EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.

the second partnership which is to hold and secure renewal of timber license instead

MAGLANA,Defendant-Appellee.

of to secure the license as in the first partnership and the term of the second
partnership is fixed to thirty (30) years, everything else is the same.

This is a direct appeal to this Court from a decision

** of the then Court of First

The partnership formed by Maglana, Pahamotang and Rojas started operation on May

Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518,

1, 1956, and was able to ship logs and realize profits. An income was derived from the

dismissing appellant's complaint.

proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).

As found by the trial court, the antecedent facts of the case are as follows:

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership

"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT

(Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of

ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and

them as partners. The partnership EDE with an indefinite term of existence was duly

Rojas shall purchase the interest, share and participation in the Partnership of

registered on January 21, 1955 with the Securities and Exchange Commission.

Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said

One of the purposes of the duly-registered partnership was to "apply or secure timber

instrument that after payment of the sum of P31,501.12 to Pahamotang including the

and/or minor forests products licenses and concessions over public and/or private

amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana

forest lands and to operate, develop and promote such forests rights and

and Rojas) shall become the owners of all equipment contributed by Pahamotang and

concessions." (Rollo, p. 114).

the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second

A duly registered Articles of Co-Partnership was filed together with an application for a

partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No other

timber concession covering the area located at Cateel and Baganga, Davao with the

rights and obligations accrued in the name of the second partnership (R.A. 921).

Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued

After the withdrawal of Pahamotang, the partnership was continued by Maglana and

and became the basis of subsequent renewals made for and in behalf of the duly

Rojas without the benefit of any written agreement or reconstitution of their written

registered partnership EDE.

Articles of Partnership (Decision, R.A. 948).

Under the said Articles of Co-Partnership, appellee Maglana shall manage the business

On January 28, 1957, Rojas entered into a management contract with another logging

affairs of the partnership, including marketing and handling of cash and is authorized

enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.

to sign all papers and instruments relating to the partnership, while appellant Rojas

947).

shall be the logging superintendent and shall manage the logging operations of the

On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the

partnership. It is also provided in the said articles of co-partnership that all profits and

newly acquired area (Decision, R.A. 948).

losses of the partnership shall be divided share and share alike between the partners.

The equipment withdrawn were his supposed contributions to the first partnership and

During the period from January 14, 1955 to April 30, 1956, there was no operation of

was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).

said partnership (Record on Appeal [R.A.] p. 946).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to

Because of the difficulties encountered, Rojas and Maglana decided to avail of the

contribute, either in cash or in equipment, to the capital investments of the

services of Pahamotang as industrial partner.

partnership as well as his obligation to perform his duties as logging superintendent.

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of

Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply

Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST

with the promised contributions and he will not work as logging superintendent.

DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of

Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such

was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).:

(c) The ownership of properties bought by Maglana in his wife's name;

nad

(d) The damages suffered and who should be liable for them; and

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in

(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the

a letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he

partnership (Decision, R.A. pp. 895-896).- nad

dissolved the partnership (R.A. 949).

After trial, the lower court rendered its decision on March 11, 1968, the dispositive

On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao

portion of which reads as follows:

against Maglana for the recovery of properties, accounting, receivership and damages,

"WHEREFORE, the above facts and issues duly considered, judgment is hereby

docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).

rendered by the Court declaring that:

Rojas' petition for appointment of a receiver was denied (R.A. 894).

"1. The nature of the partnership and the legal relations of Maglana and Rojas after

Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to

Pahamotang retired from the second partnership, that is, after August 31, 1957, when

examine the long and voluminous accounts of the Eastcoast Development Enterprises

Pahamotang was finally paid his share the partnership of the defendant and the

(Ibid., pp. 894-895).

plaintiff is one of a de facto and at will;

The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-

"2. Whether the sharing of partnership profits should be on the basis of computation,

114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also

that is the ratio and proportion of their respective contributions, or on the basis of

required the inclusion of the entire year 1961 in the report to be submitted by the

share and share alike this covered by actual contributions of the plaintiff and the

commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining

defendant and by their verbal agreement; that the sharing of profits and losses is on

the records and supporting papers of the partnership as well as the information

the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis of

furnished them by the parties, which were compiled in three (3) volumes.

80% for the defendant and 20% for the plaintiff of the profits, but from 1960 to the

On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with

date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his

counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was

actual contribution and, considering his indebtedness to the partnership, the plaintiff is

granted on May 22, 1964 (Ibid., p. 336).

not entitled to any share in the profits of the said partnership;

On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report

"3. As to whether the properties which were bought by the defendant and placed in his

(Ibid., p. 337).

or in his wife's name were acquired with partnership funds or with funds of the

On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,

defendant and the Court declares that there is no evidence that these properties

1964 approving the report of the commissioners which was opposed by the appellee.

were acquired by the partnership funds, and therefore the same should not belong to

On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp.

the partnership;

446-451).

"4. As to whether damages were suffered and, if so, how much, and who caused them

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following

and who should be liable for them the Court declares that neither parties is entitled

issues were agreed upon to be submitted to the trial court:

to damages, for as already stated above it is not a wise policy to place a price on the

(a) The nature of partnership and the legal relations of Maglana and Rojas after the

right of a person to litigate and/or to come to Court for the assertion of the rights they

dissolution of the second partnership;

believe they are entitled to;

(b) Their sharing basis: whether in proportion to their contribution or share and share

"5. As to what is the legal effect of the letter of defendant to the plaintiff dated

alike;

February 23, 1961; did it dissolve the partnership or not the Court declares that the

letter of the defendant to the plaintiff dated February 23, 1961, in effect dissolved the

term, express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp.

partnership;

962-963).

"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and

On the other hand, Rojas insists that the registered partnership under the firm name of

other merchandise to the laborers and employees of the Eastcoast Development

Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership

Enterprises, the COURT DECLARES THE SAME AS NOT BELONGING TO THE

dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or

PARTNERSHIP;

dissolved by the unregistered articles of co-partnership among appellant Rojas,

"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles

appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and

David is VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS

accordingly, the terms and stipulations of said registered Articles of Co-Partnership

PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;

(Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal

"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the

of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally

partnership the amount of P69,000.00 the profits he received from the CMS Estate,

constituted partnership EDE (Exhibit "A") continues to govern the relations between

Inc. operated by him;

them and it was legal error to consider a de facto partnership between said two

"9. The claim that plaintiff Rojas should be ordered to pay the further sum of

partners or a partnership at will. Hence, the letter of appellee Maglana dated February

P85,000.00 which according to him he is still entitled to receive from the CMS Estate,

23, 1961, did not legally dissolve the registered partnership between them, being in

Inc. is hereby denied considering that it has not yet been actually received, and

contravention of the partnership agreement agreed upon and stipulated in their

further the receipt is merely based upon an expectancy and/or still speculative;

Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights

"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his

enumerated in Article 1837 of the Civil Code and to the sharing profits between them

personal account to the partnership;

of "share and share alike" as stipulated in the registered Articles of Co-Partnership

"11. The Court also credits the defendant the amount of P85,000.00 the amount he

(Exhibit "A").

should have received as logging superintendent, and which was not paid to him, and

After a careful study of the records as against the conflicting claims of Rojas and

this should be considered as part of Maglana's contribution likewise to the partnership;

Maglana, it appears evident that it was not the intention of the partners to dissolve the

and

first partnership, upon the constitution of the second one, which they unmistakably

"12. The complaint is hereby dismissed with costs against the plaintiff.: rd

called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-

"SO ORDERED." Decision, Record on Appeal, pp. 985-989).

25). Except for the fact that they took in one industrial partner; gave him an equal

Rojas interposed the instant appeal.

share in the profits and fixed the term of the second partnership to thirty (30) years,

The main issue in this case is the nature of the partnership and legal relationship of

everything else was the same. Thus, they adopted the same name, EASTCOAST

the Maglana-Rojas after Pahamotang retired from the second partnership.

DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital

The lower court is of the view that the second partnership superseded the first, so that

contributions of Rojas and Maglana as stipulated in both partnerships call for the same

when the second partnership was dissolved there was no written contract of co-

amounts. Just as important is the fact that all subsequent renewals of Timber License

partnership; there was no reconstitution as provided for in the Maglana, Rojas and

No. 35-36 were secured in favor of the First Partnership, the original licensee. To all

Pahamotang partnership contract. Hence, the partnership which was carried on by

intents and purposes therefore, the First Articles of Partnership were only amended, in

Rojas and Maglana after the dissolution of the second partnership was a de facto

the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never

partnership and at will. It was considered as a partnership at will because there was no

registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the

existence of the second partnership, all business transactions were carried out under

conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the

the duly registered articles. As found by the trial court, it is an admitted fact that even

partnership by the provisions of its duly registered Articles of Co-Partnership; that is,

up to now, there are still subsisting obligations and contracts of the latter (Decision,

all profits and losses of the partnership shall be divided "share and share alike"

R.A. pp. 950-957). No rights and obligations accrued in the name of the second

between the partners.

partnership except in favor of Pahamotang which was fully paid by the duly registered

But an accounting must first be made and which in fact was ordered by the trial court

partnership (Decision, R.A., pp. 919-921).

and accomplished by the commissioners appointed for the purpose.

On the other hand, there is no dispute that the second partnership was dissolved by

On the basis of the Commissioners' Report, the corresponding contribution of the

common consent. Said dissolution did not affect the first partnership which continued

partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed

to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and

P158,158.00, contributed only P18,750.00 while Maglana who should have contributed

participation in the second partnership of Pahamotang and that thereafter, the two

P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that

(Maglana and Rojas) became the owners of equipment contributed by Pahamotang.

when a partner who has undertaken to contribute a sum of money fails to do so, he

Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas,

becomes a debtor of the partnership for whatever he may have promised to contribute

reminding the latter of his obligation to contribute either in cash or in equipment, to

(Article 1786, Civil Code) and for interests and damages from the time he should have

the capital investment of the partnership as well as his obligation to perform his duties

complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals,

as logging superintendent. This reminder cannot refer to any other but to the

133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the

provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas

profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).

replied that he will not be able to comply with the promised contributions and he will

Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In

not work as logging superintendent. By such statements, it is obvious that Roxas

their voluminous reports which was approved by the trial court, they showed that on

understood what Maglana was referring to and left no room for doubt that both

50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be

considered themselves governed by the articles of the duly registered partnership.

liable for P40,092.96 and finally on the basis of actual capital contribution, he will be

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of

liable for P52,040.31.

Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at

Consequently, except as to the legal relationship of the partners after the withdrawal

Will, for as stressed, there is an existing partnership, duly registered.

of Pahamotang which is unquestionably a continuation of the duly registered

As to the question of whether or not Maglana can unilaterally dissolve the partnership

partnership and the sharing of profits and losses which should be on the basis of share

in the case at bar, the answer is in the affirmative.

and share alike as provided for in the duly registered Articles of Co-Partnership, no

Hence, as there are only two parties when Maglana notified Rojas that he dissolved the

plausible reason could be found to disturb the findings and conclusions of the trial

partnership, it is in effect a notice of withdrawal.

court.: nad

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one

As to whether Maglana is liable for damages because of such withdrawal, it will be

partner can cause its dissolution by expressly withdrawing even before the expiration

recalled that after the withdrawal of Pahamotang, Rojas entered into a management

of the period, with or without justifiable cause. Of course, if the cause is not justified or

contract with another logging enterprise, the CMS Estate, Inc., a company engaged in

no cause was given, the withdrawing partner is liable for damages but in no case can

the same business as the partnership. He withdrew his equipment, refused to

he be compelled to remain in the firm. With his withdrawal, the number of members is

contribute either in cash or in equipment to the capital investment and to perform his

decreased, hence, the dissolution. And in whatever way he may view the situation, the

duties as logging superintendent, as stipulated in their partnership agreement. The

records also show that Rojas not only abandoned the partnership but also took funds

Turning to the merits of this appeal, we find that this limited partnership was, and is,

in an amount more than his contribution (Decision, R.A., p. 949).

indebted to the appellants in various sums amounting to not less than P1,000, payable

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for

in the Philippines, which were not paid more than thirty days prior to the date of the

damages.

filing by the petitioners of the application for involuntary insolvency now before us.

PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao,

These facts were sufficient established by the evidence.

Branch III, is hereby MODIFIED in the sense that the duly registered partnership of

The trial court denied the petition on the ground that it was not proven, nor alleged,

Eastcoast Development Enterprises continued to exist until liquidated and that the

that the members of the aforesaid firm were insolvent at the time the application was

sharing basis of the partners should be on share and share alike as provided for in its

filed; and that was said partners are personally and solidarily liable for the

Articles of Partnership, in accordance with the computation of the commissioners. We

consequence of the transactions of the partnership, it cannot be adjudged insolvent so

also hereby AFFIRM the decision of the trial court in all other respects.: nad

long as the partners are not alleged and proven to be insolvent. From this judgment

SO ORDERED.

the petitioners appeal to this court, on the ground that this finding of the lower court is

G.R. No. L-18703

August 28, 1922

erroneous.

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

The fundamental question that presents itself for decision is whether or not a limited

COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING

partnership, such as the appellee, which has failed to pay its obligation with three

CORPORATION,

creditors for more than thirty days, may be held to have committed an act of

The record of this proceeding having been transmitted to this court by virtue of an

insolvency, and thereby be adjudged insolvent against its will.

appeal taken herein, a motion was presented by the appellants praying this court that

Unlike the common law, the Philippine statutes consider a limited partnership as a

this case be considered purely a moot question now, for the reason that subsequent to

juridical entity for all intents and purposes, which personality is recognized in all its

the decision appealed from, the partnership Campos Rueda & Co., voluntarily filed an

acts and contracts (art. 116, Code of Commerce). This being so and the juridical

application for a judicial decree adjudging itself insolvent, which is just what the herein

personality of a limited partnership being different from that of its members, it must,

petitioners and appellants tried to obtain from the lower court in this proceeding.

on general principle, answer for, and suffer, the consequence of its acts as such an

The motion now before us must be, and is hereby, denied even under the facts stated

entity capable of being the subject of rights and obligations. If, as in the instant case,

by the appellants in their motion aforesaid. The question raised in this case is not

the limited partnership of Campos Rueda & Co. Failed to pay its obligations with three

purely moot one; the fact that a man was insolvent on a certain day does not justify an

creditors for a period of more than thirty days, which failure constitutes, under our

inference that he was some time prior thereto.

Insolvency Law, one of the acts of bankruptcy upon which an adjudication of

Proof that a man was insolvent on a certain day does not justify an inference that he

involuntary

was on a day some time prior thereto. Many contingencies, such as unwise

consequences of such a failure, and must be adjudged insolvent. We are not unmindful

investments, losing contracts, misfortune, or accident, might happen to reduce a

of the fact that some courts of the United States have held that a partnership may not

person from a state of solvency within a short space of time. (Kimball vs. Dresser, 98

be adjudged insolvent in an involuntary insolvency proceeding unless all of its

Me., 519; 57 Atl. Rep., 767.)

members are insolvent, while others have maintained a contrary view. But it must be

A decree of insolvency begins to operate on the date it is issued. It is one thing to

borne in mind that under the American common law, partnerships have no juridical

adjudge Campos Rueda & Co. insolvent in December, 1921, as prayed for in this case,

personality independent from that of its members; and if now they have such

and another to declare it insolvent in July, 1922, as stated in the motion.

personality for the purpose of the insolvency law, it is only by virtue of general law

insolvency

can

be

predicated,

this

partnership

must

suffer

the

enacted by the Congress of the United States on July 1, 1898, section 5, paragraph ( h),

partnership Campos Rueda & Co. is and was on December 28, 1921, insolvent and

of which reads thus:

liable for having failed for more than thirty days to meet its obligations with the three

In the event of one or more but not all of the members of a partnership being

petitioners herein, and it is ordered that this proceeding be remanded to the Court of

adjudged bankrupt, the partnership property shall not be administered in bankruptcy,

First Instance of Manila with instruction to said court to issue the proper decrees under

unless by consent of the partner or partners not adjudged bankrupt; but such partner

section 24 of Act No. 1956, and proceed therewith until its final disposition.

or partners not adjudged bankrupt shall settle the partnership business as

It is so ordered without special finding as to costs.

expeditiously as its nature will permit, and account for the interest of the partner or

NGO TIAN TEK and NGO HAY vs. PHILIPPINE EDUCATION CO., INC.,

partners adjudged bankrupt.

The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of

The general consideration that these partnership had no juridical personality and the

Manila an action against the defendants, Vicente Tan alias Chan Sy and the

limitations prescribed in subsection (h) above set forth gave rise to the conflict noted

partnership of Ngo Tian Tek and Ngo Hay, for the recovery of some P16,070.14, unpaid

in American decisions, as stated in the case of In reSamuels (215 Fed., 845), which

cost of merchandise purchased by Lee Guan Box Factory from the plaintiff and five

mentions the two apparently conflicting doctrines, citing one from In reBertenshaw

other corporate entities which, though not parties to the action, had previously

(157 Fed., 363), and the other from Francis vs. McNeal (186 Fed., 481).

assigned their credits to the plaintiff, together with attorney's fees, interest and

But there being in our insolvency law no such provision as that contained in section 5

costs. /by agreement of the parties, the case was heard before a referee, Attorney

of said Act of Congress of July 1, 1898, nor any rule similar thereto, and the juridical

Francisco Dalupan, who in due time submitted his report holding the defendants jointly

personality of limited partnership being recognized by our statutes from their

and severally liable to the plaintiff for the sum of P16,070.14 plus attorney's fees and

formation in all their acts and contracts the decision of American courts on this point

interest at the rates specified in the report. On March 6, 1939, the Court of First

can have no application in this jurisdiction, nor we see any reason why these

Instance of Manila rendered judgment was affirmed by the Court of Appeals in its

partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency

decision of January 31, 1941, now the subject of our review at the instance of the

of their members, provided the partnership has, as such, committed some of the acts

partnership Ngo Tian Tek and Ngo Hay, petitioner herein.

of insolvency provided in our law. Under this view it is unnecessary to discuss the

"It appears that," quoting from the decision of the Court of Appeals whose findings of

other points raised by the parties, although in the particular case under consideration

fact are conclusive, "as far back as the year 1925, the Modern Box Factory was

it can be added that the liability of the limited partners for the obligations and losses

established at 603 Magdalena Street, Manila. It was at first owned by Ngo Hay, who

of the partnership is limited to the amounts paid or promised to be paid into the

three years later was joined by Ngo Tian Tek as a junior partner. The modern Box

common fund except when a limited partner should have included his name or

Factory dealt in pare and similar merchandise and purchased goods from the plaintiff

consented to its inclusion in the firm name (arts. 147 and 148, Code of Commerce).

and its assignors in the names of the Modern Box Factory, Ngo Hay and Co., Go Hay

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for

Box Factory, or Go Hay. Then about the year 1930, the Lee Guan Box Factory was

more than thirty days to pay its obligations to the petitioners the Pacific Commercial

established a few meters from the Modern Box Factory, under the management of

Co. the Asiatic Petroleum Co. and the International Banking Corporation, the case

Vicente Tan. When that concern, through Vicente Tan, sought credit with the plaintiff

comes under paragraph 11 of section 20 of Act No. 1956, and consequently the

and its assignors, Ngo Hay, in conversations and interviews with their officers and

petitioners have the right to a judicial decree declaring the involuntary insolvency of

employees, represented that he was the principal owner of such factory, that the Lee

said partnership.

Guan Box Factory and the Modern Box Factory belonged to the same owner, and that

Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited

the Lee Guan Box Factory was a subsidiary of the Modern Box Factory. There is

evidence that many goods purchased in the name of the Lee Guan Box Factory were

into by a factor of a commercial establishment known to belong to a well known

delivered to the Modern Box Factory by the employees of the plaintiff and its assignors

enterprise or association, shall be understood as made for the account of the owner of

upon the express direction of Vicente Tan. There is also evidence that the collectors of

such enterprise or association, even when the factor has not so stated at the time of

the sellers were requested by Vicente Tan to collect and did collect from the

executing the same, provided that such contracts involve objects comprised in the line

Modern Box Factory the bills against the Lee Guan Box Factory. In the fact the record

and business of the establishment. (Article 286, Code of Commerce.) The fact that

shows many checks signed by Ngo Hay or Ngo Tian Tek in payment of accounts of the

Vicente Tan did not have any recorded power of attorney executed by the petitioner

Lee Guan Box Factory. Furthermore, and this seems to be conclusive-Ngo Hay,

will not operate to prejudice third persons, like the respondent Philippine Education

testifying for the defense, admitted that 'he' was the owner of the Lee Guan Box

Co., Inc., and its assignors. (3 Echavarri, 133.)

Factory in and before the year 1934, but that in January, 1935, 'he' sold it, by the

Another defense set up by the petitioner is that prior to the transactions which gave

contract of sale Exhibit 7, to Vicente Tan, who had been his manager of the business.

rise to this suit, Vicente Tan had purchased Lee Guan Box Factory from Ngo Hay under

Tan declared also that before January, 1935, the Lee Guan Box Factory pertained to

the contract, Exhibit 7; and the petitioner assails, under the second assignment of

Ngo Hay and Ngo Tian Tek. The contract Exhibit 7 was found by the referee, to be

error, the conclusion of the Court of Appeals that said contract is simulated. This

untrue and simulated, for various convincing reasons that need no repetition here. And

contention is purely factual and must also be overruled.

the quoted statements serve effectively to confirm the evidence for the plaintiff that it

The petitioner questions the right of the respondent Philippine Education Co., Inc., to

was Ngo Hay's representations of ownership of, and responsibility for, Lee Guan Box

sue for the credits assigned by the five entities with which Lee Guan Box Factory

Factory that induced them to open credit for that concern. It must be stated that in

originally contracted, it being argued that the assignment, intended only for purposes

this connection to answer appellant's fitting observation that the plaintiff and the

of collection, did not make said respondent the real party in interest. The petitioner

assignors have considered Ngo Hay, the Modern Box Factory and Ngo Hay and Co. as

has cited 5 Corpus Juris, section 144, page 958, which points out that "under statutes

one and the same, through the acts of the partners themselves, and that the proof as

authorizing only a bona fideassignee of choses in action to sue thereon in his own

to Ngo Hay's statements regarding the ownership of Lee Guan Box Factory must be

name, an assignee for collection merely is not entitled to sue in his own name."

taken in that view. Ngo Hay was wont to say 'he' owned the Modern Box Factory,

The finding of the Court of Appeals that there is nothing "simulated in the

meaning that he was the principal owner, his other partner being Ngo Tian Tek. Now, it

assignment," precludes us from ruling that respondent company is not a bona fide

needs no demonstration for appellant does not deny it that the obligations of the

assignee. Even assuming, however, that said assignment was only for collection, we

Lee Guan Box Factory must rest upon its known owner. And that owner in Ngo Tian Tek

are not prepared to say that, under section 114 of the Code of Civil Procedure, in force

and Ngo Hay."

at the time this action was instituted, ours is not one of those jurisdictions following

We must overrule petitioner's contention that the Court of Appeals erred in holding

the rule that "when a choose, capable of legal assignment, is assigned absolutely to

that Lee Guan Box Factory was a subsidiary of the Modern Box Factory and in

one, but the assignment is made for purpose of collection, the legal title thereto vests

disregarding the fact that the contracts evidencing the debts in question were signed

in the assignee, and it is no concern of the debtor that the equitable title is in another,

by Vicente Tan alias Chan Sy, without any indication that tended to involve the Modern

and payment to the assignee discharges the debtor." (5 C. J., section 144, p. 958.) No

Box Factory or the petitioner. In the first place, we are concluded by the finding of the

substantial right of the petitioner could indeed be prejudiced by such assignment,

Court of Appeals regarding the ownership by the petitioner of Lee Guan Box Factory.

because section 114 of the Code of Civil Procedure reserves to it "'any set-off or other

Secondly, the circumstances that Vicente Tan alias Chan Sy acted in his own name

defense existing at the time of or before notice of the assignment.'"

cannot save the petitioner, in view of said ownership, and because contracts entered

Petitioner's allegation that "fraud in the inception of the debt is personal to the

contracting parties and does not follow assignment," and that the contracts assigned

building in favor of S.S.S., which building was insured with respondent S.S.S.

to the respondent company "are immoral and against public policy and therefore

Accredited Group of Insurers for P25,000.00.

void," constitute defenses on the merits, but do not affect the efficacy of the

On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the

assignment. It is obvious that, apart from the fact that the petitioner can not invoke

amount of P100,000.00. To secure the payment of the loan, a mortgage was executed

fraud of its authorship to evade liability, the appealed decision is founded on an

over the land and the building in favor of Tai Tong Chuache & Co. ( Exhibit "1" and "1-

obligation arising, not from fraud, but from the very contracts under which

A"). On April 25, 1975, Arsenio Chua, representative of Thai Tong Chuache & Co.

merchandise had been purchased by Lee Guan Box Factory.

insured

The fourth and fifth assignments of error relate to the refusal of the Court of Appeals

P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents thereof)

to hold that the writ of attachment is issued at the commencement of this action by

(Exhibit "A-a," contents thereof) (Exhibit "A-a").

the Court of First Instance is illegal, and to award in favor of the petitioner damages for

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500 (Exhibit

such wrongful attachment. For us to sustain petitioner's contention will amount to an

"A"), covering the building for P50,000.00 with respondent Zenith Insurance

unauthorized reversal of the following conclusion of fact of the Court of Appeals: "The

Corporation. On July 16, 1975, another Fire Insurance Policy No. 8459 (Exhibit "B") was

stereotyped manner in which defendants obtained goods on credit from the six

procured from respondent Philippine British Assurance Company, covering the same

companies, Vicente Tan's sudden disappearance, the execution of the fake sale Exhibit

building for P50,000.00 and the contents thereof for P70,000.00.

7 to throw the whole responsibility upon the absent or otherwise insolvent Tan,

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

defendant's mercurial and unbelievable theories as to the ownership of the Modern

Adjustment Standard Corporation submitted a report as follow

Box Factory and Lee Guan Box Factory obviously adopted in a vain effort to meet or

xxx xxx xxx

explain away the evidentiary force of plaintiff's documentary evidence are much too

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

significant to permit a declaration that the attachment was not justified."

(table 1)

Regarding the suggestion in petitioner's memorandum that this case should be

We are showing hereunder another apportionment of the loss which includes the

dismissed because of the death of Ngo Hay, it is sufficient to state that the petitioner

Travellers Multi-Indemnity policy for reference purposes.

Ngo Tian Tek and Ngo Hay is sued as a partnership possessing a personality distinct

(table 2)

from any of the partners.

Based on the computation of the loss, including the Travellers Multi- Indemnity,

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

respondents, Zenith Insurance, Phil. British Assurance and S.S.S. Accredited Group of

TAI TONG CHUACHE & CO., vs. THE INSURANCE COMMISSION and TRAVELLERS

Insurers, paid their corresponding shares of the loss. Complainants were paid the

MULTI-INDEMNITY CORPORATION, respondents.

following: P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith

This petition for review on certiorari seeks the reversal of the decision of the
1

Insurance Commission in IC Case #367 dismissing the complaint

the

latter's

interest

with

Travellers

Multi-Indemnity

Corporation

for

Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited Insurers (Par. 6.

for recovery of the

Amended Complaint). Demand was made from respondent Travellers Multi-Indemnity

alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by herein

for its share in the loss but the same was refused. Hence, complainants demanded

respondent insurance company in favor of petitioner-intervenor.

from the other three (3) respondents the balance of each share in the loss based on

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

the computation of the Adjustment Standards Report excluding Travellers Multi-

Complainants acquired from a certain Rolando Gonzales a parcel of land and a building

Indemnity in the amount of P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil.

located at San Rafael Village, Davao City. Complainants assumed the mortgage of the

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

Intervenor-mortgagee. The complainant testified that she was still indebted to

admitted the material allegations in the complaint, but denied liability on the ground

Intervenor in the amount of P100,000.00. Such allegation has not however, been

that the claim of the complainants had already been waived, extinguished or paid.

sufficiently proven by documentary evidence. The certification (Exhibit 'E-e') issued by

Both companies set up counterclaim in the total amount of P 91,546.79.

the Court of First Instance of Davao, Branch 11, indicate that the complainant was

Instead of filing an answer, SSS Accredited Group of Insurers informed the Commission

Antonio Lopez Chua and not Tai Tong Chuache & Company.

in its letter of July 22, 1977 that the herein claim of complainants for the balance had

From the above decision, only intervenor Tai Tong Chuache filed a motion for

been paid in the amount of P 5,938.57 in full, based on the Adjustment Standards

reconsideration but it was likewise denied hence, the present petition.

Corporation Report of September 22, 1975.

It is the contention of the petitioner that respondent Insurance Commission decided an

Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and

issue not raised in the pleadings of the parties in that it ruled that a certain Arsenio

alleged as its special and affirmative defenses the following, to wit: that Fire Policy No.

Lopez Chua is the one entitled to the insurance proceeds and not Tai Tong Chuache &

599 DV, covering the furniture and building of complainants was secured by a certain

Company.

Arsenio Chua, mortgage creditor, for the purpose of protecting his mortgage credit

This Court cannot fault petitioner for the above erroneous interpretation of the

against the complainants; that the said policy was issued in the name of Azucena

decision appealed from considering the manner it was written.

Palomo, only to indicate that she owns the insured premises; that the policy contains

out by respondent insurance commission in their comment, the decision did not

an endorsement in favor of Arsenio Chua as his mortgage interest may appear to

pronounce that it was Arsenio Lopez Chua who has insurable interest over the insured

indicate that insured was Arsenio Chua and the complainants; that the premium due

property. Perusal of the decision reveals however that it readily absolved respondent

on said fire policy was paid by Arsenio Chua; that respondent Travellers is not liable to

insurance company from liability on the basis of the commissioner's conclusion that at

pay complainants.

the time of the occurrence of the peril insured against petitioner as mortgagee had no

On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the

more insurable interest over the insured property. It was based on the inference that

proceeds of the fire Insurance Policy No. F-559 DV, issued by respondent Travellers

the credit secured by the mortgaged property was already paid by the Palomos before

Multi-Indemnity.

the said property was gutted down by fire. The foregoing conclusion was arrived at on

Travellers Insurance, in answer to the complaint in intervention, alleged that the

the basis of the certification issued by the then Court of First Instance of Davao,

Intervenor is not entitled to indemnity under its Fire Insurance Policy for lack of

Branch II that in a certain civil action against the Palomos, Antonio Lopez Chua stands

insurable interest before the loss of the insured premises and that the complainants,

as the complainant and not petitioner Tai Tong Chuache & Company.

spouses Pedro and Azucena Palomo, had already paid in full their mortgage

We find the petition to be impressed with merit. It is a well known postulate that the

indebtedness to the intervenor.

As correctly pointed

case of a party is constituted by his own affirmative allegations. Under Section 1, Rule

As adverted to above respondent Insurance Commission dismissed spouses Palomos'

131 6 each party must prove his own affirmative allegations by the amount of evidence

complaint on the ground that the insurance policy subject of the complaint was taken

required by law which in civil cases as in the present case is preponderance of

out by Tai Tong Chuache & Company, petitioner herein, for its own interest only as

evidence. The party, whether plaintiff or defendant, who asserts the affirmative of the

mortgagee of the insured property and thus complainant as mortgagors of the insured

issue has the burden of presenting at the trial such amount of evidence as required by

property have no right of action against herein respondent. It likewise dismissed

law to obtain favorable judgment.

petitioner's complaint in intervention in the following words:

insurance must prove its case. Likewise, respondent insurance company to avoid

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

liability under the policy by setting up an affirmative defense of lack of insurable

Thus, petitioner who is claiming a right over the

interest on the part of the petitioner must prove its own affirmative allegations.

been paid.

It will be recalled that respondent insurance company did not assail the validity of the

The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2

insurance policy taken out by petitioner over the mortgaged property. Neither did it

pointed out that the action must be brought in the name of the real party in interest.

deny that the said property was totally razed by fire within the period covered by the

We agree. However, it should be borne in mind that petitioner being a partnership may

insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack

sue and be sued in its name or by its duly authorized representative. The fact that

of insurable interest on the part of the petitioner that before the occurrence of the

Arsenio Lopez Chua is the representative of petitioner is not questioned. Petitioner's

peril insured against the Palomos had already paid their credit due the petitioner.

declaration that Arsenio Lopez Chua acts as the managing partner of the partnership

Respondent having admitted the material allegations in the complaint, has the burden

was corroborated by respondent insurance company.

of proof to show that petitioner has no insurable interest over the insured property at

partner of the partnership may execute all acts of administration

the time the contingency took place. Upon that point, there is a failure of proof.

to sue debtors of the partnership in case of their failure to pay their obligations when it

Respondent, it will be noted, exerted no effort to present any evidence to substantiate

became due and demandable. Or at the very least, Chua being a partner of petitioner

its claim, while petitioner did. For said respondent's failure, the decision must be

Tai Tong Chuache & Company is an agent of the partnership. Being an agent, it is

adverse to it.

understood that he acted for and in behalf of the firm.

However, as adverted to earlier, respondent Insurance Commission absolved

that the civil case flied by Arsenio Chua was in his capacity as personal creditor of

respondent insurance company from liability on the basis of the certification issued by

spouses Palomo has no basis.

the then Court of First Instance of Davao, Branch II, that in a certain civil action against

The respondent insurance company having issued a policy in favor of herein petitioner

the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache.

which policy was of legal force and effect at the time of the fire, it is bound by its

From said evidence respondent commission inferred that the credit extended by herein

terms and conditions. Upon its failure to prove the allegation of lack of insurable

petitioner to the Palomos secured by the insured property must have been paid. Such

interest on the part of the petitioner, respondent insurance company is and must be

is a glaring error which this Court cannot sanction. Respondent Commission's findings

held liable.

are based upon a mere inference.

IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and

The record of the case shows that the petitioner to support its claim for the insurance

ANOTHER judgment is rendered order private respondent Travellers Multi-Indemnity

proceeds offered as evidence the contract of mortgage (Exh. 1) which has not been

Corporation to pay petitioner the face value of Insurance Policy No. 599-DV in the

cancelled nor released. It has been held in a long line of cases that when the creditor

amount of P100,000.00. Costs against said private respondent.

is in possession of the document of credit, he need not prove non-payment for it is

SO ORDERED.

presumed.

The validity of the insurance policy taken b petitioner was not assailed by

OF TAX APPEALS, respondents.

has not yet been paid was corroborated by Azucena Palomo who testified that they are

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

still indebted to herein petitioner.

13

respondent

Thus Chua as the managing

12

including the right

Public respondent's allegation

COMMISSIONER OF INTERNAL REVENUE vs. WILLIAM J. SUTER and THE COURT

private respondent. Moreover, petitioner's claim that the loan extended to the Palomos

11

10

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30

Public respondent argues however, that if the civil case really stemmed from the loan

September 1947 by herein respondent William J. Suter as the general partner, and

granted to Azucena Palomo by petitioner the same should have been brought by Tai

Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed,

Tong Chuache or by its representative in its own behalf. From the above premise

respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October

respondent concluded that the obligation secured by the insured property must have

1947, the limited partnership was registered with the Securities and Exchange

Commission. The firm engaged, among other activities, in the importation, marketing,

fiction of juridical personality of the partnership should be disregarded for income tax

distribution and operation of automatic phonographs, radios, television sets and

purposes because the spouses have exclusive ownership and control of the business;

amusement machines, their parts and accessories. It had an office and held itself out

consequently the income tax return of respondent Suter for the years in question

as a limited partnership, handling and carrying merchandise, using invoices, bills and

should have included his and his wife's individual incomes and that of the limited

letterheads bearing its trade-name, maintaining its own books of accounts and bank

partnership, in accordance with Section 45 (d) of the National Internal Revenue Code,

accounts, and had a quota allocation with the Central Bank.

which provides as follows:

In 1948, however, general partner Suter and limited partner Spirig got married and,

(d) Husband and wife. In the case of married persons, whether citizens, residents or

thereafter, on 18 December 1948, limited partner Carlson sold his share in the

non-residents, only one consolidated return for the taxable year shall be filed by either

partnership to Suter and his wife. The sale was duly recorded with the Securities and

spouse to cover the income of both spouses; ....

Exchange Commission on 20 December 1948.

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals

The limited partnership had been filing its income tax returns as a corporation, without

held, that his marriage with limited partner Spirig and their acquisition of Carlson's

objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959

interests in the partnership in 1948 is not a ground for dissolution of the partnership,

when the latter, in an assessment, consolidated the income of the firm and the

either in the Code of Commerce or in the New Civil Code, and that since its juridical

individual

personality had not been affected and since, as a limited partnership, as contra

determination of a deficiency income tax against respondent Suter in the amount of

distinguished from a duly registered general partnership, it is taxable on its income

P2,678.06 for 1954 and P4,567.00 for 1955.

similarly with corporations, Suter was not bound to include in his individual return the

Respondent Suter protested the assessment, and requested its cancellation and

income of the limited partnership.

withdrawal, as not in accordance with law, but his request was denied. Unable to

We find the Commissioner's appeal unmeritorious.

secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been

trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner

dissolved by operation of law because of the marriage of the only general partner,

of Internal Revenue.

William J. Suter to the originally limited partner, Julia Spirig one year after the

The present case is a petition for review, filed by the Commissioner of Internal

partnership was organized is rested by the appellant upon the opinion of now Senator

Revenue, of the tax court's aforesaid decision. It raises these issues:

Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines,

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd.

Vol. 1, 4th Ed., page 58, that reads as follows:

should be disregarded for income tax purposes, considering that respondent William J.

A husband and a wife may not enter into a contract of general copartnership, because

Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and

under the Civil Code, which applies in the absence of express provision in the Code of

(b) Whether or not the partnership was dissolved after the marriage of the partners,

Commerce, persons prohibited from making donations to each other are prohibited

respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by

from entering into universal partnerships. (2 Echaverri 196) It follows that the

the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the

marriage of partners necessarily brings about the dissolution of a pre-existing

partnership for a nominal amount of P1.00.

partnership. (1 Guy de Montella 58)

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of

The petitioner-appellant has evidently failed to observe the fact that William J. Suter

Suter and Spirig and their subsequent acquisition of the interests of remaining partner

"Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears

Carlson in the partnership dissolved the limited partnership, and if they did not, the

from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in

incomes

of

the

partners-spouses

Suter

and

Spirig

resulting

in

force when the subject firm was organized in 1947), a universal partnership requires

It being a basic tenet of the Spanish and Philippine law that the partnership has a

either that the object of the association be all the present property of the partners, as

juridical personality of its own, distinct and separate from that of its partners (unlike

contributed by them to the common fund, or else "all that the partners may acquire by

American and English law that does not recognize such separate juridical personality),

their industry or work during the existence of the partnership". William J. Suter

the bypassing of the existence of the limited partnership as a taxpayer can only be

"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the

done by ignoring or disregarding clear statutory mandates and basic principles of our

partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by

law. The limited partnership's separate individuality makes it impossible to equate its

Julia Spirig and neither one of them was an industrial partner. It follows that William J.

income with that of the component members. True, section 24 of the Internal Revenue

Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter

Code merges registered general co-partnerships (compaias colectivas) with the

by Article 1677 of the Civil Code of 1889.

personality of the individual partners for income tax purposes. But this rule is

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho

exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be

Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the

extended by mere implication to limited partnerships.

prohibition contained in the aforesaid Article 1677:

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad

Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77

universal, pero o podran constituir sociedad particular? Aunque el punto ha sido muy

Phil. 504) as authority for disregarding the fiction of legal personality of the

debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular

corporations involved therein are not applicable to the present case. In the cited

entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar

cases, the corporations were already subject to tax when the fiction of their corporate

a la norma general segun la que toda persona es capaz para contratar mientras no

personality was pierced; in the present case, to do so would exempt the limited

sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue

partnership from income taxation but would throw the tax burden upon the partners-

favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece

spouses in their individual capacities. The corporations, in the cases cited, merely

cambiar de rumbo en la de 9 de marzo de 1943.

served as business conduits or alter egos of the stockholders, a factor that justified a

Nor could the subsequent marriage of the partners operate to dissolve it, such

disregard of their corporate personalities for tax purposes. This is not true in the

marriage not being one of the causes provided for that purpose either by the Spanish

present case. Here, the limited partnership is not a mere business conduit of the

Civil Code or the Code of Commerce.

partner-spouses; it was organized for legitimate business purposes; it conducted its

The appellant's view, that by the marriage of both partners the company became a

own dealings with its customers prior to appellee's marriage, and had been filing its

single proprietorship, is equally erroneous. The capital contributions of partners

own income tax returns as such independent entity. The change in its membership,

William J. Suter and Julia Spirig were separately owned and contributed by them

brought about by the marriage of the partners and their subsequent acquisition of all

before their marriage; and after they were joined in wedlock, such contributions

interest therein, is no ground for withdrawing the partnership from the coverage of

remained their respective separate property under the Spanish Civil Code (Article

Section 24 of the tax code, requiring it to pay income tax. As far as the records show,

1396):

the partners did not enter into matrimony and thereafter buy the interests of the

The following shall be the exclusive property of each spouse:

remaining partner with the premeditated scheme or design to use the partnership as a

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

business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did

As the limited partnership under consideration is taxable on its income, to require that

not become common property of both after their marriage in 1948.

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

OF TAX APPEALS,

provides in its Section 24: for the appellant Commissioner's stand results in equal

CONCEPCION, J.:

treatment, tax wise, of a general copartnership (compaia colectiva) and a limited

This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca

partnership, when the code plainly differentiates the two. Thus, the code taxes the

Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of

latter on its income, but not the former, because it is in the case of compaias

which reads:

colectivas that the members, and not the firm, are taxable in their individual

FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax,

capacities for any dividend or share of the profit derived from the duly registered

real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in

general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As

accordance with the respondent's assessment for the same in the total amount of

Amended, Vol. 1, pp. 88-89).lawphi1.nt

P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is

But it is argued that the income of the limited partnership is actually or constructively

hereby dismissed with costs against petitioners.

the income of the spouses and forms part of the conjugal partnership of gains. This is

It appears from the stipulation submitted by the parties:

not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank

1. That the petitioners borrowed from their father the sum of P59,1400.00 which

vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna

amount together with their personal monies was used by them for the purpose of

become conjugal only when no longer needed to defray the expenses for the

buying real properties,.

administration and preservation of the paraphernal capital of the wife. Then again, the

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an

appellant's argument erroneously confines itself to the question of the legal

area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00;

personality of the limited partnership, which is not essential to the income taxability of

this property has an assessed value of P57,517.00 as of 1948;

the partnership since the law taxes the income of even joint accounts that have no

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with

personality of their own. Appellant is, likewise, mistaken in that it assumes that the

an aggregate area of 3,718.40 sq. m. including

conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the

P130,000.00; this property has an assessed value of P82,255.00 as of 1948;

"income of both spouses" (Section 45 [d] in their individual capacities. Though the

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of

amount of income (income of the conjugal partnership vis-a-vis the joint income of

4,353 sq. m. including improvements thereon for P108,825.00. This property has an

husband and wife) may be the same for a given taxable year, their consequences

assessed value of P4,983.00 as of 1948;

would be different, as their contributions in the business partnership are not the same.

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.

The difference in tax rates between the income of the limited partnership being

including improvements thereon for P237,234.34. This property has an assessed value

consolidated with, and when split from the income of the spouses, is not a justification

of P59,140.00 as of 1948;

for requiring consolidation; the revenue code, as it presently stands, does not

6. That in a document dated August 16, 1945, they appointed their brother Simeon

authorize it, and even bars it by requiring the limited partnership to pay tax on its own

Evangelista to 'manage their properties with full power to lease; to collect and receive

income.

rents; to issue receipts therefor; in default of such payment, to bring suits against the

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

defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to

costs.

endorse and deposit all notes and checks for them;

EUFEMIA

EVANGELISTA,

MANUELA

EVANGELISTA,

and

FRANCISCA

EVANGELISTA, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT

improvements thereon

for

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

REAL ESTATE DEALER'S FIXED TAX

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

1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

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

1945

P38.75

1947

10.34

1946

38.75

1948

1,912.30

1947

38.75

1949

1,575.90

1948

38.75

P6,157.0

1949

38.75

Total

including

compromise

surcharge

and

RESIDENCE TAXES OF CORPORATION

Total including surcharge

By the contract of partnership two or more persons bind themselves to contribute

P193.75

money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
TOTAL TAXES DUE

P6,878.34.

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

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

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,

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

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.

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

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 (compaias colectivas), a tax upon such income equal to the

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)

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

sum of the following: . . .

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
joint-stock

2. They invested the same, not merely not merely in one transaction, but in a series of

acquired and transactions undertaken, as well as the brief interregnum between each,

section 24 and 84 of said Code, the pertinent parts of which read:

organized,

present in the case at bar, for, admittedly, petitioners have agreed to, and did,

companies,

joint

accounts

(cuentas

en

participacion),

associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:

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

legal personality of its own, independent of that of its members. Accordingly, the

and checks. Thus, the affairs relative to said properties have been handled as if the

lawmaker could not have regarded that personality as a condition essential to the

same belonged to a corporation or business and enterprise operated for profit.

existence of the partnerships therein referred to. In fact, as above stated, "duly

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact,

registered general copartnerships" which are possessed of the aforementioned

over fifteen (15) years, since the first property was acquired, and over twelve (12)

personality have been expressly excluded by law (sections 24 and 84 [b] from the

years, since Simeon Evangelista became the manager.

connotation of the term "corporation" It may not be amiss to add that petitioners'

6. Petitioners have not testified or introduced any evidence, either on their purpose in

allegation to the effect that their liability in connection with the leasing of the lots

creating the set up already adverted to, or on the causes for its continued existence.

above referred to, under the management of one person even if true, on which we

They did not even try to offer an explanation therefor.

express no opinion tends to increase the similarity between the nature of their

Although, taken singly, they might not suffice to establish the intent necessary to

venture and that corporations, and is, therefore, an additional argument in favor of the

constitute a partnership, the collective effect of these circumstances is such as to

imposition of said tax on corporations.

leave no room for doubt on the existence of said intent in petitioners herein. Only one

Under the Internal Revenue Laws of the United States, "corporations" are taxed

or two of the aforementioned circumstances were present in the cases cited by

differently from "partnerships". By specific provisions of said laws, such "corporations"

petitioners herein, and, hence, those cases are not in point.

include "associations, joint-stock companies and insurance companies." However, the

Petitioners insist, however, that they are mere co-owners, not copartners, for, in

term "association" is not used in the aforementioned laws.

consequence of the acts performed by them, a legal entity, with a personality

. . . in any narrow or technical sense. It includes any organization, created for the

independent of that of its members, did not come into existence, and some of the

transaction of designed affairs, or the attainment of some object, which like a

characteristics of partnerships are lacking in the case at bar. This pretense was

corporation, continues notwithstanding that its members or participants change, and

correctly rejected by the Court of Tax Appeals.

the affairs of which, like corporate affairs, are conducted by a single individual, a

To begin with, the tax in question is one imposed upon "corporations", which, strictly

committee, a board, or some other group, acting in a representative capacity. It is

speaking, are distinct and different from "partnerships". When our Internal Revenue

immaterial whether such organization is created by an agreement, a declaration of

Code includes "partnerships" among the entities subject to the tax on "corporations",

trust, a statute, or otherwise. It includes a voluntary association, a joint-stock

said Code must allude, therefore, to organizations which are not necessarily

corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'

"partnerships", in the technical sense of the term. Thus, for instance, section 24 of

trust, and 'investment' trust (whether of the fixed or the management type), an

said Code exempts from the aforementioned tax "duly registered general partnerships

interinsuarance exchange operating through an attorney in fact, a partnership

which constitute precisely one of the most typical forms of partnerships in this

association, and any other type of organization (by whatever name known) which is

jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation

not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens

includes partnerships, no matter how created or organized." This qualifying expression

Law of Federal Income Taxation, p. 788; emphasis supplied.).

clearly indicates that a joint venture need not be undertaken in any of the standard

Similarly, the American Law.

forms, or in conformity with the usual requirements of the law on partnerships, in

. . . provides its own concept of a partnership, under the term 'partnership 'it includes

order that one could be deemed constituted for purposes of the tax on corporations.

not only a partnership as known at common law but, as well, a syndicate, group, pool,

Again, pursuant to said section 84(b), the term "corporation" includes, among other,

joint venture or other unincorporated organizations which carries on any business

joint accounts, (cuentas en participation)" and "associations," none of which has a

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;

(s) thereof:

emphasis supplied.)

'Real estate dealer' includes any person engaged in the business of buying, selling,

The term 'partnership' includes a syndicate, group, pool, joint venture or other

exchanging, leasing, or renting property or his own account as principal and holding

unincorporated organization, through or by means of which any business, financial

himself out as a full or part time dealer in real estate or as an owner of rental property

operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation, p.

or properties rented or offered to rent for an aggregate amount of three thousand

562 Note 63; emphasis supplied.) .

pesos or more a year. . . (emphasis supplied.)

For purposes of the tax on corporations, our National Internal Revenue Code, includes

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with

these partnerships with the exception only of duly registered general copartnerships

costs against the petitioners herein. It is so ordered.

within the purview of the term "corporation." It is, therefore, clear to our mind that

JOSE FERNANDEZ, vs. FRANCISCO DE LA ROSA,

petitioners herein constitute a partnership, insofar as said Code is concerned and are

The object of this action is to obtain from the court a declaration that a partnership

subject to the income tax for corporations.

exists between the parties, that the plaintiff has a consequent interested in certain

As regards the residence of tax for corporations, section 2 of Commonwealth Act No.

cascoes which are alleged to be partnership property, and that the defendant is bound

465 provides in part:

to render an account of his administration of the cascoes and the business carried on

Entities liable to residence tax.-Every corporation, no matter how created or organized,

with them.

whether domestic or resident foreign, engaged in or doing business in the Philippines

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

shall pay an annual residence tax of five pesos and an annual additional tax which in

appealed.

no case, shall exceed one thousand pesos, in accordance with the following schedule: .

The respective claims of the parties as to the facts, so far as it is necessary to state

..

them in order to indicate the point in dispute, may be briefly summarized. The plaintiff

The term 'corporation' as used in this Act includes joint-stock company, partnership,

alleges that in January, 1900, he entered into a verbal agreement with the defendant

joint account (cuentas en participacion), association or insurance company, no matter

to form a partnership for the purchase of cascoes and the carrying on of the business

how created or organized. (emphasis supplied.)

of letting the same for hire in Manila, the defendant to buy the cascoes and each

Considering that the pertinent part of this provision is analogous to that of section 24

partner to furnish for that purpose such amount of money as he could, the profits to be

and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466), and

divided proportionately; that in the same January the plaintiff furnished the defendant

that the latter was approved on June 15, 1939, the day immediately after the approval

300 pesos to purchase a casco designated as No. 1515, which the defendant did

of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms

purchase for 500 pesos of Doa Isabel Vales, taking the title in his own name; that the

"corporation" and "partnership" are used in both statutes with substantially the same

plaintiff furnished further sums aggregating about 300 pesos for repairs on this casco;

meaning. Consequently, petitioners are subject, also, to the residence tax for

that on the fifth of the following March he furnished the defendant 825 pesos to

corporations.

purchase another casco designated as No. 2089, which the defendant did purchase for

Lastly, the records show that petitioners have habitually engaged in leasing the

1,000 pesos of Luis R. Yangco, taking the title to this casco also in his own name; that

properties above mentioned for a period of over twelve years, and that the yearly

in April the parties undertook to draw up articles of partnership for the purpose of

gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to

embodying the same in an authentic document, but that the defendant having

P17,453. Thus, they are subject to the tax provided in section 193 (q) of our National

proposed a draft of such articles which differed materially from the terms of the earlier

Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section 194

verbal agreement, and being unwillingly to include casco No. 2089 in the partnership,

they were unable to come to any understanding and no written agreement was

(2) The plaintiff presented in evidence the following receipt: "I have this day received

executed; that the defendant having in the meantime had the control and

from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco

management of the two cascoes, the plaintiff made a demand for an accounting upon

which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa."

him, which the defendant refused to render, denying the existence of the partnership

The authenticity of this receipt is admitted by the defendant. If casco No. 1515 was

altogether.

bought, as we think it was, in January, the casco referred to in the receipt which the

The defendant admits that the project of forming a partnership in the casco business

parties "are to purchase in company" must be casco No. 2089, which was bought

in which he was already engaged to some extent individually was discussed between

March 22. We find this to be the fact, and that the plaintiff furnished and the

himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a

defendant received 825 pesos toward the purchase of this casco, with the

partner of the plaintiff in a bakery business, being also a party to the negotiations, but

understanding that it was to be purchased on joint account.

he denies that any agreement was ever consummated. He denies that the plaintiff

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio

furnished any money in January, 1900, for the purchase of casco No. 1515, or for

Angulo give the defendant, in the name of the plaintiff, a sum of money, the amount of

repairs on the same, but claims that he borrowed 300 pesos on his individual account

which he is unable to state, for the purchase of a casco to be used in the plaintiff's and

in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio

defendant's business. Antonio Angulo also testifies, but the defendant claims that the

Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he

fact that Angulo was a partner of the plaintiff rendered him incompetent as a witness

claims was for the purchase of casco No. 1515, which he alleged was bought March

under the provisions of article 643 of the then Code of Civil Procedure, and without

12, and he alleges that he never received anything from the defendant toward the

deciding whether this point is well taken, we have discarded his testimony altogether

purchase of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos

in considering the case. The defendant admits the receipt of 300 pesos from Antonio

for the first casco and 2,000 pesos for the second one.

Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he

The case comes to this court under the old procedure, and it is therefore necessary for

sets up the claim that the 825 pesos which he received from the plaintiff in March

us the review the evidence and pass upon the facts. Our general conclusions may be

were furnished toward the purchase of casco No. 1515, thereby virtually admitting that

stated as follows:

casco was purchased in company with the plaintiff. We discover nothing in the

(1) Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies that

evidence to support the claim that the 300 pesos received in January was a loan,

the sale was made and the casco delivered in January, although the public document

unless it may be the fact that the defendant had on previous occasions borrowed

of sale was not executed till some time afterwards. This witness is apparently

money from the bakery firm. We think all the probabilities of the case point to the

disinterested, and we think it is safe to rely upon the truth of her testimony, especially

truth of the evidence of Antonio Fernandez as to this transaction, and we find the fact

as the defendant, while asserting that the sale was in March, admits that he had the

to be that the sum in question was furnished by the plaintiff toward the purchase for

casco taken to the ways for repairs in January.

joint ownership of casco No. 1515, and that the defendant received it with the

It is true that the public document of sale was executed March 10, and that the vendor

understanding that it was to be used for this purposed. We also find that the plaintiff

declares therein that she is the owner of the casco, but such declaration does not

furnished some further sums of money for the repair of casco.

exclude proof as to the actual date of the sale, at least as against the plaintiff, who

(4) The balance of the purchase price of each of the two cascoes over and above the

was not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of course,

amount contributed by the plaintiff was furnished by the defendant.

in such cases, that the actual sale precedes by a considerable time the execution of

(5) We are unable to find upon the evidence before us that there was any specific

the formal instrument of transfer, and this is what we think occurred here.

verbal agreement of partnership, except such as may be implied from the fact as to

the purchase of the casco.

Under other circumstances the relation of joint ownership, a relation distinct though

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more

perhaps not essentially different in its practical consequence from that of partnership,

probable than otherwise that no attempt was made to agree upon articles of

might have been the result of the joint purchase. If, for instance, it were shown that

partnership till about the middle of the April following the purchase of the cascoes.

the object of the parties in purchasing in company had been to make a more favorable

(7) At some time subsequently to the failure of the attempt to agree upon partnership

bargain for the two cascoes that they could have done by purchasing them separately,

articles and after the defendant had been operating the cascoes for some time, the

and that they had no ulterior object except to effect a division of the common property

defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and

when once they had acquired it, the affectio societatis would be lacking and the

one of 825 pesos. The only evidence in the record as to the circumstances under

parties would have become joint tenants only; but, as nothing of this sort appears in

which the plaintiff received these sums is contained in his answer to the

the case, we must assume that the object of the purchase was active use and profit

interrogatories proposed to him by the defendant, and the whole of his statement on

and not mere passive ownership in common.

this point may properly be considered in determining the fact as being in the nature of

It is thus apparent that a complete and perfect contract of partnership was entered

an indivisible admission. He states that both sums were received with an express

into by the parties. This contract, it is true, might have been subject to a suspensive

reservation on his part of all his rights as a partner. We find this to be the fact.

condition, postponing its operation until an agreement was reached as to the

Two questions of law are raised by the foregoing facts: (1) Did a partnership exist

respective participation of the partners in the profits, the character of the partnership

between the parties? (2) If such partnership existed, was it terminated as a result of

as collective or en comandita, and other details, but although it is asserted by counsel

the act of the defendant in receiving back the 1,125 pesos?

for the defendant that such was the case, there is little or nothing in the record to

(1) "Partnership is a contract by which two or more persons bind themselves to

support this claim, and that fact that the defendant did actually go on and purchase

contribute money, property, or industry to a common fund, with the intention of

the boat, as it would seem, before any attempt had been made to formulate

dividing the profits among themselves." (Civil Code, art. 1665.)

partnership articles, strongly discountenances the theory.

The essential points upon which the minds of the parties must meet in a contract of

The execution of a written agreement was not necessary in order to give efficacy to

partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint

the verbal contract of partnership as a civil contract, the contributions of the partners

interest in the profits. If the contract contains these two elements the partnership

not having been in the form of immovables or rights in immovables. (Civil Code, art.

relation results, and the law itself fixes the incidents of this relation if the parties fail to

1667.) The special provision cited, requiring the execution of a public writing in the

do so. (Civil Code, secs. 1689, 1695.)

single case mentioned and dispensing with all formal requirements in other cases,

We have found as a fact that money was furnished by the plaintiff and received by the

renders inapplicable to this species of contract the general provisions of article 1280

defendant with the understanding that it was to be used for the purchase of the

of the Civil Code.

cascoes in question. This establishes the first element of the contract, namely, mutual

(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of

contribution to a common stock. The second element, namely, the intention to share

the money returned to him by the defendant after the definitive failure of the attempt

profits, appears to be an unavoidable deduction from the fact of the purchase of the

to agree upon partnership articles. The amount returned fell short, in our view of the

cascoes in common, in the absence of any other explanation of the object of the

facts, of that which the plaintiff had contributed to the capital of the partnership, since

parties in making the purchase in that form, and, it may be added, in view of the

it did not include the sum which he had furnished for the repairs of casco No. 1515.

admitted fact that prior to the purchase of the first casco the formation of a

Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been

partnership had been a subject of negotiation between them.

realized from the business during the period in which the defendant have been

administering it prior to the return of the money, and if so he still retained that sum in

ON MOTION FOR A REHEARING.

his hands. For these reasons the acceptance of the money by the plaintiff did not have

MAPA, J.:

the effect of terminating the legal existence of the partnership by converting it into a

This case has been decided on appeal in favor of the plaintiff, and the defendant has

societas leonina, as claimed by counsel for the defendant.

moved for a rehearing upon the following grounds:

Did the defendant waive his right to such interest as remained to him in the

1. Because that part of the decision which refers to the existence of the partnership

partnership property by receiving the money? Did he by so doing waive his right to an

which is the object of the complaint is not based upon clear and decisive legal

accounting of the profits already realized, if any, and a participation in them in

grounds; and

proportion to the amount he had originally contributed to the common fund? Was the

2. Because, upon the supposition of the existence of the partnership, the decision does

partnership dissolved by the "will or withdrawal of one of the partners" under article

not clearly determine whether the juridical relation between the partners suffered any

1705 of the Civil Code? We think these questions must be answered in the negative.

modification in consequence of the withdrawal by the plaintiff of the sum of 1,125

There was no intention on the part of the plaintiff in accepting the money to relinquish

pesos from the funds of the partnership, or if it continued as before, the parties being

his rights as a partner, nor is there any evidence that by anything that he said or by

thereby deprived, he alleges, of one of the principal bases for determining with

anything that he omitted to say he gave the defendant any ground whatever to

exactness the amount due to each.

believe that he intended to relinquish them. On the contrary he notified the defendant

With respect to the first point, the appellant cites the fifth conclusion of the decision,

that he waived none of his rights in the partnership. Nor was the acceptance of the

which is as follows: "We are unable to find from the evidence before us that there was

money an act which was in itself inconsistent with the continuance of the partnership

any specific verbal agreement of partnership, except such as may be implied from the

relation, as would have been the case had the plaintiff withdrawn his entire interest in

facts as to the purchase of the cascoes."

the partnership. There is, therefore, nothing upon which a waiver, either express or

Discussing this part of the decision, the defendant says that, in the judgment of the

implied, can be predicated. The defendant might have himself terminated the

court, if on the one hand there is no direct evidence of a contract, on the other its

partnership relation at any time, if he had chosen to do so, by recognizing the

existence can only be inferred from certain facts, and the defendant adds that the

plaintiff's right in the partnership property and in the profits. Having failed to do this

possibility of an inference is not sufficient ground upon which to consider as existing

he can not be permitted to force a dissolution upon his co-partner upon terms which

what may be inferred to exist, and still less as sufficient ground for declaring its

the latter is unwilling to accept. We see nothing in the case which can give the

efficacy to produce legal effects.

transaction in question any other aspect than that of the withdrawal by one partner

This reasoning rests upon a false basis. We have not taken into consideration the mere

with the consent of the other of a portion of the common capital.

possibility of an inference, as the appellant gratuitously stated, for the purpose of

The result is that we hold and declare that a partnership was formed between the

arriving at a conclusion that a contract of partnership was entered into between him

parties in January, 1900, the existence of which the defendant is bound to recognize;

and the plaintiff, but have considered the proof which is derived from the facts

that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff

connected with the purchase of the cascoes. It is stated in the decision that with the

is entitled to an accounting of the defendant's administration of such property, and of

exception of this evidence we find no other which shows the making of the contract.

the profits derived therefrom. This declaration does not involve an adjudication as to

But this does not mean (for it says exactly the contrary) that this fact is not absolutely

any disputed items of the partnership account.

proven, as the defendant erroneously appears to think. From this data we infer a fact

The judgment of the court below will be reversed without costs, and the record

which to our mind is certain and positive, and not a mere possibility; we infer not that

returned for the execution of the judgment now rendered. So ordered.

it is possible that the contract may have existed, but that it actually did exist. The

proofs constituted by the facts referred to, although it is the only evidence, and in

the partnership by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could

spite of the fact that it is not direct, we consider, however, sufficient to produce such a

only be determined after a liquidation of the partnership. Then, and only then, can it

conviction, which may certainly be founded upon any of the various classes of

be known if this sum is to be charged to the capital contributed by the plaintiff, or to

evidence which the law admits. There is all the more reason for its being so in this

his share of the profits, or to both. It might well be that the partnership has earned

case, because a civil partnership may be constituted in any form, according to article

profits, and that the plaintiff's participation therein is equivalent to or exceeds the sum

1667 of the Civil Code, unless real property or real rights are contributed to it the

mentioned. In this case it is evident that, notwithstanding that payment, his interest in

only case of exception in which it is necessary that the agreement be recorded in a

the partnership would still continue. This is one case. It would be easy to imagine

public instrument.

many others, as the possible results of a liquidation are innumerable. The liquidation

It is of no importance that the parties have failed to reach an agreement with respect

will finally determine the condition of the legal relations of the partners inter se at the

to the minor details of contract. These details pertain to the accidental and not to the

time of the withdrawal of the sum mentioned. It was not, nor is it possible to

essential part of the contract. We have already stated in the opinion what are the

determine this status a priori without prejudging the result, as yet unknown, of the

essential requisites of a contract of partnership, according to the definition of article

litigation. Therefore it is that in the decision no direct statement has been made upon

1665. Considering as a whole the probatory facts which appears from the record, we

this point. It is for the same reason that it was expressly stated in the decision that it

have reached the conclusion that the plaintiff and the defendant agreed to the

"does not involve an adjudication as to any disputed item of the partnership account."

essential parts of that contract, and did in fact constitute a partnership, with the funds

The contentions advanced by the moving party are so evidently unfounded that we

of which were purchased the cascoes with which this litigation deals, although it is true

can not see the necessity or convenience of granting the rehearing prayed for, and the

that they did not take the precaution to precisely establish and determine from the

motion is therefore denied.

beginning the conditions with respect to the participation of each partner in the profits
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and
or losses of the partnership. The disagreements subsequently arising between them,

NENITA A. ANAY, respondents.

when endeavoring to fix these conditions, should not and can not produce the effect of
destroying that which has been done, to the prejudice of one of the partners, nor could

DECISION
YNARES-SANTIAGO, J.:

it divest his rights under the partnership which had accrued by the actual contribution

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV

of capital which followed the agreement to enter into a partnership, together with the

No. 41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in

transactions effected with partnership funds. The law has foreseen the possibility of

Civil Case No. 88-509.[2]

the constitution of a partnership without an express stipulation by the partners upon

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand,

those conditions, and has established rules which may serve as a basis for the

private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-

distribution of profits and losses among the partners. (Art. 1689 of the Civil Code. ) We

president for operations of Ultra Clean Water Purifier, through her former employer in

consider that the partnership entered into by the plaintiff and the defendant falls

Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire

within the provisions of this article.

to enter into a joint venture with her for the importation and local distribution of

With respect to the second point, it is obvious that upon declaring the existence of a

kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay

partnership and the right of the plaintiff to demand from the defendant an itemized

the job of marketing the product considering her experience and established

accounting of his management thereof, it was impossible at the same time to

relationship with West Bend Company, a manufacturer of kitchen wares in Wisconsin,

determine the effects which might have been produced with respect to the interest of

U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general

manager, and Anay as head of the marketing department and later, vice-president for

entitling her to a thirty-seven percent (37%) commission for her personal sales "up

sales. Anay organized the administrative staff and sales force while Tocao hired and

Dec 31/87. Belo explained to her that said commission was apart from her ten percent

fired employees, determined commissions and/or salaries of the employees, and

(10%) share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had

assigned them to different branches. The parties agreed that Belos name should not

signed a letter[6] addressed to the Cubao sales office to the effect that she was no

appear in any documents relating to their transactions with West Bend Company.

longer the vice-president of Geminesse Enterprise. The following day, October 10, she

Instead, they agreed to use Anays name in securing distributorship of cookware from

received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred

that company. The parties agreed further that Anay would be entitled to: (1) ten

her from holding office and conducting demonstrations in both Makati and Cubao

percent (10%) of the annual net profits of the business; (2) overriding commission of

offices.[7] Anay attempted to contact Belo. She wrote him twice to demand her

six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales

overriding commission for the period of January 8, 1988 to February 5, 1988 and the

she would make; and (4) two percent (2%) for her demonstration services. The

audit of the company to determine her share in the net profits. When her letters were

agreement was not reduced to writing on the strength of Belos assurances that he was

not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that

sincere, dependable and honest when it came to financial commitments.

letter was not answered.

Anay having secured the distributorship of cookware products from the West

Anay still received her five percent (5%) overriding commission up to December

Bend Company and organized the administrative staff and the sales force, the

1987. The following year, 1988, she did not receive the same commission although the

cookware business took off successfully. They operated under the name of Geminesse

company netted a gross sales of P13,300,360.00.

Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at 712
Rufino

Building,

Ayala

Avenue,

Makati

City.

Belo

made

good

his

monetary

commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum
of money with damages[8] against Marjorie D. Tocao and William Belo before the
Regional Trial Court of Makati, Branch 140.

Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and

21, 1987 and to the southwestern regional convention in Pismo Beach, California,

severally, the following: (1) P32,00.00 as unpaid overriding commission from January

U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of

8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00

Marjorie Tocao who, as president and general manager of Geminesse Enterprise, even

as exemplary damages. The plaintiff also prayed for an audit of the finances of

wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. A

Geminesse Enterprise from the inception of its business operation until she was

portion of the letter reads:

illegally dismissed to determine her ten percent (10%) share in the net profits. She

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for

further prayed that she be paid the five percent (5%) overriding commission on the

twenty (20) years now, acquired the distributorship of Royal Queen cookware for

remaining 150 West Bend cookware sets before her dismissal.

Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of
our company, will attend in response to the invitation. (Italics supplied.)[3]

In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement
with Anay that was neither reduced in writing, nor ratified, was either unenforceable or

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the

void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to

task of saving the business on account of the unsatisfactory sales record in the Makati

Marjorie Tocao. There could not have been a partnership because, as Anay herself

and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the

admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.

administrative and sales people through Marjorie Tocao [4] for her excellent job

Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for

[5]

an agreed remuneration, and her complaint referred to either her compensation or

performance. On October 7, 1987, in the presence of Anay, Belo signed a memo

dismissal, such complaint should have been lodged with the Department of Labor and
not with the regular court.

On April 22, 1993, the trial court rendered a decision the dispositive part of which
is as follows:

Petitioners (defendants therein) further alleged that Anay filed the complaint on

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

account of ill-will and resentment because Marjorie Tocao did not allow her to lord it 1. Ordering defendants to submit to the Court a formal account as to the partnership
over in the Geminesse Enterprise. Anay had acted like she owned the enterprise

affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to

because of her experience and expertise. Hence, petitioners were the ones who

determine the ten percent (10%) share of plaintiff in the net profits of the cookware

suffered actual damages including unreturned and unaccounted stocks of Geminesse

business;

Enterprise, and serious anxiety, besmirched reputation in the business world, and 2. Ordering defendants to pay five percent (5%) overriding commission for the one
various damages not less than P500,000.00. They also alleged that, to vindicate their

hundred and fifty (150) cookware sets available for disposition when plaintiff was

names, they had to hire counsel for a fee of P23,000.00.

wrongfully excluded from the partnership by defendants;

At the pre-trial conference, the issues were limited to: (a) whether or not the 3. Ordering defendants to pay plaintiff overriding commission on the total production
plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not
the parties are entitled to damages.

[10]

which for the period covering January 8, 1988 to February 5, 1988 amounted to
P32,000.00;

In their defense, Belo denied that Anay was supposed to receive a share in the 4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
profit of the business. He, however, admitted that the two had agreed that Anay would

exemplary damages, and

receive a three to four percent (3-4%) share in the gross sales of the cookware. He 5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of
denied contributing capital to the business or receiving a share in its profits as he

suit.

merely served as a guarantor of Marjorie Tocao, who was new in the business. He

SO ORDERED.

attended and/or presided over business meetings of the venture in his capacity as a

The trial court held that there was indeed an oral partnership agreement

guarantor but he never participated in decision-making. He claimed that he wrote the

between the plaintiff and the defendants, based on the following: (a) there was an

memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal

intention to create a partnership; (b) a common fund was established through

from the business venture at the request of Tocao, because Anay had no other income.

contributions consisting of money and industry, and (c) there was a joint interest in the

For her part, Marjorie Tocao denied having entered into an oral partnership

profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative

agreement with Anay. However, she admitted that Anay was an expert in the

officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal

cookware business and hence, they agreed to grant her the following commissions:

International, Inc., buttressed the fact that a partnership existed between the parties.

thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two

The letter of Roger Muencheberg of West Bend Company stating that he awarded the

percent (2%) on product demonstrations, and two percent (2%) for recruitment of

distributorship to Anay and Marjorie Tocao because he was convinced that with

personnel. Marjorie denied that they agreed on a ten percent (10%) commission on

Marjories financial contribution and Anays experience, the combination of the two

the net profits. Marjorie claimed that she got the capital for the business out of the

would be invaluable to the partnership, also supported that conclusion. Belos claim

sale of the sewing machines used in her garments business and from Peter Lo, a

that he was merely a guarantor has no basis since there was no written evidence

Singaporean friend-financier who loaned her the funds with interest. Because she

thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending

treated Anay as her co-equal, Marjorie received the same amounts of commissions as

and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo

her. However, Anay failed to account for stocks valued at P200,000.00.

giving Anay 37% commission on personal sales belied this. On the contrary, it

demonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business

to support the conclusion drawn by the court a quo.[14] In this case, both the trial court
and the Court of Appeals are one in ruling that petitioners and private respondent
established a business partnership. This Court finds no reason to rule otherwise.

circles as an impetus to bigger sales volume. It did not matter that the agreement was

To be considered a juridical personality, a partnership must fulfill these

not in writing because Article 1771 of the Civil Code provides that a partnership may

requisites: (1) two or more persons bind themselves to contribute money, property or

be constituted in any form. The fact that Geminesse Enterprise was registered in

industry to a common fund; and (2) intention on the part of the partners to divide the

Marjorie Tocaos name is not determinative of whether or not the business was

profits among themselves.[15] It may be constituted in any form; a public instrument is

managed and operated by a sole proprietor or a partnership. What was registered with

necessary only where immovable property or real rights are contributed thereto. [16]

the Bureau of Domestic Trade was merely the business name or style of Geminesse

This implies that since a contract of partnership is consensual, an oral contract of

Enterprise.

partnership is as good as a written one. Where no immovable property or real rights

The trial court finally held that a partner who is excluded wrongfully from a

are involved, what matters is that the parties have complied with the requisites of a

partnership is an innocent partner. Hence, the guilty partner must give him his due

partnership. The fact that there appears to be no record in the Securities and

upon the dissolution of the partnership as well as damages or share in the profits

Exchange Commission of a public instrument embodying the partnership agreement

realized from the appropriation of the partnership business and goodwill. An innocent

pursuant to Article 1772 of the Civil Code [17] did not cause the nullification of the

partner thus possesses pecuniary interest in every existing contract that was

partnership. The pertinent provision of the Civil Code on the matter states:

incomplete and in the trade name of the co-partnership and assets at the time he was

Art. 1768. The partnership has a juridical personality separate and distinct from that of

wrongfully expelled.

each of the partners, even in case of failure to comply with the requirements of article

Petitioners appeal to the Court of Appeals

[11]

was dismissed, but the amount of

1772, first paragraph.

damages awarded by the trial court were reduced to P50,000.00 for moral damages

Petitioners admit that private respondent had the expertise to engage in the

and P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied

business of distributorship of cookware. Private respondent contributed such expertise

by the Court of Appeals for lack of merit. [12] Petitioners Belo and Marjorie Tocao are

to the partnership and hence, under the law, she was the industrial or managing

now before this Court on a petition for review on certiorari, asserting that there was no

partner. It was through her reputation with the West Bend Company that the

business partnership between them and herein private respondent Nenita A. Anay who

partnership was able to open the business of distributorship of that companys

is, therefore, not entitled to the damages awarded to her by the Court of Appeals.

cookware products; it was through the same efforts that the business was propelled to

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held

financial success. Petitioner Tocao herself admitted private respondents indispensable

that a partnership existed between them and private respondent Anay because

role in putting up the business when, upon being asked if private respondent held the

Geminesse Enterprise came into being exactly a year before the alleged partnership

positions of marketing manager and vice-president for sales, she testified thus:

was formed, and that it was very unlikely that petitioner Belo would invest the sum of A: No, sir at the start she was the marketing manager because there were no one to sell
P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandum
whatsoever regarding the alleged partnership.

[13]

The issue of whether or not a partnership exists is a factual matter which are

yet, its only me there then her and then two (2) people, so about four (4). Now, after
that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people
were given the designation of marketing managers of which definitely Nita as superior

within the exclusive domain of both the trial and appellate courts. This Court cannot

to them would be the Vice President.[18]

set aside factual findings of such courts absent any showing that there is no evidence

By the set-up of the business, third persons were made to believe that a partnership

had indeed been forged between petitioners and private respondents. Thus, the

merged their respective capital and infused the amount into the partnership of

communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger

distributing cookware with private respondent as the managing partner.

Muencheberg of the same company states:

The business venture operated under Geminesse Enterprise did not result in an

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the

employer-employee relationship between petitioners and private respondent. While it

operations. Marge does not have cookware experience. Nita Anay has started to

is true that the receipt of a percentage of net profits constitutes only prima facie

gather former managers, Lina Torda and Dory Vista. She has also gathered former

evidence that the recipient is a partner in the business, [25] the evidence in the case at

demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to

bar controverts an employer-employee relationship between the parties. In the first

gather other key people and build up the organization. All they need is the finance and

place, private respondent had a voice in the management of the affairs of the

the products to sell.

[19]

cookware distributorship,[26] including selection of people who would constitute the

On the other hand, petitioner Belos denial that he financed the partnership rings

administrative staff and the sales force. Secondly, petitioner Tocaos admissions

hollow in the face of the established fact that he presided over meetings regarding

militate against an employer-employee relationship. She admitted that, like her who

matters affecting the operation of the business. Moreover, his having authorized in

owned Geminesse Enterprise,[27] private respondent received only commissions and

writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders

transportation and representation allowances [28] and not a fixed salary. [29] Petitioner

Supply, that private respondent should receive thirty-seven (37%) of the proceeds of

Tocao testified:

her personal sales, could not be interpreted otherwise than that he had a proprietaryQ: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y.
interest in the business. His claim that he was merely a guarantor is belied by that

Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending

personal act of proprietorship in the business. Moreover, if he was indeed a guarantor

August 21, 1987, will you please go over this and tell the Honorable Court whether you

of future debts of petitioner Tocao under Article 2053 of the Civil Code,

[20]

he should

ever came across this document and know of your own knowledge the amount ---

have presented documentary evidence therefor. While Article 2055 of the Civil CodeA: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a
simply provides that guaranty must be express, Article 1403, the Statute of Frauds,

certain percentage for promotions, advertising, incentive.

requires that a special promise to answer for the debt, default or miscarriage ofQ: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I
another be in writing.[21]

quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have received

Petitioner Tocao, a former ramp model,

[22]

was also a capitalist in the partnership.

this amount?

She claimed that she herself financed the business. Her and petitioner Belos roles as A: Oh yes, sir.
both capitalists to the partnership with private respondent are buttressed by petitionerQ: I see. And, by way of amplification this is what you are saying as one representing
Tocaos admissions that petitioner Belo was her boyfriend and that the partnership was

commission, representation, advertising and promotion?

not their only business venture together. They also established a firm that they calledA: Yes, sir.
Wiji, the combination of petitioner Belos first name, William, and her nickname, Jiji. [23]Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50,
The special relationship between them dovetails with petitioner Belos claim that he

what is this?

was acting in behalf of petitioner Tocao. Significantly, in the early stage of the businessA: Thats her overriding commission.
operation, petitioners requested West Bend Company to allow them to utilize theirQ: Overriding commission, I see. Of course, you are telling this Honorable Court that there
banking and trading facilities in Singapore in the matter of importation and payment of
the cookware products.

[24]

being the same P21,410.50 is merely by coincidence?

The inevitable conclusion, therefore, was that petitionersA: No, sir, I made it a point that we were equal because the way I look at her kasi, you know

in a sense because of her expertise in the business she is vital to my business. So, as

of that firm name, petitioner Tocao indicated that it would be engaged in retail of

part of the incentive I offer her the same thing.

kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the enterprise was

Q: So, in short you are saying that this you have shared together, I mean having gotten

only 60% to 70% for the cookware business, while 20% to 30% of its business activity

from the company P21,140.50 is your way of indicating that you were treating her as

was devoted to the sale of water sterilizer or purifier. [35] Indubitably then, the business

an equal?

name Geminesse Enterprise was used only for practical reasons - it was utilized as the

A: As an equal.

common name for petitioner Tocaos various business activities, which included the

Q: As an equal, I see. You were treating her as an equal?

distributorship of cookware.

A: Yes, sir.

Petitioners underscore the fact that the Court of Appeals did not return the

Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---

unaccounted

and
[36]

unremitted

stocks

of

Geminesse

Enterprise

amounting

to

A: That is the same thing, sir.

P208,250.00.

Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the

respondent, that claim, more than anything else, proves the existence of a partnership

amount there you will acknowledge you have received that?

Obviously a ploy to offset the damages awarded to private

between them. In Idos v. Court of Appeals, this Court said:

A: Yes, sir.

The best evidence of the existence of the partnership, which was not yet terminated

Q: Again in concept of commission, representation, promotion, etc.?

(though in the winding up stage), were the unsold goods and uncollected receivables,

A: Yes, sir.

which were presented to the trial court. Since the partnership has not been

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication

terminated, the petitioner and private complainant remained as co-partners. x x x. [37]

that she received the same amount?

It is not surprising then that, even after private respondent had been unceremoniously

A: Yes, sir.

booted out of the partnership in October 1987, she still received her overriding

Q: And, as in your previous statement it is not by coincidence that these two (2) are the

commission until December 1987.

same?

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the

A: No, sir.

partnership to reap for herself and/or for petitioner Belo financial gains resulting from

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir. (Italics supplied.)

[30]

private respondents efforts to make the business venture a success. Thus, as

petitioner Tocao became adept in the business operation, she started to assert herself

If indeed petitioner Tocao was private respondents employer, it is difficult to

to the extent that she would even shout at private respondent in front of other people.

believe that they shall receive the same income in the business. In a partnership, each

[38]

partner must share in the profits and losses of the venture, except that the industrial

respondent to hold office in both the Makati and Cubao sales offices concretely spoke

partner shall not be liable for the losses.

[31]

Her instruction to Lina Torda Cruz, marketing manager, not to allow private

As an industrial partner, private respondent

of her perception that private respondent was no longer necessary in the business

had the right to demand for a formal accounting of the business and to receive her

operation,[39] and resulted in a falling out between the two.However, a mere falling out

share in the net profit.[32]

or misunderstanding between partners does not convert the partnership into a sham

The fact that the cookware distributorship was operated under the name of

organization.[40] The partnership exists until dissolved under the law. Since the

Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered

partnership created by petitioners and private respondent has no fixed term and is

with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that

therefore a partnership at will predicated on their mutual desire and consent, it may

enterprise.

[33]

While it is true that in her undated application for renewal of registration

be dissolved by the will of a partner. Thus:

x x x. The right to choose with whom a person wishes to associate himself is the very

by the trial court and should therefore be reduced to P25,000.00.

foundation and essence of that partnership. Its continued existence is, in turn,

WHEREFORE, the instant petition for review on certiorari is DENIED. The

dependent on the constancy of that mutual resolve, along with each partners

partnership among petitioners and private respondent is ordered dissolved, and the

capability to give it, and the absence of cause for dissolution provided by the law itself.

parties are ordered to effect the winding up and liquidation of the partnership

Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the

pursuant to the pertinent provisions of the Civil Code. This case is remanded to the

partnership at will. He must, however, act in good faith, not that the attendance of bad

Regional Trial Court for proper proceedings relative to said dissolution. The appealed

faith can prevent the dissolution of the partnership but that it can result in a liability

decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with

for damages.

[41]

MODIFICATIONS, as follows ---

An unjustified dissolution by a partner can subject him to action for damages because

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the

by the mutual agency that arises in a partnership, the doctrine of delectus personae

partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil

allows the partners to have the power, although not necessarily the right to dissolve

Code, in order to determine private respondents ten percent (10%) share in the net

the partnership.[42]

profits of the partnership;

In this case, petitioner Tocaos unilateral exclusion of private respondent from the

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent

partnership is shown by her memo to the Cubao office plainly stating that private

(5%) overriding commission for the one hundred and fifty (150) cookware sets

respondent was, as of October 9, 1987, no longer the vice-president for sales of

available for disposition since the time private respondent was wrongfully excluded

Geminesse Enterprise.

[43]

By that memo, petitioner Tocao effected her own withdrawal

from the partnership by petitioners;

from the partnership and considered herself as having ceased to be associated with

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding

the partnership in the carrying on of the business. Nevertheless, the partnership was

commission on the total production which, for the period covering January 8, 1988 to

not terminated thereby; it continues until the winding up of the business.

[44]

February 5, 1988, amounted to P32,000.00;

The winding up of partnership affairs has not yet been undertaken by the

4. Petitioners are ordered, jointly and severally, to pay private respondent moral

partnership. This is manifest in petitioners claim for stocks that had been entrusted to

damages in the amount of P50,000.00, exemplary damages in the amount of

private respondent in the pursuit of the partnership business.

P50,000.00 and attorneys fees in the amount of P25,000.00.

The determination of the amount of damages commensurate with the factual

findings upon which it is based is primarily the task of the trial court.

[45]

The Court of

Appeals may modify that amount only when its factual findings are diametrically
opposed to that of the lower court,
unreasonably excessive.

[47]

[46]

SO ORDERED.
ELIGIO ESTANISLAO, JR., vs. THE HONORABLE COURT OF APPEALS, REMEDIOS
ESTANISLAO, EMILIO and LEOCADIO SANTIAGO,

or the award is palpably or scandalously and

By this petition for certiorari the Court is asked to determine if a partnership exists

However, exemplary damages that are awarded by way of

between members of the same family arising from their joint ownership of certain

example or correction for the public good,

[48]

should be reduced to P50,000.00, the

properties.

amount correctly awarded by the Court of Appeals.Concomitantly, the award of moral

Petitioner and private respondents are brothers and sisters who are co-owners of

damages of P100,000.00 was excessive and should be likewise reduced to P50,000.00.

certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were then

Similarly, attorneys fees that should be granted on account of the award of exemplary

being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to

damages and petitioners evident bad faith in refusing to satisfy private respondents

open and operate a gas station thereat to be known as Estanislao Shell Service Station

[49]

with an initial investment of P 15,000.00 to be taken from the advance rentals due to

plainly valid, just and demandable claims,

appear to have been excessively granted

them from SHELL for the occupancy of the said lots owned in common by them. A joint

business; and

affidavit was executed by them on April 11, 1966 which was prepared byAtty.

4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the

Democrito Angeles

They agreed to help their brother, petitioner herein, by allowing

suit (pp. 13-14 Record on Appeal.)

him to operate and manage the gasoline service station of the family. They negotiated

After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the

with SHELL. For practical purposes and in order not to run counter to the company's

temporary presiding judge of Branch IV of the trial court, rendered judgment

policy of appointing only one dealer, it was agreed that petitioner would apply for the

dismissing the complaint and counterclaim and ordering private respondents to pay

dealership. Respondent Remedios helped in managing the bussiness with petitioner

petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion for

from May 3, 1966 up to February 16, 1967.

reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who

On May 26, 1966, the parties herein entered into an Additional Cash Pledge

was the newly appointed presiding judge of the same branch, set aside the aforesaid

Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental

derision and rendered another decision in favor of said respondents.

shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a

The dispositive part thereof reads as follows:

proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11 April

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered

1966 executed by the co-owners."

and a new judgment is hereby rendered in favor of the plaintiffs and as against the
defendant:

For sometime, the petitioner submitted financial statements regarding the operation of

(1) Ordering the defendant to execute a public instrument embodying all the

the business to private respondents, but therafter petitioner failed to render

provisions of the partnership agreement entered into between plaintiffs and defendant

subsequent accounting. Hence through Atty. Angeles, a demand was made on

as provided for in Article 1771, Civil Code of the Philippines;

petitioner to render an accounting of the profits.

(2) Ordering the defendant to render a formal accounting of the business operation

The financial report of December 31, 1968 shows that the business was able to make a

from April 1969 up to the time this order is issued, the same to be subject to

profit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was

examination and audit by the plaintiff,

realized.

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the
net profits of the business in the amount of P 150,000.00, with interest thereon at the

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First

rate of One (1%) Per Cent per month from date of demand until full payment thereof;

Instance of Rizal against petitioner praying among others that the latter be ordered:

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of

1. to execute a public document embodying all the provisions of the partnership

attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record

agreement entered into between plaintiffs and defendant as provided in Article 1771

on Appeal).

of the New Civil Code;

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7)

2. to render a formal accounting of the business operation covering the period from

errors allegedly committed by the trial court. In due course, a decision was rendered

May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the

by the Court of Appeals on November 28,1978 affirming in toto the decision of the

order is issued and that the same be subject to proper audit;

lower court with costs against petitioner. *

3. to pay the plaintiffs their lawful shares and participation in the net profits of the

A motion for reconsideration of said decision filed by petitioner was denied on January

business in an amount of no less than P l50,000.00 with interest at the rate of 1% per

30, 1979. Not satisfied therewith, the petitioner now comes to this court by way of this

month from date of demand until full payment thereof for the entire duration of the

petition for certiorari alleging that the respondent court erred:

1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional

(6) FURTHER AFFIANTS SAYETH NOT.,

Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and

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

2. In declaring that a partnership was established by and among the petitioner and the

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc.

private respondents as regards the ownership and or operation of the gasoline service

Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial

station business.

Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag, respectively)

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit

executed in favour of SHELL by the herein CO-OWNERS and another Lease Agreement

A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are

dated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS

herein reproduced-

Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of

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

land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly

(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates

rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P

of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City, in favor of the

3,382.29), Philippine Currency;

LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a corporation duly licensed to

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station

do business in the Philippines;

constructed on the leased land, and as Dealer under the Cash Pledge Agreement

(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED

dated llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN

advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00)

THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of Shell

Philippine Currency, so that we can use the said amount to augment our capital

petroleum products; . . .

investment in the operation of that gasoline station constructed ,by the said company

WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P

on our two lots aforesaid by virtue of an outstanding Lease Agreement we have

25,000, has secured the conformity of his CO-OWNERS to waive and assign to SHELL

entered into with the said company;

the total monthly rentals due to all of them to accumulate the equivalent amount of P

(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence

15,000, commencing 24th May 1966, this P 15,000 shall be treated as additional cash

and desire to help us in aumenting our capital investment in the operation of the said

deposit to SHELL under the same terms and conditions of the aforementioned Cash

gasoline station, has agreed to give us the said amount of P 15,000.00, which amount

Pledge Agreement dated llth May 1966.

will partake the nature of ADVANCED RENTALS;

NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual

(4) That we have freely and voluntarily agreed that upon receipt of the said amount of

covenants among the CO-OWNERS herein and SHELL, said parties have agreed and

FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES

hereby agree as follows:

LIMITED, the said sum as ADVANCED RENTALS to us be applied as monthly rentals for

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all

the sai two lots under our Lease Agreement starting on the 25th of May, 1966 until

CO-OWNERS, collectively, under the above describe two Lease Agreements, one dated

such time that the said of P 15,000.00 be applicable, which time to our estimate and

13th November 1963 and the other dated 19th March 1964 to enable DEALER to

one-half months from May 25, 1966 or until the 10th of October, 1966 more or less;

increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such

(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE

purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to SHELL the

PHILIPPINES LIMITED execute an instrument for us to sign embodying our conformity

monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly,

that the said amount that it will generously grant us as requested be applied as

commencing 24th May 1966, until such time that the monthly rentals accumulated,

ADVANCED RENTALS; and

shall be equal to P l5,000.

2. The above stated monthly rentals accumulated shall be treated as additional cash

agreement it should be stated that the business is a partnership with private

deposit by DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P

respondents and not a sole proprietorship of petitioner.

25,000. This agreement, therefore, cancels and supersedes the Joint affidavit dated 11

Moreover other evidence in the record shows that there was in fact such partnership

April 1966 executed by the CO-OWNERS.

agreement between the parties. This is attested by the testimonies of private

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to

respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private

purchase from SHELL petroleum products, on credit, up to the amount of P 25,000.

respondents periodic accounting of the business.

4. This increase in the credit shall also be subject to the same terms and conditions of

to private respondent Remedies Estanislao, his sister, to examine and audit the books

the above-mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L,"

of their "common business' aming negosyo).

and "6"; emphasis supplied)

running of the business. There is no doubt that the parties hereto formed a partnership

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by

when they bound themselves to contribute money to a common fund with the

the parties that the P 15,000.00 advance rental due to them from SHELL shall

intention of dividing the profits among themselves.

augment their "capital investment" in the operation of the gasoline station, which

petitioner and the issuance of all government permits and licenses in the name of

advance rentals shall be credited as rentals from May 25, 1966 up to four and one-half

petitioner was in compliance with the afore-stated policy of SHELL and the

months or until 10 October 1966, more or less covering said P 15,000.00.

understanding of the parties of having only one dealer of the SHELL products.

In the subsequent document entitled "Additional Cash Pledge Agreement" above

Further, the findings of facts of the respondent court are conclusive in this proceeding,

reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL the

and its conclusion based on the said facts are in accordancewith the applicable law.

monthly rentals due them commencing the 24th of May 1966 until such time that the

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against

monthly rentals accumulated equal P 15,000.00 which private respondents agree to be

petitioner. This decision is immediately executory and no motion for extension of time

a cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer. As

to file a motion for reconsideration shag beentertained.

above-stated it provided therein that "This agreement, therefore, cancels and

SO ORDERED.

supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."

ROSARIO U. YULO, assisted by her husband JOSE C. YULO vs. YANG CHIAO

Petitioner contends that because of the said stipulation cancelling and superseding

SENG,

that previous Joint Affidavit, whatever partnership agreement there was in said

Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A.

previous agreement had thereby been abrogated. We find no merit in this argument.

Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim.

Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00

The appeal is prosecuted by plaintiff.

advance rentals starting May 25, 1966 while the latter agreement also refers to

The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter

advance rentals of the same amount starting May 24, 1966. There is, therefore, a

to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between

duplication of reference to the P 15,000.00 hence the need to provide in the

them to run and operate a theatre on the premises occupied by former Cine Oro at

subsequent document that it "cancels and supersedes" the previous one. True it is that

Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao

in the latter document, it is silent as to the statement in the Joint Affidavit that the P

Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in

15,000.00 represents the "capital investment" of the parties in the gasoline station

advance within the first 15 days of each quarter, (2) that the partnership shall be for a

business and it speaks of petitioner as the sole dealer, but this is as it should be for in

period of two years and six months, starting from July 1, 1945 to December 31, 1947,

the latter document SHELL was a signatory and it would be against its policy if in the

with the condition that if the land is expropriated or rendered impracticable for the

Petitioner gave a written authority

Respondent Remedios assisted in the

The sole dealership by the

business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's right

Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The

of lease is terminated by the owner, then the partnership shall be terminated even if

judgment was appealed. In the Court of First Instance, the two cases were afterwards

the period for which the partnership was agreed to be established has not yet expired;

heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and

(3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of the

her husband, and declaring the contract of lease of the premises terminated as of July

building as is ordinarily carried on in lobbies of theatres in operation, provided the said

31, 1949, and fixing the reasonable monthly rentals of said premises at P100. Both

business may not obstruct the free ingress and agrees of patrons of the theatre; (4)

parties appealed from said decision and the Court of Appeals, on April 30, 1955,

that after December 31, 1947, all improvements placed by the partnership shall

affirmed the judgment.

belong to Mrs. Yulo, but if the partnership agreement is terminated before the lapse of

On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the

one and a half years period under any of the causes mentioned in paragraph (2), then

profits of the business. Yang answered the letter saying that upon the advice of his

Yang Chiao Seng shall have the right to remove and take away all improvements that

counsel he had to suspend the payment (of the rentals) because of the pendency of

the partnership may place in the premises.

the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang

Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a

alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to

partnership agreement establishing the "Yang & Company, Limited," which was to

the lessors the rentals from August, 1949, he was retaining the rentals to make good

exist from July 1, 1945 to December 31, 1947. It states that it will conduct and carry

to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").

on the business of operating a theatre for the exhibition of motion and talking pictures.

In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted

The capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao

this action on May 26, 1954, alleging the existence of a partnership between them and

Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the

that the defendant Yang Chiao Seng has refused to pay her share from December,

partners in the same proportion as their capital contribution and the liability of Mrs.

1949 to December, 1950; that after December 31, 1950 the partnership between Mrs.

Yulo, in case of loss, shall be limited to her capital contribution (Exh. "B").

Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner of

In June , 1946, they executed a supplementary agreement, extending the partnership

the building occupied by the Cine Astor; that the reasonable rental that the defendant

for a period of three years beginning January 1, 1948 to December 31, 1950. The

should pay therefor from January, 1951 is P5,000; that the defendant has acted

benefits are to be divided between them at the rate of 50-50 and after December 31,

maliciously and refuses to pay the participation of the plaintiff in the profits of the

1950, the showhouse building shall belong exclusively to the second party, Mrs. Yulo.

business amounting to P35,000 from November, 1949 to October, 1950, and that as a

The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from

result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered

Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it

damages in the amount of P160,000 and exemplary damages to the extent of P5,000.

was stipulated that the lease shall continue for an indefinite period of time, but that

The prayer includes a demand for the payment of the above sums plus the sum of

after one year the lease may be cancelled by either party by written notice to the

P10,000 for the attorney's fees.

other party at least 90 days before the date of cancellation. The last contract was

In answer to the complaint, defendant alleges that the real agreement between the

executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949,

plaintiff and the defendant was one of lease and not of partnership; that the

the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the

partnership was adopted as a subterfuge to get around the prohibition contained in

contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her

the contract of lease between the owners and the plaintiff against the sublease of the

husband brought a civil action to the Court of First Instance of Manila on July 3, 1949

said property. As to the other claims, he denies the same and alleges that the fair

to declare the lease of the premises. On February 9, 1950, the Municipal Court of

rental value of the land is only P1,100. By way of counterclaim he alleges that by

reason of an attachment issued against the properties of the defendant the latter has

same. It is against this decision that the appeal has been prosecuted by plaintiff to this

suffered damages amounting to P100,000.

Court.

The first hearing was had on April 19, 1955, at which time only the plaintiff appeared.

The first assignment of error imputed to the trial court is its order setting aside its

The court heard evidence of the plaintiff in the absence of the defendant and

former decision and allowing a new trial. This assignment of error is without merit. As

thereafter rendered judgment ordering the defendant to pay to the plaintiff P41,000

that parties agreed to postpone the trial because of a probable amicable settlement,

for her participation in the business up to December, 1950; P5,000 as monthly rental

the plaintiff could not take advantage of defendant's absence at the time fixed for the

for the use and occupation of the building from January 1, 1951 until defendant

hearing. The lower court, therefore, did not err in setting aside its former judgment.

vacates the same, and P3,000 for the use and occupation of the lobby from July 1,

The final result of the hearing shown by the decision indicates that the setting aside of

1945 until defendant vacates the property. This decision, however, was set aside on a

the previous decision was in the interest of justice.

motion for reconsideration. In said motion it is claimed that defendant failed to appear

In the second assignment of error plaintiff-appellant claims that the lower court erred

at the hearing because of his honest belief that a joint petition for postponement filed

in not striking out the evidence offered by the defendant-appellee to prove that the

by both parties, in view of a possible amicable settlement, would be granted; that in

relation between him and the plaintiff is one of the sublease and not of partnership.

view of the decision of the Court of Appeals in two previous cases between the owners

The action of the lower court in admitting evidence is justified by the express

of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged

allegation in the defendant's answer that the agreement set forth in the complaint was

participation in the profit of the business, etc. The court, finding the above motion,

one of lease and not of partnership, and that the partnership formed was adopted in

well-founded, set aside its decision and a new trial was held. After trial the court

view of a prohibition contained in plaintiff's lease against a sublease of the property.

rendered the decision making the following findings: that it is not true that a

The most important issue raised in the appeal is that contained in the fourth

partnership was created between the plaintiff and the defendant because defendant

assignment of error, to the effect that the lower court erred in holding that the written

has not actually contributed the sum mentioned in the Articles of Partnership, or any

contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and

other amount; that the real agreement between the plaintiff and the defendant is not

not of partnership. We have gone over the evidence and we fully agree with the

of the partnership but one of the lease for the reason that under the agreement the

conclusion of the trial court that the agreement was a sublease, not a partnership. The

plaintiff did not share either in the profits or in the losses of the business as required

following are the requisites of partnership: (1) two or more persons who bind

by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a

themselves to contribute money, property, or industry to a common fund; (2) intention

"guaranteed participation" in the profits also belies the supposed existence of a

on the part of the partners to divide the profits among themselves. (Art. 1767, Civil

partnership between them. It. therefore, denied plaintiff's claim for damages or

Code.).

supposed participation in the profits.

In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second

As to her claim for damages for the refusal of the defendant to allow the use of the

place, she did not furnish any help or intervention in the management of the theatre.

supposed lobby of the theatre, the court after ocular inspection found that the said

In the third place, it does not appear that she has ever demanded from defendant any

lobby was very narrow space leading to the balcony of the theatre which could not be

accounting of the expenses and earnings of the business. Were she really a partner,

used for business purposes under existing ordinances of the City of Manila because it

her first concern should have been to find out how the business was progressing,

would constitute a hazard and danger to the patrons of the theatre. The court,

whether the expenses were legitimate, whether the earnings were correct, etc. She

therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on

was absolutely silent with respect to any of the acts that a partner should have done;

the ground that the defendant failed to present sufficient evidence to sustain the

all that she did was to receive her share of P3,000 a month, which can not be

interpreted in any manner than a payment for the use of the premises which she had

Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was

leased from the owners. Clearly, plaintiff had always acted in accordance with the

medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II

original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties

(Annexes "G-5" and "G-3", pp. 48, 104, respectively), 6 HPM, UTI, Osteoarthritis (Annex

considered this offer as the real contract between them.

"G-4", p. 105),7 and heart enlargement (Annex G, p. 107). 8 On said grounds, Belen

Plaintiff claims the sum of P41,000 as representing her share or participation in the

Paulino of the SBT Trucking Service management told him to file a formal request for

business from December, 1949. But the original letter of the defendant, Exh. "A",

extension of his leave. At the end of his week-long absence, Sahot applied for

expressly states that the agreement between the plaintiff and the defendant was to

extension of his leave for the whole month of June, 1994. It was at this time when

end upon the termination of the right of the plaintiff to the lease. Plaintiff's right

petitioners allegedly threatened to terminate his employment should he refuse to go

having terminated in July, 1949 as found by the Court of Appeals, the partnership

back to work.

agreement or the agreement for her to receive a participation of P3,000 automatically

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused

ceased as of said date.

to work, But he could not retire on pension because petitioners never paid his correct

We find no error in the judgment of the court below and we affirm it in toto, with costs

SSS premiums. The fact remained he could no longer work as his left thigh hurt

against plaintiff-appellant.

abominably. Petitioners ended his dilemma. They carried out their threat and

VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and SBT

TRUCKING CORPORATION, vs. HON. COURT OF APPEALS and JAIME SAHOT,

2

dismissed him from work, effective June 30, 1994. He ended up sick, jobless and
penniless.

This petition for review seeks the reversal of the decision of the Court of Appeals

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a

dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the

complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He

decision of the National Labor Relations Commission promulgated on June 20, 1996 in

prayed for the recovery of separation pay and attorneys fees against Vicente Sy and

NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the

Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service,

decision of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.

6Bs Trucking and SBT Trucking, herein petitioners.

Culled from the records are the following facts of this case:

For their part, petitioners admitted they had a trucking business in the 1950s but

Sometime in 1958, private respondent Jaime Sahot 5 started working as a truck helper

denied employing helpers and drivers. They contend that private respondent was not

for petitioners family-owned trucking business named Vicente Sy Trucking. In 1965, he

illegally dismissed as a driver because he was in fact petitioners industrial partner.

became a truck driver of the same family business, renamed T. Paulino Trucking

They add that it was not until the year 1994, when SBT Trucking Corporation was

Service, later 6Bs Trucking Corporation in 1985, and thereafter known as SBT Trucking

established, and only then did respondent Sahot become an employee of the

Corporation since 1994. Throughout all these changes in names and for 36 years,

company, with a monthly salary that reached P4,160.00 at the time of his separation.

private respondent continuously served the trucking business of petitioners.

Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave

In April 1994, Sahot was already 59 years old. He had been incurring absences as he

and was not able to report for work for almost seven days. On June 1, 1994, Sahot

was suffering from various ailments. Particularly causing him pain was his left thigh,

asked permission to extend his leave of absence until June 30, 1994. It appeared that

which greatly affected the performance of his task as a driver. He inquired about his

from the expiration of his leave, private respondent never reported back to work nor

medical and retirement benefits with the Social Security System (SSS) on April 25,

did he file an extension of his leave. Instead, he filed the complaint for illegal dismissal

1994, but discovered that his premium payments had not been remitted by his

against the trucking company and its owners.

employer.

Petitioners add that due to Sahots refusal to work after the expiration of his

authorized leave of absence, he should be deemed to have voluntarily resigned from

AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS

his work. They contended that Sahot had all the time to extend his leave or at least

COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402

inform petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-

OF THE CIVIL CODE.11

76, entitled "Manuelito Jimenez et al. vs. T. Paulino Trucking Service," as a defense in

II

view of the alleged similarity in the factual milieu and issues of said case to that of

RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE

Sahots, hence they are in pari material and Sahots complaint ought also to be

NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF

dismissed.

THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled

DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF

that there was no illegal dismissal in Sahots case. Private respondent had failed to

INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305

report to work. Moreover, said the Labor Arbiter, petitioners and private respondent

SCRA 233).12

were industrial partners before January 1994. The Labor Arbiter concluded by ordering

III

petitioners to pay "financial assistance" of P15,000 to Sahot for having served the

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING

company as a regular employee since January 1994 only.

CORPORATION.13

On appeal, the National Labor Relations Commission modified the judgment of the

Three issues are to be resolved: (1) Whether or not an employer-employee relationship

Labor Arbiter. It declared that private respondent was an employee, not an industrial

existed between petitioners and respondent Sahot; (2) Whether or not there was valid

partner, since the start. Private respondent Sahot did not abandon his job but his

dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.

employment was terminated on account of his illness, pursuant to Article 284 of the

Crucial to the resolution of this case is the determination of the first issue. Before a

Labor Code. Accordingly, the NLRC ordered petitioners to pay private respondent

case for illegal dismissal can prosper, an employer-employee relationship must first be

separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29

established.14

years of service.

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its

that respondent Sahot was not an employee but was in fact, petitioners industrial

decision dated February 29, 2000, the appellate court affirmed with modification the

partner.15 It is contended that it was the Labor Arbiter who heard the case and had the

judgment of the NLRC. It held that private respondent was indeed an employee of

opportunity to observe the demeanor and deportment of the parties. The same

petitioners since 1958. It also increased the amount of separation pay awarded to

conclusion, aver petitioners, is supported by substantial evidence. 16 Moreover, it is

private respondent to P74,880, computed at the rate of P2,080 per year for 36 years

argued that the findings of fact of the Labor Arbiter was wrongly overturned by the

of service from 1958 to 1994. It decreed:

NLRC when the latter made the following pronouncement:

WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB

We agree with complainant that there was error committed by the Labor Arbiter when

Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of

he concluded that complainant was an industrial partner prior to 1994. A computation

SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for

of the age of complainant shows that he was only twenty-three (23) years when he

his separation pay.

10

started working with respondent as truck helper. How can we entertain in our mind

Hence, the instant petition anchored on the following contentions:

I
RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION

that a twenty-three (23) year old man, working as a truck helper, be considered an
industrial partner. Hence we rule that complainant was only an employee, not a
partner of respondents from the time complainant started working for respondent. 17

Because the Court of Appeals also found that an employer-employee relationship

1994.

existed, petitioners aver that the appellate courts decision gives an "imprimatur" to

On this point, we affirm the findings of the appellate court and the NLRC. Private

the "illegal" finding and conclusion of the NLRC.

respondent Jaime Sahot was not an industrial partner but an employee of petitioners

Private respondent, for his part, denies that he was ever an industrial partner of

from 1958 to 1994. The existence of an employer-employee relationship is ultimately a

petitioners. There was no written agreement, no proof that he received a share in

question of fact23 and the findings thereon by the NLRC, as affirmed by the Court of

petitioners profits, nor was there anything to show he had any participation with

Appeals, deserve not only respect but finality when supported by substantial evidence.

respect to the running of the business.

18

Substantial evidence is such amount of relevant evidence which a reasonable mind

The elements to determine the existence of an employment relationship are: (a) the

might accept as adequate to justify a conclusion.24

selection and engagement of the employee; (b) the payment of wages; (c) the power

Time and again this Court has said that "if doubt exists between the evidence

of dismissal; and (d) the employers power to control the employees conduct. The

presented by the employer and the employee, the scales of justice must be tilted in

most important element is the employers control of the employees conduct, not only

favor of the latter."25 Here, we entertain no doubt. Private respondent since the

as to the result of the work to be done, but also as to the means and methods to

beginning was an employee of, not an industrial partner in, the trucking business.

accomplish it.

19

Coming now to the second issue, was private respondent validly dismissed by

As found by the appellate court, petitioners owned and operated a trucking business

petitioners?

since the 1950s and by their own allegations, they determined private respondents

Petitioners contend that it was private respondent who refused to go back to work. The

wages and rest day.

20

Records of the case show that private respondent actually

decision of the Labor Arbiter pointed out that during the conciliation proceedings,

engaged in work as an employee. During the entire course of his employment he did

petitioners requested respondent Sahot to report back for work. However, in the same

not have the freedom to determine where he would go, what he would do, and how he

proceedings, Sahot stated that he was no longer fit to continue working, and instead

would do it. He merely followed instructions of petitioners and was content to do so, as

he demanded separation pay. Petitioners then retorted that if Sahot did not like to

long as he was paid his wages. Indeed, said the CA, private respondent had worked as

work as a driver anymore, then he could be given a job that was less strenuous, such

a truck helper and driver of petitioners not for his own pleasure but under the latters

as working as a checker. However, Sahot declined that suggestion. Based on the

control.

foregoing recitals, petitioners assert that it is clear that Sahot was not dismissed but it

Article 1767

21

of the Civil Code states that in 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.

22

was of his own volition that he did not report for work anymore.
In his decision, the Labor Arbiter concluded that:

Not one of these

While it may be true that respondents insisted that complainant continue working with

circumstances is present in this case. No written agreement exists to prove the

respondents despite his alleged illness, there is no direct evidence that will prove that

partnership between the parties. Private respondent did not contribute money,

complainants illness prevents or incapacitates him from performing the function of a

property or industry for the purpose of engaging in the supposed business. There is no

driver. The fact remains that complainant suddenly stopped working due to boredom

proof that he was receiving a share in the profits as a matter of course, during the

or otherwise when he refused to work as a checker which certainly is a much less

period when the trucking business was under operation. Neither is there any proof that

strenuous job than a driver.26

he had actively participated in the management, administration and adoption of

But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the

policies of the business. Thus, the NLRC and the CA did not err in reversing the finding

Court of Appeals, held that:

of the Labor Arbiter that private respondent was an industrial partner from 1958 to

While it was very obvious that complainant did not have any intention to report back

to work due to his illness which incapacitated him to perform his job, such intention

take a leave. The employer shall reinstate such employee to his former position

cannot be construed to be an abandonment. Instead, the same should have been

immediately upon the restoration of his normal health. (Italics supplied).

considered as one of those falling under the just causes of terminating an

As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC, 31 the requirement

employment. The insistence of respondent in making complainant work did not

for a medical certificate under Article 284 of the Labor Code cannot be dispensed with;

change the scenario.

otherwise, it would sanction the unilateral and arbitrary determination by the

It is worthy to note that respondent is engaged in the trucking business where physical

employer of the gravity or extent of the employees illness and thus defeat the public

strength is of utmost requirement (sic). Complainant started working with respondent

policy in the protection of labor.

as truck helper at age twenty-three (23), then as truck driver since 1965. Complainant

In the case at bar, the employer clearly did not comply with the medical certificate

was already fifty-nine (59) when the complaint was filed and suffering from various

requirement before Sahots dismissal was effected. In the same case of Sevillana vs.

illness triggered by his work and age.

I.T. (International) Corp., we ruled:

x x x27

Since the burden of proving the validity of the dismissal of the employee rests on the

In termination cases, the burden is upon the employer to show by substantial evidence
that the termination was for lawful cause and validly made.

28

employer, the latter should likewise bear the burden of showing that the requisites for

Article 277(b) of the

a valid dismissal due to a disease have been complied with. In the absence of the

Labor Code puts the burden of proving that the dismissal of an employee was for a

required certification by a competent public health authority, this Court has ruled

valid or authorized cause on the employer, without distinction whether the employer

against the validity of the employees dismissal. It is therefore incumbent upon the

admits or does not admit the dismissal.

29

For an employees dismissal to be valid, (a)

private respondents to prove by the quantum of evidence required by law that

the dismissal must be for a valid cause and (b) the employee must be afforded due

petitioner was not dismissed, or if dismissed, that the dismissal was not illegal;

process.

30

otherwise, the dismissal would be unjustified. This Court will not sanction a dismissal

Article 284 of the Labor Code authorizes an employer to terminate an employee on the

premised on mere conjectures and suspicions, the evidence must be substantial and

ground of disease, viz:

not arbitrary and must be founded on clearly established facts sufficient to warrant his

Art. 284. Disease as a ground for termination- An employer may terminate the

separation from work.32

services of an employee who has been found to be suffering from any disease and

In addition, we must likewise determine if the procedural aspect of due process had

whose continued employment is prohibited by law or prejudicial to his health as well

been complied with by the employer.

as the health of his co-employees: xxx

From the records, it clearly appears that procedural due process was not observed in

However, in order to validly terminate employment on this ground, Book VI, Rule I,

the separation of private respondent by the management of the trucking company.

Section 8 of the Omnibus Implementing Rules of the Labor Code requires:

The employer is required to furnish an employee with two written notices before the

Sec. 8. Disease as a ground for dismissal- Where the employee suffers from a disease

latter is dismissed: (1) the notice to apprise the employee of the particular acts or

and his continued employment is prohibited by law or prejudicial to his health or to the

omissions for which his dismissal is sought, which is the equivalent of a charge; and

health of his co-employees, the employer shall not terminate his employment unless

(2) the notice informing the employee of his dismissal, to be issued after the employee

there is a certification by competent public health authority that the disease is of such

has been given reasonable opportunity to answer and to be heard on his defense. 33

nature or at such a stage that it cannot be cured within a period of six (6) months even

These, the petitioners failed to do, even only for record purposes. What management

with proper medical treatment. If the disease or ailment can be cured within the

did was to threaten the employee with dismissal, then actually implement the threat

period, the employer shall not terminate the employee but shall ask the employee to

when the occasion presented itself because of private respondents painful left thigh.

All told, both the substantive and procedural aspects of due process were violated.

necessary that all members of the association be made parties to the action. (Borlasa

Clearly, therefore, Sahots dismissal is tainted with invalidity.

vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both

On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled

parties amend, respectively, their complaint and their answer, and by agreement of

to separation pay. The law is clear on the matter. An employee who is terminated

the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office,

because of disease is entitled to "separation pay equivalent to at least one month

commissioner to examine all the books, documents, and accounts of "Turnuhan

salary or to one-half month salary for every year of service, whichever is greater

Polistico & Co.," and to receive whatever evidence the parties might desire to present.

34

xxx." Following the formula set in Art. 284 of the Labor Code, his separation pay was

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

computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880.

following resume:

We agree with the computation, after noting that his last monthly salary was

Income:

P4,160.00 so that one-half thereof is P2,080.00. Finding no reversible error nor grave
abuse of discretion on the part of appellate court, we are constrained to sustain its

Member's shares............................

97,263.70

decision. To avoid further delay in the payment due the separated worker, whose claim
was filed way back in 1994, this decision is immediately executory. Otherwise, six
percent (6%) interest per annum should be charged thereon, for any delay, pursuant

Credits paid................................

6,196.55

Interest received...........................

4,569.45

Miscellaneous...............................

1,891.00

to provisions of the Civil Code.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated
February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot

P109,620.7

his separation pay for 36 years of service at the rate of one-half monthly pay for every
year of service, amounting to P74,880.00, with interest of six per centum (6%) per

Expenses:

annum from finality of this decision until fully paid.

Costs against petitioners.

Premiums to members.......................

68,146.25

ADRIANO ARBES, ET AL., vs. VICENTE POLISTICO, ET AL.,

This is an action to bring about liquidation of the funds and property of the association
called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the

Loans on real-estate.......................

9,827.00

Loans on promissory notes..............

4,258.55

Salaries....................................

1,095.00

Miscellaneous...............................

1,686.10

defendants were designated as president-treasurer, directors and secretary of said

association.
It is well to remember that this case is now brought before the consideration of this
court for the second time. The first one was when the same plaintiffs appeared from
the order of the court below sustaining the defendant's demurrer, and requiring the

85,012.9

former to amend their complaint within a period, so as to include all the members of
"Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then
that in an action against the officers of a voluntary association to wind up its affairs
and enforce an accounting for money and property in their possessions, it is not

Cash on hand........................................

24,607.8

The defendants objected to the commissioner's report, but the trial court, having

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs.

examined the reasons for the objection, found the same sufficiently explained in the

Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable

report and the evidence, and accepting it, rendered judgment, holding that the

institution to whom the partnership funds may be ordered to be turned over, should be

association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants

included, as a party defendant. The appellants refer to article 1666 of the Civil Code,

jointly and severally to return the amount of P24,607.80, as well as the documents

which provides:

showing the uncollected credits of the association, to the plaintiffs in this case, and to

A partnership must have a lawful object, and must be established for the common

the rest of the members of the said association represented by said plaintiffs, with

benefit of the partners.

costs against the defendants.

When the dissolution of an unlawful partnership is decreed, the profits shall be given

The defendants assigned several errors as grounds for their appeal, but we believe

to charitable institutions of the domicile of the partnership, or, in default of such, to

they can all be reduced to two points, to wit: (1) That not all persons having an

those of the province.

interest in this association are included as plaintiffs or defendants; (2) that the

Appellant's contention on this point is untenable. According to said article, no

objection to the commissioner's report should have been admitted by the court below.

charitable institution is a necessary party in the present case of determination of the

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

rights of the parties. The action which may arise from said article, in the case of

followed.

unlawful partnership, is that for the recovery of the amounts paid by the member from

With regard to the second point, despite the praiseworthy efforts of the attorney of the

those in charge of the administration of said partnership, and it is not necessary for

defendants, we are of opinion that, the trial court having examined all the evidence

the said parties to base their action to the existence of the partnership, but on the fact

touching the grounds for the objection and having found that they had been explained

that of having contributed some money to the partnership capital. And hence, the

away in the commissioner's report, the conclusion reached by the court below,

charitable institution of the domicile of the partnership, and in the default thereof,

accepting and adopting the findings of fact contained in said report, and especially

those of the province are not necessary parties in this case. The article cited above

those referring to the disposition of the association's money, should not be disturbed.

permits no action for the purpose of obtaining the earnings made by the unlawful

In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the

partnership, during its existence as result of the business in which it was engaged,

findings of facts made by a referee appointed under the provisions of section 135 of

because for the purpose, as Manresa remarks, the partner will have to base his action

the Code of Civil Procedure stand upon the same basis, when approved by the Court,

upon the partnership contract, which is to annul and without legal existence by reason

as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil.,

of its unlawful object; and it is self evident that what does not exist cannot be a cause

474), the court held: "Under section 140 of the Code of Civil Procedure it is made the

of action. Hence, paragraph 2 of the same article provides that when the dissolution of

duty of the court to render judgment in accordance with the report of the referee

the unlawful partnership is decreed, the profits cannot inure to the benefit of the

unless the court shall unless for cause shown set aside the report or recommit it to the

partners, but must be given to some charitable institution.

referee. This provision places upon the litigant parties of the duty of discovering and

We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a

exhibiting to the court any error that may be contained therein." The appellants stated

clear explanation of the scope and spirit of the provision of the Civil Code which we are

the grounds

concerned. Commenting on said article Manresa, among other things says:

for

their

objection. The trial

examined

the evidence and

the

commissioner's report, and accepted the findings of fact made in the report. We find

When the subscriptions of the members have been paid to the management of the

no convincing arguments on the appellant's brief to justify a reversal of the trial

partnership, and employed by the latter in transactions consistent with the purposes

court's conclusion admitting the commissioner's findings.

of the partnership may the former demand the return of the reimbursement thereof

from the manager or administrator withholding them?

deficiency of the former law, which did not describe the purpose to which those profits

Apropos of this, it is asserted: If the partnership has no valid existence, if it is

denied the partners were to be applied, nor state what to be done with them.

considered juridically non-existent, the contract entered into can have no legal effect;

The profits are so applied, and not the contributions, because this would be an

and in that case, how can it give rise to an action in favor of the partners to judicially

excessive and unjust sanction for, as we have seen, there is no reason, in such a case,

demand from the manager or the administrator of the partnership capital, each one's

for depriving the partner of the portion of the capital that he contributed, the

contribution?

circumstances of the two cases being entirely different.

The authors discuss this point at great length, but Ricci decides the matter quite

Our Code does not state whether, upon the dissolution of the unlawful partnership, the

clearly, dispelling all doubts thereon. He holds that the partner who limits himself to

amounts contributed are to be returned by the partners, because it only deals with the

demanding only the amount contributed by him need not resort to the partnership

disposition of the profits; but the fact that said contributions are not included in the

contract on which to base his action. And he adds in explanation that the partner

disposal prescribed profits, shows that in consequences of said exclusion, the general

makes his contribution, which passes to the managing partner for the purpose of

law must be followed, and hence the partners should reimburse the amount of their

carrying on the business or industry which is the object of the partnership; or in other

respective contributions. Any other solution is immoral, and the law will not consent to

words, to breathe the breath of life into a partnership contract with an objection

the latter remaining in the possession of the manager or administrator who has

forbidden by law. And as said contrast does not exist in the eyes of the law, the

refused to return them, by denying to the partners the action to demand them.

purpose from which the contribution was made has not come into existence, and the

(Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)

administrator of the partnership holding said contribution retains what belongs to

The judgment appealed from, being in accordance with law, should be, as it is hereby,

others, without any consideration; for which reason he is not bound to return it and he

affirmed with costs against the appellants; provided, however, the defendants shall

who has paid in his share is entitled to recover it.

pay the legal interest on the sum of P24,607.80 from the date of the decision of the

But this is not the case with regard to profits earned in the course of the partnership,

court, and provided, further, that the defendants shall deposit this sum of money and

because they do not constitute or represent the partner's contribution but are the

other documents evidencing uncollected credits in the office of the clerk of the trial

result of the industry, business or speculation which is the object of the partnership,

court, in order that said court may distribute them among the members of said

and therefor, in order to demand the proportional part of the said profits, the partner

association, upon being duly identified in the manner that it may deem proper. So

would have to base his action on the contract which is null and void, since this

ordered.

partition or distribution of the profits is one of the juridical effects thereof. Wherefore

THE CITY OF MANILA, vs. FRANCISCO GAMBE, ET AL.,

considering this contract asnon-existent, by reason of its illicit object, it cannot give

JOHNSON, J.:

rise to the necessary action, which must be the basis of the judicial complaint.

From the record the following facts appear:

Furthermore, it would be immoral and unjust for the law to permit a profit from an

First. That upon the 31st day of August, 1903, the plaintiff commenced an action in the

industry prohibited by it.

Court of First Instance of the city of Manila against the defendants, Francisco Gambe,

Hence the distinction made in the second paragraph of this article of this Code,

Manuel Perez, Antonio Herranz, and Florencio Garriz, who constitute the commercial

providing that the profits obtained by unlawful means shall not enrich the partners,

firm of Herranz & Garriz, for the purpose of recovering the sum of five thousand dollars

but shall upon the dissolution of the partnership, be given to the charitable institutions

($5,000), United States currency, for certain damages occasioned by the steamship

of the domicile of the partnership, or, in default of such, to those of the province.

Alfred to the "Spanish Bridge" in the city of Manila.

This is a new rule, unprecedented by our law, introduced to supply an obvious

Second. After a consideration of the facts adduced during the trial, the Honorable

Judge Rohde, then one of the judges of the Court of First Instance of the city of Manila,

That an execution upon said judgment was duly issued against the property of said

rendered a judgment against the said Francisco Gambe, for the sum of $1,300, United

judgment debtor.

States currency, and for the costs.

That the said judgment debtor now resides in the said city of Manila.

Third. Francisco Gambe was a pilot and member of the Pilot's Association of Manila

That the sheriff of the city of Manila has returned said execution wholly unsatisfied,

and was at the time of the alleged accident and injury in charge of said steamship

and that the said judgment still remains wholly unpaid.

Alfred. Judge Rohde dismissed the cause as to the other defendants.

That affiant is informed and believes that an organization or association known as the

Fourth. From this judgment of the lower court the defendant Gambe appealed to the

"Manila Pilots' Association," of which Francisco Aguado is the chief pilot, Manuel Goitia

Supreme Court.

is the treasurer and custodian of its funds, and of which W. Morgan Shuster, Francisco

Fifth. After a consideration of the facts, the Supreme Court on the 31st day of March,

Gambe, and other pilots of the port of Manila are members, has property in its

1906, affirmed with costs the judgment of the lower court. (See City of Manila vs.

possession dedicated to and for the purpose of payment of damages caused through

Gambe, 6 Phil. Rep., 49.)

negligence of the pilots of said association, or any of them, to third persons.

Sixth. The judgment thus affirmed was returned to the lower court for an execution of

That the said association has in its possession and under its control, property of the

the same.

said judgment debtor, exceeding eight hundred pesos (P800), Philippine currency, and

Seventh. On the 26th day of May, 1906, an execution was issued upon the said

is indebted to the said judgment debtor in an amount exceeding eight hundred pesos

judgment against the said defendant, Francisco Gambe, and was returned upon the

(P800), Philippine currency.

23d day of June, 1906, unsatisfied.

That the said indebtedness to said judgment debtor arose through this, that the said

Eighth. Later, upon the 11th day of July, 1906, another execution was issued out of the

judgment debtor has deposited with the said association the amount exceeding eight

Court of First Instance against the defendant, Francisco Gambe, which was returned

hundred pesos (P800), Philippine currency, and that the said association now holds the

upon the 17th day of August, 1906, unsatisfied.

said amount subject to the order of said judgment debtor, and that the said amount

Ninth. On the same day, or the 11th day of July, 1906, in accordance with the

should be applied, affiant believes, to the payment or satisfaction of the judgment

provisions of section 431 of the Code of Procedure in Civil Actions, the plaintiff

debtor.

attempted to attach whatever money or effects which the defendant had in the said

That on the 23d day of June and 11th of July, 1906, the said Pilots' Association,

Pilots' Association of Manila. These attachments were directed to the Hongkong and

through the chief pilot, the treasurer of said association, W. Morgan Shuster, and

Shanghai Banking Corporation, the Hon. W. Morgan Shuster, Collector of Customs, as

Francisco Gambe, was duly notified and each of the above-mentioned persons were so

well as Francisco Aguado, who was the chief of the said Pilot's Association.

duly notified by the sheriff of the city of Manila, that attachment was levied against all

Tenth. On the 22d day of August, 1906, the attorney for the plaintiff presented in the

the goods, effects, interests, credits or money belonging to the defendant, in the

lower court the following affidavit:

possession of said association and persons, to cover the amount of two thousand six

Edmond Block, being duly sworn, says:

hundred and seventy pesos (P2,670), Philippine currency, and to make immediate

That he is the attorney for the plaintiff in the above-entitled action.

payment of said goods, effects, interests, credits, or money and forward same to the

That a judgment was duly entered and docketed in the said action in the said court on

sheriff.

the 20th day of April, 1906, for the sum of thirteen hundred dollars ($1,300), United

That all of the above-mentioned persons denied having in their possession, and

States currency, and costs, against the above-named defendant, in favor of the

refused to deliver any such said goods, effects, interests, credits, or money belonging

plaintiff.

to said defendant.

Wherefore deponent prays an order of this court that the said Francisco Aguado,

two first-named made declarations as to the property in their hands.

Francisco Gambe, Manuel Goitia, and W. Morgan Shuster, be and appear and answer

From the declaration made it appears:

as to the indebtedness of the said Pilots' Association to said judgment debtor, at a

That each member of the Pilots' Association before becoming such, must deposit with

time and place by said court to be specified.

the association the sum of P800, to be retained by the association for the purpose of

(Signed) EDMOND BLOCK.

satisfying damages which may be incurred by others by reason of negligence or fault

Subscribed and sworn to before me this 22d day of August, 1906, exhibiting in the act

on the part of the association in the transaction of its business.

cedula No. 175565, dated Manila, June 6, 1906.

It further appears from the declarations that persons thus depositing the money could

(Signed) MODESTO REYES,

not withdraw it; that it is property of the association and may not be withdrawn, even

Notary Public.

in case of the death of a member, and that said Francisco Gambe is a member.

Commission expires December 31, 1906.

I therefore find that the above-named respondents, either as officers of the association

Upon this affidavit, the Hon. A. S. Crossfield, one of the judges of the Court of First

or members thereof, have not in their control, nor do they possess any property,

Instance of the city of Manila, made the following order:

money, or effects which would be the subject of a levy under execution against said

On reading the foregoing affidavit, it is satisfactorily appearing to me therefrom that

Gambe, and the order to appear is discharged.

the Manila Pilots' Association has property of Francisco Gambe, the defendant in the

From this decision of the lower court the plaintiff appealed and made the following

above-entitled action, which property ought to be applied toward the satisfaction of

assignments of error in this court:

the judgment in said action, and that Francisco Aguado is the chief pilot, Manuel Goitia

1. The court below erred in deciding that the sum of P800, Philippine currency,

the treasurer, and Francisco Gambe and W. Morgan Shuster are members of said

deposited by the defendant, Gambe, with the Pilots' Association could not be

association, and that it is proper cause for this order, I, the undersigned, judge of the

withdrawn by him: "that it has become the property of the association, and that the

Court of First Instance of the city of Manila, Philippine Islands, do hereby order the said

same can not be withdrawn even in the event of the death of a member", and that the

Francisco Aguado, Francisco Gambe, Manuel Goitia, and W. Morgan Shuster personally

said Francisco Gambe is such a member.

to appear before me in the said city of Manila, on the 10th day of September, at 10

2. The court below erred in deciding that the respondents called upon to appear in this

o'clock in the morning of that day, to answer concerning the said property.

incident "either as officers of the association or as members thereof, have not under

Eleventh. In accordance with the above order, the said parties appeared before the

their control nor in their possession any property, money, or goods subject to

said court and testified relating to the money, property, credits or effects which the

attachment by reason of an execution against the said Gambe."

said Pilots' Association had in its possession belonging to the said defendants.

3. The court below erred in not ordering the respondents, as officers or members of

After hearing the evidence of these parties, the said Hon. A. S. Crossfield rendered the

the Pilots' Association, to deliver to the plaintiff, the city of Manila, the P800, Philippine

following judgment:

currency, which the said defendant Gambe, against whom the plaintiff has an

This case is now before the court for hearing the order directing Francisco Aguado as

execution pending for the sum of P2,670, Philippine currency, has in the treasury of

chief pilot, Manuel Goitia as treasurer, and Francisco Gambe and W. Morgan Shuster as

the association.

members of the Pilots' Association to answer as to any property they may have in their

The only question presented in this court is whether or not the said Pilots' Association

possession or under their control, belonging to the defendant, Francisco Gambe.

had debts, credits, or personal property, not capable of manual delivery, in its

Execution having been issued in the above-named respondents having been attached,

possession or under its control, belonging to the defendant. In other words, did said

as in garnishee proceedings, all of the above-named respondents appeared and the

Pilots' Association owe to the defendant, a debt or have in its possession and under its

control credits and other personal property, belonging to the defendant, subject to be

definite and ascertainable form at the time of the attachment. (Norris vs. Burgoyne, 4

attached in accordance with the provisions of said section 431? Section 431 of the

Cal., 409.)

Code of Procedure in Civil Actions provides:

The said Pilots' Association is purely a voluntary association of the pilots of the city of

Debts and credits, and other personal property not capable of manual delivery, shall

Manila. The association is expressly recognized under the law. No one can become a

be attached by leaving with the person owing such debts or having in his possession

member of said association who has not shown special qualifications as a pilot, and no

or under his control such credits and other personal property, a copy of the order of

one can act as a pilot who has not been expressly recommended and approved by the

attachment, and a notice that the debts owing by him to the defendant, or the credits

collector of the port of Manila, and no one can become a member of said association

and other personal property in his possession or under his control, belonging to the

without having paid a certain sum of money into the treasury of said association. This

defendant, are attached in pursuance of such order.

funds becomes the property of the association for the purpose of protecting its

The test whether or not the interests of the defendant, if he has any, in said

members against losses occasioned by its members to ships while said ships are

association may be attached by virtue of said section is whether said Gambe could

under the control of a member or members of said association. The money paid in by

maintain an action against the said association for the recovery of the specific debt,

one member of said association becomes a part of a general fund of said association,

credit, or personal property. It would seem clear and conclusive that if Gambe himself

subject to be paid out for damages done to ships by any member of the association.

could not maintain an action against the said association for the recovery of the

The fund created by the contributions of the members no longer belongs to the

specific debt, credit, or personal property which the plaintiff here is attempting to get

members of the association; it belongs to the association. The association has a

possession of by virtue of the action, that said plaintiff could not recover the same

distinct and separate entity from the individual members who make it up. The fund is

under the form of action adopted by it. If Gambe could successfully maintain an action

created for a specific purpose. (See articles 35, 36, 38, and 39 of the regulations of

against the said Pilots' Association for the recovery of a specific sum of money or

said association.) Under the regulations of said association it has assumed a certain

specific personal property, then, in our opinion, his judgment creditors, or the plaintiff

responsibility for its members. Whether the damage caused by the defendant in this

in this case, might also by the procedure provided for under said section 431 maintain

case is of such a character for which the said association assumed the responsibility is

the present action, but not otherwise. (Hassie vs. God Is With Us Cong., 35 Cal., 378,

a question which the person injured has a right to test in a special action against said

386.)

association.

We do not believe that a mere equitable or contingent debt, credit, or personal

From the evidence that was adduced before the lower court we are of the opinion, and

property can be reached by the procedure provided for in said section (431). (Redondo

so hold, that the said association had no debts, credits, or personal property, not

Beach Co. vs. Brewer, 101 Cal., 322.)

capable of manual delivery, in its possession, belonging to the defendant (Gambe),

A "debt," as used in said section, means some definite amount of money, ascertained

which are subject to be attached in accordance with the provisions of section 431. It is,

or capable of being ascertained, which may be paid over to the sheriff or the court

therefore, hereby ordered that the plaintiff take nothing in this action and that the

under an order, while "credits " and "personal property" are something belonging to

plaintiff be charged with the costs of both instances.

the defendant, but in possession and under the control of the person attached. (Gow

E. S. LYONS vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,

vs. Marshall, 90 Cal., 565; Dunsmoor vs. Furstenfeldt, 88 Cal., 522.)

deceased,

In our opinion it is also essential that the debt, credit, or the personal property which is

This action was institute in the Court of First Instance of the City of Manila, by E. S.

attempted to be subjected to the payment of the obligation of the defendant, and

Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased,

which is alleged to be in the possession of the person attached, must exist in some

consequent upon the taking of an appeal by the executor from the allowance of the

claim sued upon by the committee on claims in said estate. The purpose of the action

assistance which he obtained from others, to acquire said estate. The amount required

is to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering

for the first payment was P150,000, and as Elser had available only about P120,000,

& Co., Ltd., together with the sum of about P125,000, representing the dividends

including the P20,000 advanced upon the option, it was necessary to raise the

which accrued on said stock prior to October 21, 1926, with lawful interest. Upon

remainder by obtaining a loan for P50,000. This amount was finally obtained from a

hearing the cause the trial court absolved the defendant executor from the complaint,

Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy

and the plaintiff appealed.

Cho Yee, a son of the lender; and in order to get the money it was necessary for Elser

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of

not only to give a personal note signed by himself and his two associates in the

Manila where he was engaged during the years with which we are here concerned in

projected enterprise, but also by the Fidelity & Surety Company. The money thus

buying, selling, and administering real estate. In several ventures which he had made

raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and

in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him,

what he already had in bank Elser purchased the San Juan Estate on or about June 28,

the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular

1920. For the purpose of the further development of the property a limited partnership

vocation was that of a missionary, or missionary agent, of the Methodist Episcopal

had, about this time, been organized by Elser and three associates, under the name of

Church, went on leave to the United States and was gone for nearly a year and a half,

J. K. Pickering & Company; and when the transfer of the property was effected the

returning on September 21, 1920. On the eve of his departure Elser made a written

deed was made directly to this company. As Elser was the principal capitalist in the

statements showing that Lyons was, at that time, half owner with Elser of three

enterprise he received by far the greater number of the shares issued, his portion

particular pieces of real property. Concurrently with this act Lyons execute in favor of

amount in the beginning to 3,290 shares.

Elser a general power of attorney empowering him to manage and dispose of said

While these negotiations were coming to a head, Elser contemplated and hoped that

properties at will and to represent Lyons fully and amply, to the mutual advantage of

Lyons might be induced to come in with him and supply part of the means necessary

both. During the absence of Lyons two of the pieces of property above referred to were

to carry the enterprise through. In this connection it appears that on May 20, 1920,

sold by Elser, leaving in his hands a single piece of property located at 616-618

Elser wrote Lyons a letter, informing him that he had made an offer for a big

Carried Street, in the City of Manila, containing about 282 square meters of land, with

subdivision and that, if it should be acquired and Lyons would come in, the two would

the improvements thereon.

be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired,

In the spring of 1920 the attention of Elser was drawn to a piece of land, containing

Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for

about 1,500,000 square meters, near the City of Manila, and he discerned therein a

Lyons to resign (Exhibit M-13), meaning that he should resign his position with the

fine opportunity for the promotion and development of a suburban improvement. This

mission board in New York. On the same date he wrote Lyons a letter explaining some

property, which will be herein referred to as the San Juan Estate, was offered by its

details of the purchase, and added "have advised in my cable that you resign and I

owners for P570,000. To afford a little time for maturing his plans, Elser purchased an

hope you can do so immediately and will come and join me on the lines we have so

option on this property for P5,000, and when this option was about to expire without

often spoken about. . . . There is plenty of business for us all now and I believe we

his having been able to raise the necessary funds, he paid P15,000 more for an

have started something that will keep us going for some time." In one or more

extension of the option, with the understanding in both cases that, in case the option

communications prior to this, Elser had sought to impress Lyons with the idea that he

should be exercised, the amounts thus paid should be credited as part of the first

should raise all the money he could for the purpose of giving the necessary assistance

payment. The amounts paid for this option and its extension were supplied by Elser

in future deals in real estate.

entirely from his own funds. In the end he was able from his own means, and with the

The enthusiasm of Elser did not communicate itself in any marked degree to Lyons,

and found him averse from joining in the purchase of the San Juan Estate. In fact upon

derived precisely from the ownership of these shares.

this visit of Lyons to the United States a grave doubt had arisen as to whether he

We now turn to the incident which supplies the main basis of this action. It will be

would ever return to Manila, and it was only in the summer of 1920 that the board of

remembered that, when Elser obtained the loan of P50,000 to complete the amount

missions of his church prevailed upon him to return to Manila and resume his position

needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted

as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons

that he should procure the signature of the Fidelity & Surety Co. on the note to be

wrote a letter from New York thanking Elser for his offer to take Lyons into his new

given for said loan. But before signing the note with Elser and his associates, the

project and adding that from the standpoint of making money, he had passed up a

Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it.

good thing.

To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of

One source of embarrassment which had operated on Lyson to bring him to the

redemption in the property owned by himself and Lyons on Carriedo Street. This

resolution to stay out of this venture, was that the board of mission was averse to his

mortgage was executed on June 30, 1920, at which time Elser expected that Lyons

engaging in business activities other than those in which the church was concerned;

would come in on the purchase of the San Juan Estate. But when he learned from the

and some of Lyons' missionary associates had apparently been criticizing his

letter from Lyons of July 21, 1920, that the latter had determined not to come into this

independent commercial activities. This fact was dwelt upon in the letter above-

deal, Elser began to cast around for means to relieve the Carriedo property of the

mentioned. Upon receipt of this letter Elser was of course informed that it would be

encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he

out of the question to expect assistance from Lyons in carrying out the San Juan

addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a

project. No further efforts to this end were therefore made by Elser.

property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of

When Elser was concluding the transaction for the purchase of the San Juan Estate, his

the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity

book showed that he was indebted to Lyons to the extent of, possibly, P11,669.72,

& Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in

which had accrued to Lyons from profits and earnings derived from other properties;

favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and

and when the J. K. Pickering & Company was organized and stock issued, Elser

delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company.

indorsed to Lyons 200 of the shares allocated to himself, as he then believed that

The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo

Lyons would be one of his associates in the deal. It will be noted that the par value of

property and delivered it to Elser. But notwithstanding the fact that these documents

these 200 shares was more than P8,000 in excess of the amount which Elser in fact

were executed and delivered, the new mortgage and the release of the old were never

owed to Lyons; and when the latter returned to the Philippine Islands, he accepted

registered; and on September 25, 1920, thereafter, Elser returned the cancellation of

these shares and sold them for his own benefit. It seems to be supposed in the

the mortgage on the Carriedo property and took back from the Fidelity & Surety Co.

appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort

the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of

of basis for the present action, or at least strengthens the considerations involved in a

the J. K. Pickering & Company which he had delivered to it.

feature of the case to be presently explained. This view is manifestly untenable, since

The explanation of this change of purpose is undoubtedly to be found in the fact that

the ratification of the transaction by Lyons and the appropriation by him of the shares

Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the

which were issued to him leaves no ground whatever for treating the transaction as a

course of a conversation with Elser told him to let the Carriedo mortgage remain on

source of further equitable rights in Lyons. We should perhaps add that after Lyons'

the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation

return to the Philippine Islands he acted for a time as one of the members of the board

in which Lyons used the words above quoted, and as that conversation supplies the

of directors of the J. K. Pickering & Company, his qualification for this office being

most reasonable explanation of Elser's recession from his purpose of relieving the

Carriedo property, the trial court was, in our opinion, well justified in accepting as a

from Uy Siuliong in the manner already explained had been used to held finance the

proven fact the consent of Lyons for the mortgage to remain on the Carriedo property.

purchase of the San Juan Estate. He seems to have supposed that the Carried property

This concession was not only reasonable under the circumstances, in view of the

had been mortgaged to aid in putting through another deal, namely, the purchase of a

abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons

property referred to in the correspondence as the "Ronquillo property"; and in this

200 shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in

connection a letter of Elser of the latter part of May, 1920, can be quoted in which he

excess of the indebtedness which Elser had owed to Lyons upon statement of account.

uses this language:

The trial court found in effect that the excess value of these shares over Elser's actual

As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use

indebtedness was conceded by Elser to Lyons in consideration of the assistance that

part of the money for Ronquillo buy (P60,000) if the owner comes through.

had been derived from the mortgage placed upon Lyon's interest in the Carriedo

Other correspondence shows that Elser had apparently been trying to buy the

property. Whether the agreement was reached exactly upon this precise line of

Ronquillo property, and Lyons leads us to infer that he thought that the money

thought is of little moment, but the relations of the parties had been such that it was

obtained by mortgaging the Carriedo property had been used in the purchase of this

to be expected that Elser would be generous; and he could scarcely have failed to take

property. It doubtedless appeared so to him in the retrospect, but certain consideration

account of the use he had made of the joint property of the two.

show that he was inattentive to the contents of the quotation from the letter above

As the development of the San Juan Estate was a success from the start, Elser paid the

given. He had already been informed that, although Elser was angling for the Ronquillo

note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more

property, its price had gone up, thus introducing a doubt as to whether he could get it;

than five months later. It will thus be seen that the mortgaging of the Carriedo

and the quotation above given shows that the intended use of the money obtained by

property never resulted in damage to Lyons to the extent of a single cent; and

mortgaging the Carriedo property was that only part of the P50,000 thus obtained

although the court refused to allow the defendant to prove the Elser was solvent at

would be used in this way, if the deal went through. Naturally, upon the arrival of

this time in an amount much greater than the entire encumbrance placed upon the

Lyons in September, 1920, one of his first inquiries would have been, if he did not

property, it is evident that the risk imposed upon Lyons was negligible. It is also plain

know before, what was the status of the proposed trade for the Ronquillo property.

that no money actually deriving from this mortgage was ever applied to the purchase

Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled

of the San Juan Estate. What really happened was the Elser merely subjected the

Lyons something to this effect;: "I have mortgaged the property on Carriedo Street,

property to a contingent liability, and no actual liability ever resulted therefrom. The

secured by my personal note. You are amply protected. I wish you to join me in the

financing of the purchase of the San Juan Estate, apart from the modest financial

San Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram

participation of his three associates in the San Juan deal, was the work of Elser

was received by him, and we consider this point of fact of little moment, since the

accomplished entirely upon his own account.

proof shows that Lyons knew that the Carriedo mortgage had been executed, and after

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000

his arrival in Manila he consented for the mortgage to remain on the property until it

upon the equity of redemption in the Carriedo property, Lyons, as half owner of said

was paid off, as shortly occurred. It may well be that Lyons did not at first clearly

property, became, as it were, involuntarily the owner of an undivided interest in the

understand all the ramifications of the situation, but he knew enough, we think, to

property acquired partly by that money; and it is insisted for him that, in consideration

apprise him of the material factors in the situation, and we concur in the conclusion of

of this fact, he is entitled to the four hundred forty-six and two-thirds shares of J. K.

the trial court that Elser did not act in bad faith and was guilty of no fraud.

Pickering & Company, with the earnings thereon, as claimed in his complaint.

In the purely legal aspect of the case, the position of the appellant is, in our opinion,

Lyons tells us that he did not know until after Elser's death that the money obtained

untenable. If Elser had used any money actually belonging to Lyons in this deal, he

would under article 1724 of the Civil Code and article 264 of the Code of Commerce,

for income tax purposes is the issue in this petition.

be obligated to pay interest upon the money so applied to his own use. Under the law

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino,

prevailing in this jurisdiction a trust does not ordinarily attach with respect to property

et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan

acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1

Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir

Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of

Development Corporation, while the three parcels of land were sold by petitioners to

partnership had existed in the money used, the case might be difference; and much

Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in

emphasis is laid in the appellant's brief upon the relation of partnership which, it is

the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of

claimed, existed. But there was clearly no general relation of partnership, under article

P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid

1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not

by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said

acting for any partnership composed of himself and Lyons, and the law cannot be

years.

distorted into a proposition which would make Lyons a participant in this deal contrary

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I.

to his express determination.

Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as

It seems to be supposed that the doctrines of equity worked out in the jurisprudence

alleged deficiency corporate income taxes for the years 1968 and 1970.

of England and the United States with reference to trust supply a basis for this action.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that

The doctrines referred to operate, however, only where money belonging to one

they had availed of tax amnesties way back in 1974.

person is used by another for the acquisition of property which should belong to both;

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in

and it takes but little discernment to see that the situation here involved is not one for

the years 1968 and 1970, petitioners as co-owners in the real estate transactions

the application of that doctrine, for no money belonging to Lyons or any partnership

formed an unregistered partnership or joint venture taxable as a corporation under

composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan

Section 20(b) and its income was subject to the taxes prescribed under Section 24,

Estate. Of course, if any damage had been caused to Lyons by the placing of the

both of the National Internal Revenue Code

mortgage upon the equity of redemption in the Carriedo property, Elser's estate would

subject to corporate income tax as distinguished from profits derived from the

be liable for such damage. But it is evident that Lyons was not prejudice by that act.

partnership by them which is subject to individual income tax; and that the availment

The appellee insist that the trial court committed error in admitting the testimony of

of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of

Lyons upon matters that passed between him and Elser while the latter was still alive.

their individual income tax liabilities but did not relieve them from the tax liability of

While the admission of this testimony was of questionable propriety, any error made

the unregistered partnership. Hence, the petitioners were required to pay the

by the trial court on this point was error without injury, and the determination of the

deficiency income tax assessed.

question is not necessary to this decision. We therefore pass the point without further

Petitioners filed a petition for review with the respondent Court of Tax Appeals

discussion.

docketed as CTA Case No. 3045. In due course, the respondent court by a majority

The judgment appealed from will be affirmed, and it is so ordered, with costs against

decision of March 30, 1987,

the appellant.

commissioner with costs against petitioners.

MARIANO P. PASCUAL and RENATO P. DRAGON vs. THE COMMISSIONER OF

It ruled that on the basis of the principle enunciated in Evangelista

INTERNAL REVENUE and COURT OF TAX APPEALS,

partnership was in fact formed by petitioners which like a corporation was subject to

The distinction between co-ownership and an unregistered partnership or joint venture

corporate income tax distinct from that imposed on the partners.

that the unregistered partnership was

affirmed the decision and action taken by respondent

an unregistered

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that

The issue in this case is whether petitioners are subject to the tax on corporations

considering the circumstances of this case, although there might in fact be a co-

provided for in section 24 of Commonwealth Act No. 466, otherwise known as the

ownership between the petitioners, there was no adequate basis for the conclusion

National Internal Revenue Code, as well as to the residence tax for corporations and

that they thereby formed an unregistered partnership which made "hem liable for

the real estate dealers' fixed tax. With respect to the tax on corporations, the issue

corporate income tax under the Tax Code.

hinges on the meaning of the terms corporation and partnership as used in sections

Hence, this petition wherein petitioners invoke as basis thereof the following alleged

24 and 84 of said Code, the pertinent parts of which read:

errors of the respondent court:

Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected,

A.

IN

HOLDING

THE

and paid annually upon the total net income received in the preceding taxable year

RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN

from all sources by every corporation organized in, or existing under the laws of the

UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE

Philippines, no matter how created or organized but not including duly registered

BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE

general co-partnerships (companies collectives), a tax upon such income equal to the

PETITIONERS.

sum of the following: ...

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

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or

THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS

organized,

LAID DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A

associations or insurance companies, but does not include duly registered general co-

PARTNERSHIP EXISTS.

partnerships (companies colectivas).

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND

Article 1767 of the Civil Code of the Philippines provides:

THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

By the contract of partnership two or more persons bind themselves to contribute

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM

money, property, or industry to a common fund, with the intention of dividing the

PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13,

profits among themselves.

Rollo.)

Pursuant to this article, the essential elements of a partnership are two, namely: (a)

The petition is meritorious.

an agreement to contribute money, property or industry to a common fund; and (b)

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

intent to divide the profits among the contracting parties. The first element is

Evangelista.

AS

PRESUMPTIVELY

CORRECT

THE

DETERMINATION

OF

joint-stock

companies,

joint

accounts

(cuentas

en

participation),

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

In the said case, petitioners borrowed a sum of money from their father which

down to their intent in acting as they did. Upon consideration of all the facts and

together with their own personal funds they used in buying several real properties.

circumstances surrounding the case, we are fully satisfied that their purpose was to

They appointed their brother to manage their properties with full power to lease,

engage in real estate transactions for monetary gain and then divide the same among

collect, rent, issue receipts, etc. They had the real properties rented or leased to

themselves, because:

various tenants for several years and they gained net profits from the rental income.

1. Said common fund was not something they found already in existence. It was not a

Thus, the Collector of Internal Revenue demanded the payment of income tax on a

property inherited by them pro indiviso. They created it purposely. What is more they

corporation, among others, from them.

jointly borrowed a substantial portion thereof in order to establish said common fund.

In resolving the issue, this Court held as follows:

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,

contribute money, property or industry to a common fund, and that they intended to

1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23,

divide the profits among themselves. Respondent commissioner and/ or his

1944, by the acquisition of another real estate for P108,825.00. Five (5) days later

representative just assumed these conditions to be present on the basis of the fact

(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)

that petitioners purchased certain parcels of land and became co-owners thereof.

acquired and transcations undertaken, as well as the brief interregnum between each,

In Evangelists, there was a series of transactions where petitioners purchased twenty-

particularly the last three purchases, is strongly indicative of a pattern or common

four (24) lots showing that the purpose was not limited to the conservation or

design

the

preservation of the common fund or even the properties acquired by them. The

aforementioned common fund or even of the property acquired by petitioners in

character of habituality peculiar to business transactions engaged in for the purpose

February, 1943. In other words, one cannot but perceive a character of habituality

of gain was present.

peculiar to business transactions engaged in for purposes of gain.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell

3. The aforesaid lots were not devoted to residential purposes or to other personal

the same nor make any improvements thereon. In 1966, they bought another three (3)

uses, of petitioners herein. The properties were leased separately to several persons,

parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of

who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals.

land after which they did not make any additional or new purchase. The remaining

Seemingly, the lots are still being so let, for petitioners do not even suggest that there

three (3) parcels were sold by them in 1970. The transactions were isolated. The

has been any change in the utilization thereof.

character of habituality peculiar to business transactions for the purpose of gain was

4. Since August, 1945, the properties have been under the management of one

not present.

person, namely, Simeon Evangelists, with full power to lease, to collect rents, to issue

In Evangelista, the properties were leased out to tenants for several years. The

receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes

business was under the management of one of the partners. Such condition existed for

and checks. Thus, the affairs relative to said properties have been handled as if the

over fifteen (15) years. None of the circumstances are present in the case at bar. The

same belonged to a corporation or business enterprise operated for profit.

co-ownership started only in 1965 and ended in 1970.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact,

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

over fifteen (15) years, since the first property was acquired, and over twelve (12)

I wish however to make the following observation Article 1769 of the new Civil Code

years, since Simeon Evangelists became the manager.

lays down the rule for determining when a transaction should be deemed a

6. Petitioners have not testified or introduced any evidence, either on their purpose in

partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

creating the set up already adverted to, or on the causes for its continued existence.

(2) Co-ownership or co-possession does not itself establish a partnership, whether

They did not even try to offer an explanation therefor.

such co-owners or co-possessors do or do not share any profits made by the use of the

Although, taken singly, they might not suffice to establish the intent necessary to

property;

constitute a partnership, the collective effect of these circumstances is such as to

(3) The sharing of gross returns does not of itself establish a partnership, whether or

leave no room for doubt on the existence of said intent in petitioners herein. Only one

not the persons sharing them have a joint or common right or interest in any property

or two of the aforementioned circumstances were present in the cases cited by

from which the returns are derived;

that

was

not

limited

to

the

conservation

and

petitioners herein, and, hence, those cases are not in point.

preservation

of

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

In the present case, there is no evidence that petitioners entered into an agreement to

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

of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson,

have a joint or common right or interest in the property. This only means that, aside

142 S.W. 363,160 No. App. 14.)

from the circumstance of profit, the presence of other elements constituting

The sharing of returns does not in itself establish a partnership whether or not the

partnership is necessary, such as the clear intent to form a partnership, the existence

persons sharing therein have a joint or common right or interest in the property. There

of a juridical personality different from that of the individual partners, and the freedom

must be a clear intent to form a partnership, the existence of a juridical personality

to transfer or assign any interest in the property by one with the consent of the others

different from the individual partners, and the freedom of each party to transfer or

(Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)

assign the whole property.

It is evident that an isolated transaction whereby two or more persons contribute

In the present case, there is clear evidence of co-ownership between the petitioners.

funds to buy certain real estate for profit in the absence of other circumstances

There is no adequate basis to support the proposition that they thereby formed an

showing a contrary intention cannot be considered a partnership.

unregistered partnership. The two isolated transactions whereby they purchased

Persons who contribute property or funds for a common enterprise and agree to share

properties and sold the same a few years thereafter did not thereby make them

the gross returns of that enterprise in proportion to their contribution, but who

partners. They shared in the gross profits as co- owners and paid their capital gains

severally retain the title to their respective contribution, are not thereby rendered

taxes on their net profits and availed of the tax amnesty thereby. Under the

partners. They have no common stock or capital, and no community of interest as

circumstances, they cannot be considered to have formed an unregistered partnership

principal proprietors in the business itself which the proceeds derived. (Elements of

which is thereby liable for corporate income tax, as the respondent commissioner

the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)

proposes.

A joint purchase of land, by two, does not constitute a co-partnership in respect

And even assuming for the sake of argument that such unregistered partnership

thereto; nor does an agreement to share the profits and losses on the sale of land

appears to have been formed, since there is no such existing unregistered partnership

create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142

with a distinct personality nor with assets that can be held liable for said deficiency

U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

corporate income tax, then petitioners can be held individually liable as partners for

Where plaintiff, his brother, and another agreed to become owners of a single tract of

this unpaid obligation of the partnership p.

realty, holding as tenants in common, and to divide the profits of disposing of it, the

the benefits of tax amnesty as individual taxpayers in these transactions, they are

brother and the other not being entitled to share in plaintiffs commission, no

thereby relieved of any further tax liability arising therefrom.

partnership existed as between the three parties, whatever their relation may have

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent

been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

Court of Tax Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and

In order to constitute a partnership inter sese there must be: (a) An intent to form the

another decision is hereby rendered relieving petitioners of the corporate income tax

same; (b) generally participating in both profits and losses; (c) and such a community

liability in this case, without pronouncement as to costs.

of interest, as far as third persons are concerned as enables each party to make

SO ORDERED.

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

However, as petitioners have availed of