properties sold at auction actually belonged to the FELCO partnership and the partners. We shall also assume that the
sale made to Lastrilla on September 29, 1949, of all the shares of Fred Brown in the FELCO was valid. (Remember that
judgment in this case was entered in the court of first instance a year before.)

The result then, is that on June 9, 1951 when the sale was effected of the properties of FELCO to Roberto Dorfe and
Pepito Asturias, Lastilla was already a partner of FELCO.

Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a creditor of the FELCO, perhaps or
maybe. But he was no. The partner of a partnership is not a creditor of such partnership for the amount of his shares. That
is too elementary to need elaboration.

Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla had acquired the shares of Brown is
September, 1949, i.e., before the auction sale and he was not a party to the litigation, such shares could not have been
transferred to Dorfe and Austrilla.

Granting arguendo  that the auction sale and not included the interest or portion of the FELCO properties corresponding to
the shares of Lastrilla in the same partnership (17%), the resulting situation would be — at most — that the purchasers
Dorfe and Austrias will have to recognized dominion of Lastrillas over 17 per cent of the properties awarded to them.2 So
Lastrilla acquired no right to demand any part of the money paid by Dorfe and Austrias to he sheriff any part of the money
paid by Dorfe and Austrias to the sheriff for the benefit of FELCO and Tomassi, the plaintiffs in that case, for the reason
that, as he says, his shares (acquired from Brown) could not have been and were not auctioned off to Dorfe and Austrias.

Supposing however that Lastrillas shares have been actually (but unlawfully) sold by the sheriff (at the instance of
plaintiffs) to Dorfe and Austrias, what is his remedy? Section 15, Rule 39 furnishes the answer.

Precisely, respondents argue, Lastrilla vindicated his claim by proper action, i.e.,  motion in the case. We ruled once that
"action" in this section means action as defined in section 1, Rule 2.3 Anyway his remedy is to claim "the property", not the
proceeds of the sale, which the sheriff is directed by section 14, Rule 39 to deliver unto the judgment creditors.

In other words, the owner of property wrongfully sold may not voluntarily come to court, and insist, "I approve the sale,
therefore give me the proceeds because I am the owner". The reason is that the sale was made for the judgment creditor
(who paid for the fees and notices), and not for anybody else.

On this score the respondent judge's action on Lastrilla's motion should be declared as in excess of jurisdiction, which
even amounted to want of jurisdiction, which even amounted to want of jurisdiction, considering specially that Dorfe and
Austrias, and the defendants themselves, had undoubtedly the right to be heard—but they were not notified. 4
Why was it necessary to hear them on the merits of Lastrilla's motion?

Because Dorfe and Austrillas might be unwilling to recognized the validity of Lastrilla's purchase, or, if valid, they may
want him not to forsake the partnership that might have some obligations in connection with the partnership properties.
And what is more important, if the motion is granted, when the time for redemptioner seventeen per cent (178%) less than
amount they had paid for the same properties.

The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial assets, might also oppose the substitution by
Lastrilla of Fred Brown, the judgment against them being  joint and several. They might entertain misgivings about
Brown's slipping out of their common predicament through the disposal of his shares.

Lastly, all the defendants would have reasonable motives to object to the delivery of 17 per cent of the proceeds to
Lustrial, because it is so much money deducted, and for which the plaintiffs might as another levy  on their other holdings
or resources. Supposing of course, there was no fraudulent collusion among them.

Now, these varied interest of necessity make Dorfe, Asturias and the defendants indispensable parties to the motion of
Lastrilla — granting it was step allowable under our regulations on execution. Yet these parties were not notified, and
obviously took no part in the proceedings on the motion.

A valid judgment cannot be rendered where there is a want of necessary parties, and a court cannot properly
adjudicate matters involved in a suit when necessary and indispensable parties to the proceedings are not before
it. (49 C.J.S., 67.)

Indispensable parties are those without whom the action cannot be finally determined. In a case for recovery of
real property, the defendant alleged in his answer that he was occupying the property as a tenant of a third
person. This third person is an indispensable party, for, without him, any judgment which the plaintiff might obtain
against the tenant would have no effectiveness,  for it would not be binding upon, and cannot be executed against,
the defendant's landlord, against whom the plaintiff has to file another action if he desires to recover the property
effectively. In an action for partition of property, each co-owner is an indispensable party. (Moran, Comments,
1952 ed. Vol. I, p. 56.) (Emphasis supplied.)

Wherefore, the orders of the court recognizing Lastrilla's right and ordering payment to him of a part of the proceeds were
patently erroneous, because promulgated in excess or outside of its jurisdiction. For this reason the respondents'
argument resting on plaintiffs' failure to appeal from the orders on time, although ordinarily decisive, carries no persuasive
force in this instance.

For as the former Chief Justice Dr. Moran has summarized in his Comments, 1952 ed. Vol. II, p. 168 —

. . . And in those instances wherein the lower court has acted without jurisdiction over the subject-matter, or where
the order or judgment complained of is a patent nullity, courts have gone even as far as to disregard completely
the questions of petitioner's fault, the reason being, undoubtedly, that acts performed with absolute want of
jurisdiction over the subject-matter are void ab initio and cannot be validated by consent, express or implied, of
the parties. Thus, the Supreme Court granted a petition for certiorari  and set aside an order reopening a cadastral
case five years after the judgment rendered therein had become final. In another case, the Court set aside an
order amending a judgment acquired a definitive character. And still in another case, an order granting a review of
a decree of registration issued more than a year ago had been declared null void. In all these case the existence
of the right to appeal has been recitals was rendered without any trial or hearing, and the Supreme Court, in
granting certiorari, said that the judgment was by its own recitals a patent nullity, which should be set aside
though an appeal was available but was not availed of. . . .

Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil., 144), wherein we applied the theory of laches to
petitioners' 3-years delay in requesting certiorari, respondents point out that whereas the orders complained of herein
were issued in June 13, 1951 and August 14, 1951 this special civil action was not filed until August 1952. It should be
observed that the order of June 13 was superseded by that of August 14, 1951. The last order merely declared "que el 17
por ciento de la propiedades vendidas en publica subasta pertenece at Sr. Lastrilla y este tiene derecho a dicha porcion."
This does not necessarily mean that 17 per cent of the money had to be delivered  to him. It could mean, as hereinbefore
indicated, that the purchasers of the property (Dorfe and Asturias) had to recognize Lastrilla's ownership. It was only
on April 16, 1952  (Annex N) that the court issued an order directing the sheriff "to tun over" to Lastrilla "17 per cent of the
total proceeds of the auction sale". There is the order that actually prejudiced the petitioners herein, and they fought it until
the last order of July 10,. 1952 (Annex Q). Surely a month's delay may not be regarded as laches.
In view of the foregoing, it is our opinion, and we so hold, that all orders of the respondents judge requiring delivery of 17
per cent of the proceeds of the auction sale to respondent Olegario Lastrilla are null and void; and the costs of this suit
shall be taxed against the latter. The preliminary injunction heretofore issued is made permanent. So ordered.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

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

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December 1948,
limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the
Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner,
Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm
and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency income
tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following shall be the exclusive property of each spouse:

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

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

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

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of 30
October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality
of the corporations involved therein are not applicable to the present case. In the cited cases, the corporations were
already subject to tax when the fiction of their corporate personality was pierced; in the present case, to do so
would exempt the limited partnership from income taxation but would throw the tax burden upon the partners-spouses in
their individual capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for
legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been
filing its own income tax returns as such independent entity. The change in its membership, brought about by the
marriage of the partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated
scheme or design to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is
presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in the
individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with
what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise,
of a general copartnership (compañia colectiva) and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the
duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
88-89).lawphi1.nêt

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

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

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

July 30, 1979 92 SCRA 1

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

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

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

Petitioners base their petitions on the following arguments:

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

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

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

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

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

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

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

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

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

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

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

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

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.

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

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

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

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

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

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

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

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

On the other hand, têñ.£îhqwâ£

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

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

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

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

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

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

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

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

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

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

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

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

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

It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or former
partner's name in the firm names of law partnerships. Firm names, under our custom, Identify the more active and/or
more senior members or partners of the law firm. A glimpse at the history of the firms of petitioners and of other law firms
in this country would show how their firm names have evolved and changed from time to time as the composition of the
partnership changed. têñ.£îhqwâ£

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

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

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

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased partner's name in the
firm name of law partnerships. But that is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. quoted
in their memorandum, the New York Supreme Court sustained the use of the firm name Alexander & Green even if none
of the present ten partners of the firm bears either name because the practice was sanctioned by custom and did not
offend any statutory provision or legislative policy and was adopted by agreement of the parties. The Court stated
therein: têñ.£îhqwâ£

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

xxx xxx xxx

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

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

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

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

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

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical
impediment.

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

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

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION, petitioners-appellants.

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

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

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

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

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

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

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

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

In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the partnership
property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged
bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership business as
expeditiously as its nature will permit, and account for the interest of the partner or partners adjudged bankrupt.
The general consideration that these partnership had no juridical personality and the limitations prescribed in subsection
(h) above set forth gave rise to the conflict noted in American decisions, as stated in the case of In re Samuels (215 Fed.,
845), which mentions the two apparently conflicting doctrines, citing one from In re Bertenshaw (157 Fed., 363), and the
other from Francis vs. McNeal (186 Fed., 481).

But there being in our insolvency law no such provision as that contained in section 5 of said Act of Congress of July 1,
1898, nor any rule similar thereto, and the juridical personality of limited partnership being recognized by our statutes from
their formation in all their acts and contracts the decision of American courts on this point can have no application in this
jurisdiction, nor we see any reason why these partnerships cannot be adjudged bankrupt irrespective of the solvency or
insolvency of their members, provided the partnership has, as such, committed some of the acts of insolvency provided in
our law. Under this view it is unnecessary to discuss the other points raised by the parties, although in the particular case
under consideration it can be added that the liability of the limited partners for the obligations and losses of the partnership
is limited to the amounts paid or promised to be paid into the common fund except when a limited partner should have
included his name or consented to its inclusion in the firm name (arts. 147 and 148, Code of Commerce).

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

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

It is so ordered without special finding as to costs.

G.R. No. L-14441      December 17, 1966

PEDRO R. PALTING, petitioner,
vs.
SAN JOSE PETROLEUM INCORPORATED, respondent.

This is a petition for review of the order of August 29, 1958, later supplemented and amplified by another dated
September 9, 1958, of the Securities and Exchange Commission denying the opposition to, and instead, granting the
registration, and licensing the sale in the Philippines, of 5,000,000 shares of the capital stock of the respondent-appellee
San Jose Petroleum, Inc. (hereafter referred to as SAN JOSE PETROLEUM), a corporation organized and existing in the
Republic of Panama.

On September 7, 1956, SAN JOSE PETROLEUM filed with the Philippine Securities and Exchange Commission a sworn
registration statement, for the registration and licensing for sale in the Philippines Voting Trust Certificates representing
2,000,000 shares of its capital stock of a par value of $0.35 a share, at P1.00 per share. It was alleged that the entire
proceeds of the sale of said securities will be devoted or used exclusively to finance the operations of San Jose Oil
Company, Inc. (a domestic mining corporation hereafter to be referred to as SAN JOSE OIL) which has 14 petroleum
exploration concessions covering an area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan,
Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan. It was the express condition of the sale that every
purchaser of the securities shall not receive a stock certificate, but a registered or bearer-voting-trust certificate from the
voting trustees named therein James L. Buckley and Austin G.E. Taylor, the first residing in Connecticut, U.S.A., and the
second in New York City. While this application for registration was pending consideration by the Securities and Exchange
Commission, SAN JOSE PETROLEUM filed an amended Statement on June 20, 1958, for registration of the sale in the
Philippines of its shares of capital stock, which was increased from 2,000,000 to 5,000,000, at a reduced offering price of
from P1.00 to P0.70 per share. At this time the par value of the shares has also been reduced from $.35 to $.01 per
share.1

Pedro R. Palting and others, allegedly prospective investors in the shares of SAN JOSE PETROLEUM, filed with the
Securities and Exchange Commission an opposition to registration and licensing of the securities on the grounds that (1)
the tie-up between the issuer, SAN JOSE PETROLEUM, a Panamanian corporation and SAN JOSE OIL, a domestic
corporation, violates the Constitution of the Philippines, the Corporation Law and the Petroleum Act of 1949; (2) the issuer
has not been licensed to transact business in the Philippines; (3) the sale of the shares of the issuer is fraudulent, and
works or tends to work a fraud upon Philippine purchasers; and (4) the issuer as an enterprise, as well as its business, is
based upon unsound business principles. Answering the foregoing opposition of Palting, et al., the registrant SAN JOSE
PETROLEUM claimed that it was a "business enterprise" enjoying parity rights under the Ordinance appended to the
Constitution, which parity right, with respect to mineral resources in the Philippines, may be exercised, pursuant to the
Laurel-Langley Agreement, only through the medium of a corporation organized under the laws of the Philippines. Thus,
registrant which is allegedly qualified to exercise rights under the Parity Amendment, had to do so through the medium of
a domestic corporation, which is the SAN JOSE OIL. It refused the contention that the Corporation Law was being
violated, by alleging that Section 13 thereof applies only to foreign corporations doing business in the Philippines, and
registrant was not doing business here. The mere fact that it was a holding company of SAN JOSE OIL and that registrant
undertook the financing of and giving technical assistance to said corporation did not constitute transaction of business in
the Philippines. Registrant also denied that the offering for sale in the Philippines of its shares of capital stock was
fraudulent or would work or tend to work fraud on the investors. On August 29, 1958, and on September 9, 1958 the
Securities and Exchange Commissioner issued the orders object of the present appeal.

The issues raised by the parties in this appeal are as follows:

1. Whether or not petitioner Pedro R. Palting, as a "prospective investor" in respondent's securities, has
personality to file the present petition for review of the order of the Securities and Exchange Commission;

2. Whether or not the issue raised herein is already moot and academic;

3. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN
JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley
Agreement, the Petroleum Act of 1949, and the Corporation Law; and

4. Whether or not the sale of respondent's securities is fraudulent, or would work or tend to work fraud to
purchasers of such securities in the Philippines.

1. In answer to the notice and order of the Securities and Exchange Commissioner, published in 2 newspapers of general
circulation in the Philippines, for "any person who is opposed" to the petition for registration and licensing of respondent's
securities, to file his opposition in 7 days, herein petitioner so filed an opposition. And, the Commissioner, having denied
his opposition and instead, directed the registration of the securities to be offered for sale, oppositor Palting instituted the
present proceeding for review of said order.

Respondent raises the question of the personality of petitioner to bring this appeal, contending that as a mere
"prospective investor", he is not an "Aggrieved" or "interested" person who may properly maintain the suit. Citing a 1931
ruling of Utah State Supreme Court2 it is claimed that the phrase "party aggrieved" used in the Securities Act3 and the
Rules of Court4 as having the right to appeal should refer only to issuers, dealers and salesmen of securities.

It is true that in the cited case, it was ruled that the phrase "person aggrieved" is that party "aggrieved by the judgment or
decree where it operates on his rights of property or bears directly upon his interest", that the word "aggrieved" refers to "a
substantial grievance, a denial of some personal property right or the imposition upon a party of a burden or obligation."
But a careful reading of the case would show that the appeal therein was dismissed because the court held that an order
of registration was not final and therefore not appealable. The foregoing pronouncement relied upon by herein respondent
was made in construing the provision regarding an order of revocation which the court held was the one appealable. And
since the law provides that in revoking the registration of any security, only the issuer and every registered dealer of the
security are notified, excluding any person or group of persons having no such interest in the securities, said court
concluded that the phrase "interested person" refers only to issuers, dealers or salesmen of securities.

We cannot consider the foregoing ruling by the Utah State Court as controlling on the issue in this case. Our Securities
Act in Section 7(c) thereof, requires the publication and notice of the registration statement. Pursuant thereto, the
Securities and Exchange Commissioner caused the publication of an order in part reading as follows:

. . . Any person who is opposed with this petition must file his written opposition with this Commission within said
period (2 weeks). . . .

In other words, as construed by the administrative office entrusted with the enforcement of the Securities Act, any person
(who may not be "aggrieved" or "interested" within the legal acceptation of the word) is allowed or permitted to file an
opposition to the registration of securities for sale in the Philippines. And this is in consonance with the generally accepted
principle that Blue Sky Laws are enacted to protect investors and prospective purchasers and to prevent fraud and
preclude the sale of securities which are in fact worthless or worth substantially less than the asking price. It is for this
purpose that herein petitioner duly filed his opposition giving grounds therefor. Respondent SAN JOSE PETROLEUM was
required to reply to the opposition. Subsequently both the petition and the opposition were set for hearing during which the
petitioner was allowed to actively participate and did so by cross-examining the respondent's witnesses and filing his
memorandum in support of his opposition. He therefore to all intents and purposes became a party to the proceedings.
And under the New Rules of Court,5 such a party can appeal from a final order, ruling or decision of the Securities and
Exchange Commission. This new Rule eliminating the word "aggrieved" appearing in the old Rule, being procedural in
nature,6 and in view of the express provision of Rule 144 that the new rules made effective on January 1, 1964 shall
govern not only cases brought after they took effect but all further proceedings in cases then  pending, except to the extent
that in the opinion of the Court their application would not be feasible or would work injustice, in which event the former
procedure shall apply, we hold that the present appeal is properly within the appellate jurisdiction of this Court.

The order allowing the registration and sale of respondent's securities is clearly a final order that is appealable. The mere
fact that such authority may be later suspended or revoked, depending on future developments, does not give it the
character of an interlocutory or provisional ruling. And the fact that seven days after the publication of the order, the
securities are deemed registered (Sec. 7, Com. Act 83, as amended), points to the finality of the order. Rights and
obligations necessarily arise therefrom if not reviewed on appeal.

Our position on this procedural matter — that the order is appealable and the appeal taken here is proper — is
strengthened by the intervention of the Solicitor General, under Section 23 of Rule 3 of the Rules of Court, as the
constitutional issues herein presented affect the validity of Section 13 of the Corporation Law, which, according to the
respondent, conflicts with the Parity Ordinance and the Laurel-Langley Agreement recognizing, it is claimed, its right to
exploit our petroleum resources notwithstanding said provisions of the Corporation Law.

2. Respondent likewise contends that since the order of Registration/Licensing dated September 9, 1958 took effect 30
days from September 3, 1958, and since no stay order has been issued by the Supreme Court, respondent's shares
became registered and licensed under the law as of October 3, 1958. Consequently, it is asserted, the present appeal has
become academic. Frankly we are unable to follow respondent's argumentation. First it claims that the order of August 29
and that of September 9, 1958 are not final orders and therefor are not appealable. Then when these orders, according to
its theory became final and were implemented, it argues that the orders can no longer be appealed as the question of
registration and licensing became moot and academic.

But the fact is that because of the authority to sell, the securities are, in all probabilities, still being traded in the open
market. Consequently the issue is much alive as to whether respondent's securities should continue to be the subject of
sale. The purpose of the inquiry on this matter is not fully served just because the securities had passed out of the hands
of the issuer and its dealers. Obviously, so long as the securities are outstanding and are placed in the channels of trade
and commerce, members of the investing public are entitled to have the question of the worth or legality of the securities
resolved one way or another.

But more fundamental than this consideration, we agree with the late Senator Claro M. Recto, who appeared as amicus
curiae in this case, that while apparently the immediate issue in this appeal is the right of respondent SAN JOSE
PETROLEUM to dispose of and sell its securities to the Filipino public, the real and ultimate controversy here would
actually call for the construction of the constitutional provisions governing the disposition, utilization, exploitation and
development of our natural resources. And certainly this is neither moot nor academic.

3. We now come to the meat of the controversy — the "tie-up" between SAN JOSE OIL on the one hand, and the
respondent SAN JOSE PETROLEUM and its associates, on the other. The relationship of these corporations involved or
affected in this case is admitted and established through the papers and documents which are parts of the records: SAN
JOSE OIL, is a domestic mining corporation, 90% of the outstanding capital stock of which is owned by respondent SAN
JOSE PETROLEUM, a foreign (Panamanian) corporation, the majority interest of which is owned by OIL INVESTMENTS,
Inc., another foreign (Panamanian) company. This latter corporation in turn is wholly (100%) owned by PANTEPEC OIL
COMPANY, C.A., and PANCOASTAL PETROLEUM COMPANY, C.A., both organized and existing under the laws of
Venezuela. As of September 30, 1956, there were 9,976 stockholders of PANCOASTAL PETROLEUM found in 49
American states and U.S. territories, holding 3,476,988 shares of stock; whereas, as of November 30, 1956, PANTEPEC
OIL COMPANY was said to have 3,077,916 shares held by 12,373 stockholders scattered in 49 American state. In the
two lists of stockholders, there is no indication of the citizenship of these stockholders,7 or of the total number of
authorized stocks of each corporation, for the purpose of determining the corresponding percentage of these listed
stockholders in relation to the respective capital stock of said corporation.

Petitioner, as well as the amicus curiae and the Solicitor General8 contend that the relationship between herein
respondent SAN JOSE PETROLEUM and its subsidiary, SAN JOSE OIL, violates the Petroleum Law of 1949, the
Philippine Constitution, and Section 13 of the Corporation Law, which inhibits a mining corporation from acquiring an
interest in another mining corporation. It is respondent's theory, on the other hand, that far from violating the Constitution;
such relationship between the two corporations is in accordance with the Laurel-Langley Agreement which implemented
the Ordinance Appended to the Constitution, and that Section 13 of the Corporation Law is not applicable because
respondent is not licensed to do business, as it is not doing business, in the Philippines.

Article XIII, Section 1 of the Philippine Constitution provides:

SEC. 1. All agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, and other natural resources of the Philippines belong to the State,
and their disposition, exploitation, development, or utilization shall be limited to citizens of the Philippines, or to
corporations or associations at least sixty per centum of the capital of which is owned by such citizens, subject to
any existing right, grant, lease or concession at the time of the inauguration of this Government established under
this Constitution. . . . (Emphasis supplied)

In the 1946 Ordinance Appended to the Constitution, this right (to utilize and exploit our natural resources) was extended
to citizens of the United States, thus:

Notwithstanding the provisions of section one, Article Thirteen, and section eight, Article Fourteen, of the
foregoing Constitution, during the effectivity of the Executive Agreement entered into by the President of the
Philippines with the President of the United States on the fourth of July, nineteen hundred and forty-six, pursuant
to the provisions of Commonwealth Act Numbered Seven hundred and thirty-three, but in no case to extend
beyond the third of July, nineteen hundred and seventy-four, the disposition, exploitation, development, and
utilization of all agricultural, timber, and mineral lands of the public domain, waters, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, and other natural resources of the Philippines, and the operation
of public utilities shall, if open to any person, be open to citizens of the United States, and to all forms of business
enterprises owned or controlled, directly or indirectly, by citizens of the United States in the same manner as to,
and under the same conditions imposed upon, citizens of the Philippines or corporations or associations owned or
controlled by citizens of the Philippines  (Emphasis supplied.)

In the 1954 Revised Trade Agreement concluded between the United States and the Philippines, also known as the
Laurel-Langley Agreement, embodied in Republic Act 1355, the following provisions appear:

ARTICLE VI

1. The disposition, exploitation, development and utilization of all agricultural, timber, and mineral lands of the
public domain, waters, minerals, coal, petroleum and other mineral oils, all forces and sources of potential energy,
and other natural resources of either Party, and the operation of public utilities, shall, if open to any person, be
open to citizens of the other Party and to all forms of business enterprise owned or controlled, directly or
indirectly, by citizens of such other Party in the same manner as to and under the same conditions imposed upon
citizens or corporations or associations owned or controlled by citizens of the Party granting the right.

2. The rights provided for in Paragraph 1 may be exercised, . . . in the case of citizens of the United States, with
respect to natural resources in the public domain in the Philippines, only through the medium of a corporation
organized under the laws of the Philippines and at least 60% of the capital stock of which is owned or controlled
by citizens of the United States. . . .

3. The United States of America reserves the rights of the several States of the United States to limit the extent to
which citizens or corporations or associations owned or controlled by citizens of the Philippines may engage in the
activities specified in this Article. The Republic of the Philippines reserves the power to deny any of the rights
specified in this Article to citizens of the United States who are citizens of States, or to corporations or
associations at least 60% of whose capital stock or capital is owned or controlled by citizens of States, which
deny like rights to citizens of the Philippines, or to corporations or associations which are owned or controlled by
citizens of the Philippines. . . .  (Emphasis supplied.)

Re-stated, the privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of
the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such
citizens. With the Parity Amendment to the Constitution, the same right was extended to citizens of the United States and
business enterprises owned or controlled directly or indirectly, by citizens of the United States.
There could be no serious doubt as to the meaning of the word "citizens" used in the aforementioned provisions of the
Constitution. The right was granted to 2 types of persons: natural persons (Filipino or American citizens) and juridical
persons (corporations 60% of which capital is owned by Filipinos and business enterprises owned or controlled directly or
indirectly, by citizens of the United States). In American law, "citizen" has been defined as "one who, under the
constitution and laws of the United States, has a right to vote for representatives in congress and other public officers, and
who is qualified to fill offices in the gift of the people. (1 Bouvier's Law Dictionary, p. 490.) A citizen is —

One of the sovereign people. A constituent member of the sovereignty, synonymous with the people." (Scott v.
Sandford, 19 Ho. [U.S.] 404, 15 L. Ed. 691.)

A member of the civil state entitled to all its privileges. (Cooley, Const. Lim. 77. See U.S. v. Cruikshank 92 U.S.
542, 23 L. Ed. 588; Minor v. Happersett 21 Wall. [U.S.] 162, 22 L. Ed. 627.)

These concepts clarified, is herein respondent SAN JOSE PETROLEUM an American business enterprise entitled to
parity rights in the Philippines? The answer must be in the negative, for the following reasons:

Firstly — It is not owned or controlled directly  by citizens of the United States, because it is owned and controlled by a
corporation, the OIL INVESTMENTS, another foreign (Panamanian) corporation.

Secondly — Neither can it be said that it is indirectly owned and controlled by American citizens through the OIL
INVESTMENTS, for this latter corporation is in turn owned and controlled, not by citizens of the United States, but still by
two foreign (Venezuelan) corporations, the PANTEPEC OIL COMPANY and PANCOASTAL PETROLEUM.

Thirdly  — Although it is claimed that these two last corporations are owned and controlled respectively by 12,373 and
9,979 stockholders residing in the different American states, there is no showing in the certification furnished by
respondent that the stockholders of PANCOASTAL or those of them holding the controlling stock, are citizens of the
United States.

Fourthly  — Granting that these individual stockholders are American citizens, it is yet necessary to establish that the
different states of which they are citizens, allow Filipino citizens or corporations or associations owned or controlled by
Filipino citizens, to engage in the exploitation, etc. of the natural resources of these states (see paragraph 3, Article VI of
the Laurel-Langley Agreement, supra). Respondent has presented no proof to this effect.

Fifthly — But even if the requirements mentioned in the two immediately preceding paragraphs are satisfied, nevertheless
to hold that the set-up disclosed in this case, with a long chain of intervening foreign corporations, comes within the
purview of the Parity Amendment regarding business enterprises indirectly owned or controlled by citizens of the United
States, is to unduly stretch and strain the language and intent of the law. For, to what extent must the word "indirectly" be
carried? Must we trace the ownership or control of these various corporations ad infinitum  for the purpose of determining
whether the American ownership-control-requirement is satisfied? Add to this the admitted fact that the shares of stock of
the PANTEPEC and PANCOASTAL which are allegedly owned or controlled directly by citizens of the United States, are
traded in the stock exchange in New York, and you have a situation where it becomes a practical impossibility to
determine at any given time, the citizenship of the controlling stock required by the law. In the circumstances, we have to
hold that the respondent SAN JOSE PETROLEUM, as presently constituted, is not a business enterprise that is
authorized to exercise the parity privileges under the Parity Ordinance, the Laurel-Langley Agreement and the Petroleum
Law. Its tie-up with SAN JOSE OIL is, consequently, illegal.

What, then, would be the Status of SAN JOSE OIL, about 90% of whose stock is owned by SAN JOSE PETROLEUM?
This is a query which we need not resolve in this case as SAN JOSE OIL is not a party and it is not necessary to do so to
dispose of the present controversy. But it is a matter that probably the Solicitor General would want to look into.

There is another issue which has been discussed extensively by the parties. This is whether or not an American mining
corporation may lawfully "be in anywise interested in any other corporation (domestic or foreign) organized for the purpose
of engaging in agriculture or in mining," in the Philippines or whether an American citizen owning stock in more than one
corporation organized for the purpose of engaging in agriculture or in mining, may own more than 15% of the capital stock
then outstanding and entitled to vote, of each of such corporations, in view of the express prohibition contained in Section
13 of the Philippine Corporation Law. The petitioner in this case contends that the provisions of the Corporation Law must
be applied to American citizens and business enterprise otherwise entitled to exercise the parity privileges, because both
the Laurel-Langley Agreement (Art. VI, par. 1) and the Petroleum Act of 1948 (Art. 31), specifically provide that the
enjoyment by them of the same rights and obligations granted under the provisions of both laws shall be "in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations or associations
owned or controlled by citizens of the Philippines." The petitioner further contends that, as the enjoyment of the privilege
of exploiting mineral resources in the Philippines by Filipino citizens or corporations owned or controlled by citizens of the
Philippines (which corporation must necessarily be organized under the Corporation Law), is made subject to the
limitations provided in Section 13 of the Corporation Law, so necessarily the exercise of the parity rights by citizens of the
United States or business enterprise owned or controlled, directly or indirectly, by citizens of the United States, must
equally be subject to the same limitations contained in the aforesaid Section 13 of the Corporation Law.

In view of the conclusions we have already arrived at, we deem it not indispensable for us to pass upon this legal
question, especially taking into account the statement of the respondent (SAN JOSE PETROLEUM) that it is essentially a
holding company, and as found by the Securities and Exchange Commissioner, its principal activity is limited to the
financing and giving technical assistance to SAN JOSE OIL.

4. Respondent SAN JOSE PETROLEUM, whose shares of stock were allowed registration for sale in the Philippines, was
incorporated under the laws of Panama in April, 1956 with an authorized capital stock of $500,000.00, American currency,
divided into 50,000,000 shares at par value of $0.01 per share. By virtue of a 3-party Agreement of June 14, 1956,
respondent was supposed to have received from OIL INVESTMENTS 8,000,000 shares of the capital stock of SAN JOSE
OIL (at par value of $0.01 per share), plus a note for $250,000.00 due in 6 months, for which respondent issued in favor of
OIL INVESTMENTS 16,000,000 shares of its capital stock, at $0.01 per share or with a value of $160,000.00, plus a note
for $230,297.97 maturing in 2 years at 6% per annum interest,9 and the assumption of payment of the unpaid price of
7,500,000 (of the 8,000,000 shares of SAN JOSE OIL).

On June 27, 1956, the capitalization of SAN JOSE PETROLEUM was increased from $500,000.00 to $17,500,000.00 by
increasing the par value of the same 50,000,000 shares, from $0.01 to $0.35. Without any additional consideration, the
16,000,000 shares of $0.01 previously issued to OIL INVESTMENTS with a total value of $160,000.00 were changed with
16,000,000 shares of the recapitalized stock at $0.35 per share, or valued at $5,600,000.00. And, to make it appear that
cash was received for these re-issued 16,000,000 shares, the board of directors of respondent corporation placed a
valuation of $5,900,000.00 on the 8,000,000 shares of SAN JOSE OIL (still having par value of $0.10 per share) which
were received from OIL INVESTMENTS as part-consideration for the 16,000,000 shares at $0.01 per share.

In the Balance Sheet of respondent, dated July 12, 1956, from the $5,900,000.00, supposedly the value of the 8,000,000
shares of SAN JOSE OIL, the sum of $5,100,000.00 was deducted, corresponding to the alleged difference between the
"value" of the said shares and the subscription price thereof which is $800,000.00 (at $0.10 per share). From this
$800,000.00, the subscription price of the SAN JOSE OIL shares, the amount of $319,702.03 was deducted, as allegedly
unpaid subscription price, thereby giving a difference of $480,297.97, which was placed as the amount allegedly paid in
on the subscription price of the 8,000,000 SAN JOSE OIL shares. Then, by adding thereto the note receivable from OIL
INVESTMENTS, for $250,000.00 (part-consideration for the 16,000,000 SAN JOSE PETROLEUM shares), and the sum
of $6,516.21, as deferred expenses, SAN JOSE PETROLEUM appeared to have assets in the sum of $736,814.18.

These figures are highly questionable. Take the item $5,900,000.00 the valuation placed on the 8,000,000 shares of SAN
JOSE OIL. There appears no basis for such valuation other than belief by the board of directors of respondent that
"should San Jose Oil Company be granted the bulk of the concessions applied for upon reasonable terms, that it would
have a reasonable value of approximately $10,000,000." 10 Then, of this amount, the subscription price of $800,000.00
was deducted and called it "difference between the (above) valuation and the subscription price for the 8,000,000 shares."
Of this $800,000.00 subscription price, they deducted the sum of $480,297.97 and the difference was placed as the
unpaid portion of the subscription price. In other words, it was made to appear that they paid in $480,297.97 for the
8,000,000 shares of SAN JOSE OIL. This amount ($480,297.97) was supposedly that $250,000.00 paid by OIL
INVESMENTS for 7,500,000 shares of SAN JOSE OIL, embodied in the June 14 Agreement, and a sum of $230,297.97
the amount expended or advanced by OIL INVESTMENTS to SAN JOSE OIL. And yet, there is still an item among
respondent's liabilities, for $230,297.97 appearing as note payable to Oil Investments, maturing in two (2) years at six
percent (6%) per annum. 11 As far as it appears from the records, for the 16,000,000 shares at $0.35 per share issued to
OIL INVESTMENTS, respondent SAN JOSE PETROLEUM received from OIL INVESTMENTS only the note for
$250,000.00 plus the 8,000,000 shares of SAN JOSE OIL, with par value of $0.10 per share or a total of $1,050,000.00 —
the only assets of the corporation. In other words, respondent actually lost $4,550,000.00, which was received by OIL
INVESTMENTS.

But this is not all. Some of the provisions of the Articles of Incorporation of respondent SAN JOSE PETROLEUM are
noteworthy; viz:

(1) the directors of the Company need not be shareholders;

 (2) that in the meetings of the board of directors, any director may be represented and may vote through a proxy
who also need not be a director or stockholder; and

(3) that no contract or transaction between the corporation and any other association or partnership will be
affected, except in case of fraud, by the fact that any of the directors or officers of the corporation is interested in,
or is a director or officer of, such other association or partnership, and that no such contract or transaction of the
corporation with any other person or persons, firm, association or partnership shall be affected by the fact that any
director or officer of the corporation is a party to or has an interest in, such contract or transaction, or has in
anyway connected with such other person or persons, firm, association or partnership; and finally, that all and any
of the persons who may become director or officer of the corporation shall be relieved from all responsibility for
which they may otherwise be liable by reason of any contract entered into with the corporation, whether it be for
his benefit or for the benefit of any other person, firm, association or partnership in which he may be interested.

These provisions are in direct opposition to our corporation law and corporate practices in this country. These provisions
alone would outlaw any corporation locally organized or doing business in this jurisdiction. Consider the unique and
unusual provision that no contract or transaction between the company and any other association or corporation shall be
affected except in case of fraud, by the fact that any of the directors or officers of the company may be interested in or are
directors or officers of such other association or corporation; and that none of such contracts or transactions of this
company with any person or persons, firms, associations or corporations shall be affected by the fact that any director or
officer of this company is a party to or has an interest in such contract or transaction or has any connection with such
person or persons, firms associations or corporations; and that any and all persons who may become directors or officers
of this company are hereby relieved of all responsibility which they would otherwise incur by reason of any contract
entered into which this company either for their own benefit, or for the benefit of any person, firm, association or
corporation in which they may be interested.

The impact of these provisions upon the traditional judiciary relationship between the directors and the stockholders of a
corporation is too obvious to escape notice by those who are called upon to protect the interest of investors. The directors
and officers of the company can do anything, short of actual fraud, with the affairs of the corporation even to benefit
themselves directly or other persons or entities in which they are interested, and with immunity because of the advance
condonation or relief from responsibility by reason of such acts. This and the other provision which authorizes the election
of non-stockholders as directors, completely disassociate the stockholders from the government and management of the
business in which they have invested.

To cap it all on April 17, 1957, admittedly to assure continuity of the management and stability of SAN JOSE
PETROLEUM, OIL INVESTMENTS, as holder of the only subscribed stock  of the former corporation and acting "on
behalf of all future  holders of voting trust certificates," entered into a voting trust agreement12 with James L. Buckley and
Austin E. Taylor, whereby said Trustees were given authority to vote the shares represented by the outstanding trust
certificates (including those that may henceforth be issued) in the following manner:

(a) At all elections of directors, the Trustees will designate a suitable proxy or proxies to vote for the election of
directors designated by the Trustees in their own discretion, having in mind the best interests of the holders of the
voting trust certificates, it being understood that any and all of the Trustees shall be eligible for election as
directors;

(b) On any proposition  for removal of a director, the Trustees shall designate a suitable proxy or proxies to vote
for or against such proposition as the Trustees in their own discretion may determine, having in mind the
best interest of the holders of the voting trust certificates;

(c) With respect to all other matters  arising at any meeting of stockholders, the Trustees will instruct such proxy or
proxies attending such meetings to vote the shares of stock held by the Trustees in accordance with the written
instructions of each holder of voting trust certificates. (Emphasis supplied.)

It was also therein provided that the said Agreement shall be binding upon the parties thereto, their successors, and upon
all holders of voting trust certificates.

And these are the voting trust certificates that are offered to investors as authorized by Security and Exchange
Commissioner. It can not be doubted that the sale of respondent's securities would, to say the least, work or tend to work
fraud to Philippine investors.
FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the
orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's securities and licensing
their sale in the Philippines are hereby set aside. The case is remanded to the Securities and Exchange Commission for
appropriate action in consonance with this decision. With costs. Let a copy of this decision be furnished the Solicitor
General for whatever action he may deem advisable to take in the premises. So ordered.

G.R. No. L-55397 February 29, 1988

TAI TONG CHUACHE & CO., petitioner,

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

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

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

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

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

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

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

Adjustment Standard Corporation submitted a report as follow

xxx xxx xxx

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

Policy No. Company Risk Insures Pays

MIRO Zenith Building P50,000 P17,610.93

F-02500 Insurance      

  Corp.      

F-84590 Phil. Household 70,000 24,655.31

  British      

  Assco. Co.      
  Inc. FFF & F5 50,000 39,186.10

Policy No. Company Risk Insures Pays

FIC-15381 SSS Accredited Group of Insurers  Building  P25,000  P8,805.47

    Totals P195,000 P90,257.81

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

Policy No. Company Risk Injures Pays

MIRO/ Zenith      

F-02500 Insurance      

  Corp. Building P50,000 P11,877.14

F-84590 Phil.      

  British      

  Assco. Co. I-Building 70,000 16,628.00

      II-Building  

    FFF & PE 50,000 24,918.79

PVC-15181 SSS Accredited    

  Group of      

  Insurers Building 25,000 5,938.50

F-599 DV Insurers I-Ref 30,000 14,467.31

  Multi II-Building 70,000 16,628.00

    Totals P295.000 P90,257.81

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

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

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

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

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

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

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

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

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

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

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

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

We find the petition to be impressed with merit. It is a well known postulate that the case of a party is constituted by his
own affirmative allegations. Under Section 1, Rule 1316 each party must prove his own affirmative allegations by the
amount of evidence required by law which in civil cases as in the present case is preponderance of evidence. The party,
whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain favorable judgment.7 Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the validity of the insurance policy taken out by
petitioner over the mortgaged property. Neither did it deny that the said property was totally razed by fire within the period
covered by the insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack of insurable interest
on the part of the petitioner that before the occurrence of the peril insured against the Palomos had already paid their
credit due the petitioner. Respondent having admitted the material allegations in the complaint, has the burden of proof to
show that petitioner has no insurable interest over the insured property at the time the contingency took place. Upon that
point, there is a failure of proof. Respondent, it will be noted, exerted no effort to present any evidence to substantiate its
claim, while petitioner did. For said respondent's failure, the decision must be adverse to it.

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

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

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

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

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

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

SO ORDERED.

G.R. No. 78133 October 18, 1988

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

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

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

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they
bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed
and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and
1970.

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

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

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

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

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

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

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

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

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

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

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

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

The petition is meritorious.

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

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

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

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

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

Article 1767 of the Civil Code of the Philippines provides:

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

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

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

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

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

4. Since August, 1945, the properties have been under the management of one person, namely, Simeon
Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and
contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have
been handled as if the same belonged to a corporation or business enterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15)
years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelists
became the manager.
 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.

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

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

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

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

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

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

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

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

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

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

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

Persons who contribute property or funds for a common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived. (Elements
of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
 A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common. (Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

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

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

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

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

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

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

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

SO ORDERED.

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

JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.

Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to recover a balance due
him as salary for the year 1902. He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business
of the defendants for said year. The complaint also contained a cause of action for the sum of 600 pesos, money
expended by plaintiff for the defendants during the year 1903. The court below, in its judgment, found that the contract
had been made as claimed by the plaintiff; that 5 per cent of the net profits of the business for the year 1902 amounted to
26,378.68 pesos, Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican
currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency, with interest
thereon from December 31, 1904. The court also ordered judgment against the defendants for the 600 pesos mentioned
in the complaint, and intereat thereon. The total judgment rendered against the defendants in favor of the plaintiff, reduced
to Philippine currency, amounted to P13,025.40. The defendants moved for a new trial, which was denied, and they have
brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked for the
defendants during the year 1902 under a contract by which he was to receive as compensation 5 per cent of the net
profits of the business. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the
provisions of the articles of partnership he was made one of the managers of the company, with full power to transact all
of the business thereof. As such manager he had authority to make a contract of employment with the plaintiff.

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

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

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

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

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

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

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

Lost and Lost .......................... a Various Ps. 527,573.66 Liquid profits obtained during the year and that we pay
according to the proportion that we have established according to the company agreement.

The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants, who testiffied,
among other things, that there were no profits during the year 1902, but, on the contrary, that the company suffered
considerable loss during that year. We do not think the evidence of this witnees sufficiently definite and certain to
overcome the positive evidence furnished by the books of the defendants themselves.
(9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ of the
defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there for about two months
looking after the business of the defendants in the matter of the repair of a certain steamship. The appellants in their brief
say that the plaintiff is entitled to no compensation for his services thus rendered, because by the provisions of article
1711 of the Civil Code, in the absence of an agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the amount of 600 pesos not claimed as compensation for
services but as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of the
code that is applicable is article 1728.

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

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

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

YOU HEREBY ORDER that, until further notice, you, the defendant and all users lawyers, agents, agents and other persons
who act in your assistance, desist from preventing the plaintiff Inocencia R. Deluao from personally continuing to administer
the fishery that is the subject of this case and that it continues to receive the products of the sale of the fish from said fishery ,
and that, furthermore, that defendant Nicanor Casteel is prohibited from forcibly evicting the person in charge of the
applicants named Jesus Donesa from the fish that is the subject of the application.

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

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

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

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

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

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

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

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

An examination of the records of this case shows that this case was initiated as early as April 1951 and that the
same has been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since
September 24, 1953, and that various incidents have already been considered and resolved by Judge Fernandez
on various occasions. The last order issued by Judge Fernandez on this case was issued on March 21, 1956,
wherein he definitely states that the Court will not entertain any further postponement of the hearing of this case.

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

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

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

BY VIRTUE OF THIS, the Court rules in favor of the plaintiffs and against the defendant Nicanor Casteel: (a) Declares
permanent the prohibitory injunction issued against the defendant; (b) Orders the defendant to surrender the plaintiff the
possession and administration of half (1/2) of the "fishpond" in question with all existing improvements within it; (c) Orders
the defendant to pay the plaintiff the sum of P200.00 monthly as a day of giving from the date of the expiration of the 30 days
of the promulgation of this decision until he surrenders the possession and administration of the portion of the "fishpond" in
dispute; (d) Orders the defendant to pay the plaintiff the sum of P2,000.00 value of the fish benefited, plus the legal interests
of the date of the opening of the lawsuit until the full payment of the principal obligation; (e) Orders the defendant to pay the
plaintiff the sum of P2,000.00, for expenses incurred by the plaintiff during the pendency of this case; (f) Orders the
defendant to pay the plaintiff, as fees, the sum of P2,000.00; (g) Orders the dismissal of this claim, for insufficient evidence,
ason as far as it relates to the defendant Juan Depra; (h) Orders the dismissal of the defendants' counterclaims for lack of
evidence; (i) With the costs against the defendant, Casteel.

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

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

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

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

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

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

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is hereby
denied.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final
determination on the ground that it involves only questions of law.
Casteel raises the following issues:

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

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

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

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

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

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

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

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

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

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

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

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

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he was properly
accorded this right. He was notified in open court on March 21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his
counsel was entitled to a timely notice of the denial of his motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the case at bar, there had already been a series of
postponements. Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the cited
case did not spend for a long time, the case at bar was only finally and intransferably set for hearing on March 21, 1956 —
after almost five years had elapsed from the filing of the complaint on April 3, 1951.

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

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

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

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

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

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

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

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

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

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to maintain his petition
for the reinvestigation of Casteel's application. Thus by letter14 dated March 15, 1950 addressed to the Secretary of
Agriculture and Natural Resources, he withdrew his petition on the alleged ground that he was no longer interested in the
area, but stated however that he wanted his interest to be protected and his capital to be reimbursed by the highest
bidder.

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

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

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

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

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

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources issued in August
1937, prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms and conditions
as he may prescribe. Thus, it states:
 When a transfer or sub-lease of area and improvement may be allowed. — If the permittee or lessee had, unless
otherwise specifically provided, held the permit or lease and actually operated and made improvements on the
area for at least one year, he/she may request permission to sub-lease or transfer the area and improvements
under certain conditions.

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

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

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

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

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

The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former expressed his
determination to administer the fishpond himself because the decision of the Government was in his favor and the only
reason why administration had been granted to the Deluaos was because he was indebted to them. In the same letter, the
appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto,
Felipe Deluao wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the administration of the
fishpond to the appellant, stating as a ground his belief "that only the competent agencies of the government are in a
better position to render any equitable arrangement relative to the present case; hence, any action we may privately take
may not meet the procedure of legal order."

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

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

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

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

Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued because
present all the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper
in the face of the knowledge later acquired by the lower court that it was the appellant's application over the fishpond
which was given due course. After the Secretary of Agriculture and Natural Resources approved the appellant's
application, he became to all intents and purposes the legal permittee of the area with the corresponding right to possess,
occupy and enjoy the same. Consequently, the lower court erred in issuing the preliminary mandatory injunction. We
cannot overemphasize that an injunction should not be granted to take property out of the possession and control of one
party and place it in the hands of another whose title has not been clearly established by law.23

However, pursuant to our holding that there was a partnership between the parties for the exploitation of the fishpond
before it was awarded to Casteel, this case should be remanded to the lower court for the reception of evidence relative to
an accounting from November 25, 1949 to September 15, 1950, in order for the court to determine (a) the profits realized
by the partnership, (b) the share (in the profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao as
capitalist partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao to Casteel for the
development and improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia
Deluao continued in possession and enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer
in the concept of a capitalist partner but merely as creditor of the appellant, and therefore, she must likewise submit in the
lower court an accounting of the proceeds of the sales of all the fishes harvested from the fishpond from September 16,
1950 until Casteel shall have been finally given the possession and enjoyment of the same. In the event that the appellee
Deluao has received more than her lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus
6% interest thereon per annum, then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1) dissolving the
injunction issued against the appellant, (2) placing the latter back in possession of the fishpond in litigation, and (3)
remanding this case to the court of origin for the reception of evidence relative to the accounting that the parties must
perforce render in the premises, at the termination of which the court shall render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to costs.

G.R. No. L-13680             April 27, 1960

MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.

This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court of Appeals, for the
reason that only questions of law are involved in said appeal.

The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with defendant Serafin
Depakakibo wherein they established a partnership capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and
the defendant, 40%, for the purpose of maintaining, operating and distributing electric light and power in the Municipality
of Dumangas, Province of Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate
of public necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by the Public
Service Commission on May 15, 1955. But the decision of the Public Service Commission was appealed to Us on October
21, 1955. A temporary certificate of public convenience was issued in the name of Olimpia D. Decolongon on December
22, 1955 (Exh. "B"). Evidently because of the cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff
herein Mauro Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia
D. Decolongon, by a deed dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold
one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina Harder, by a deed dated
July 10, 1956.

On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging that he is the owner of
the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires connecting the generator to the
different houses supplied by electric current in the Municipality of Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully detained them as a consequence of which plaintiff suffered damages.
Plaintiff prayed that said properties be delivered back to him. Three days after the filing of the complaint, that is on
November 18, 1955, Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take possession of
the generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of the defendant (for
subsequent delivery to the plaintiff). On December 5, 1955, defendant filed an answer, denying that the generator and the
equipment mentioned in the complaint belong to the plaintiff and alleging that the same had been contributed by the
plaintiff to the partnership entered into between them in the same manner that defendant had contributed equipments
also, and therefore that he is not unlawfully detaining them. By way of counterclaim, defendant alleged that under the
partnership agreement the parties were to contribute equipments, plaintiff contributing the generator and the defendant,
the wires for the purpose of installing the main and delivery lines; that the plaintiff sold his contribution to the partnership,
in violation of the terms of their agreement. He, therefore, prayed that the complaint against him be dismissed; that
plaintiff be adjudged guilty of violating the partnership contract and be ordered to pay the defendant the sum of P3,000, as
actual damages, P600.00 as attorney's fees and P2,600 annually as actual damages; that the court order dissolution of
the partnership, after the accounting and liquidation of the same.

On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his counterclaim, but this was
denied by the court. Hearings on the case were conducted on October 25, 1956 and November 5, 1956, and on the latter
date the judge entered a decision declaring plaintiff owner of the equipment and entitled to the possession thereof, with
costs against defendant. It is against this judgment that the defendant has appealed.

The above judgment of the court was rendered on a stipulation of facts, which is as follows:

1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the defendant entered into a
contract of Partnership, a copy of which is attached as Annex "A" of defendant's answer and counterclaim, for the
purpose set forth therein and under the national franchise granted to Mrs. Piadosa Buenaflor;

2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana, contributed the
amount of Eighteen Thousand Pesos (P18,000.00); said contributions of both parties being the appraised values
of their respective properties brought into the partnership;

3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled by order of the
Public Service Commission dated March 15, 1955, promulgated in case No. 58188, entitled, "Piadosa Buenaflor,
applicant", which order has been appealed to the Supreme Court by Mrs. Buenaflor;

4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said partnership in favor of
Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale dated October 30, 1955 executed and
ratified before Notary Public, Delfin Demaisip, in and for the Municipality of Dumangas, Iloilo and entered in his
Notarial Registry as Doc. No. 832; Page No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as
Annex "B" of defendant's answer and counterclaim;

5. That there was no liquidation of partnership and that at the time of said Sale on October 30, 1955, defendant
was the manager thereof;

6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those properties sold were taken
by the Provincial Sheriff on November 20, 1955 and delivered to the plaintiff on November 25, 1955 upon the
latter posting the required bond executed by himself and the Luzon Surety Co., dated November 17, 1955 and
ratified before the Notary Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200;
Page 90; Book No. VII; and Series of 1955; of said Notary Public;
 7. That the said properties sold are now in the possession of Olimpia Decolongon, the purchaser, who is presently
operating an electric light plant in Dumangas, Iloilo;

8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and Felisa Harder contributed
by him to the partnership for P3,500.00 as per Deed of Sale executed and ratified before the Notary Public
Rodrigo J. Harder in and for the Province of Iloilo, known as Doc. No. 76; Page 94; Book No. V; and Series of
1955, a certified copy of which is hereto attached marked as Annex "A", and made an integral part hereof; (pp,
27-29 ROA).

As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the contract of
partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein that there bas been a liquidation of
the partnership assets at the time plaintiff sold the Buda Diesel Engine on October 15, 1955, and since the court below
had found that the plaintiff had actually contributed one engine and 70 posts to the partnership, it necessarily follows that
the Buda diesel engine contributed by the plaintiff had become the property of the partnership. As properties of the
partnership, the same could not be disposed of by the party contributing the same without the consent or approval of the
partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).

The lower court declared that the contract of partnership was null and void, because by the contract of partnership, the
parties thereto have become dummies of the owner of the franchise. The reason for this holding was the admission by
defendant when being cross-examined by the court that he and the plaintiff are dummies. We find that this admission by
the defendant is an error of law, not a statement of a fact. The Anti-Dummy law has not been violated as parties plaintiff
and defendant are not aliens but Filipinos. The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as
amended).

Upon examining the contract of partnership, especially the provision thereon wherein the parties agreed to maintain,
operate and distribute electric light and power under the franchise belonging to Mrs. Buenaflor, we do not find the
agreement to be illegal, or contrary to law and public policy such as to make the contract of partnership, null and void ab
initio. The agreement could have been submitted to the Public Service Commission if the rules of the latter require them to
be so presented. But the fact of furnishing the current to the holder of the franchise alone, without the previous approval of
the Public Service Commission, does not per se make the contract of partnership null and void from the beginning and
render the partnership entered into by the parties for the purpose also void and non-existent. Under the circumstances,
therefore, the court erred in declaring that the contract was illegal from the beginning and that parties to the partnership
are not bound therefor, such that the contribution of the plaintiff to the partnership did not pass to it as its property. It also
follows that the claim of the defendant in his counterclaim that the partnership be dissolved and its assets liquidated is the
proper remedy, not for each contributing partner to claim back what he had contributed.

For the foregoing considerations, the judgment appealed from as well as the order of the court for the taking of the
property into custody by the sheriff must be, as they hereby are set aside and the case remanded to the court below for
further proceedings in accordance with law.

G.R. No. 21639           September 25, 1924

ALBERT F. KIEL, plaintiff-appellee,
vs.
ESTATE OF P. S. SABERT, defendant-appellant.

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

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

In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public lands situated in the municipality of
Parang, Province of Cotabato, known as Parang Plantation Company. Kiel subsequently took over the interest of Milfeil.
In 1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang Plantation Company. Sabert was to
furnish the capital to run the plantation and Kiel was to manage it. They were to share and share alike in the property. It
seems that this partnership was formed so that the land could be acquired in the name of Sabert, Kiel being a German
citizen and not deemed eligible to acquire public lands in the Philippines.
By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the plantation. During the World War, he
was deported from the Philippines.

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

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

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

The lower court erred —

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

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

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

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

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

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

(7) In rendering judgment for the plaintiff herein.

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

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

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

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

The Code of Civil Procedure in section 383, No. 7, names as incompetent witnesses, parties to an action or proceeding
against an executor or administrator of a deceased person upon a claim or demand against the estate of such deceased
person, who "cannot testify as to any matter of fact occuring before the death of such deceased person." But the trial
judge, misled somewhat by the decision of the Supreme Court of California in the city of Myers vs. Reinstein ([1885], 67
Cal., 89), permitted this testimony to go in, whereas if the decision had been read more carefully, it would have been
noted that "the action was not on a claim or demand against the estate of Reinstein." Here this is exactly the situation
which confronts us.
The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours with the case at bar. It was there held that
"A party to an action against an executor or administrator of a deceased person, upon a claim against the estate of the
latter, is absolutely prohibited by law from giving testimony concerning such claim or demand as to anything that occurred
before the death of the person against whose estate the action is prosecuted."

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

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

Error 6, relating to the existence of a copartnership between Kiel and Sabert. — Not well taken.

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

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

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

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

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

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

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

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners,

vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, AVELINO V. CRUZ, et
al, respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, AVELINO V. CRUZ, et

al, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, LUCIANO SALAZAR et al, respondents.

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

LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, AVELINO V. CRUZ, et al and
the COURT OF APPEALS, respondents.

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

The antecedent facts can be summarized as follows:

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

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

3. Articles of Incorporation

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

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of
nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by American-Standard, and the other six shall
be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of
veto powers over a number of corporate acts and the right to designate certain officers, such as a member of the
Executive Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of
Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be
owned by Philippine nationals.

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

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

These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission
(SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles
Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application
for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against
the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as
SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of
the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's decision.

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

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

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

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

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

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

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

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered

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

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

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

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

II

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

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

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual
stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the
nature of the business established by the parties whether it was a joint venture or a corporation and (2) whether or not the
ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or
some other relation depends upon their actual intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

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

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

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

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

The parol evidence Rule under Rule 130 provides:

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

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

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

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

xxx xxx xxx

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

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined their efforts in
furtherance of an enterprise for their joint profit, the question whether they intended by their agreement to
create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v.
Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v.
George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence
presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a
corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC:

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

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

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

xxx xxx xxx

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

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

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine
directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section
16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners
or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third parties.

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

The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into
agreements regarding the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

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

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

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

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

As correctly held by the SEC Hearing Officer:

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

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

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

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

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

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

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

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

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

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

Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to
cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the
appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended)
and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more
than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional
equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate
their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily
mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:

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

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

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

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

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

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

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

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

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

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

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

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

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during
the election of the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses
the word "designate" meaning "nominate, delegate or appoint."

They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are
allowed to select their nominees separately and not as a common slot determined by the majority of their group.

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

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

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

SO ORDERED.