Article 1769
partnership would result in oppressive taxation and confirm the dictum
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS
and REMEDIOS P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters
who sold two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co.,
Ltd. on two lots with areas of 1,124 and 963 square meters located at
Greenhills, San Juan, Rizal. The next day he transferred his rights to his
four children, the petitioners, to enable them to build their residences.
The company sold the two lots to petitioners for P178,708.12 on March
13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to
them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation and
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each
of them. They treated the profit as a capital gain and paid an income tax
on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue required the
four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof He
assessed P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or a total of
P71,074.56.
Not only that. He considered the share of the profits of each petitioner in
the sum of P33,584 as a " taxable in full (not a mere capital gain of which
is taxable) and required them to pay deficiency income taxes
aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes
and penalties totalling P127,781.76 on their profit of P134,336, in
addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the meaning
of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax
Court sustained the same. Judge Roaquin dissented. Hence, the instant
appeal.
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same
and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
that the power to tax involves the power to destroy. That eventuality
should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as partners would
obliterate the distinction between a co-ownership and a partnership. The
petitioners were not engaged in any joint venture by reason of that
isolated transaction.
Their original purpose was to divide the lots for residential purposes. If
later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to
resell the same to dissolve the co-ownership. The division of the profit
was merely incidental to the dissolution of the co-ownership which was
in the nature of things a temporary state. It had to be terminated sooner
or later. Castan Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por
razon del origen, en que la sociedad presupone necesariamente la
convencion, mentras que la comunidad puede existir y existe
ordinariamente sin ela; y por razon del fin objecto, en que el objeto de
la sociedad es obtener lucro, mientras que el de la indivision es solo
mantener en su integridad la cosa comun y favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la
que se dice que si en nuestro Derecho positive se ofrecen a veces
dificultades al tratar de fijar la linea divisoria entre comunidad de bienes
y contrato de sociedad, la moderna orientacion de la doctrina cientifica
seala como nota fundamental de diferenciacion aparte del origen de
fuente de que surgen, no siempre uniforme, la finalidad perseguida por
los interesados: lucro comun partible en la sociedad, y mera
conservacion y aprovechamiento en la comunidad. (Derecho Civil
Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross
returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any
property from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue,
67 Phil. 666, where 15 persons contributed small amounts to purchase
a two-peso sweepstakes ticket with the agreement that they would
divide the prize The ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent
Commissioner:
Co-owership distinguished from partnership.We find that the case at
bar is fundamentally similar to the De Leon case. Thus, like the De Leon
heirs, the Longa heirs inherited the 'hacienda' in question pro-indiviso
from their deceased parents; they did not contribute or invest additional
' capital to increase or expand the inherited properties; they merely
continued dedicating the property to the use to which it had been put by
their forebears; they individually reported in their tax returns their
corresponding shares in the income and expenses of the 'hacienda', and
they continued for many years the status of co-ownership in order, as
conceded by respondent, 'to preserve its (the 'hacienda') value and to
continue the existing contractual relations with the Central Azucarera de
Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July
31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership, or
a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations,
inasmuch as if a property does not produce an income at all, it is not
subject to any kind of income tax, whether the income tax on individuals
or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738,
September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1,
1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA
74, where after an extrajudicial settlement the co-heirs used the
inheritance or the incomes derived therefrom as a common fund to
produce profits for themselves, it was held that they were taxable as an
unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue,
24 SCRA 198, where father and son purchased a lot and building,
entrusted the administration of the building to an administrator and
divided equally the net income, and from Evangelista vs. Collector of
Internal Revenue, 102 Phil. 140, where the three Evangelista sisters
bought four pieces of real property which they leased to various tenants
and derived rentals therefrom. Clearly, the petitioners in these two cases
had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated
was whether the father donated the two lots to the petitioners and
whether he paid the donor's tax (See Art. 1448, Civil Code). We are not
prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The assessments are cancelled. No costs.
SO ORDERED.
G.R. Nos. L-24020-21 July 29, 1968
FLORENCIO REYES and ANGEL REYES, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF
TAX APPEALS, respondents.
Jose W. Diokno and Domingo Sandoval for petitioners.
Office of the Solicitor General for respondents.
FERNANDO, J.:
Petitioners in this case were assessed by respondent Commissioner of
Internal Revenue the sum of P46,647.00 as income tax, surcharge and
compromise for the years 1951 to 1954, an assessment subsequently
reduced to P37,528.00. This assessment sought to be reconsidered
unsuccessfully was the subject of an appeal to respondent Court of Tax
Appeals. Thereafter, another assessment was made against petitioners,
this time for back income taxes plus surcharge and compromise in the
total sum of P25,973.75, covering the years 1955 and 1956. There being
a failure on their part to have such assessments reconsidered, the
matter was likewise taken to the respondent Court of Tax Appeals. The
two cases1 involving as they did identical issues and ultimately traceable
to facts similar in character were heard jointly with only one decision
being rendered.
In that joint decision of respondent Court of Tax Appeals, the tax liability
for the years 1951 to 1954 was reduced to P37,128.00 and for the years
1955 and 1956, to P20,619.00 as income tax due "from the partnership
formed" by petitioners.2 The reduction was due to the elimination of
surcharge, the failure to file the income tax return being accepted as due
to petitioners honest belief that no such liability was incurred as well as
the compromise penalties for such failure to file.3 A reconsideration of
the aforesaid decision was sought and denied by respondent Court of
Tax Appeals. Hence this petition for review.
The facts as found by respondent Court of Tax Appeals, which being
supported by substantial evidence, must be respected4 follow: "On
October 31, 1950, petitioners, father and son, purchased a lot and
building, known as the Gibbs Building, situated at 671 Dasmarias
Street, Manila, for P835,000.00, of which they paid the sum of
P375,000.00, leaving a balance of P460,000.00, representing the
mortgage obligation of the vendors with the China Banking Corporation,
which mortgage obligations were assumed by the vendees. The initial
payment of P375,000.00 was shared equally by petitioners. At the time
of the purchase, the building was leased to various tenants, whose rights
under the lease contracts with the original owners, the purchasers,
petitioners herein, agreed to respect. The administration of the building
was entrusted to an administrator who collected the rents; kept its books
and records and rendered statements of accounts to the owners;
negotiated leases; made necessary repairs and disbursed payments,
whenever necessary, after approval by the owners; and performed such
other functions necessary for the conservation and preservation of the
building. Petitioners divided equally the income of operation and
maintenance. The gross income from rentals of the building amounted
to about P90,000.00 annually."5
From the above facts, the respondent Court of Tax Appeals applying the
appropriate provisions of the National Internal Revenue Code, the first
of which imposes an income tax on corporations "organized in, or
existing under the laws of the Philippines, no matter how created or
organized but not including duly registered general co-partnerships
(companias colectivas), ...,"6 a term, which according to the second
provision cited, includes partnerships "no matter how created or
organized, ...,"7 and applying the leading case of Evangelista v.
Collector of Internal Revenue,8 sustained the action of respondent
Commissioner of Internal Revenue, but reduced the tax liability of
petitioners, as previously noted.
Petitioners maintain the view that the Evangelista ruling does not apply;
for them, the situation is dissimilar.1wph1.t Consequently they
allege that the reliance by respondent Court of Tax Appeals was
unwarranted and the decision should be set aside. If their interpretation
of the authoritative doctrine therein set forth commands assent, then
clearly what respondent Court of Tax Appeals did fails to find shelter in
the law. That is the crux of the matter. A perusal of the Evangelista
decision is therefore unavoidable.
As noted in the opinion of the Court, penned by the present Chief
Justice, the issue was whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, ..."9 After
referring to another section of the National Internal Revenue Code,
which explicitly provides that the term corporation "includes
partnerships" and then to Article 1767 of the Civil Code of the
Philippines, defining what a contract of partnership is, the opinion goes
on to state that "the essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a common
fund; and (b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to and did, contribute money and
property to a common fund. Hence, the issue narrows down to their
intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, ..."10
In support of the above conclusion, reference was made to the following
circumstances, namely, the common fund being created purposely not
something already found in existence, the investment of the same not
merely in one transaction but in a series of transactions; the lots thus
acquired not being devoted to residential purposes or to other personal
uses of petitioners in that case; such properties having been under the
management of one person with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts and to endorse
notes and checks; the above conditions having existed for more than 10
years since the acquisition of the above properties; and no testimony
having been introduced as to the purpose "in creating the set up already
adverted to, or on the causes for its continued existence."11 The
conclusion that emerged had all the imprint of inevitability. Thus:
"Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein."12
It may be said that there could be a differentiation made between the
circumstances above detailed and those existing in the present case. It
does not suffice though to preclude the applicability of the Evangelista
decision. Petitioners could harp on these being only one transaction.
They could stress that an affidavit of one of them found in the Bureau of
Internal Revenue records would indicate that their intention was to
house in the building acquired by them the respective enterprises, FRANCISCO BASTIDA, plaintiff-appellee,
coupled with a plan of effecting a division in 10 years. It is a little
surprising then that while the purchase was made on October 31, 1950 vs.
and their brief as petitioners filed on October 20, 1965, almost 15 years
later, there was no allegation that such division as between them was in MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
fact made. Moreover, the facts as found and as submitted in the brief
made clear that the building in question continued to be leased by other MENZI & CO., appellant.
parties with petitioners dividing "equally the income ... after deducting
the expenses of operation and maintenance ..."13 Differences of such
slight significance do not call for a different ruling. Romualdez Brothers and Harvey and O'Brien for appellant.

Jose M. Casal, Alberto Barretto and Gibbs and McDonough for appellee.
It is obvious that petitioners' effort to avoid the controlling force of the
Evangelista ruling cannot be deemed successful. Respondent Court of
Tax Appeals acted correctly. It yielded to the command of an VICKERS, J.:
authoritative decision; it recognized its binding character. There is
clearly no merit to the second error assigned by petitioners, who would
deny its applicability to their situation.
This is an appeal by Menzi & Co., Inc., one of the defendants, from a
decision of the Court of First Instance of Manila. The case was tried on
the amended complaint dated May 26, 1928 and defendants' amended
The first alleged error committed by respondent Court of Tax Appeals in answer thereto of September 1, 1928. For the sake of clearness, we
holding that petitioners, in acquiring the Gibbs Building, established a shall incorporate herein the principal allegations of the parties.
partnership subject to income tax as a corporation under the National
Internal Revenue Code is likewise untenable. In their discussion in their
brief of this alleged error, stress is laid on their being co-owners and not
partners. Such an allegation was likewise made in the Evangelista case. FIRST CAUSE OF ACTION

This is the way it was disposed of in the opinion of the present Chief Plaintiff alleged:
Justice: "This pretense was correctly rejected by the Court of Tax
Appeals."14 Then came the explanation why: "To begin with, the tax in
question is one imposed upon "corporations", which, strictly speaking,
are distinct and different from "partnerships". When our Internal I
Revenue Code includes "partnerships" among the entities subject to the
tax on "corporations", said Code must allude, therefore, to organizations
which are not necessarily "partnerships", in the technical sense of the
That the defendant J.M. Menzi, together with his wife and daughter,
term. Thus, for instance, section 24 of said Code exempts from the owns ninety-nine per cent (99%) of the capital stock of the defendant
aforementioned tax "duly registered general partnerships", which
Menzi & Co., Inc., that the plaintiff has been informed and therefore
constitute precisely one of the most typical forms of partnerships in this
believes that the defendant J.M. Menzi, his wife and daughter, together
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term with the defendant P.C. Schlobohm and one Juan Seiboth, constitute
corporation includes partnerships, no matter how created or organized."
the board of directors of the defendant, Menzi & Co., Inc.;
This qualifying expression clearly indicates that a joint venture need not
be undertaken in any of the standard forms, or in conformity with the
usual requirements of the law on partnerships, in order that one could
be deemed constituted for purposes of the tax on corporations. Again, II
pursuant to said section 84(b), the term "corporation" includes, among
others, "joint accounts, (cuentas en participacion)" and "associations",
none of which has a legal personality of its own, independent of that of
its members. Accordingly, the lawmaker could not have regarded that That on April 27, 1922, the defendant Menzi & Co., Inc. through its
personality as a condition essential to the existence of the partnerships president and general manager, J.M. Menzi, under the authority of the
therein referred to. In fact, as above stated, "duly registered general board of directors, entered into a contract with the plaintiff to engage in
copartnerships" which are possessed of the aforementioned the business of exploiting prepared fertilizers, as evidenced by the
personality - have been expressly excluded by law (sections 24 and contract marked Exhibit A, attached to the original complaint as a part
84[b]) from the connotation of the term "corporation"."15 The opinion thereof, and likewise made a part of the amended complaint, as if it were
went on to summarize the matter aptly: "For purposes of the tax on here copied verbatim;
corporations, our National Internal Revenue Code, include these
partnerships with the exception only of duly registered general co-
partnerships within the purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a partnership, insofar III
as said Code is concerned, and are subject to the income tax for
corporations."16
That in pursuance of said contract, plaintiff and defendant Menzi & Co.,
Inc., began to manufacture prepared fertilizers, the former
In the light of the above, it cannot be said that the respondent Court of superintending the work of actual preparation, and the latter, through
Tax Appeals decided the matter incorrectly. There is no warrant for the defendants J.M. Menzi and P. C. Schlobohm, managing the business
assertion that it failed to apply the settled law to uncontroverted facts. Its and opening an account entitled "FERTILIZERS" on the books of the
decision cannot be successfully assailed. Moreover, an observation defendant Menzi & Co., Inc., where all the accounts of the partnership
made in Alhambra Cigar & Cigarette Manufacturing Co. v. business were supposed to be kept; the plaintiff had no participation in
Commissioner of Internal Revenue,17 is well-worth recalling. Thus: "Nor the making of these entries, which were wholly in the defendants'
as a matter of principle is it advisable for this Court to set aside the charge, under whose orders every entry was made;
conclusion reached by an agency such as the Court of Tax Appeals
which is, by the very nature of its functions, dedicated exclusively to the
study and consideration of tax problems and has necessarily developed IV
an expertise on the subject, unless, as did not happen here, there has
been an abuse or improvident exercise of its authority."

That according to paragraph 7 of the contract Exhibit A, the defendant

WHEREFORE, the decision of the respondent Court of Tax Appeals
ordering petitioners "to pay the sums of P37,128.00 as income tax due
from the partnership formed by herein petitioners for the years 1951 to
1954 and P20,619.00 for the years 1955 and 1956 within thirty days from
the date this decision becomes final, plus the corresponding surcharge
and interest in case of delinquency," is affirmed. With costs against
petitioners.
Menzi & Co., Inc., was obliged to render annual balance sheets to be
plaintiff upon the 30th day of June of each year; that the plaintiff had no
intervention in the preparation of these yearly balances, nor was he
permitted to have any access to the books of account; and when the
balance sheets were shown him, he, believing in good faith that they
contained the true statement of the partnership business, and relying
upon the good faith of the defendants, Menzi & Co., Inc., J.M. Menzi,
and P.C. Schlobohm, accepted and signed them, the last balance sheet
having been rendered in the year 1926;

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

V

That by reason of the foregoing facts and especially those set forth in
the preceding paragraph, the plaintiff was kept in ignorance of the
defendants' acts relating to the management of the partnership funds,
and the keeping of accounts, until he was informed and so believes and
alleges, that the defendants had conspired to conceal from him the true
status of the business, and to his damage and prejudice made false
entries in the books of account and in the yearly balance sheets, the
exact nature and amount of which it is impossible to ascertain, even after
the examination of the books of the business, due to the defendants'
refusal to furnish all the books and data required for the purpose, and
the constant obstacles they have placed in the way of the examination
of the books of account and vouchers;
VI
That when the plaintiff received the information mentioned in the
preceding paragraph, he demanded that the defendants permit him to
examine the books and vouchers of the business, which were in their
possession, in order to ascertain the truth of the alleged false entries in
the books and balance sheets submitted for his approval, but the
defendants refused, and did not consent to the examination until after
the original complaint was filed in this case; but up to this time they have
refused to furnish all the books, data, and vouchers necessary for a
complete and accurate examination of all the partnership's accounts;
and
VII
That as a result of the partial examination of the books of account of the
business, the plaintiff has, through his accountants, discovered that the
defendants, conspiring and confederating together, presented to the
plaintiff during the period covered by the partnership contract false and
incorrect accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages
which should have been paid and were in fact paid by the defendant
Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which
should have been paid for its own account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff,
commissions on the purchase of materials for the manufacture of
fertilizers;
(e) For having appropriated, to the damage and prejudice of the plaintiff,
the profits obtained from the sale of fertilizers belonging to the
partnership and bought with its own funds; and
(f) For having appropriated to themselves all rebates for freight
insurance, taxes, etc., upon materials for fertilizer bought abroad, no
entries of said rebates having been made on the books to the credit of
the partnership.
Upon the strength of the facts set out in this first cause of action, the
plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from
destroying and concealing the books and papers of the partnership
constituted between the defendant Menzi & Co., Inc., and the plaintiff;
2. To summon each and every defendant to appear and give a true
account of all facts relating to the partnership between the plaintiff and
the defendant Menzi & Co., Inc., and of each and every act and
transaction connected with the business of said partnership from the
beginning to April 27, 1927, and a true statement of all merchandise of
whatever description, purchased for said partnership, and of all the
expenditures and sale of every kind, together with the true amount
thereof, besides the sums received by the partnership from every source
together with their exact nature, and a true and complete account of the
vouchers for all sums paid by the partnership, and of the salaries paid
to its employees;
3. To declare null and void the yearly balances submitted by the
defendants to the plaintiff from 1922 to 1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and
disbursements of the partnership during the period of its existence,
besides granting the plaintiff any other remedy that the court may deem
just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compaia, de Manila, como
Primera Parte, y D. Francisco Bastada, tambien de Manila, como
Segunda Parte, bajo las siguientes
CONDICIONES
1. El objeto de este contrato es la explotacion del negocio de Abonos
o Fertilizantes Preparados, para diversas aplicaciones agricolas;
2. La duracion de este contrato sera de cinco aos, a contrar desde la
fecha de su firma;
3. La Primera Parte se compromete a facilitar la ayuda financiera
necesaria para el negocio;
4. La Segunda Parte se compromete a poner su entero tiempo y toda
su experiencia a la disposicion del negocio;
5. La Segunda Parte no podra, directa o indirectamente, dedicarse por
si sola ni en sociedad con otras personas, o de manera alguna que no
sea con la Primera Parte, al negecio de Abonos, simples o preparados,
o de materia alguna que se aplique comunmente a la fertilizacion de
suelos y plantas, durante la vigencia de este contrato, a menos que
obtenga autorizacion expresa de la Primera Parte para ello;
6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o
combinacion con otras personas o entidades, ni de otro modo que en
sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes
preparados, ya sean ellos importados, ya preparados en las Islas
Fllipinas; tampoco podra dedicarse a la venta o negocio de materias o
productos que tengan aplicacion como fertilizantes, o que se usen en la
composicion de fertilizantes o abonos, si ellos son productos de suelo
de la manufactura filipinos, pudiendo sin embargo vender o negociar en
materim fertilizantes simples importados de los Estados Unidos o del
Extranjero;
7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda
Parte el 35 por ciento (treinta y cinco por ciento) de las utilidades netas
del negocio de abonos, liquidables el 30 de junio de cada ao;
8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad
de P300 (trescientos pesos), a cuenta de su parte de beneficios.
9. Durante el ao 1923 la Parte concedera a la Segunda permiso para
que este se ausente de Filipinas por un periodo de tiempo que no
exceda de un ao, sin menoscabo para derechos de la Segunda Parte
con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila,
I. F., a veintisiete de abril de 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint, except
the formal allegations as to the parties, and as a special defense to the
first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been engaged
in the general merchandise business in the Philippine Islands since its
organization in October, 1921, including the importation and sale of all
kinds of goods, wares, and merchandise, and especially simple fertilizer
and fertilizer ingredients, and as a part of that business, it has been
engaged since its organization in the manufacture and sale of prepared
fertilizers for agricultural purposes, and has used for that purpose trade-
marks belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO., Inc.,
made and entered into an employment agreement with the plaintiff, who
represented that he had had much experience in the mixing of fertilizers,
to superintend the mixing of the ingredients in the manufacture of
prepared fertilizers in its fertilizer department and to obtain orders for
such prepared fertilizers subject to its approval, for a compensation of
50 per cent of the net profits which it might derive from the sale of the
fertilizers prepared by him, and that said Francisco Bastida worked
under said agreement until April 27, 1922, and received the
compensation agreed upon for his services; that on the said 27th of
April, 1922, the said Menzi & Co., Inc., and the said Francisco Bastida
made and entered into the written agreement, which is marked Exhibit
A, and made a part of the amended complaint in this case, whereby they
mutually agreed that the employment of the said Francisco Bastida by
the said Menzi & Co., Inc., in the capacity stated, should be for a definite
period of five years from that date and under the other terms and
conditions stated therein, but with the understanding and agreement that
the said Francisco Bastida should receive as compensation for his said
services only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead of 50
per cent of such profits, as provided in his former agreement; that the
said Francisco Bastida was found to be incompetent to do anything in
relation to its said fertilizer business with the exception of over-seeing
the mixing of the ingredients in the manufacture of the same, and on or
about the month of December, 1922, the defendant, Menzi & Inc., in
order to make said business successful, was obliged to and actually did
assume the full management and direction of said business;
3. That the accounts of the business of the said fertilizer department of
Menzi & Co., Inc., were duly kept in the regular books of its general
business, in the ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period of said agreement,
for the purpose of convenience in determining the amount of
compensation due to the plaintiff under his agreement, separate books
of account for its said fertilizer business were duly, kept in the name of
'Menzi & Co., Inc., Fertilizer', and used exclusively for that purpose and
it was mutually agreed between the said Francisco Bastida and the said
Menzi & Co., Inc., that the yearly balances for the determination of the
net profits of said business due to the said plaintiff as compensation for
his services under said agreement would be made as of December 31st,
instead of June 30th, of each year, during the period of said agreement;
that the accounts of the business of its said fertilizer department, as
recorded in its said books, and the vouchers and records supporting the
same, for each year of said business have been duly audited by Messrs.
White, Page & Co., certified public accountants, of Manila, who, shortly
after the close of business at the end of each year up to and including
the year 1926, have prepared therefrom a manufacturing and profit and
loss account and balance sheet, showing the status of said business
and the share of the net profits pertaining to the plaintiff as his
compensation under said agreement; that after the said manufacturing
and profit and the loss account and balance sheet for each year of the
business of its said fertilizer department up to and including the year
1926, had been prepared by the said auditors and certified by them, they
were shown to and examined by the plaintiff, and duly accepted, and
approved by him, with full knowledge of their contents, and as evidence
of such approval, he signed his name on each of them, as shown on the
copies of said manufacturing and profit and loss account and balance
sheet for each year up to and including the year 1926, which are
attached to the record of this case, and which are hereby referred to and
made a part of this amended answer, and in accordance therewith, the
said plaintiff has actually received the portion of the net profits of its said
business for those years pertaining to him for his services under said
agreement; that at no time during the course of said fertilizer business
and the liquidation thereof has the plaintiff been in any way denied
access to the books and records pertaining thereto, but on the contrary,
said books and records have been subject to his inspection and
examination at any time during business hours, and even since the
commencement of this action, the plaintiff and his accountants, Messrs.
Haskins & Sells, of Manila, have been going over and examining said
books and records for months and the defendant, Menzi & Co. Inc.,
through its officers, have turned over to said plaintiff and his accountant
the books and records of said business and even furnished them
suitable accommodations in its own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the
defendant, Menzi & Co., Inc., duly notified the plaintiff that it would not
under any conditions renew his said agreement or continue his said
employment with it after its expiration, and after the termination of said
agreement of April 27, 1927, the said Menzi & Co., Inc., had the certified
public accountants, White, Page & Co., audit the accounts of the
business of its said fertilizer department for the four months of 1927
covered by plaintiff's agreement and prepare a manufacturing and profit
and loss account and balance sheet of said business showing the status
of said business at the termination of said agreement, a copy of which
was shown to and explained to the plaintiff; that at that time there were
accounts receivable to be collected for business covered by said
agreement of over P100,000, and there was guano, ashes, fine tobacco
and other fertilizer ingredients on hand of over P75,000, which had to be
disposed of by Menzi & Co., Inc., or valued by the parties, before the net
profits of said business for the period of the agreement could be
determined; that Menzi & Co., Inc., offered to take the face value of said
accounts and the cost value of the other properties for the purpose of
determining the profits of said business for that period, and to pay to the
plaintiff at that time his proportion of such profits on that basis, which the
plaintiff refused to accept, and being disgruntled because the said Menzi
& Co., Inc., would not continue him in its service, the said plaintiff
commenced this action, including therein not only Menzi & Co. Inc., but
also it managers J.M. Menzi and P.C. Schlobohm, wherein he knowingly
make various false and malicious allegations against the defendants;
that since that time the said Menzi & Co., Inc., has been collecting the
accounts receivable and disposing of the stocks on hand, and there is
still on hand old stock of approximately P25,000, which it has been
unable to dispose of up to this time; that as soon as possible a final
liquidation and amounting of the net profits of the business covered by
said agreement for the last four months thereof will be made and the
share thereof appertaining to the plaintiff will be paid to him; that the
plaintiff has been informed from time to time as to the status of the
disposition of such properties, and he and his auditors have fully
examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of
the first cause of action.
II. That the examination made by the plaintiff's auditors of some of the
books of the partnership that were furnished by the defendants disclosed
the fact that said defendants had charged to "purchases" of the
business, undue interest, the amount of which the plaintiff is unable to
determine, as he has never had at his disposal the books and vouchers
necessary for that purpose, and especially, owning to the fact that the
partnership constituted between the plaintiff and the defendant Menzi &
Co., Inc., never kept its own cash book, but that its funds were
maliciously included in the private funds of the defendant entity, neither
was there a separate BANK ACCOUNT of the partnership, such account
being included in the defendant's bank account.
III. That from the examination of the partnership books as aforesaid, the
plaintiff estimates that the partnership between himself and the
defendant Menzi & Co., Inc., has been defrauded by the defendants by
way of interest in an amount of approximately P184,432.51, of which 35
per cent, or P64,551.38, belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the
defendants jointly and severally to pay him the sum of P64,551.38, or
any amount which may finally appear to be due and owing from the
defendants to the plaintiff upon this ground, with legal interest from the
filing of the original complaint until payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That under the contract of employment, Exhibit A, of the amended
complaint, the defendant, Menzi & Co., Inc., only undertook and agreed
to facilitate financial aid in carrying on the said fertilizer business, as it
had been doing before the plaintiff was employed under the said
agreement; that the said defendant, Menzi & Co., Inc., in the course of
the said business of its fertilizer department, opened letters of credit
through the banks of Manila, accepted and paid drafts drawn upon it
under said letters of credit, and obtained loans and advances of moneys
for the purchase of materials to be used in mixing and manufacturing its
fertilizers and in paying the expenses of said business; that such drafts
and loans naturally provided for interest at the banking rate from the
dates thereof until paid, as is the case in all, such business enterprises,
and that such payments of interest as were actually made on such
drafts, loans and advances during the period of the said employment
agreement constituted legitimate expenses of said business under said
agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That under the terms of the contract Exhibit A, neither the defendants
J.M. Menzi and P.C. Schlobohm, nor the defendant Menzi & Co., Inc.,
had a right to collect for itself or themselves any amount whatsoever by
way of salary for services rendered to the partnership between the
plaintiff and the defendant, inasmuch as such services were
compensated with the 65% of the net profits of the business constituting
their share.
III. That the plaintiff has, on his on account and with his own money, paid
all the employees he has placed in the service of the partnership, having
expended for their account, during the period of the contract, over
P88,000, without ever having made any claim upon the defendants for
this sum because it was included in the compensation of 35 per cent
which he was to receive in accordance with the contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied
with collecting undue and excessive salaries for themselves, have made
the partnership, or the fertilizer business, pay the salaries of a number
of the employees of the defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have
appropriated P43,920 of the partnership funds, of which 35 per cent, or
P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the
defendants to pay jointly and severally to the plaintiff the amount of
P15,372, with legal interest from the date of the filing of the original
complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4 of the special defense the first cause of action in this
amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager,
exclusively managed and conducted its said fertilizer business, in which
the plaintiff was to receive 35 percent of the net profits as compensation
for this services, as hereinbefore alleged, from on or about January 1,
1923, when its other departments had special experienced Europeans
in charge thereof, who received not only salaries but also a percentage
of the net profits of such departments; that its said fertilizer business,
after its manager took charge of it, became very successful, and owing
to the large volume of business transacted, said business required great
deal of time and attention, and actually consumed at least one-half of
the time of the manager and certain employees of Menzi & Co., Inc., in
carrying it on; that the said Menzi & Co., furnished office space,
stationery and other incidentals, for said business, and had its
employees perform the duties of cashiers, accountants, clerks,
messengers, etc., for the same, and for that reason the said Menzi &
Co., Inc., charged each year, from and after 1922, as expenses of said
business, which pertained to the fertilizer department, as certain amount
as salaries and wages to cover the proportional part of the overhead
expenses of Menzi & Co., Inc.; that the same method is followed in each
of the several departments of the business of Menzi & Co., Inc., that
each and every year from and after 1922, a just proportion of said
overhead expenses were charged to said fertilizer departments and
entered on the books thereof, with the knowledge and consent of the
plaintiff, and included in the auditors' reports, which were examined,
accepted and approved by him, and he is now estopped from saying
that such expenses were not legitimate and just expenses of said
business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV, and V of the first
cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M.
Menzi and P. C. Schlobohm, has paid, with the funds of the partnership
between the defendant entity and the plaintiff, the income tax due from
said defendant entity for the fertilizer business, thereby defrauding the
partnership in the amount of P10,361.72 of which 35 per cent belongs
exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his
own money the income tax corresponding to his share which consists in
35 per cent of the profits of the fertilizer business, expending about
P5,000 without ever having made any claim for reimbursement against
the partnership, inasmuch as it has always been understood among the
partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the defendants jointly
and severally to pay the plaintiff the sum of P3,362.60, with legal interest
from the date of the filing of the original complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and
did make return to the Government of the Philippine Islands each year
during the period of the agreement, Exhibit A, of the income of its whole
business, including its fertilizer department; that the proportional share
of such income taxes found to be due on the business of the fertilizer
department was charged as a proper and legitimate expense of that
department, in the same manner as was done in the other departments
of its business; that inasmuch as the agreement with the plaintiff was an
employment agreement, he was required to make his own return under
the Income Tax Law and to pay his own income taxes, instead of having
them paid at the source, as might be done under the law, so that he
would be entitled to the personal exemptions allowed by the law; that
the income taxes paid by the said Menzi & Co., Inc., pertaining to the
business, were duly entered on the books of that department, and
included in the auditors' reports hereinbefore referred to, which reports
were examined, accepted and approved by the plaintiff, with full
knowledge of their contents, and he is now estopped from saying that
such taxes are not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause
of action.
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc.,
had been receiving, during the period of the contract Exhibit A, from
foreign firms selling fertilizing material, a secret commission equivalent
to 5 per cent of the total value of the purchases of fertilizing material
made by the partnership constituted between the plaintiff and the
defendant Menzi Co., Inc., and that said 5 per cent commission was not
entered by the defendants in the books of the business, to the credit and
benefit of the partnership constituted between the plaintiff and the
defendant, but to the credit of the defendant Menzi Co., Inc., which
appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud
thus suffered by the plaintiff cannot be determined, because the entries
referring to these items do not appear in the partnership books, although
the plaintiff believes and alleges that they do appear in the private books
of the defendant Menzi & Co., Inc., which the latter has refused to
furnish, notwithstanding the demands made therefore by the auditors
and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some fertilizing
material made by the partnership during the first four years of the
contract Exhibit A, the plaintiff estimates that this 5 per cent commission
collected by the defendant Menzi Co., Inc., to the damage and prejudice
of the plaintiff, amounts to P127,375.77 of which 35 per cent belongs
exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay
jointly and severally to the plaintiff the amount of P44,581.52, or the
exact amount owed upon this ground, after both parties have adduced
their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of
said agreement, Exhibit A, and has now what is called a "Propaganda
Agency Agreement" which the Deutsches Kalesyndikat, G.M.B., of
Berlin, which is a manufacturer of potash, by virtue of which said Menzi
& Co., Inc., was to receive for its propaganda work in advertising and
bringing about sales of its potash a commission of 5 per cent on all
orders of potash received by it from the Philippine Islands; that during
the period of said agreement, Exhibit A, orders were sent to said concern
for potash, through C. Andre & Co., of Hamburg, as the agent of the said
Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5
per cent commission, amounting in all to P2,222.32 for the propaganda
work which it did for said firm in the Philippine Islands; that said
commissioners were not in any sense discounts on the purchase price
of said potash, and have no relation to the fertilizer business of which
the plaintiff was to receive a share of the net profits for his services, and
consequently were not credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found that
there are only two items of commissions, which were received from the
United Supply Co., of San Francisco, in the total of sum $66.51, which
through oversight, were not credited on the books of the fertilizer
department of Menzi & Co., Inc., but due allowance has now been given
to the department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause
of action.
II. That the defendant Menzi Co., Inc., in collusion with and through the
defendants J.M. Menzi and P.C. Schlobohm and their assistants, has
tampered with the books of the business making fictitious transfers in
favor of the defendant Menzi & Co., Inc., of merchandise belonging to
the partnership, purchased with the latter's money, and deposited in its
warehouses, and then sold by Menzi & Co., Inc., to third persons,
thereby appropriating to itself the profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by
the plaintiff in this respect as the real amount obtained from such sales
can only be ascertained from the examination of the private books of the
defendant entity, which the latter has refused to permit notwithstanding
the demand made for the purpose by the auditors and the lawyers of the
plaintiff, and no basis of computation can be established, even
approximately, to ascertain the extent of the fraud sustained by the
plaintiff in this respect, by merely examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M.
Menzi and P.C. Schlobohm, to make a sworn statement as to all the
profits received from the sale to third persons of the fertilizers pertaining
to the partnership, and the profits they have appropriated, ordering them
jointly and severally to pay 35 per cent of the net amount, with legal
interest from the filing of the original complaint until the payment thereof.
Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer:
2. That under the express terms of the employment agreement, Exhibit
A, the defendant, Menzi & Co., Inc., had the right to import into the
Philippine Islands in the course of its fertilizer business and sell fro its
exclusive account and benefit simple fertilizer ingredients; that the only
materials imported by it and sold during the period of said agreement
were simple fertilizer ingredients, which had nothing whatever to do with
the business of mixed fertilizers, of which the plaintiff was to receive a
share of the net profits as a part of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That during the existence of the contract Exhibit A, the defendant
Menzi & Co., Inc., for the account of the partnership constituted between
itself and the plaintiff, and with the latter's money, purchased from a
several foreign firms various simple fertilizing material for the use of the
partnership.
III. That in the paid invoices for such purchases there are charged,
besides the cost price of the merchandise, other amounts for freight,
insurance, duty, etc., some of which were not entirely thus spent and
were later credited by the selling firms to the defendant Menzi & Co.,
Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with
the defendants J.M. Menzi and P.C. Schlobohm upon receipt of the
credit notes remitted by the selling firms of fertilizing material, for rebates
upon freight, insurance, duty, etc., charged in the invoice but not all
expended, did not enter them upon the books to the credit of the
partnership constituted between the defendant and the plaintiff, but
entered or had them entered to the credit on Menzi & Co., Inc., thereby
defrauding the plaintiff of 35 per cent of the value of such reductions.
V. That the total amount, or even the approximate amount of this fraud
cannot be ascertained without an examination of the private books of
Menzi & Co., Inc., which the latter has refused to permit notwithstanding
the demand to this effect made upon them by the auditors and the
lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.M.
Menzi and P.C. Schlobohm, to make a sworn statement as to the total
amount of such rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net amount.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer:
2. That during the period of said employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., received from its agent, C. Andre & Co.,
of Hamburg, certain credits pertaining to the fertilizer business in the
profits of which the plaintiff was interested, by way of refunds of German
Export Taxes, in the total sum of P1,402.54; that all of department as
received, but it has just recently been discovered that through error an
additional sum of P216.22 was credited to said department, which does
not pertain to said business in the profits of which the plaintiff is
interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV and V of the first
cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the
contract Exhibit A of the complaint, the defendant Menzi & Co., Inc.,
acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the Compaia
General de Tabacos de Filipinas for the sale of said entity of three
thousand tons of fertilizers of the trade mark "Corona No. 1", at the rate
of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they
were delivered, according to information received by the plaintiff, during
the months of November and December, 1927, and January, February,
March, and April, 1928.
III. That both the contract mentioned above and the benefits derived
therefrom, which the plaintiff estimates at P90,000, Philippine currency,
belongs to the fertilizer business constituted between the plaintiff and
the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract
Exhibit A, on April 27, 1927, the defendants have not rendered a true
accounting of the profits obtained by the business during the last four
months thereof, as the purposed balance submitted to the plaintiff was
incorrect with regard to the inventory of merchandise, transportation
equipment, and the value of the trade marks, for which reason such
proposed balance did not represent the true status of the business of
the partnership on April 30, 1927.
V. That the proposed balance submitted to the plaintiff with reference to
the partnership operations during the last four months of its existence,
was likewise incorrect, inasmuch as it did not include the profit realized
or to be realized from the contract entered into with the Compaia
General de Tabacos de Filipinas, notwithstanding the fact that this
contract was negotiated during the existence of the partnership, and
while the defendant Menzi & Co., Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract entered into
with the Compaia General de Tabacos de Filipinas belongs to it
exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.
Wherefore, the plaintiff prays the honorable court to order the
defendants to render a true and detailed account of the business during
the last four months of the existence of the partnership, i. e., from
January 1, 1927 to April 27, 1927, and to sentence them likewise to pay
the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi
& Co., Inc., from the Compaia General de Tabacos Filipinas on April
21, 1927, was taken by it in the regular course of its fertilizer business,
and was to be manufactured and delivered in December, 1927, and up
to April, 1928; that the employment agreement of the plaintiff expired by
its own terms on April 27, 1927, and he has not been in any way in the
service of the defendant, Menzi & Co., Inc., since that time, and he
cannot possibly have any interest in the fertilizers manufactured and
delivered by the said Menzi & Co., Inc., after the expiration of his
contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That during the period of the contract Exhibit A, the partnership
constituted thereby registered in the Bureau of Commerce and Industry
the trade marks "CORONA NO. 1", CORONA NO. 2", "ARADO", and
"HOZ", the plaintiff and the defendant having by their efforts succeeded
in making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded
in making the fertilizing business a prosperous concern to such an extent
that the profits obtained from the business during the five years it has
existed, amount to approximately P1,000,000, Philippine currency.
IV. That the value of the good will and the trade marks of a business of
this nature amounts to at least P1,000,000, of which sum 35 per cent
belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the
defendant entity, notwithstanding and in spite of the plaintiff's insistent
opposition, has assumed the charge of liquidating the fertilizing
business, without having rendered a monthly account of the state of the
liquidation, as required by law, thereby causing the plaintiff damages.
VI. That the damages sustained by the plaintiff, as well as the amount
of his share in the remaining property of the plaintiff, and may only be
truly and correctly ascertained by compelling the defendants J. M. Menzi
and P. C. Schlobohm to declare under oath and explain to the court in
detail the sums obtained from the sale of the remaining merchandise,
after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant
continued to use for its own benefit the good-will and trade marks
belonging to the partnership, as well as its transportation equipment and
other machinery, thereby indicating its intention to retain such good-will,
trade marks, transportation equipment and machinery, for the
manufacture of fertilizers, by virtue of which the defendant is bound to
pay the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and machinery
employed in the preparation of the fertilizers amounts of P20,000, 35 per
cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity
render a true and detailed account of the state of the liquidation of the
partnership business, but said defendants has ignored such demands,
so that the plaintiff does not, and this date, know whether the liquidation
of the business has been finished, or what the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a
true and detailed account of the status of business in liquidation, that is,
from April 28, 1927, until it is finished, ordering all the defendants to pay
the plaintiff jointly and severally 35 per cent of the net amount.
2. To order the defendants to pay the plaintiff jointly and severally the
amount of P350,000, which is 35 per cent of the value of the goodwill
and the trade marks of the fertilizer business;
3. To order the defendants to pay the plaintiff jointly and severally the
amount of P7,000 which is 35 per cent of the value of the transportation
equipment and machinery of the business; and
4. To order the defendants to pay the costs of this trial, and further, to
grant any other remedy that this Honorable Court may deem just and
equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs
1, 2, 3 and 4, of the special defense to the first cause of action in this
amended answer;
2. That the good-will, if any, of said fertilizer business of the defendant,
Menzi & Co., Inc., pertains exclusively to it, and the plaintiff can have no
interest therein of any nature under his said employment agreement;
that the trade-marks mentioned by the plaintiff in his amended
complaint, as a part of such good-will, belonged to and have been used
by the said Menzi & Co., Inc., in its fertilizer business from and since its
organization, and the plaintiff can have no rights to or interest therein
under his said employment agreement; that the transportation
equipment pertains to the fertilizer department of Menzi & Co., Inc., and
whenever it has been used by the said Menzi & Co., Inc., in its own
business, due and reasonable compensation for its use has been
allowed to said business; that the machinery pertaining to the said
fertilizer business was destroyed by fire in October, 1926, and the value
thereof in the sum of P20,000 was collected from the Insurance
Company, and the plaintiff has been given credit for 35 per cent of that
amount; that the present machinery used by Menzi & Co., Inc., was
constructed by it, and the costs thereof was not charged to the fertilizer
department, and the plaintiff has no right to have it taken into
consideration in arriving at the net profits due to him under his said
employment agreement.
The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced by
Exhibit A, as a contract of general regular commercial partnership,
wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the
industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved
the balance sheets, Exhibits C to C-8, is not estopped from questioning
the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay
the plaintiff the sum of P 60,385.67 with legal interest from the date of
the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay
the plaintiff the sum of P3,821.41, with legal interest from the date of the
filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of
action, to pay the plaintiff the sum of P6,578.38 with legal interest from
January 1, 1929, the date of the liquidation of the fertilizer business, until
paid;
(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the
plaintiff the sum of P196,709.20 with legal interest from the date of the
filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's
share of the profits of the business accruing from January 1, 1927 to
December 31, 1928, to pay the plaintiff 35 per cent of the net balance
shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for
income tax, and any other sum charged for interest under the entry
"Purchases";
(l) Ordering the defendant corporation, in connection with the final
liquidation set in Exhibit 52 and 52-A, to pay the plaintiff the sum of
P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M.
Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit A
constitutes a regular collective commercial copartnership between the
defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco
Bastida, and not a contract of employment.
II. The trial court erred in finding and holding that the defendant, Menzi
& Co., Inc., had wrongfully charged to the fertilizer business in question
the sum of P10,918.33 as income taxes partners' balances, foreign
drafts, local drafts, and on other credit balances in the sum of
P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67,
with legal interest thereon from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi &
Co., Inc., had wrongfully charged to the fertilizer business in question
the sum of P10,918.33 as income taxes for the years 1923, 1924, 1925
and 1926, and that the plaintiff is entitled to 35 per cent thereof, or the
sum of P3,821.41, with legal interest thereon from the date of filing his
complaint, and in disallowing the item of P2,410 charged as income tax
in the liquidation in Exhibits 51 and 51 A for the period from January 1
to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the evidence
in this case that the contract, Exhibit A was daring the whole period
thereof considered by the parties and performed by them as a contract
of employment in relation to the fertilizer business of the defendant, and
that the accounts of said business were kept by the defendant, Menzi &
Co., Inc., on that theory with the knowledge and consent of the plaintiff,
and that at the end of each year for five years a balance sheet and profit
and loss statement of said business were prepared from the books of
account of said business on the same theory and submitted to the
plaintiff, and that each year said balance sheet and profit and loss
statement were examined, approved and signed by said contract in
accordance therewith with full knowledge of the manner in which said
business was conducted and the charges for interest and income taxes
made against the same and that by reason of such facts, the plaintiff is
now estopped from raising any question as to the nature of said contract
or the propriety of such charges.
V. The trial court erred in finding and holding that the plaintiff, Francisco
Bastida, is entitled to 35 per cent of the net profits in the sum of
P18,795.38 received by the defendant, Menzi & Co., Inc., from its
contract with the Compaia General de Tabacos de Filipinas, or the sum
of P6.578.38, with legal interest thereon from January 1, 1929, the date
upon which the liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the good-
will of the fertilizer business in question was P562,312, and that the
plaintiff, Francisco Bastida, was entitled to 35 per cent of such valuation,
or the sum of P196,709.20, with legal interest thereon from the date of
filing his complaint.
VII. The trial court erred in rendering judgment in favor of the plaintiff and
against defendant, Menzi & Co., Inc., (a) on the second cause of action,
for the sum of P60,385.67, with legal interest thereon from the date of
filing the complaint; (b) on the fourth cause of action, for the sum of
P3,821.41, with legal interest thereon from the date of filing the
complaint; (c) on the eight cause of action, for the sum of P6,578.38,
with legal interest thereon from January 1, 1929; and (d) on the ninth
cause of action, for the sum of P196,709.20, with legal interest thereon
from the date of filing the original complaint; and (e) for the costs of the
action, and in not approving the final liquidation of said business,
Exhibits 51 and 51-A and 52 and 52-A, as true and correct, and entering
judgment against said defendant only for the amounts admitted therein
as due the plaintiff with legal interest, with the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a new
trial.
It appears from the evidence that the defendants corporation was
organized in 1921 for purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It appears
through John Bordman and the Menzi-Bordman Co. the good-will, trade-
marks, business, and other assets of the old German firm of Behn,
Meyer & Co., Ltd., including its fertilizer business with its stocks and
trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this
fertilizer business from 1910 until that firm was taken over the Alien
Property Custodian in 1917. Among the trade-marks thus acquired by
the appellant were those known as the "ARADO", "HOZ", and
"CORONA". They were registered in the Bureau of Commerce and
Industry in the name of Menzi & Co. The trade marks "ARADO" and
"HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed
fertilizers, and the trade mark "CORONA" had been used in its other
business. The "HOZ" trade-mark was used by John Bordman and the
Menzi-Bordman Co. in the continuation of the fertilizer business that had
belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different
departments, each of which was in charge of a manager, who received
a fixed salary and a percentage of the profits. The corporation had to
borrow money or obtain credits from time to time and to pay interest
thereon. The amount paid for interest was charged against the
department concerned, and the interest charges were taken into
account in determining the net profits of each department. The practice
of the corporation was to debit or credit each department with interest at
the bank rate on its daily balance. The fertilizer business of Menzi & Co.,
Inc., was carried on in accordance with this practice under the "Sundries
Department" until July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had had some experience in
mixing and selling fertilizer, went to see Toehl, the manager of the
sundries department of Menzi & Co., Inc., and told him that he had a
written contract with the Philippine Sugar Centrals Agency for 1,250 tons
of mixed fertilizers, and that he could obtain other contracts, including
one from the Calamba Sugar Estates for 450 tons, but the he did not
have the money to buy the ingredients to fill the order and carry on the
on the business. He offered to assign to Menzi & Co., Inc., his contract
with the Philippine Sugar Centrals Agency and to supervise the mixing
of the fertilizer and to obtain other orders for fifty per cent of the net
profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general
manager of Menzi & Co., accepted plaintiff's offer. Plaintiff assigned to
Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the
defendant corporation proceeded to fill the order. Plaintiff supervised the
mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request
gave him the following letter, Exhibit B:
MANILA, 10 de enero de 1922
Sr. FRANCISCO BASTIDA
Manila
MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio,
tenemos convenido para la explotacion del negocio de abono y
fertilizantes, por la presente venimos en confirmar su derecho de 50 por
ciento de las untilidades que se deriven del contrato obtenido por Vd.
de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la
Calamba Sugar Estates, asi como de cuantos contratos se cierren con
definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de
nuestro contrato mutuo, lo que hacemos para garantia y seguridad de
Vd.
MENZI & CO.,
Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer business under this
arrangement with the plaintiff. It ordered ingredients from the United
States and other countries, and the interest on the drafts for the
purchase of these materials was changed to the business as a part of
the cost of the materials. The mixed fertilizers were sold by Menzi & Co.,
Inc., between January 19 and April 1, 1922 under its "CORONA" brand.
Menzi & Co., Inc., had only one bank account for its whole business.
The fertilizer business had no separate capital. A fertilizer account was
opened in the general ledger, and interest at the rate charged by the
Bank of the Philippine Islands was debited or credited to that account on
the daily balances of the fertilizer business. This was in accordance with
appellant's established practice, to which the plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on
under the oral agreement were determined by Menzi & Co., Inc., after
deducting interest charges, proportional part of warehouse rent and
salaries and wages, and the other expenses of said business, and the
plaintiff was paid some twenty thousand pesos in full satisfaction of his
share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the
letter, Exhibit B, the defendant corporation April 27, 1922 entered a
written contract with the plaintiff, marked Exhibit A, which is the basis of
the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the
execution of Exhibit A in practically the same manner as it was prior
thereto. The intervention of the plaintiff was limited to supervising the
mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the
Bureau of Commerce & Industry in the name of Menzi & Co., Inc., and
the fees were paid by that company. They were not changed to the
fertilizer business, in which the plaintiff was interested. Only the fees for
registering the formulas in the Bureau of Science were charged to the
fertilizer business, and the total amount thereof was credited to this
business in the final liquidation on April 27, 1927.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to
furnish it all the stems and scraps to tobacco that it might need for its
fertilizer business either in the Philippine Islands or for export to other
countries. This contract is rendered to in the record as the "Vastago
Contract". Menzi & Co., Inc., advanced the plaintiff, paying the salaries
of his employees, and other expenses in performing his contract.
White, Page & Co., certified public accountants, audited the books of
Menzi & Co., Inc., every month, and at the end of each year they
prepared a balance sheet and a profit and loss statement of the fertilizer
business. These statements were delivered to the plaintiff for
examination, and after he had had an opportunity of verifying them he
approved them without objection and returned them to Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the
net profits of the fertilizer business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98
Total . . . . . . . . . . . . . . . . . . . .
P196,483.92
To this amount must be added plaintiff's share of the net profits from
January 1 to April 27, 1927, amounting to P34,766.87, making a total of
P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi &
Co. Inc., notified the plaintiff that the contract for his services would not
be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer
department of Menzi & Co., Inc., had on hand materials and ingredients
and two Ford trucks of the book value of approximately P75,000, and
accounts receivable amounting to P103,000. There were claims
outstanding and bills to pay. Before the net profits could be finally
determined, it was necessary to dispose of the materials and equipment,
collect the outstanding accounts for Menzi & Co., Inc., prepared a
balance sheet and a profit and loss statement for the period from
January 1 to April 27, 1927 as a basis of settlement, but the plaintiff
refused to accept it, and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in
question. In October, 1927 it proposed to the plaintiff that the old and
damaged stocks on hand having a book value of P40,000, which the
defendant corporation had been unable to dispose of, be sold at public
or private sale, or divided between the parties. The plaintiff refused to
agree to this. The defendant corporation then applied to the trial court
for an order for the sale of the remaining property at public auction, but
apparently the court did not act on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final
liquidation of the fertilizer business was completed in December, 1928
and a final balance sheet and a profit and loss statement were submitted
to the plaintiff during the trial. During the liquidation the books of Menzi
& Co., Inc., for the whole period of the contract in question were
reaudited by White, Page & Co.., certain errors of bookkeeping were
discovered by them. After making the corrections they found the balance
due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to
examine the books and vouchers of Menzi & Co. Thompson assumed
the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co.,
Inc., was obliged to furnish free of charge all the capital the partnership
should need. He naturally reached very different conclusions from those
of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After
considering the evidence and the arguments of counsel, we are
unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was to
receive 35 per cent of the net profits of the fertilizer business of Menzi &
Co., Inc., in compensation for his services of supervising the mixing of
the fertilizers. Neither the provisions of the contract nor the conduct of
the parties prior or subsequent to its execution justified the finding that
it was a contract of copartnership. Exhibit A, as appears from the
statement of facts, was in effect a continuation of the verbal agreement
between the parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by the corporation from
certain fertilizer contracts. Plaintiff was paid his share of the profits from
those transactions after Menzi & Co., Inc., had deducted the same items
of expense which he now protests. Plaintiff never made any objection to
defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written
agreement, Exhibit A, and for four years the plaintiff never made any
objection. On the contrary he approved and signed every year the
balance sheet and the profit and loss statement. It was only when
plaintiff's contract was about to expire and the defendant corporation
had notified him that it would not renew it that the plaintiff began to make
objections.
The trial court relied on article 116 of the Code of Commerce, which
provides that articles of association by which two or more persons
obligate themselves to place in a common fund any property, industry,
or any of these things, in order to obtain profit, shall be commercial, no
matter what its class may be, provided it has been established in
accordance with the provisions of this Code; but in the case at bar there
was no common fund, that is, a fund belonging to the parties as joint
owners or partners. The business belonged to Menzi & Co., Inc. The
plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed
salary or a fixed salary and a small percentage of the net profits, he was
to receive 35 per cent of the net profits as compensation for his services.
Menzi & Co., Inc., was to advanced him P300 a month on account of his
participation in the profits. It will be noted that no provision was made for
reimbursing Menzi & Co., Inc., in case there should be no net profits at
the end of the year. It is now well settled that the old rule that sharing
profits as profits made one a partner is overthrown. (Mechem, second
edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a
partnership or intended to become partners. Great stress in laid by the
trial judge and plaintiff's attorneys on the fact that in the sixth paragraph
of Exhibit A the phrase "en sociedad con" is used in providing that
defendant corporation not engage in the business of prepared fertilizers
except in association with the plaintiff (en sociedad con). The fact is that
en sociedad con as there used merely means en reunion con or in
association with, and does not carry the meaning of "in partnership with".
The trial judge found that the defendant corporation had not always
regarded the contract in question as an employment agreement,
because in its answer to the original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff that it would not continue
associated with him in said business. The trial judge concluded that the
phrase "associated with", used by the defendant corporation, indicated
that it regarded the contract, Exhibit A, as an agreement of
copartnership.
In the first place, the complaint and answer having been superseded by
the amended complaint and the answer thereto, and the answer to the
original complaint not having been presented in evidence as an exhibit,
the trial court was not authorized to take it into account. "Where
amended pleadings have been filed, allegations in the original pleadings
are held admissible, but in such case the original pleadings can have no
effect, unless formally offered in evidence." (Jones on Evidence, sec.
273; Lucido vs. Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be related
etymologically to the Spanish word "socio", meaning partner, it does not
in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant
corporation obligated itself to pay to the plaintiff 35 per cent of the net
profits of the fertilizer business, to advance to him P300 a month on
account of his share of the profits, and to grant him permission during
1923 to absent himself from the Philippines for not more than one year
are utterly incompatible with the claim that it was the intention of the
parties to form a copartnership. Various other reasons for holding that
the parties were not partners are advanced in appellant's brief. We do
not deem it necessary to discuss them here. We merely wish to add that
in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi
& Co., Inc., as the owners of the fertilizer business in question.

As to the various items of the expense rejected by the trial judge, they
were in our opinion proper charges and erroneously disallowed, and this
would true even if the parties had been partners. Although Menzi & Co.,
Inc., agreed to furnish the necessary financial aid for the fertilizer
business, it did not obligate itself to contribute any fixed sum as capital
or to defray at its own expense the cost of securing the necessary credit.
Some of the contentions of the plaintiff and his expert witness Thompson
are so obviously without merit as not to merit serious consideration. For
instance, they objected to the interest charges on draft for materials
purchased abroad. Their contention is that the corporation should have
furnished the money to purchase these materials for cash, overlooking
the fact that the interest was added to the cost price, and that the plaintiff
was not prejudiced by the practice complained of. It was also urged, and
this seems to us the height of absurdity, that the defendant corporation
should have furnished free of charge such financial assistance as would
have made it unnecessary to discount customers' notes, thereby
enabling the business to reap the interest. In other words, the defendant
corporation should have enabled the fertilizer department to do business
on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the
same as those made under the verbal agreement, upon the termination
of which the parties made a settlement; the charges in question were
acquiesced in by the plaintiff for years, and it is now too late for him to
contest them. The decision of this court in the case of Kriedt vs. E.C.
McCullough & Co. (37 Phil., 474), is in point. A portion of the syllabus of
that case reads as follows:
1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS
OF PARTIES. Acts done by the parties to a contract in the course of
its performance are admissible in evidence upon the question of its
meaning, as being their own contemporaneous interpretation of its
terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an
action upon a contract containing a provision a doubtful application it
appeared that under a similar prior contract the parties had, upon the
termination of said contract, adjusted their rights and made a settlement
in which the doubtful clause had been given effect in conformity with the
interpretation placed thereon by one of the parties. Held: That this action
of the parties under the prior contract could properly be considered upon
the question of the interpretation of the same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract
acquiesces in the interpretation placed by the other upon a provision of
doubtful application, the party so acquiescing is bound by such
interpretation.
4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being
aware at the time of the execution thereof that the other placed a certain
interpretation upon a provision of doubtful application, nevertheless
proceeded, without raising any question upon the point, to perform the
services which he was bound to render under the contract. Upon the
termination of the contract by mutual consent a question was raised as
to the proper interpretation of the doubtful provision. Held: That the party
raising such question had acquiesced in the interpretation placed upon
the contract by the other party and was bound thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per
cent of the net profits derived by Menzi & Co., Inc., from its contract for
fertilizers with the Tabacalera. This finding in our opinion is not justified
by the evidence. This contract was obtained by Menzi & Co., Inc., shortly
before plaintiff's contract with the defendant corporation expired. Plaintiff
tried to get the Tabacalera contract for himself. When this contract was
filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no
right to participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding
the value of the good-will of the fertilizer business in question to be
P562,312, and that the plaintiff was entitled to 35 per cent thereof or
P196,709.20. In reaching this conclusion the trial court unfortunately
relied on the opinion of the accountant, Vernon Thompson, who
assumed, erroneously as we have seen, that the plaintiff and Menzi &
Co., Inc., were partners; but even if they had been partners there would
have been no good-will to dispose of. The defendant corporation had a
fertilizer business before it entered into any agreement with the plaintiff;
plaintiff's agreement was for a fixed period, five years, and during that
time the business was carried on in the name of Menzi & Co., Inc., and
in Menzi & Co.'s warehouses and after the expiration of plaintiff's
contract Menzi & Co., Inc., continued its fertilizer business, as it had a
perfect right to do. There was really nothing to which any good-will could
attach. Plaintiff maintains, however, that the trade-marks used in the
fertilizer business during the time that he was connected with it acquired
great value, and that they have been appropriated by the appellant to its
own use. That seems to be the only basis of the alleged good-will, to
which a fabulous valuation was given. As we have seen, the trade-
marks were not new. They had been used by Behn, Meyer & Co. in its
business for other goods and one of them for fertilizer. They belonged
to Menzi & Co., Inc., and were registered in its name; only the expense
of registering the formulas in the Bureau of Science was charged to the
business in which the plaintiff was interested. These trade-marks
remained the exclusive property of Menzi & Co., and the plaintiff had no
interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20.
We are satisfied by the evidence that said balance is correct.
For the foregoing reasons, the decision appealed from is modified and
the defendant corporation is sentenced to pay the plaintiff twenty-one
thousand, six hundred and thirty-three pesos and twenty centavos
(P21,633.20), with legal interest thereon from the date of the filing of the
complaint on June 17, 1927, without a special finding as to costs.
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and
BENGUET LUMBER COMPANY, represented by its President TAN
ENG LAY, respondents.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of
the Decision[1] dated March 13, 1996 of the former Fifth Division[2] of
the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion
of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set
aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde
Abubo, the common-law spouse of the decedent, joined by their children
Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known
as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the
decedents brother TAN ENG LAY on February 19, 1990. The
complaint,[3] docketed as Civil Case No. 1983-R in the Regional Trial
Court of Baguio City was for accounting, liquidation and winding up of
the alleged partnership formed after World War II between Tan Eng Kee
and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended
complaint[4] impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint
was admitted by the trial court in its Order dated May 3, 1991.[5]
The amended complaint principally alleged that after the second World
War, Tan Eng Kee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business of
selling lumber and hardware and construction supplies. They named
their enterprise Benguet Lumber which they jointly managed until Tan
Eng Kees death. Petitioners herein averred that the business prospered
due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership Benguet Lumber into a corporation called
Benguet Lumber Company. The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the
profits of the business. Petitioners prayed for accounting of the
partnership assets, and the dissolution, winding up and liquidation
thereof, and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered
judgment[6]on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint adventure which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets
turned over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share
in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have descended
to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or
General Manager of Benguet Lumber Company Inc. to render an
accounting of all the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer
the assets of Benguet Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to submit the name of any
person they want to be appointed as receiver failing in which this Court
will appoint the Branch Clerk of Court or another one who is qualified to
act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except
the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on
March 13, 1996, rendered the assailed decision reversing the judgment
of the trial court. Petitioners motion for reconsideration[7] was denied by
the Court of Appeals in a Resolution[8] dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No.
78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly
falsified documents in a judicial proceeding. Petitioners complained that
Exhibits 4 to 4-U offered by the defendants before the trial court,
consisting of payrolls indicating that Tan Eng Kee was a mere employee
of Benguet Lumber, were fake, based on the discrepancy in the
signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-
78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and
Willy, all surnamed Tan, for alleged falsification of commercial
documents by a private individual. On March 20, 1999, the Municipal
Trial Court of Baguio City, Branch 1, wherein the charges were filed,
rendered judgment[9] dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I supported by the evidence.[10] Our jurisdiction, it must be emphasized,
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG
KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS
NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS
SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS
AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE
DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING
SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT
TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY
EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE
OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES
OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES
AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE
ALL LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE
SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES
MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN
OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI,
TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED
THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN
IN BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG
KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT
CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE
THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN
MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE
APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of
the Court of Appeals will not be disturbed on appeal if such are
does not include review of factual issues. Thus:
Filing of petition with Supreme Court.-A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.[11] [italics supplied]
Admitted exceptions have been recognized, though, and when present,
may compel us to analyze the evidentiary basis on which the lower court
rendered judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court
are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;
(3) when the inference made by the Court of Appeals from its findings of
fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the
issues of the case, and such findings are contrary to the admissions of
both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which,
if properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on
the absence of evidence but such findings are contradicted by the
evidence on record.[12]
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn
went beyond that by justifying the existence of a joint adventure.
When mention is made of a joint adventure, it would presuppose parity
of standing between the parties, equal proprietary interest and the
exercise by the parties equally of the conduct of the business, thus:
xxx xxx xxx xxx
We have the admission that the father of the plaintiffs was not a partner
of the Benguet Lumber before the war. The appellees however argued
that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire
stocks of the pre-war Benguet Lumber were confiscated if not burned by
the Japanese. After the war, because of the absence of capital to start
a lumber and hardware business, Lay and Kee pooled the proceeds of
their individual businesses earned from buying and selling military
supplies, so that the common fund would be enough to form a
partnership, both in the lumber and hardware business. That Lay and
Kee actually established the Benguet Lumber in Baguio City, was even
testified to by witnesses. Because of the pooling of resources, the post-
war Benguet Lumber was eventually established. That the father of the
plaintiffs and Lay were partners, is obvious from the fact that: (1) they
conducted the affairs of the business during Kees lifetime, jointly, (2)
they were the ones giving orders to the employees, (3) they were the
ones preparing orders from the suppliers, (4) their families stayed
together at the Benguet Lumber compound, and (5) all their children
were employed in the business in different capacities.
xxx xxx xxx xxx
It is obvious that there was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period
after the war until Kees death in 1984. It had no business book, no
written account nor any memorandum for that matter and no license
mentioning the existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit 2, mentioned co-defendant
Lay as the only registered owner of the Benguet Lumber and Hardware.
His application for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the
Benguet Lumber Company, on the basis of his SSS coverage effective
1958, Exhibit 3. In the Payrolls, Exhibits 4 to 4-U, inclusive, for the years
1982 to 1983, Kee was similarly listed only as an employee; precisely,
he was on the payroll listing. In the Termination Notice, Exhibit 5, Lay
was mentioned also as the proprietor.
xxx xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic]
may be constituted in any form, but when an immovable is constituted,
the execution of a public instrument becomes necessary. This is equally
true if the capitalization exceeds P3,000.00, in which case a public
instrument is also necessary, and which is to be recorded with the
Securities and Exchange Commission. In this case at bar, we can easily
assume that the business establishment, which from the language of the
appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded
P3,000.00, in addition to the accumulation of real properties and to the
fact that it is now a compound. The execution of a public instrument, on
the other hand, was never established by the appellees.
And then in 1981, the business was incorporated and the incorporators
were only Lay and the members of his family. There is no proof either
that the capital assets of the partnership, assuming them to be in
existence, were maliciously assigned or transferred by Lay, supposedly
to the corporation and since then have been treated as a part of the
latters capital assets, contrary to the allegations in pars. 6, 7 and 8 of
the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and
then in a room in the bunk house in Trinidad, but within the compound
of the lumber establishment, as testified to by Tandoc; 2) that both Lay
and Kee were seated on a table and were commanding people as
testified to by the son, Elpidio Tan; 3) that both were supervising the
laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was
supposedly being told by Kee that the proceeds of the 80 pieces of the
G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or
where the capital is P3,000.00 or more, the execution of a contract is
necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and
interest, mentioning equality of the partners or one having a
proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business
venture for the purpose of obtaining profits thereafter to be divided, must
be established. We cannot see these elements from the testimonial
evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial
court which had adjudged that TAN ENG KEE and TAN ENG LAY had
allegedly entered into a joint adventure. In this connection, we have held
that whether a partnership exists is a factual matter; consequently, since
the appeal is brought to us under Rule 45, we cannot entertain inquiries
relative to the correctness of the assessment of the evidence by the
court a quo.[13] Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the
record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay
were partners in Benguet Lumber. A contract of partnership is defined
by law as one where:
xxx two or more persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of dividing the profits
among themselves.
Two or more persons may also form a partnership for the exercise of a
profession.[14]
Thus, in order to constitute a partnership, it must be established that (1)
two or more persons bound themselves to contribute money, property,
or industry to a common fund, and (2) they intend to divide the profits
among themselves.[15] The agreement need not be formally reduced
into writing, since statute allows the oral constitution of a partnership,
save in two instances: (1) when immovable property or real rights are
contributed,[16] and (2) when the partnership has a capital of three
thousand pesos or more.[17] In both cases, a public instrument is
required.[18] An inventory to be signed by the parties and attached to
the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to the
partnership.[19]
The trial court determined that Tan Eng Kee and Tan Eng Lay had
entered into a joint adventure, which it said is akin to a particular
partnership.[20] A particular partnership is distinguished from a joint
adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts)
is a sort of informal partnership, with no firm name and no legal
personality. In a joint account, the participating merchants can transact
business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain
kind.[21]
A joint adventure presupposes generally a parity of standing between
the joint co-ventures or partners, in which each party has an equal
proprietary interest in the capital or property contributed, and where
each party exercises equal rights in the conduct of the business.[22]
Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing
Corporation, et. al.,[23] we expressed the view that a joint adventure
may be likened to a particular partnership, thus:
The legal concept of a joint adventure is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel,
266 Fed. 811 [1920]) It is hardly distinguishable from the partnership,
since their elements are similar-community of interest in the business,
sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289
P.2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdiction is that the partnership contemplates a general
business with some degree of continuity, while the joint adventure is
formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate
in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint adventure is a form of
partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter
into a partnership contract, it may however engage in a joint adventure
with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos
and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The
alleged partnership, though, was never formally organized. In addition,
petitioners point out that the New Civil Code was not yet in effect when
the partnership was allegedly formed sometime in 1945, although the
contrary may well be argued that nothing prevented the parties from
complying with the provisions of the New Civil Code when it took effect
on August 30, 1950. But all that is in the past. The net effect, however,
is that we are asked to determine whether a partnership existed based
purely on circumstantial evidence. A review of the record persuades us
that the Court of Appeals correctly reversed the decision of the trial
court. The evidence presented by petitioners falls short of the quantum
of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he,
aside from Tan Eng Lay, could have expounded on the precise nature
of the business relationship between them. In the absence of evidence,
we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of
establishing a partnership. The testimonies to that effect of petitioners
witnesses is directly controverted by Tan Eng Lay. It should be noted
that it is not with the number of witnesses wherein preponderance
lies;[24] the quality of their testimonies is to be considered. None of
petitioners witnesses could suitably account for the beginnings of
Benguet Lumber Company, except perhaps for Dionisio Peralta whose
deceased wife was related to Matilde Abubo.[25] He stated that when
he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by
both brothers.[26] Tan Eng Lay, however, denied knowledge of this
meeting or of the conversation between Peralta and his brother.[27] Tan
Eng Lay consistently testified that he had his business and his brother
had his, that it was only later on that his said brother, Tan Eng Kee,
came to work for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the existence
of a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners share in
the profits and losses.[29] Each has the right to demand an accounting
as long as the partnership exists.[30] We have allowed a scenario
wherein [i]f excellent relations exist among the partners at the start of
the business and all the partners are more interested in seeing the firm
grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible.[31] But in the situation in the case at bar,
the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.[32] As we explained in
another case:
In the first place, plaintiff did not furnish the supposed P20,000.00
capital. In the second place, she did not furnish any help or intervention
in the management of the theatre. In the third place, it does not appear
that she has even demanded from defendant any accounting of the
expenses and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business was
progressing, whether the expenses were legitimate, whether the
earnings were correct, etc. She was absolutely silent with respect to any
of the acts that a partner should have done; all that she did was to
receive her share of P3,000.00 a month, which cannot be interpreted in
any manner than a payment for the use of the premises which she had
leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh.
A), which shows that both parties considered this offer as the real
contract between them.[33] [italics supplied]
A demand for periodic accounting is evidence of a partnership.[34]
During his lifetime, Tan Eng Kee appeared never to have made any such
demand for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an
ordinary employee of Benguet Lumber, as it was then called. The
authenticity of these documents was questioned by petitioners, to the
extent that they filed criminal charges against Tan Eng Lay and his wife
and children. As aforesaid, the criminal cases were dismissed for
insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng
Kee received sums as wages of an employee. In connection therewith,
Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as
to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right
or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(b) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng
Kee was only an employee, not a partner. Even if the payrolls as
evidence were discarded, petitioners would still be back to square one,
so to speak, since they did not present and offer evidence that would
show that Tan Eng Kee received amounts of money allegedly
representing his share in the profits of the enterprise. Petitioners failed
to show how much their father, Tan Eng Kee, received, if any, as his
share in the profits of Benguet Lumber Company for any particular
period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between themselves, which
is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the
alleged existence of a partnership from this set of circumstances: that
Tan Eng Lay and Tan Eng Kee were commanding the employees; that
both were supervising the employees; that both were the ones who
determined the price at which the stocks were to be sold; and that both
placed orders to the suppliers of the Benguet Lumber Company. They
also point out that the families of the brothers Tan Eng Kee and Tan Eng
Lay lived at the Benguet Lumber Company compound, a privilege not
extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee,
were indicative of his being a partner in Benguet Lumber for the following
reasons:
(i) even a mere supervisor in a company, factory or store gives orders
and directions to his subordinates. So long, therefore, that an employees
position is higher in rank, it is not unusual that he orders around those
lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence
is reposed by the owner, can order materials from suppliers for and in
behalf of Benguet Lumber. Furthermore, even a partner does not
necessarily have to perform this particular task. It is, thus, not an
indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber
compound and this privilege was not accorded to other employees, the
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay.
Naturally, close personal relations existed between them. Whatever
privileges Tan Eng Lay gave his brother, and which were not given the
other employees, only proves the kindness and generosity of Tan Eng
Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan
Eng Lay in connection with the pricing of stocks, this does not
adequately prove the existence of a partnership relation between them.
Even highly confidential employees and the owners of a company
sometimes argue with respect to certain matters which, in no way
indicates that they are partners as to each other.[35]
In the instant case, we find private respondents arguments to be well-
taken. Where circumstances taken singly may be inadequate to prove
the intent to form a partnership, nevertheless, the collective effect of
these circumstances may be such as to support a finding of the
existence of the parties intent.[36] Yet, in the case at bench, even the
aforesaid circumstances when taken together are not persuasive indicia
of a partnership. They only tend to show that Tan Eng Kee was involved
in the operations of Benguet Lumber, but in what capacity is unclear.
We cannot discount the likelihood that as a member of the family, he
occupied a niche above the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not kin, such as his
residence in the Benguet Lumber Company compound. He would have
moral, if not actual, superiority over his fellow employees, thereby
entitling him to exercise powers of supervision. It may even be that
among his duties is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not provide a logical nexus to
the conclusion desired; these are not inconsistent with the powers and
duties of a manager, even in a business organized and run as informally
as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding
up or liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision
of the Court of Appeals is hereby AFFIRMED in toto. No pronouncement
as to costs.
SO ORDERED.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF
APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in
CA-G.R. CV No. 41616,[1] affirming the Decision of the Regional Trial
Court of Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok,
Thailand, private respondent Nenita A. Anay met petitioner William T.
Belo, then the vice-president for operations of Ultra Clean Water Purifier,
through her former employer in Bangkok. Belo introduced Anay to
petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen
cookwares. Belo volunteered to finance the joint venture and assigned
to Anay the job of marketing the product considering her experience and
established relationship with West Bend Company, a manufacturer of
kitchen wares in Wisconsin, 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 sales.
Anay organized the administrative staff and sales force while Tocao
hired and fired employees, determined commissions and/or salaries of
the employees, and assigned them to different branches. The parties
agreed that Belos name should not appear in any documents relating to
their transactions with West Bend Company. Instead, they agreed to use
Anays name in securing distributorship of cookware from that company.
The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding
commission of six percent (6%) of the overall weekly production; (3)
thirty percent (30%) of the sales she would make; and (4) two percent
(2%) for her demonstration services. The agreement was not reduced
to writing on the strength of Belos assurances that he was sincere,
dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the
West Bend Company and organized the administrative staff and the
sales force, the cookware business took off successfully. They operated
under the name of Geminesse 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 Anay to the distributor/dealer meeting in West Bend, Wisconsin,
U.S.A., from July 19 to 21, 1987 and to the southwestern regional
convention in Pismo Beach, California, U.S.A., from July 25-26, 1987.
Anay accepted the invitation with the consent of Marjorie Tocao who, as
president and general manager of Geminesse Enterprise, even wrote a
letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987.
A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West
Bend Co. for twenty (20) years now, acquired the distributorship of Royal
Queen cookware for 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]
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On August
31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao[4] for her excellent job
performance. On October 7, 1987, in the presence of Anay, Belo signed
a memo[5] entitling her to a thirty-seven percent (37%) commission for
her personal sales "up Dec 31/87. Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter[6] addressed to the Cubao sales office to the effect that she was
no longer the vice-president of Geminesse Enterprise. The following
day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and
conducting demonstrations in both Makati and Cubao offices.[7] Anay
attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and
the audit of the company to determine her share in the net profits. When
her letters were not answered, Anay consulted her lawyer, who, in turn,
wrote Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to
December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of
P13,300,360.00.
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.
In her complaint, Anay prayed that defendants be ordered to pay her,
jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00
as moral damages, and (3) P100,000.00 as exemplary damages. The
plaintiff also prayed for an audit of the finances of Geminesse Enterprise
from the inception of its business operation until she was illegally
dismissed to determine her ten percent (10%) share in the net profits.
She further prayed that she be paid the five percent (5%) overriding
commission on the remaining 150 West Bend cookware sets before her
dismissal.
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 void or inexistent. As far as Belo was
concerned, his only role was to introduce Anay to Marjorie Tocao. There
could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of Geminesse
Enterprise for an agreed remuneration, and her complaint referred to
either her compensation or dismissal, such complaint should have been
lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of ill-will and resentment because Marjorie Tocao
did not allow her to lord it over in the Geminesse Enterprise. Anay had
acted like she owned the enterprise because of her experience and
expertise. Hence, petitioners were the ones who suffered actual
damages including unreturned and unaccounted stocks of Geminesse
Enterprise, and serious anxiety, besmirched reputation in the business
world, and various damages not less than P500,000.00. They also
alleged that, to vindicate their names, they had to hire counsel for a fee
of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not
the plaintiff was an employee or partner of Marjorie Tocao and Belo, and
(b) whether or not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share
in the profit of the business. He, however, admitted that the two had
agreed that Anay would receive a three to four percent (3-4%) share in
the gross sales of the cookware. He denied contributing capital to the
business or receiving a share in its profits as he merely served as a
guarantor of Marjorie Tocao, who was new in the business. He attended
and/or presided over business meetings of the venture in his capacity
as a guarantor but he never participated in decision-making. He claimed
that he wrote the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture at the request
of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral
partnership agreement with Anay. However, she admitted that Anay was
an expert in the cookware business and hence, they agreed to grant her
the following commissions: thirty-seven percent (37%) on personal
sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel.
Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business
out of the sale of the sewing machines used in her garments business
and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her co-equal, Marjorie
received the same amounts of commissions as her. However, Anay
failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part
of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of
the Civil Code in order to determine the ten percent (10%) share of
plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission
for the one hundred and fifty (150) cookware sets available for
disposition when plaintiff was wrongfully excluded from the partnership
by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February 5,
1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and
P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and
P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement
between the plaintiff and the defendants, based on the following: (a)
there was an intention to create a partnership; (b) a common fund was
established through contributions consisting of money and industry, and
(c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anays cousin and the administrative officer of Geminesse
Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between
the parties. The letter of Roger Muencheberg of West Bend Company
stating that he awarded the distributorship to Anay and Marjorie Tocao
because he was convinced that with Marjories financial contribution and
Anays experience, the combination of the two would be invaluable to the
partnership, also supported that conclusion. Belos claim that he was
merely a guarantor has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts
of attending and/or presiding over meetings of Geminesse Enterprise
plus his issuance of a memo 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 circles as an impetus to bigger sales
volume. It did not matter that the agreement was not in writing because
Article 1771 of the Civil Code provides that a partnership may be
constituted in any form. The fact that Geminesse Enterprise was
registered in Marjorie Tocaos name is not determinative of whether or
not the business was managed and operated by a sole proprietor or a
partnership. What was registered with the Bureau of Domestic Trade
was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from
a partnership is an innocent partner. Hence, the guilty partner must give
him his due upon the dissolution of the partnership as well as damages
or share in the profits realized from the appropriation of the partnership
business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade
name of the co-partnership and assets at the time he was wrongfully
expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the
amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary damages.
Their Motion for Reconsideration was denied by the Court of Appeals
for lack of merit.[12] Petitioners Belo and Marjorie Tocao are now before
this Court on a petition for review on certiorari, asserting that there was
no business partnership between them and herein private respondent
Nenita A. Anay who is, therefore, not entitled to the damages awarded
to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals
erroneously held that a partnership existed between them and private
respondent Anay because Geminesse Enterprise came into being
exactly a year before the alleged partnership was formed, and that it was
very unlikely that petitioner Belo would invest the sum of 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 within the exclusive domain of both the trial and appellate courts.
This Court cannot set aside factual findings of such courts absent any
showing that there is no evidence 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.
To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute
money, property or industry to a common fund; and (2) intention on the
part of the partners to divide the profits among themselves.[15] It may
be constituted in any form; a public instrument is necessary only where
immovable property or real rights are contributed thereto.[16] This
implies that since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one. Where no immovable
property or real rights are involved, what matters is that the parties have
complied with the requisites of a partnership. The fact that there appears
to be no record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to Article
1772 of the Civil Code[17] did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter
states:
Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to comply
with the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in
the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the law,
she was the industrial or managing partner. It was through her reputation
with the West Bend Company that the partnership was able to open the
business of distributorship of that companys cookware products; it was
through the same efforts that the business was propelled to financial
success. Petitioner Tocao herself admitted private respondents
indispensable role in putting up the business when, upon being asked if
private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there
were no one to sell 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
to them would be the Vice President.[18]
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 communication dated June 4, 1986 of Missy
Jagler of West Bend Company to Roger Muencheberg of the same
company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will
finance the operations. Marge does not have cookware experience. Nita
Anay has started to gather former managers, Lina Torda and Dory Vista.
She has also gathered former demonstrators, Betty Bantilan, Eloisa
Lamela, Menchu Javier. They will continue to gather other key people
and build up the organization. All they need is the finance and the
products to sell.[19]
On the other hand, petitioner Belos denial that he financed the
partnership rings hollow in the face of the established fact that he
presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987,
on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of
her personal sales, could not be interpreted otherwise than that he had
a proprietary interest in the business. His claim that he was merely a
guarantor is belied by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of petitioner
Tocao under Article 2053 of the Civil Code,[20] he should have
presented documentary evidence therefor. While Article 2055 of the Civil
Code simply provides that guaranty must be express, Article 1403, the
Statute of Frauds, requires that a special promise to answer for the debt,
default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the
partnership. She claimed that she herself financed the business. Her
and petitioner Belos roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocaos admissions that
petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they
called Wiji, the combination of petitioner Belos first name, William, and
her nickname, Jiji.[23] The special relationship between them dovetails
with petitioner Belos claim that he was acting in behalf of petitioner
Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to utilize their
banking and trading facilities in Singapore in the matter of importation
and payment of the cookware products.[24] The inevitable conclusion,
therefore, was that petitioners merged their respective capital and
infused the amount into the partnership of distributing cookware with
private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not
result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage of net
profits constitutes only prima facie evidence that the recipient is a
partner in the business,[25] the evidence in the case at bar controverts
an employer-employee relationship between the parties. In the first
place, private respondent had a voice in the management of the affairs
of the cookware distributorship,[26] including selection of people who
would constitute the administrative staff and the sales force. Secondly,
petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse
Enterprise,[27] private respondent received only commissions and
transportation and representation allowances[28] and not a fixed
salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already
marked as Exhs. X and Y. Please go over this. Exh. Y is denominated
`Cubao overrides 8-21-87 with ending August 21, 1987, will you please
go over this and tell the Honorable Court whether you ever came across
this document and know of your own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am
telling you earlier a certain percentage for promotions, advertising,
incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure
here and words which I quote: Overrides Marjorie Ann Tocao
P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D.
Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this
Honorable Court that there being the same P21,410.50 is merely by
coincidence?
A: 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 part of the incentive I offer her the
same thing.
Q: So, in short you are saying that this you have shared together, I mean
having gotten from the company P21,140.50 is your way of indicating
that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other
one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann
Tocao P15,314.25 the amount there you will acknowledge you have
received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is
also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these
two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is
difficult to believe that they shall receive the same income in the
business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable
for the losses.[31] As an industrial partner, private respondent had the
right to demand for a formal accounting of the business and to receive
her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name
of Geminesse Enterprise, a sole proprietorship, is of no moment. What
was registered with the Bureau of Domestic Trade on August 19, 1987
was merely the name of that enterprise.[33] While it is true that in her
undated application for renewal of registration of that firm name,
petitioner Tocao indicated that it would be engaged in retail of
kitchenwares, cookwares, utensils, skillet,[34] she also admitted that the
enterprise was only 60% to 70% for the cookware business, while 20%
to 30% of its business activity was devoted to the sale of water sterilizer
or purifier.[35] Indubitably then, the business name Geminesse
Enterprise was used only for practical reasons - it was utilized as the
common name for petitioner Tocaos various business activities, which
included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return
the unaccounted and unremitted stocks of Geminesse Enterprise
amounting to P208,250.00.[36] Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than anything else,
proves the existence of a partnership between them. In Idos v. Court of
Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet
terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since
the partnership has not been terminated, the petitioner and private
complainant remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she still
received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent
from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from 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 to the extent that she
would even shout at private respondent in front of other people.[38] Her
instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices
concretely spoke of her perception that private respondent was no
longer necessary in the business operation,[39] and resulted in a falling
out between the two. However, a mere falling out or misunderstanding
between partners does not convert the partnership into a sham
organization.[40] The partnership exists until dissolved under the law.
Since the partnership created by petitioners and private respondent has
no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may 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 foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partners capability to give it, and the
absence of cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but
that it can result in a liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for
damages because by the mutual agency that arises in a partnership, the
doctrine of delectus personae allows the partners to have the power,
although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent
from the partnership is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9, 1987, no longer the
vice-president for sales of Geminesse Enterprise.[43] By that memo,
petitioner Tocao effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up
of the business.[44]
The winding up of partnership affairs has not yet been undertaken by
the partnership. This is manifest in petitioners claim for stocks that had
been entrusted to private respondent in the pursuit of the partnership
business.
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,[46]
or the award is palpably or scandalously and unreasonably
excessive.[47] However, exemplary damages that are awarded by way
of example or correction for the public good,[48] should be reduced to
P50,000.00, the amount correctly awarded by the Court of Appeals.
Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly,
attorneys fees that should be granted on account of the award of
exemplary damages and petitioners evident bad faith in refusing to
satisfy private respondents plainly valid, just and demandable
claims,[49] appear to have been excessively granted by the trial court
and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED.
The partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of the
Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the
Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal
account of the partnership affairs for the years 1987 and 1988, pursuant
to Article 1809 of the Civil Code, in order to determine private
respondents ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private
respondent five percent (5%) overriding commission for the one hundred
and fifty (150) cookware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by
petitioners;
3. Petitioners are ordered, jointly and severally, to pay private
respondent overriding commission on the total production which, for the
period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private
respondent moral damages in the amount of P50,000.00, exemplary
damages in the amount of P50,000.00 and attorneys fees in the amount
of P25,000.00.
SO ORDERED.
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-
appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon.
Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as
defendant's counterclaim. The appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao
Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the
formation of a partnership between them to run and operate a theatre
on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila.
The principal conditions of the offer are (1) that Yang Chiao Seng
guarantees Mrs. Yulo a monthly participation of P3,000 payable
quarterly in advance within the first 15 days of each quarter, (2) that the
partnership shall be for a period of two years and six months, starting
from July 1, 1945 to December 31, 1947, with the condition that if the
land is expropriated or rendered impracticable for the business, or if the
owner constructs a permanent building thereon, or Mrs. Yulo's right of
lease is terminated by the owner, then the partnership shall be
terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized
personally to conduct such business in the lobby of the building as is
ordinarily carried on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and agrees of patrons of the
theatre; (4) that after December 31, 1947, all improvements placed by
the partnership shall belong to Mrs. Yulo, but if the partnership
agreement is terminated before the lapse of one and a half years period
under any of the causes mentioned in paragraph (2), then Yang Chiao
Seng shall have the right to remove and take away all improvements
that the partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the
parties executed a partnership agreement establishing the "Yang &
Company, Limited," which was to exist from July 1, 1945 to December
31, 1947. It states that it will conduct and carry on the business of
operating a theatre for the exhibition of motion and talking pictures. The
capital is fixed at P100,000, P80,000 of which is to be furnished by Yang
Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be
distributed among the partners in the same proportion as their capital
contribution and the liability of Mrs. Yulo, in case of loss, shall be limited
to her capital contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending
the partnership for a period of three years beginning January 1, 1948 to
December 31, 1950. The benefits are to be divided between them at the
rate of 50-50 and after December 31, 1950, the showhouse building
shall belong exclusively to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff
Mrs. Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa
Marina. In the contract of lease it was stipulated that the lease shall
continue for an indefinite period of time, but that after one year the lease
may be cancelled by either party by written notice to the other party at
least 90 days before the date of cancellation. The last contract was
executed between the owners and Mrs. Yulo on April 5, 1948. But on
April 12, 1949, the attorney for the owners notified Mrs. Yulo of the
owner's desire to cancel the contract of lease on July 31, 1949. In view
of the above notice, Mrs. Yulo and her husband brought a civil action to
the Court of First Instance of Manila on July 3, 1949 to declare the lease
of the premises. On February 9, 1950, the Municipal Court of Manila
rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang.
The judgment was appealed. In the Court of First Instance, the two
cases were afterwards heard jointly, and judgment was rendered
dismissing the complaint of Mrs. Yulo and her husband, and declaring
the contract of lease of the premises terminated as of July 31, 1949, and
fixing the reasonable monthly rentals of said premises at P100. Both
parties appealed from said decision and the Court of Appeals, on April
30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her
share in the profits of the business. Yang answered the letter saying that
upon the advice of his counsel he had to suspend the payment (of the
rentals) because of the pendency of the ejectment suit by the owners of
the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as
he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors
the rentals from August, 1949, he was retaining the rentals to make good
to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs.
Yulo instituted this action on May 26, 1954, alleging the existence of a
partnership between them and that the defendant Yang Chiao Seng has
refused to pay her share from December, 1949 to December, 1950; that
after December 31, 1950 the partnership between Mrs. Yulo and Yang
terminated, as a result of which, plaintiff became the absolute owner of
the building occupied by the Cine Astor; that the reasonable rental that
the defendant should pay therefor from January, 1951 is P5,000; that
the defendant has acted maliciously and refuses to pay the participation
of the plaintiff in the profits of the business amounting to P35,000 from
November, 1949 to October, 1950, and that as a result of such bad faith
and malice on the part of the defendant, Mrs. Yulo has suffered
damages in the amount of P160,000 and exemplary damages to the
extent of P5,000. The prayer includes a demand for the payment of the
above sums plus the sum of P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement
between the plaintiff and the defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge to get
around the prohibition contained in the contract of lease between the
owners and the plaintiff against the sublease of the said property. As to
the other claims, he denies the same and alleges that the fair 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 suffered damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the
plaintiff appeared. The court heard evidence of the plaintiff in the
absence of the defendant and thereafter rendered judgment ordering the
defendant to pay to the plaintiff P41,000 for her participation in the
business up to December, 1950; P5,000 as monthly rental for the use
and occupation of the building from January 1, 1951 until defendant
vacates the same, and P3,000 for the use and occupation of the lobby
from July 1, 1945 until defendant vacates the property. This decision,
however, was set aside on a motion for reconsideration. In said motion
it is claimed that defendant failed to appear at the hearing because of
his honest belief that a joint petition for postponement filed by both
parties, in view of a possible amicable settlement, would be granted; that
in view of the decision of the Court of Appeals in two previous cases
between the owners of the land and the plaintiff Rosario Yulo, the
plaintiff has no right to claim the alleged participation in the profit of the
business, etc. The court, finding the above motion, well-founded, set
aside its decision and a new trial was held. After trial the court rendered
the decision making the following findings: that it is not true that a
partnership was created between the plaintiff and the defendant
because defendant has not actually contributed the sum mentioned in
the Articles of Partnership, or any other amount; that the real agreement
between the plaintiff and the defendant is not of the partnership but one
of the lease for the reason that under the agreement the plaintiff did not
share either in the profits or in the losses of the business as required by
Article 1769 of the Civil Code; and that the fact that plaintiff was granted
a "guaranteed participation" in the profits also belies the supposed
existence of a partnership between them. It. therefore, denied plaintiff's
claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the
use of the supposed lobby of the theatre, the court after ocular
inspection found that the said lobby was very narrow space leading to
the balcony of the theatre which could not be used for business
purposes under existing ordinances of the City of Manila because it
would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the
defendant's counterclaim, on the ground that the defendant failed to
present sufficient evidence to sustain the same. It is against this decision
that the appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting
aside its former decision and allowing a new trial. This assignment of
error is without merit. As that parties agreed to postpone the trial
because of a probable amicable settlement, the plaintiff could not take
advantage of defendant's absence at the time fixed for the hearing. The
lower court, therefore, did not err in setting aside its former judgment.
The final result of the hearing shown by the decision indicates that the
setting aside of the previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower
court erred in not striking out the evidence offered by the defendant-
appellee to prove that the relation between him and the plaintiff is one
of the sublease and not of partnership. The action of the lower court in
admitting evidence is justified by the express allegation in the
defendant's answer that the agreement set forth in the complaint was
one of lease and not of partnership, and that the partnership formed was
adopted in view of a prohibition contained in plaintiff's lease against a
sublease of the property.
The most important issue raised in the appeal is that contained in the
fourth assignment of error, to the effect that the lower court erred in
holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We have
gone over the evidence and we fully agree with the conclusion of the
trial court that the agreement was a sublease, not a partnership. The
following are the requisites of partnership: (1) two or more persons who
bind themselves to contribute money, property, or industry to a common
fund; (2) intention on the part of the partners to divide the profits among
themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital.
In the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that
she has ever demanded from defendant any accounting of the expenses
and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether
the expenses were legitimate, whether the earnings were correct, etc.
She was absolutely silent with respect to any of the acts that a partner
should have done; 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 leased from the owners. Clearly,
plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties
considered this offer as the real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or
participation in the business from December, 1949. But the original letter
of the defendant, Exh. "A", expressly states that the agreement between
the plaintiff and the defendant was to end upon the termination of the
right of the plaintiff to the lease. Plaintiff's right having terminated in July,
1949 as found by the Court of Appeals, the partnership agreement or
the agreement for her to receive a participation of P3,000 automatically
ceased as of said date.
We find no error in the judgment of the court below and we affirm it in
toto, with costs against plaintiff-appellant.
G.R. No. L-9996 October 15, 1957
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF
TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor
General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for
Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and 1945
Francisca Evangelista, for review of a decision of the Court of Tax
Appeals, the dispositive part of which reads:
14.84

FOR ALL THE FOREGOING, we hold that the petitioners are liable for
the income tax, real estate dealer's tax and the residence tax for the
years 1945 to 1949, inclusive, in accordance with the respondent's 1946
assessment for the same in the total amount of P6,878.34, which is
hereby affirmed and the petition for review filed by petitioner is hereby
dismissed with costs against petitioners.
1,144.71

It appears from the stipulation submitted by the parties:

1947

1. That the petitioners borrowed from their father the sum of

10.34
P59,1400.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,.

1948
2. That on February 2, 1943, they bought from Mrs. Josefina
Florentino a lot with an area of 3,713.40 sq. m. including improvements
thereon from the sum of P100,000.00; this property has an assessed 1,912.30
value of P57,517.00 as of 1948;

1949
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus
21 parcels of land with an aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this property has an assessed
value of P82,255.00 as of 1948; 1,575.90

4. That on April 28, 1944 they purchased from the Insular Total including surcharge and compromise
Investments Inc., a lot of 4,353 sq. m. including improvements thereon
for P108,825.00. This property has an assessed value of P4,983.00 as
of 1948;
P6,157.09

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

1946
6. That in a document dated August 16, 1945, they appointed
their brother Simeon Evangelista to 'manage their properties with full
power to lease; to collect and receive rents; to issue receipts therefor; in P37.50
default of such payment, to bring suits against the defaulting tenants; to
sign all letters, contracts, etc., for and in their behalf, and to endorse and
deposit all notes and checks for them;
1947

7. That after having bought the above-mentioned real properties

the petitioners had the same rented or leases to various tenants; 150.00

8. That from the month of March, 1945 up to an including 1948

December, 1945, the total amount collected as rents on their real
properties was P9,599.00 while the expenses amounted to P3,650.00
thereby leaving them a net rental income of P5,948.33;
150.00

9. That on 1946, they realized a gross rental income of in the

sum of P24,786.30, out of which amount was deducted in the sum of 1949
P16,288.27 for expenses thereby leaving them a net rental income of
P7,498.13;
150.00

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. Total including penalty

It further appears that on September 24, 1954 respondent Collector of P527.00

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, RESIDENCE TAXES OF CORPORATION
as follows:

1945
INCOME TAXES
P38.75
1946
38.75
1947
38.75
1948
38.75
1949
38.75
Total including surcharge
P193.75
TOTAL TAXES DUE
P6,878.34.
Said letter of demand and corresponding assessments were delivered
to petitioners on December 3, 1954, whereupon they instituted the
present case in the Court of Tax Appeals, with a prayer that "the decision
of the respondent contained in his letter of demand dated September
24, 1954" be reversed, and that they be absolved from the payment of
the taxes in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-
mentioned decision for the respondent, and a petition for
reconsideration and new trial having been subsequently denied, the
case is now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466,
otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax.
With respect to the tax on corporations, the issue hinges on the meaning
of the terms "corporation" and "partnership," as used in section 24 and
84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized
in, or existing under the laws of the Philippines, no matter how created
or organized but not including duly registered general co-partnerships
(compaias colectivas), a tax upon such income equal to the sum of the
following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations or insurance companies, but does not
include duly registered general copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to
contribute money, properly, or industry to a common fund, with the
intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their
intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because:
1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one
transaction, but in a series of transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots
for P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is
strongly indicative of a pattern or common design that was not limited to
the conservation and preservation of the aforementioned common fund
or even of the property acquired by the petitioners in February, 1943. In
other words, one cannot but perceive a character of habitually peculiar
to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes,
or to other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948 inclusive,
paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots
are still being so let, for petitioners do not even suggest that there has
been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely Simeon Evangelista, with full power
to lease, to collect rents, to issue receipts, to bring suits, to sign letters
and contracts, and to indorse and deposit notes and checks. Thus, the
affairs relative to said properties have been handled as if the same
belonged to a corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first property was
acquired, and over twelve (12) years, since Simeon Evangelista became
the manager.
6. Petitioners have not testified or introduced any evidence,
either on their purpose in creating the set up already adverted to, or on
the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein,
and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not
copartners, for, in consequence of the acts performed by them, a legal
entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are
lacking in the case at bar. This pretense was correctly rejected by the
Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in The term 'corporation' as used in this Act includes joint-stock company,
the technical sense of the term. Thus, for instance, section 24 of said partnership, joint account (cuentas en participacion), association or
Code exempts from the aforementioned tax "duly registered general insurance company, no matter how created or organized. (emphasis
partnerships which constitute precisely one of the most typical forms of supplied.)
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of
said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in Considering that the pertinent part of this provision is analogous to that
conformity with the usual requirements of the law on partnerships, in of section 24 and 84 (b) of our National Internal Revenue Code
order that one could be deemed constituted for purposes of the tax on (commonwealth Act No. 466), and that the latter was approved on June
corporations. Again, pursuant to said section 84(b), the term 15, 1939, the day immediately after the approval of said Commonwealth
"corporation" includes, among other, joint accounts, (cuentas en Act No. 465 (June 14, 1939), it is apparent that the terms "corporation"
participation)" and "associations," none of which has a legal personality and "partnership" are used in both statutes with substantially the same
of its own, independent of that of its members. Accordingly, the meaning. Consequently, petitioners are subject, also, to the residence
lawmaker could not have regarded that personality as a condition tax for corporations.
essential to the existence of the partnerships therein referred to. In fact,
as above stated, "duly registered general copartnerships" which are
possessed of the aforementioned personality have been expressly
Lastly, the records show that petitioners have habitually engaged in
excluded by law (sections 24 and 84 [b] from the connotation of the term
leasing the properties above mentioned for a period of over twelve
"corporation" It may not be amiss to add that petitioners' allegation to the
years, and that the yearly gross rentals of said properties from June
effect that their liability in connection with the leasing of the lots above
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to
referred to, under the management of one person even if true, on
the tax provided in section 193 (q) of our National Internal Revenue
which we express no opinion tends to increase the similarity between
Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s)
the nature of their venture and that corporations, and is, therefore, an
thereof:
additional argument in favor of the imposition of said tax on corporations.

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

Under the Internal Revenue Laws of the United States, "corporations"
buying, selling, exchanging, leasing, or renting property or his own
are taxed differently from "partnerships". By specific provisions of said
account as principal and holding himself out as a full or part time dealer
laws, such "corporations" include "associations, joint-stock companies
in real estate or as an owner of rental property or properties rented or
and insurance companies." However, the term "association" is not used
offered to rent for an aggregate amount of three thousand pesos or more
in the aforementioned laws.
a year. . . (emphasis supplied.)

. . . in any narrow or technical sense. It includes any organization,

Wherefore, the appealed decision of the Court of Tax appeals is hereby
created for the transaction of designed affairs, or the attainment of some
affirmed with costs against the petitioners herein. It is so ordered.
object, which like a corporation, continues notwithstanding that its
members or participants change, and the affairs of which, like corporate
affairs, are conducted by a single individual, a committee, a board, or
some other group, acting in a representative capacity. It is immaterial G.R. No. L-19342 May 25, 1972
whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-
stock corporation or company, a 'business' trusts a 'Massachusetts'
trust, a 'common law' trust, and 'investment' trust (whether of the fixed LORENZO T. OA and HEIRS OF JULIA BUALES, namely:
or the management type), an interinsuarance exchange operating RODOLFO B. OA, MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA
through an attorney in fact, a partnership association, and any other type and LORENZO B. OA, JR., petitioners,
of organization (by whatever name known) which is not, within the
meaning of the Code, a trust or an estate, or a partnership. (7A Mertens vs.
Law of Federal Income Taxation, p. 788; emphasis supplied.).
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Similarly, the American Law.

Orlando Velasco for petitioners.

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

'it includes not only a partnership as known at common law but, as well, Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor
a syndicate, group, pool, joint venture or other unincorporated General Felicisimo R. Rosete, and Special Attorney Purificacion Ureta
organizations which carries on any business financial operation, or for respondent.
venture, and which is not, within the meaning of the Code, a trust, estate,
or a corporation. . . (7A Merten's Law of Federal Income taxation, p. 789;
emphasis supplied.)

The term 'partnership' includes a syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on, . . .. ( 8 Merten's
Law of Federal Income Taxation, p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue
Code, includes these partnerships with the exception only of duly
registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:
BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in CTA
Case No. 617, similarly entitled as above, holding that petitioners have
constituted an unregistered partnership and are, therefore, subject to the
payment of the deficiency corporate income taxes assessed against
them by respondent Commissioner of Internal Revenue for the years
1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and
1% monthly interest from December 15, 1958, subject to the provisions
of Section 51 (e) (2) of the Internal Revenue Code, as amended by
Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well
as the resolution of said court denying petitioners' motion for
reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:

Entities liable to residence tax.-Every corporation, no matter how

created or organized, whether domestic or resident foreign, engaged in
or doing business in the Philippines shall pay an annual residence tax
of five pesos and an annual additional tax which in no case, shall exceed
one thousand pesos, in accordance with the following schedule: . . .
Julia Buales died on March 23, 1944, leaving as heirs her surviving
spouse, Lorenzo T. Oa and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oa the surviving spouse
was appointed administrator of the estate of said deceased (Exhibit 3,
pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted the
project of partition, which was approved by the Court on May 16, 1949
(See Exhibit K). Because three of the heirs, namely Luz, Virginia and 128,566.72
Lorenzo, Jr., all surnamed Oa, were still minors when the project of
partition was approved, Lorenzo T. Oa, their father and administrator
of the estate, filed a petition in Civil Case No. 9637 of the Court of First
Instance of Manila for appointment as guardian of said minors. On 96,076.26
November 14, 1949, the Court appointed him guardian of the persons
and property of the aforenamed minors (See p. 3, BIR rec.).
1951

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows
that the heirs have undivided one-half (1/2) interest in ten parcels of land 51,301.31
with a total assessed value of P87,860.00, six houses with a total
assessed value of P17,590.00 and an undetermined amount to be
collected from the War Damage Commission. Later, they received from
said Commission the amount of P50,000.00, more or less. This amount 120,349.28
was not divided among them but was used in the rehabilitation of
properties owned by them in common (t.s.n., p. 46). Of the ten parcels
of land aforementioned, two were acquired after the death of the
decedent with money borrowed from the Philippine Trust Company in 110,605.11
the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

1952
The project of partition also shows that the estate shares equally with
Lorenzo T. Oa, the administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the latter with the approval
of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.). 67,927.52

Although the project of partition was approved by the Court on May 16, 87,065.28
1949, no attempt was made to divide the properties therein listed.
Instead, the properties remained under the management of Lorenzo T.
Oa who used said properties in business by leasing or selling them and 152,674.39
investing the income derived therefrom and the proceeds from the sales
thereof in real properties and securities. As a result, petitioners'
properties and investments gradually increased from P105,450.00 in
1949 to P480,005.20 in 1956 as can be gleaned from the following year- 1953
end balances:

61,258.27
Year

84,925.68
Investment

161,463.83
Land

1954
Building

63,623.37

99,001.20
Account

167,962.04
Account

1955
Account

100,786.00
1949

120,249.78

169,262.52
P87,860.00

1956
P17,590.00

175,028.68
1950

135,714.68
P24,657.65

169,262.52
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
From said investments and properties petitioners derived such incomes
as profits from installment sales of subdivided lots, profits from sales of
stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR
rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of
account kept by Lorenzo T. Oa where the corresponding shares of the
petitioners in the net income for the year are also known. Every year,
petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from
transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26).
However, petitioners did not actually receive their shares in the yearly
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in
the hands of Lorenzo T. Oa who, as heretofore pointed out, invested
them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-
104).
On the basis of the foregoing facts, respondent (Commissioner of
Internal Revenue) decided that petitioners formed an unregistered
partnership and therefore, subject to the corporate income tax, pursuant
to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly,
he assessed against the petitioners the amounts of P8,092.00 and
P13,899.00 as corporate income taxes for 1955 and 1956, respectively.
(See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for
reconsideration of the ruling of respondent that they have formed an
unregistered partnership. Finding no merit in petitioners' request,
respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4,
Memorandum for Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was
eliminated in line with the ruling of the Supreme Court in Collector v.
Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the
questioned assessment refers solely to the income tax proper for the
years 1955 and 1956 and the "Compromise for non-filing," the latter item
obviously referring to the compromise in lieu of the criminal liability for
failure of petitioners to file the corporate income tax returns for said
years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to
Petition)
Petitioners have assigned the following as alleged errors of the Tax
Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE CO-OWNERS OF THE PROPERTIES
INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS
THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES
FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN
UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS
ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN
UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT
THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED
IN COMMON AND THE LOANS RECEIVED USING THE INHERITED
PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF
THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN
COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTERED
PARTNERSHIP.
In other words, petitioners pose for our resolution the following
questions: (1) Under the facts found by the Court of Tax Appeals, should
petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buales and the profits derived from
transactions involving the same, or, must they be deemed to have
formed an unregistered partnership subject to tax under Sections 24 and
84(b) of the National Internal Revenue Code? (2) Assuming they have
formed an unregistered partnership, should this not be only in the sense
that they invested as a common fund the profits earned by the properties
owned by them in common and the loans granted to them upon the
security of the said properties, with the result that as far as their
respective shares in the inheritance are concerned, the total income
thereof should be considered as that of co-owners and not of the
unregistered partnership? And (3) assuming again that they are taxable
as an unregistered partnership, should not the various amounts already
paid by them for the same years 1955 and 1956 as individual income
taxes on their respective shares of the profits accruing from the
properties they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such unregistered
partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is
that whereas petitioners' predecessor in interest died way back on
March 23, 1944 and the project of partition of her estate was judicially
approved as early as May 16, 1949, and presumably petitioners have
been holding their respective shares in their inheritance since those
dates admittedly under the administration or management of the head
of the family, the widower and father Lorenzo T. Oa, the assessment
in question refers to the later years 1955 and 1956. We believe this point
to be important because, apparently, at the start, or in the years 1944 to
1954, the respondent Commissioner of Internal Revenue did treat
petitioners as co-owners, not liable to corporate tax, and it was only from
1955 that he considered them as having formed an unregistered
partnership. At least, there is nothing in the record indicating that an
earlier assessment had already been made. Such being the case, and
We see no reason how it could be otherwise, it is easily understandable
why petitioners' position that they are co-owners and not unregistered
co-partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they
were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the
deceased among themselves pursuant to the project of partition
approved in 1949, "the properties remained under the management of
Lorenzo T. Oa who used said properties in business by leasing or
selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a
result of which said properties and investments steadily increased yearly
from P87,860.00 in "land account" and P17,590.00 in "building account"
in 1949 to P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956. And all these
became possible because, admittedly, petitioners never actually
received any share of the income or profits from Lorenzo T. Oa and
instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of the profits of their
common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties inherited
by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit,
and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in
the purchase and sale of corporate securities. It is likewise admitted that
all the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the
inheritance. In these circumstances, it is Our considered view that from
the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oa as a common fund in
undertaking several transactions or in business, with the intention of
deriving profit to be shared by them proportionally, such act was
tantamonut to actually contributing such incomes to a common fund and,
in effect, they thereby formed an unregistered partnership within the
purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period
when the heirs can be considered as co-owners rather than unregistered
co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of the
deceased, all the income thereof does belong commonly to all the heirs,
obviously, without them becoming thereby unregistered co-partners, but
it does not necessarily follow that such status as co-owners continues
until the inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their respective
shares in the partition, they might decide to continue holding said shares
under the common management of the administrator or executor or of
anyone chosen by them and engage in business on that basis. Withal,
if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and
84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
among the reasons for holding the appellants therein to be unregistered
co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no
unregistered co-partnership. As already indicated, for tax purposes, the
co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties
and/or the incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. The reason for this is
simple. From the moment of such partition, the heirs are entitled already
to their respective definite shares of the estate and the incomes thereof,
for each of them to manage and dispose of as exclusively his own
without the intervention of the other heirs, and, accordingly he becomes
liable individually for all taxes in connection therewith. If after such
partition, he allows his share to be held in common with his co-heirs
under a single management to be used with the intent of making profit
thereby in proportion to his share, there can be no doubt that, even if no
document or instrument were executed for the purpose, for tax
purposes, at least, an unregistered partnership is formed. This is exactly
what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of
the Civil Code, providing that: "The sharing of gross returns does not of
itself establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the
returns are derived," and, for that matter, on any other provision of said
code on partnerships is unavailing. In Evangelista, supra, this Court
clearly differentiated the concept of partnerships under the Civil Code
from that of unregistered partnerships which are considered as
"corporations" under Sections 24 and 84(b) of the National Internal
Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:
To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in
the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general
partnerships," which constitute precisely one of the most typical forms
of partnerships in this jurisdiction. Likewise, as defined in section 84(b)
of said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in
confirmity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section 84(b),the term "corporation"
includes, among others, "joint accounts,(cuentas en participacion)" and
"associations", none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence
of the partnerships therein referred to. In fact, as above stated, "duly
registered general co-partnerships" which are possessed of the
aforementioned personality have been expressly excluded by law
(sections 24 and 84[b]) from the connotation of the term "corporation."
....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term
"partnership" it includes not only a partnership as known in common law
but, as well, a syndicate, group, pool, joint venture, or other
unincorporated organization which carries on any business, financial
operation, or venture, and which is not, within the meaning of the Code,
a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income
Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture
or other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on. ... . (8 Merten's
Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue
Code includes these partnerships with the exception only of duly
registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned, and are
subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29,
1968, 24 SCRA 198, wherein the Court ruled against a theory of co-
ownership pursued by appellants therein.
As regards the second question raised by petitioners about the
segregation, for the purposes of the corporate taxes in question, of their
inherited properties from those acquired by them subsequently, We
consider as justified the following ratiocination of the Tax Court in
denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an
unregistered partnership, the holding should be limited to the business
engaged in apart from the properties inherited by petitioners. In other
words, the taxable income of the partnership should be limited to the
income derived from the acquisition and sale of real properties and
corporate securities and should not include the income derived from the
inherited properties. It is admitted that the inherited properties and the
income derived therefrom were used in the business of buying and
selling other real properties and corporate securities. Accordingly, the
partnership income must include not only the income derived from the
purchase and sale of other properties but also the income of the - versus -
inherited properties.

Besides, as already observed earlier, the income derived from inherited

properties may be considered as individual income of the respective
heirs only so long as the inheritance or estate is not distributed or, at
least, partitioned, but the moment their respective known shares are
used as part of the common assets of the heirs to be used in making JULIET VILLA LIM,
profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered Respondent.
partnership. This, We hold, is the clear intent of the law.

G.R. No. 172690

Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned resolution
denying petitioners' motion for reconsideration of the decision of said
court. Pertinently, the court ruled this wise: Present:

In support of the third ground, counsel for petitioners alleges: CORONA, J.,

Chairperson,

Even if we were to yield to the decision of this Honorable Court that the VELASCO, JR.,
herein petitioners have formed an unregistered partnership and,
therefore, have to be taxed as such, it might be recalled that the NACHURA,
petitioners in their individual income tax returns reported their shares of
the profits of the unregistered partnership. We think it only fair and DEL CASTILLO,* and
equitable that the various amounts paid by the individual petitioners as
MENDOZA, JJ.
income tax on their respective shares of the unregistered partnership
should be deducted from the deficiency income tax found by this
Honorable Court against the unregistered partnership. (page 7,
Memorandum for the Petitioner in Support of Their Motion for Promulgated:
Reconsideration, Oct. 28, 1961.)

March 3, 2010
In other words, it is the position of petitioners that the taxable income of
the partnership must be reduced by the amounts of income tax paid by
each petitioner on his share of partnership profits. This is not correct;
rather, it should be the other way around. The partnership profits x------------------------------------------------------------------------------------x
distributable to the partners (petitioners herein) should be reduced by
the amounts of income tax assessed against the partnership.
Consequently, each of the petitioners in his individual capacity overpaid
his income tax for the years in question, but the income tax due from the
partnership has been correctly assessed. Since the individual income
DECISION
tax liabilities of petitioners are not in issue in this proceeding, it is not
proper for the Court to pass upon the same.

NACHURA, J.:
Petitioners insist that it was error for the Tax Court to so rule that
whatever excess they might have paid as individual income tax cannot
be credited as part payment of the taxes herein in question. It is argued
that to sanction the view of the Tax Court is to oblige petitioners to pay
double income tax on the same income, and, worse, considering the Before this Court is a Petition for Review on Certiorari[1] under Rule 45
time that has lapsed since they paid their individual income taxes, they of the Rules of Civil Procedure, assailing the Court of Appeals (CA)
may already be barred by prescription from recovering their Decision[2] dated June 29, 2005, which reversed and set aside the
overpayments in a separate action. We do not agree. As We see it, the decision[3] of the Regional Trial Court (RTC) of Lucena City, dated April
case of petitioners as regards the point under discussion is simply that 12, 2004.
of a taxpayer who has paid the wrong tax, assuming that the failure to
pay the corporate taxes in question was not deliberate. Of course, such
taxpayer has the right to be reimbursed what he has erroneously paid,
but the law is very clear that the claim and action for such reimbursement The facts of the case are as follows:
are subject to the bar of prescription. And since the period for the
recovery of the excess income taxes in the case of herein petitioners
has already lapsed, it would not seem right to virtually disregard
prescription merely upon the ground that the reason for the delay is Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
precisely because the taxpayers failed to make the proper return and widow Cresencia Palad (Cresencia); and their children Elenito, Evelia,
payment of the corporate taxes legally due from them. In principle, it is Imelda, Edelyna and Edison, all surnamed Lim (petitioners),
but proper not to allow any relaxation of the tax laws in favor of persons represented by Elenito Lim (Elenito). They filed a Complaint[4] for
who are not exactly above suspicion in their conduct vis-a-vis their tax Partition, Accounting and Damages against respondent Juliet Villa Lim
obligation to the State. (respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest
son of Jose and Cresencia.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax

Appeals appealed from is affirm with costs against petitioners. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill
in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his
HEIRS OF JOSE LIM, friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a
partnership to engage in the trucking business. Initially, with a
represented by ELENITO LIM, contribution of P50,000.00 each, they purchased a truck to be used in
the hauling and transport of lumber of the sawmill. Jose managed the
Petitioners, operations of this trucking business until his death on August 15, 1981.
Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for Elfledo to use,
purchase or acquire properties using said funds.
Hence, this Petition, raising the sole question, viz.:

Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his fathers driver in the trucking business. He was
never a partner or an investor in the business and merely supervised the
purchase of additional trucks using the income from the trucking
business of the partners. By the time the partnership ceased, it had nine
trucks, which were all registered in Elfledo's name. Petitioners
asseverated that it was also through Elfledos management of the
partnership that he was able to purchase numerous real properties by
using the profits derived therefrom, all of which were registered in his
name and that of respondent. In addition to the nine trucks, Elfledo also
acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving
heir. Petitioners claimed that respondent took over the administration of
the aforementioned properties, which belonged to the estate of Jose,
without their consent and approval. Claiming that they are co-owners of
the properties, petitioners required respondent to submit an accounting
of all income, profits and rentals received from the estate of Elfledo, and
to surrender the administration thereof. Respondent refused; thus, the
filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo
was himself a partner of Norberto and Jimmy. Respondent also claimed
that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo
P50,000.00 as the latter's capital in an informal partnership with Jimmy
and Norberto. When Elfledo and respondent got married in 1981, the
partnership only had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business, Elfledo, together
with respondent, engaged in other business ventures. Thus, they were
able to buy real properties and to put up their own car assembly and
repair business. When Norberto was ambushed and killed on July 16,
1993, the trucking business started to falter. When Elfledo died on May
18, 1995 due to a heart attack, respondent talked to Jimmy and to the
heirs of Norberto, as she could no longer run the business. Jimmy
suggested that three out of the nine trucks be given to him as his share,
while the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus,
she sold the same to respondent, who paid for them in installments.
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF
THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE
OTHER PARTNERS IN THE PARTNERSHIP?[7]
In essence, petitioners argue that according to the testimony of Jimmy,
the sole surviving partner, Elfledo was not a partner; and that he and
Norberto entered into a partnership with Jose. Thus, the CA erred in not
giving that testimony greater weight than that of Cresencia, who was
merely the spouse of Jose and not a party to the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper in
a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review, evaluation, calibration, and re-
weighing of the factual findings of the CA. Moreover, respondent invokes
the rationale of the CA decision that, in light of the admissions of
Cresencia and Edison and the testimony of respondent, the testimony
of Jimmy was effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the
instant Petition.
Verily, the evaluation and calibration of the evidence necessarily
involves consideration of factual issues an exercise that is not
appropriate for a petition for review on certiorari under Rule 45. This rule
provides that the parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound
to analyze again and weigh the evidence introduced in and considered
by the tribunals below.[10] When supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties and
are not reviewable by this Court, unless the case falls under any of the
following recognized exceptions:

Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his (1) When the conclusion is a finding grounded entirely on speculation,
demise. Respondent also stressed that Jose left no properties that surmises and conjectures;
Elfledo could have held in trust. Respondent maintained that all the
properties involved in this case were purchased and acquired through
her and her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent (2) When the inference made is manifestly mistaken, absurd or
submitted that these are conjugal partnership properties; and thus, she impossible;
had the right to refuse to render an accounting for the income or profits
of their own business.
(3) Where there is a grave abuse of discretion;

Trial on the merits ensued. On April 12, 2004, the RTC rendered its
decision in favor of petitioners, thus:
(4) When the judgment is based on a misapprehension of facts;
WHEREFORE, premises considered, judgment is hereby rendered:

(5) When the findings of fact are conflicting;

1) Ordering the partition of the above-mentioned properties equally
between the plaintiffs and heirs of Jose Lim and the defendant Juliet
Villa-Lim; and
(6) When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee;
2) Ordering the defendant to submit an accounting of all incomes, profits
and rentals received by her from said properties.
(7) When the findings are contrary to those of the trial court;

SO ORDERED.
(8) When the findings of fact are conclusions without citation of specific
evidence on which they are based;
Aggrieved, respondent appealed to the CA.

(9) When the facts set forth in the petition as well as in the petitioners'
main and reply briefs are not disputed by the respondents; and

On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted, petitioners
filed their Motion for Reconsideration,[5] which the CA, however, denied
in its Resolution[6] dated May 8, 2006.
(10) When the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the evidence on
record.[11]

We note, however, that the findings of fact of the RTC are contrary to
those of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of
merit.
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits
and losses among them. A contract of partnership is defined by the Civil
Code as one where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.[12]
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is none in
this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose
and Elfledo was the partner in the trucking business.
A careful review of the records persuades us to affirm the CA decision.
The evidence presented by petitioners falls short of the quantum of proof
required to establish that: (1) Jose was the partner and not Elfledo; and
(2) all the properties acquired by Elfledo and respondent form part of the
estate of Jose, having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just
one piece of evidence against respondent. It must be considered and
weighed along with petitioners' other evidence vis--vis respondent's
contrary evidence. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered
synonymous with the term "greater weight of the evidence" or "greater
weight of the credible evidence." "Preponderance of evidence" is a
phrase that, in the last analysis, means probability of the truth. It is
evidence that is more convincing to the court as worthy of belief than
that which is offered in opposition thereto.[13] Rule 133, Section 1 of the
Rules of Court provides the guidelines in determining preponderance of
evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases,
the party having burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses'
manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony, their
interest or want of interest, and also their personal credibility so far as
the same may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance is not
necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of
Appeals[14] is enlightening. Therein, we cited Article 1769 of the Civil
Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall
apply:
(1) Except as provided by Article 1825, persons who are not partners as
to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right
or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a
prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of
Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
P50,000.00, as share in the partnership, on a date that coincided with
the payment of the initial capital in the partnership;[15] (2) Elfledo ran
the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any of
petitioners herein;[16] (3) all of the properties, particularly the nine trucks
of the partnership, were registered in the name of Elfledo; (4) Jimmy
testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the
profits of the business;[17] and (5) none of the petitioners, as heirs of
Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18]
a demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the
real and personal properties acquired and registered in the names of
Elfledo and respondent formed part of the estate of Jose, having been
derived from Jose's alleged partnership with Jimmy and Norberto. They
failed to refute respondent's claim that Elfledo and respondent engaged
in other businesses. Edison even admitted that Elfledo also sold
Interwood lumber as a sideline.[19] Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the
basic rule of evidence that between documentary and oral evidence, the
former carries more weight.[20]
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but
one of the partners in the trucking business, active and visible in the
running of its affairs from day one until this ceased operations upon his
demise. The extent of his control, administration and management of the
partnership and its business, the fact that its properties were placed in
his name, and that he was not paid salary or other compensation by the
partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how the
business was ran. Evidently it was through Elfredos efforts and hard
work that the partnership was able to acquire more trucks and otherwise
prosper. Even the appellant participated in the affairs of the partnership
by acting as the bookkeeper sans salary.
It is notable too that Jose Lim died when the partnership was barely a
year old, and the partnership and its business not only continued but
also flourished. If it were true that it was Jose Lim and not Elfledo who
was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were
not done but instead its operation continued under the helm of Elfledo
and without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was
through their own concerted efforts and hard work. Elfledo did not limit
himself to the business of their partnership but engaged in other lines of
businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling
of the CA as they are amply supported by the law and by the evidence
on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of
Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against
petitioners.
SO ORDERED.
G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY,
defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of
dismissal of the Court of First Instance of Davao, we are called upon to
determine the applicability of Article 1773 of our Civil Code to the
contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are pursuant to a
public instrument dated August 29, 1952, copy of which is attached to
the complaint as Annex "A" partners in a fishpond business, to the
capital of which Agad contributed P1,000, with the right to receive 50%
of the profits; that from 1952 up to and including 1956, Mabato who
handled the partnership funds, had yearly rendered accounts of the
operations of the partnership; and that, despite repeated demands,
Mabato had failed and refused to render accounts for the years 1957 to
1963, Agad prayed in his complaint against Mabato and Mabato & Agad
Company, filed on June 9, 1964, that judgment be rendered sentencing
Mabato to pay him (Agad) the sum of P14,000, as his share in the profits
of the partnership for the period from 1957 to 1963, in addition to P1,000
as attorney's fees, and ordering the dissolution of the partnership, as
well as the winding up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint
and denied the existence of said partnership, upon the ground that the
contract therefor had not been perfected, despite the execution of Annex
"A", because Agad had allegedly failed to give his P1,000 contribution
to the partnership capital. Mabato prayed, therefore, that the complaint
be dismissed; that Annex "A" be declared void ab initio; and that Agad
be sentenced to pay actual, moral and exemplary damages, as well as
attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that
the complaint states no cause of action and that the lower court had no
jurisdiction over the subject matter of the case, because it involves
principally the determination of rights over public lands. After due
hearing, the court issued the order appealed from, granting the motion
to dismiss the complaint for failure to state a cause of action. This
conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil
Code, because an inventory of the fishpond referred in said instrument
had not been attached thereto. A reconsideration of this order having
been denied, Agad brought the matter to us for review by record on
appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if inventory of said property is not made,
signed by the parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or
real rights" have been contributed to the partnership under
consideration. Mabato alleged and the lower court held that the answer
should be in the affirmative, because "it is really inconceivable how a
partnership engaged in the fishpond business could exist without said
fishpond property (being) contributed to the partnership." It should be
noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond
business". Moreover, none of the partners contributed either a fishpond
or a real right to any fishpond. Their contributions were limited to the
sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00)
Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos
has been contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio Agad.
xxx xxx xxx
The operation of the fishpond mentioned in Annex "A" was the purpose
of the partnership. Neither said fishpond nor a real right thereto was
contributed to the partnership or became part of the capital thereof, even
if a fishpond or a real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in
point and that, the order appealed from should be, as it is hereby set
aside and the case remanded to the lower court for further proceedings,
with the costs of this instance against defendant-appellee, Severino
Mabato. It is so ordered.
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners, vs. COURT OF APPEALS and
MANUEL TORRES, respondents.
DECISION
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of
their acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto
release the contracting partners from their respective obligations to each
other arising from acts executed in accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR
CV No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of the
Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208,
which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for
the defendant and against the plaintiffs, orders the dismissal of the
plaintiffs complaint. The counterclaims of the defendant are likewise
ordered dismissed. No pronouncement as to costs.[3]
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered
into a "joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land
in favor of respondent, who then had it registered in his name. By
mortgaging the property, respondent obtained from Equitable Bank a
loan of P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision.[4] All three of them also
agreed to share the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.

According to petitioners, the project failed because of respondents lack
of funds or means and skills. They add that respondent used the loan
not for the development of the subdivision, but in furtherance of his own
company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able to effect
the survey and the subdivision of the lots. He secured the Lapu Lapu
City Councils approval of the subdivision project which he advertised in
a local newspaper. He also caused the construction of roads, curbs and
gutters. Likewise, he entered into a contract with an engineering firm for
the building of sixty low-cost housing units and actually even set up a
model house on one of the subdivision lots. He did all of these for a total
expense of P85,000.
Respondent claimed that the subdivision project failed, however,
because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests, petitioners
refused to cause the clearing of the claims, thereby forcing him to give
up on the project.[5]
Subsequently, petitioners filed a criminal case for estafa against
respondent and his wife, who were however acquitted. Thereafter, they
filed the present civil case which, upon respondent's motion, was later
dismissed by the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed Decision, which,
as earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in
the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial courts pronouncement that losses as
well as profits in a joint venture should be distributed equally,[7] the CA
invoked Article 1797 of the Civil Code which provides:
Article 1797 - The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the same
proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion to his
capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
x x x [The] Court of Appeals erred in concluding that the transaction x x
x between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines.[8]
The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of Sale,
both of which were the bases of the appellate courts finding of a
partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that respondent
pay them damages equivalent to 60 percent of the value of the
property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines,
this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and
MISS EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan, under
Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009
square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
upon the execution of this contract for the property entrusted by the
SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants
and promises herein contained the respective parties hereto do hereby
stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x
dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND
FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS.
(P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST
PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, for their personal obligations and this
particular amount will serve as an advance payment from the FIRST
PARTY for the property mentioned to be sub-divided and to be deducted
from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount of
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until
the sub-division project is terminated and ready for sale to any interested
parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all
the expenses will not be deducted from the sales after the development
of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY
PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally
according to the x x x percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved
will start the work and all improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales shall [be] decided by both
parties.
SEVENTH: That the SECOND PARTIES, should be given an option to
get back the property mentioned provided the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and the FIRST
PARTY will be given a grace period to turnover the property mentioned
above.
That this AGREEMENT shall be binding and obligatory to the parties
who executed same freely and voluntarily for the uses and purposes
therein stated.[10]
A reading of the terms embodied in the Agreement indubitably shows
the existence of a partnership pursuant to Article 1767 of the Civil Code,
which provides:
ART. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be developed
into a subdivision; while respondent would give, in addition to his
industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested
the intention of the parties to form a partnership.[11]
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name
of the respondent. On the other hand, respondent caused the subject
land to be mortgaged, the proceeds of which were used for the survey
and the subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and entered into a
contract to construct low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made
no contribution to the partnership. Under Article 1767 of the Civil Code,
a partner may contribute not only money or property, but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only
to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it
was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow the relationship
formed from such agreement due to their supposed misunderstanding
of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:
ART. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771,[12] the
execution of a public instrument would be useless if there is no inventory
of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief [in]
the efficacy of the guaranty in which the immovables may consist. Thus,
the contract is declared void by the law when no such inventory is made.
The case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as
basis for their claim that respondent should pay them 60 percent of the
value of the property.[13] They cannot in one breath deny the contract
and in another recognize it, depending on what momentarily suits their
purpose. Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from
which the parties rights and obligations to each other may be inferred
and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under
Article 1422[14] of the Civil Code, because it is the direct result of an
earlier illegal contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement clearly states
that the consideration for the sale was the expectation of profits from the
subdivision project. Its first stipulation states that petitioners did not
actually receive payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can take different
forms, such as the prestation or promise of a thing or service by
another.[15]
In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the
subdivision project, for which the land was intended to be used. As
explained by the trial court, the land was in effect given to the partnership
as [petitioners] participation therein. x x x There was therefore a
consideration for the sale, the [petitioners] acting in the expectation that,
should the venture come into fruition, they [would] get sixty percent of
the net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which
was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners
acts were not the cause of the failure of the project.[16] But it also ruled
that neither was respondent responsible therefor.[17] In imputing the
blame solely to him, petitioners failed to give any reason why we should
disregard the factual findings of the appellate court relieving him of fault.
Verily, factual issues cannot be resolved in a petition for review under
Rule 45, as in this case. Petitioners have not alleged, not to say shown,
that their Petition constitutes one of the exceptions to this doctrine.[18]
Accordingly, we find no reversible error in the CA's ruling that petitioners
are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
AURELIO K. LITONJUA, JR.,
Petitioner,
- versus
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K.
LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING
CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INTL
SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC.,
BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY
TRADING CO., INC., 3D CORP., L DEV. CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC.,
ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER
INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE
REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),
Respondents.
G.R. NOS. 166299-300
Present:
PANGANIBAN, J., Chairman
SANDOVAL- GUTIERREZ,
CORONA,
CARPIO MORALES and
GARCIA, JJ.
Promulgated:
December 13, 2005
x-------------------------------------------------x
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner
Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the
Court of Appeals (CA) dated March 31, 2004[1] in consolidated cases
C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution
dated December 07, 2004,[2] denying petitioners motion for
reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent
Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute
between them started when, on December 4, 2002, in the Regional Trial
Court (RTC) at Pasig City, Aurelio filed a suit against his brother
Eduardo and herein respondent Robert T. Yang (Yang) and several
corporations for specific performance and accounting. In his
complaint,[3] docketed as Civil Case No. 69235 and eventually raffled
to Branch 68 of the court,[4] Aurelio alleged that, since June 1973, he
and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation
(operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands
and buildings, among other corporations. Yang is described in the
complaint as petitioners and Eduardos partner in their Odeon Theater
investment.[5] The same complaint also contained the following material
averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
joint venture/partnership for the continuation of their family business and
common family funds .
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an
integral part as Annex A and the portion referring to [Aurelio] submarked
as Annex A-1.
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelios] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development)
and contributing his industry to the continued operation of these
businesses, [Aurelio] will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them whichever
is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years,
[Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and
[their] respective assets.
4.02 In addition . . . the joint venture/partnership had also acquired
[various other assets], but Eduardo caused to be registered in the names
of other parties.
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist
of real properties . A list of some of these real properties is attached
hereto and made an integral part as Annex B.
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and
liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Eduardo and/or the corporate defendants as well as Bobby [Yang], are
transferring . . . various real properties of the corporations belonging to
the joint venture/partnership to other parties in fraud of [Aurelio]. In
consequence, [Aurelio] is therefore causing at this time the annotation
on the titles of these real properties a notice of lis pendens . (Emphasis
in the original; underscoring and words in bracket added.)
For ease of reference, Annex A-1 of the complaint, which petitioner
asserts to have been meant for him by his brother Eduardo, pertinently
reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the
pattern . You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office every
time I am away. I want you to run it the way I am trying to run it because
I will be all alone and I will depend entirely to you (sic). My sons will not
be ready to help me yet until about maybe 15/20 years from now.
Whatever is left in the corporation, I will make sure that you get ONE
MILLION PESOS (P1,000,000.00) or ten percent (10%) equity,
whichever is greater. We two will gamble the whole thing of what I have
and what you are entitled to. . It will be you and me alone on this. If ever
I pass away, I want you to take care of all of this. You keep my share for
my two sons are ready take over but give them the chance to run the
company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE
HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like
Lt. Artiaga so you can live better there. The rest I will give you in form of
stocks which you can keep. This stock I assure you is good and
saleable. I will also gladly give you the share of Wack-Wack and Valley
Golf because you have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory Counterclaim
denying under oath the material allegations of the complaint, more
particularly that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the
complaint states no cause of action, since no cause of action may be
derived from the actionable document, i.e., Annex A-1, being void under
the terms of Article 1767 in relation to Article 1773 of the Civil Code,
infra. It is further alleged that whatever undertaking Eduardo agreed to
do, if any, under Annex A-1, are unenforceable under the provisions of
the Statute of Frauds.[7]
For his part, Yang - who was served with summons long after the other
defendants submitted their answer moved to dismiss on the ground,
inter alia, that, as to him, petitioner has no cause of action and the
complaint does not state any.[8] Petitioner opposed this motion to
dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve
Affirmative Defenses.[9] To this motion, petitioner interposed an
Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10]
Acting on the separate motions immediately adverted to above, the trial
court, in an Omnibus Order dated March 5, 2003, denied the affirmative
defenses and, except for Yang, set the case for pre-trial on April 10,
2003.[11]
In another Omnibus Order of April 2, 2003, the same court denied the
motion of Eduardo, et al., for reconsideration[12] and Yangs motion to
dismiss. The following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved
the right to seek reconsideration of the April 2, 2003 Omnibus Order and
to pursue his failed motion to dismiss[13] to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order
of April 2, 2003, but his motion was denied in an Order of July 4,
2003.[14]
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a
petition for certiorari under Rule 65 of the Rules of Court, docketed as
CA-G.R. SP No. 78774,[15] to nullify the separate orders of the trial
court, the first denying his motion to dismiss the basic complaint and,
the second, denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that
grave abuse of discretion and injudicious haste attended the issuance
of the trial courts aforementioned Omnibus Orders dated March 5, and
April 2, 2003, sought relief from the CA via similar recourse. Their
petition for certiorari was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,[16] the CAs 14th Division
ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP
No. 76987.
Following the submission by the parties of their respective Memoranda
of Authorities, the appellate court came out with the herein assailed
Decision dated March 31, 2004, finding for Eduardo and Yang, as lead
petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of
the writ of certiorari in these consolidated cases annulling, reversing and
setting aside the assailed orders of the court a quo dated March 5, 2003,
April 2, 2003 and July 4, 2003 and the complaint filed by private
respondent [now petitioner Aurelio] against all the petitioners [now
herein respondents Eduardo, et al.] with the court a quo is hereby
dismissed.
SO ORDERED.[17] (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that
the alleged partnership, as evidenced by the actionable documents,
Annex A and A-1 attached to the complaint, and upon which petitioner
solely predicates his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is void or legally inexistent.
In time, petitioner moved for reconsideration but his motion was denied
by the CA in its equally assailed Resolution of December 7, 2004.[18] .
Hence, petitioners present recourse, on the contention that the CA
erred:
A. When it ruled that there was no partnership created by the actionable
document because this was not a public instrument and immovable
properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when
all that Petitioner had done was to support his pleaded cause of action
by another legal perspective/argument.
The petition lacks merit.

Petitioners demand, as defined in the petitory portion of his complaint in
the trial court, is for delivery or payment to him, as Eduardos and Yangs
partner, of his partnership/joint venture share, after an accounting has
been duly conducted of what he deems to be partnership/joint venture
property.[19]
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits
and losses between them.[20] A contract of partnership is defined by the
Civil Code as one where two or more persons bound themselves to
contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves.[21] A joint venture,
on the other hand, is hardly distinguishable from, and may be likened to,
a partnership since their elements are similar, i.e., community of
interests in the business and sharing of profits and losses. Being a form
of partnership, a joint venture is generally governed by the law on
partnership.[22]
The underlying issue that necessarily comes to mind in this proceedings
is whether or not petitioner and respondent Eduardo are partners in the
theatre, shipping and realty business, as one claims but which the other
denies. And the issue bearing on the first assigned error relates to the
question of what legal provision is applicable under the premises,
petitioner seeking, as it were, to enforce the actionable document -
Annex A-1 - which he depicts in his complaint to be the contract of
partnership/joint venture between himself and Eduardo. Clearly, then, a
look at the legal provisions determinative of the existence, or defining
the formal requisites, of a partnership is indicated. Foremost of these
are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a public
instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall
not affect the liability of the partnership and the members thereof to third
persons.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but
is unsigned and undated. As an unsigned document, there can be no
quibbling that Annex A-1 does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover,
being unsigned and doubtless referring to a partnership involving more
than P3,000.00 in money or property, Annex A-1 cannot be presented
for notarization, let alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772 of the Code.
And inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on
the nature of petitioners contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioners
contribution consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that
[petitioners] contribution to the so-called partnership/joint venture was
his supposed share in the family business that is consisting of movie
theaters, shipping and land development under paragraph 3.02 of the
complaint. In other words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and real
rights. .[23]
Significantly enough, petitioner matter-of-factly concurred with the
appellate courts observation that, prescinding from what he himself
alleged in his basic complaint, his contribution to the partnership
consisted of his share in the Litonjua family businesses which owned
variable immovable properties. Petitioners assertion in his motion for
reconsideration[24] of the CAs decision, that what was to be contributed
to the business [of the partnership] was [petitioners] industry and his
share in the family [theatre and land development] business leaves no
room for speculation as to what petitioner contributed to the perceived
partnership.
Lest it be overlooked, the contract-validating inventory requirement
under Article 1773 of the Civil Code applies as long real property or real
rights are initially brought into the partnership. In short, it is really of no
moment which of the partners, or, in this case, who between petitioner
and his brother Eduardo, contributed immovables. In context, the more
important consideration is that real property was contributed, in which
case an inventory of the contributed property duly signed by the parties
should be attached to the public instrument, else there is legally no
partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773,
argues that the immovables in question were not contributed, but were
acquired after the formation of the supposed partnership. Needless to
stress, the Court cannot accord cogency to this specious argument. For,
as earlier stated, petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development family
businesses which already owned immovables even before Annex A-1
was allegedly executed.
Considering thus the value and nature of petitioners alleged contribution
to the purported partnership, the Court, even if so disposed, cannot
plausibly extend Annex A-1 the legal effects that petitioner so desires
and pleads to be given. Annex A-1, in fine, cannot support the existence
of the partnership sued upon and sought to be enforced. The legal and
factual milieu of the case calls for this disposition. A partnership may be
constituted in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at least
P3,000.00, in which case a public instrument shall be necessary.[25]
And if only to stress what has repeatedly been articulated, an inventory
to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable
property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its
assailed Decision[26] about the probative value and legal effect of
Annex A-1 commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the
Memorandum (Annex A of the complaint) which purports to establish the
said partnership/joint venture is NOT a public instrument and there was
NO inventory of the immovable property duly signed by the parties. As
such, the said Memorandum is null and void for purposes of establishing
the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the
purported partnership/joint venture is legally inexistent and it produces
no effect whatsoever. Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal right. Accordingly, the
allegations in the complaint, including the actionable document attached
thereto, clearly demonstrates that [petitioner] has NO valid contractual
or legal right which could be violated by the [individual respondents]
herein. As a consequence, [petitioners] complaint does NOT state a
valid cause of action because NOT all the essential elements of a cause
of action are present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the
CAs equally assailed Resolution of December 7, 2004[27] denying
petitioners motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in
the complaint as well as the actionable document attached thereto
(Rollo, p. 191), the [trial] court did not appreciate and apply the legal
provisions which were brought to its attention by herein [respondents] in
the their pleadings. In our evaluation of [petitioners] complaint, the latter
alleged inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and
there was no inventory of immovable properties signed by the parties.
Both the allegations in the complaint and the actionable documents
considered, it is crystal clear that [petitioner] has no valid or legal right
which could be violated by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex A-
1, assuming its inefficacy or nullity as a partnership document,
nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be
a partnership. This actionable contract is what is known as an
innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but
surely the contract does create rights and obligations of the parties and
which rights and obligations may be enforceable and demandable. Just
because the relationship created by the agreement cannot be
specifically labeled or pigeonholed into a category of nominate contract
does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this
Court - and earlier on the CA after he experienced a reversal of fortune
thereat - as an afterthought. The appellate court, however, cannot really
be faulted for not yielding to petitioners dubious stratagem of altering his
theory of joint venture/partnership to an innominate contract. For, at
bottom, the appellate courts certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial court in
grave abuse of discretion. As respondent Yang pointedly observed,[28]
since the parties basic position had been well-defined, that of petitioner
being that the actionable document established a partnership/joint
venture, it is on those positions that the appellate court exercised its
certiorari jurisdiction. Petitioners act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared, an
admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of
stance, he has now contended that the actionable instrument may be
considered an innominate contract. xxx Verily, this now changes
[petitioners] theory of the case which is not only prohibited by the Rules
but also is an implied admission that the very theory he himself has
adopted, filed and prosecuted before the respondent court is erroneous.
Be that as it may . . We hold that this new theory contravenes
[petitioners] theory of the actionable document being a partnership
document. If anything, it is so obvious we do have to test the sufficiency
of the cause of action on the basis of partnership law xxx.[29] (Emphasis
in the original; Words in bracket added).
But even assuming in gratia argumenti that Annex A-1 partakes of a
perfected innominate contract, petitioners complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot
be over-emphasized that petitioner points to Eduardo as the author of
Annex A-1. Withal, even on this consideration alone, petitioners claim
against Yang is doomed from the very start.
As it were, the only portion of Annex A-1 which could perhaps be
remotely regarded as vesting petitioner with a right to demand from
respondent Eduardo the observance of a determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers
and I will ask you to stay as I want you to run this office everytime I am
away. I want you to run it the way I am trying to run it because I will be
alone and I will depend entirely to you, My sons will not be ready to help
me yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater.
(Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon
himself under the above passage, if he indeed wrote Annex A-1, is a
promise which is not to be performed within one year from contract
execution on June 22, 1973. Accordingly, the agreement embodied in
Annex A-1 is covered by the Statute of Frauds and ergo unenforceable
for non-compliance therewith.[30] By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year from the
making thereof shall be unenforceable by action, unless the same, or
some note or memorandum thereof, be in writing and subscribed by the
party charged. Corollarily, no action can be proved unless the
requirement exacted by the statute of frauds is complied with.[31]
Lest it be overlooked, petitioner is the intended beneficiary of the P1
Million or 10% equity of the family businesses supposedly promised by
Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go to a
common fund would be to read something not written in Annex A-1.
Thus, even this angle alone argues against the very idea of a
partnership, the creation of which requires two or more contracting
minds mutually agreeing to contribute money, property or industry to a
common fund with the intention of dividing the profits between or among
themselves.[32]
In sum then, the Court rules, as did the CA, that petitioners complaint
for specific performance anchored on an actionable document of
partnership which is legally inexistent or void or, at best, unenforceable
does not state a cause of action as against respondent Eduardo and the
corporate defendants. And if no of action can successfully be maintained
against respondent Eduardo because no valid partnership existed
between him and petitioner, the Court cannot see its way clear on how
the same action could plausibly prosper against Yang. Surely, Yang
could not have become a partner in, or could not have had any form of
business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical
nexus that would tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship with the Litonjua
family and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the
joint venture/partnership with Eduardo and what his share in the
businesses will be. No allegation is made whatsoever about what Yang
contributed, if any, let alone his proportional share in the profits. But such
allegation cannot, however, be made because, as aptly observed by the
CA, the actionable document did not contain such provision, let alone
mention the name of Yang. How, indeed, could a person be considered
a partner when the document purporting to establish the partnership
contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo
are business partners in the [respondent] corporations, while Bobby is
his and Eduardos partner in their Odeon Theater investment (par. 2.03).
This means that the partnership between petitioner and Eduardo came
first; Yang became their partner in their Odeon Theater investment
thereafter. Several paragraphs later, however, petitioner would
contradict himself by alleging that his investment and that of Eduardo
and Yang in the Odeon theater business has expanded through a
reinvestment of profit income and direct investments in several
corporation including but not limited to [six] corporate respondents This
simply means that the Odeon Theatre business came before the
corporate respondents. Significantly enough, petitioner refers to the
corporate respondents as progeny of the Odeon Theatre business.[34]
Needless to stress, petitioner has not sufficiently established in his
complaint the legal vinculum whence he sourced his right to drag Yang
into the fray. The Court of Appeals, in its assailed decision, captured and
formulated the legal situation in the following wise:
[Respondent] Yang, is impleaded because, as alleged in the complaint,
he is a partner of [Eduardo] and the [petitioner] in the Odeon Theater
Investment which expanded through reinvestments of profits and direct
investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged
partnership with petitioner and the respondent. However, there was NO
allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and Yang. More
importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly
affects said claim against Yang. Since [petitioner] is trying to establish
his claim against Yang by linking him to the legally inexistent partnership
. . . such attempt had become futile because there was NOTHING that
would contractually connect [petitioner] and Yang. To establish a valid
cause of action, the complaint should have a statement of fact upon
which to connect [respondent] Yang to the alleged partnership between
[petitioner] and respondent [Eduardo], including their alleged investment
in the Odeon Theater. A statement of facts on those matters is pivotal to
the complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against Yang. [35]
Pressing its point, the CA later stated in its resolution denying petitioners
motion for reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document
attached to the complaint that is controlling. Suffice it to state, We have
not ignored the actionable document As a matter of fact, We
emphasized in our decision that insofar as [Yang] is concerned, he is
not even mentioned in the said actionable document. We are therefore
puzzled how a person not mentioned in a document purporting to
establish a partnership could be considered a partner.[36] (Words in
bracket ours).
The last issue raised by petitioner, referring to whether or not he
changed his theory of the case, as peremptorily determined by the CA,
has been discussed at length earlier and need not detain us long. Suffice
it to say that after the CA has ruled that the alleged partnership is
inexistent, petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and consistently pursued
in his complaint, petitioner embraced the innominate contract theory.
Illustrative of this shift is petitioners statement in par. #8 of his motion for
reconsideration of the CAs decision combined with what he said in par.
# 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint
venture, or whatever, is a legal matter. What is determinative for
purposes of sufficiency of the complainants allegations, is whether the
actionable document bears out an actionable contract be it a
partnership, a joint venture or whatever or some innominate contract It
may be noted that one kind of innominate contract is what is known as
du ut facias (I give that you may do).[37]
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be
a partnership. This actionable contract is what is known as an
innominate contract (Civil Code, Article 1307).[38]
Springing surprises on the opposing party is offensive to the sporting
idea of fair play, justice and due process; hence, the proscription against
a party shifting from one theory at the trial court to a new and different
theory in the appellate court.[39] On the same rationale, an issue which
was neither averred in the complaint cannot be raised for the first time
on appeal.[40] It is not difficult, therefore, to agree with the CA when it
made short shrift of petitioners innominate contract theory on the basis
of the foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of
innominate contract was not a case of changing theories but of
supporting his pleaded cause of action that of the existence of a
partnership - by another legal perspective/argument, strikes the Court
as a strained attempt to rationalize an untenable position. Paragraph 12
of his motion for reconsideration of the CAs decision virtually relegates
partnership as a fall-back theory. Two paragraphs later, in the same
notion, petitioner faults the appellate court for reading, with myopic eyes,
the actionable document solely as establishing a partnership/joint
venture. Verily, the cited paragraphs are a study of a party hedging on
whether or not to pursue the original cause of action or altogether
abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the
actionable document attached to the complaint does not establish a
contractual relationship between [petitioner] and Eduardo, Sr. and
Roberto T Yang simply because his document does not create a
partnership or a joint venture. This is a myopic reading of the actionable
document.
Per the Courts own count, petitioner used in his complaint the mixed
words joint venture/partnership nineteen (19) times and the term partner
four (4) times. He made reference to the law of joint venture/partnership
[being applicable] to the business relationship between [him], Eduardo
and Bobby [Yang] and to his rights in all specific properties of their joint
venture/partnership. Given this consideration, petitioners right of action
against respondents Eduardo and Yang doubtless pivots on the
existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex A-1. A void Annex A-1,
as an actionable document of partnership, would strip petitioner of a
cause of action under the premises. A complaint for delivery and
accounting of partnership property based on such void or legally non-
existent actionable document is dismissible for failure to state of action.
So, in gist, said the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned
Decision and Resolution of the Court of Appeals AFFIRMED.
Cost against the petitioner.
SO ORDERED.
G.R. No. L-25532 February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and
T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on 30 September 1947 by herein respondent William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the
limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the
importation, marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement machines, their
parts and accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices, bills
and letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central
Bank.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson
sold his share in the partnership to Suter and his wife. The sale was duly
recorded with the Securities and Exchange Commission on 20
December 1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner, Commissioner of
Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed
to the Court of Tax Appeals, which court, after trial, rendered a decision,
on 11 November 1965, reversing that of the Commissioner of Internal
Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of
the partners, respondent William J. Suter and Julia Spirig Suter and the
subsequent sale to them by the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the partnership for a nominal amount of
P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that
the marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality
of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the
business; consequently the income tax return of respondent Suter for
the years in question should have included his and his wife's individual
incomes and that of the limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return for the
taxable year shall be filed by either spouse to cover the income of both
spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court
of Tax Appeals held, that his marriage with limited partner Spirig and
their acquisition of Carlson's interests in the partnership in 1948 is not a
ground for dissolution of the partnership, either in the Code of
Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership, as
contra distinguished from a duly registered general partnership, it is
taxable on its income similarly with corporations, Suter was not bound
to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co.,
Ltd., has been dissolved by operation of law because of the marriage of
the only general partner, William J. Suter to the originally limited partner,
Julia Spirig one year after the partnership was organized is rested by the
appellant upon the opinion of now Senator Tolentino in Commentaries
and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows:
A husband and a wife may not enter into a contract of general
copartnership, because under the Civil Code, which applies in the
absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. (2 Echaverri 196) It follows that the
marriage of partners necessarily brings about the dissolution of a pre-
existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but
a particular one. As appears from Articles 1674 and 1675 of the Spanish
Civil Code, of 1889 (which was the law in force when the subject firm
was organized in 1947), a universal partnership requires either that the
object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners
may acquire by their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a
universal partnership, since the contributions of the partners were fixed
sums of money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig and neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan,
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1,
says with regard to the prohibition contained in the aforesaid Article
1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular?
Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya que
ningun precepto de nuestro Codigo los prohibe, y hay que estar a la
norma general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la
de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve
it, such marriage not being one of the causes provided for that purpose
either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin"
Co., Ltd. did not become common property of both after their marriage
in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory mandates and basic principles
of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members.
True, section 24 of the Internal Revenue Code merges registered
general co-partnerships (compaias colectivas) with the personality of
the individual partners for income tax purposes. But this rule is
exceptional in its disregard of a cardinal tenet of our partnership laws,
and can not be extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964, and
Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding
the fiction of legal personality of the corporations involved therein are
not applicable to the present case. In the cited cases, the corporations
were already subject to tax when the fiction of their corporate personality
was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon
the partners-spouses in their individual capacities. The corporations, in
the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the present case. Here,
the limited partnership is not a mere business conduit of the partner-
spouses; it was organized for legitimate business purposes; it conducted
its own dealings with its customers prior to appellee's marriage, and had
been filing its own income tax returns as such independent entity. The
change in its membership, brought about by the marriage of the partners
and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax
code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of
the remaining partner with the premeditated scheme or design to use
the partnership as a business conduit to dodge the tax laws. Regularity,
not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income,
to require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In fact,
it would even conflict with what it specifically provides in its Section 24:
for the appellant Commissioner's stand results in equal treatment, tax
wise, of a general copartnership (compaia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the
case of compaias colectivas that the members, and not the firm, are
taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership (Section 26,
N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1,
pp. 88-89).lawphi1.nt

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

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

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

FOR THE FOREGOING REASONS, the decision under review is

hereby affirmed. No costs.