Article 1767 share corresponding to eight percent (8%), and for damages.

Antonieta
claimed that in 1946, she had entered into an agreement with Conchita
FEDERICO JARANTILLA, JR., and Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio
Petitioner, Deocampo to engage in business.Antonieta alleged that the initial
- versus - contribution of property and money came from the heirs inheritance,
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE,SUBSTITUTED BY and her subsequent annual investment of seven thousand five hundred
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA, pesos (P7,500.00) as additional capital came from the proceeds of her
Respondents. farm. Antonieta also alleged that from 1946-1969, she had helped in the
management of the business they co-owned without receiving any
salary.Her salary was supposedly rolled back into the business as
This petition for review on certiorari[1] seeks to modify the Decision[2] of
additional investments in her behalf. Antonieta further claimed co-
the Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which
ownership of certain properties[14] (the subject real properties) in the
set aside the Decision[3] dated December 18, 1992 of the Regional Trial
name of the defendants since the only way the defendants could have
Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
purchased these properties were through the partnership as they had
no other source of income.
The pertinent facts are as follows:
The respondents, including petitioner herein, in their
The spouses Andres Jarantilla and Felisa Jaleco were survived
Answer,[15] denied having formed a partnership with Antonieta in
by eight children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita,
1946. They claimed that she was in no position to do so as she was still
Rafael and Antonieta.[4] Petitioner Federico Jarantilla, Jr. is the
in school at that time. In fact, the proceeds of the lands they partitioned
grandchild of the late Jarantilla spouses by their son Federico Jarantilla,
were devoted to her studies. They also averred that while she may have
Sr. and his wife Leda Jamili.[5] Petitioner also has two other brothers:
helped in the businesses that her older sister Conchita had formed with
Doroteo and Tomas Jarantilla.
Buenaventura Remotigue, she was paid her due salary. They did not
deny the existence and validity of the Acknowledgement of Participating
Petitioner was one of the defendants in the complaint before
Capital and in fact used this as evidence to support their claim that
the RTC while Antonieta Jarantilla, his aunt, was the plaintiff therein. His
Antonietas 8% share was limited to the businesses enumerated
co-respondents before he joined his aunt Antonieta in her complaint,
therein. With regard to Antonietas claim in their other corporations and
were his late aunt Conchita Jarantillas husband Buenaventura
businesses, the respondents said these should also be limited to the
Remotigue, who died during the pendency of the case, his cousin
number of her shares as specified in the respective articles of
Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and
incorporation. The respondents denied using the partnerships income
Buenaventura Remotigue, and his brothers Doroteo and Tomas
to purchase the subject real properties and said that the certificates of
Jarantilla.[6]
title should be binding on her.[16]
In 1948, the Jarantilla heirs extrajudicially partitioned amongst
During the course of the trial at the RTC, petitioner Federico
themselves the real properties of their deceased parents.[7] With the
Jarantilla, Jr., who was one of the original defendants, entered into a
exception of the real property adjudicated to Pacita Jarantilla, the heirs
compromise agreement[17] with Antonieta Jarantilla wherein he
also agreed to allot the produce of the said real properties for the years
supported Antonietas claims and asserted that he too was entitled to six
1947-1949 for the studies of Rafael and Antonieta Jarantilla.[8]
percent (6%) of the supposed partnership in the same manner as
Antonieta was. He prayed for a favorable judgment in this wise:
In the same year, the spouses Rosita Jarantilla and Vivencio
Deocampo entered into an agreement with the spouses Buenaventura
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for
Remotigue and Conchita Jarantilla to provide mutual assistance to each
an accounting from the other defendants, and the partition of the
other by way of financial support to any commercial and agricultural
properties of the co-ownership and the delivery to the plaintiff and
activity on a joint business arrangement. This business relationship
to defendant Federico Jarantilla, Jr. of their rightful share of the
proved to be successful as they were able to establish a manufacturing
assets and properties in the co-ownership.[18]
and trading business, acquire real properties, and construct buildings,
among other things.[9] This partnership ended in 1973 when the parties,
in an Agreement,[10]voluntarily agreed to completely dissolve their joint
The RTC, in an Order[19] dated March 25, 1992, approved the
business relationship/arrangement.[11]
Joint Motion to Approve Compromise Agreement[20] and on December
18, 1992, decided in favor of Antonieta, to wit:
On April 29, 1957, the spouses Buenaventura and Conchita
Remotigue executed a document wherein they acknowledged that while
WHEREFORE, premises above-considered, the
registered only in Buenaventura Remotigues name, they were not the
Court renders judgment in favor of the plaintiff Antonieta
only owners of the capital of the businesses Manila Athletic Supply (712
Jarantilla and against defendants Cynthia Remotigue, Doroteo
Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and
Jarantilla and Tomas Jarantilla ordering the latter:
Remotigue Trading (Cotabato City). In this same Acknowledgement of
Participating Capital, they stated the participating capital of their co-
1. to deliver to the plaintiff her 8% share or its equivalent
owners as of the year 1952, with Antonieta Jarantillas stated as eight
amount on the real properties covered by TCT Nos.
thousand pesos (P8,000.00) and Federico Jarantilla, Jr.s as five thousand
35655, 338398, 338399 & 335395, all of the Registry of
pesos (P5,000.00).[12]
Deeds of Quezon City; TCT Nos. (18303)23341, 142882
& 490007(4615), all of the Registry of Deeds of Rizal; and
The present case stems from the amended complaint[13] dated
TCT No. T-6309 of the Registry of Deeds of Cotabato
April 22, 1987 filed by Antonieta Jarantilla against Buenaventura
based on their present market value;
Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets and
income of the co-ownership, for its partition and the delivery of her
 2. to deliver to the plaintiff her 8% share or its equivalent
amount on the Remotigue Agro-Industrial Corporation,
Manila Athletic Supply, Inc., MAS Rubber Products, Inc.
and Buendia Recapping Corporation based on the shares
of stocks present book value;
3. to account for the assets and income of the co-
ownership and deliver to plaintiff her rightful share
thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum
of P50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as
attorneys fees; and
6. to pay, jointly and severally, the costs of the suit.[21]
Both the petitioner and the respondents appealed this
decision to the Court of Appeals. The petitioner claimed that the RTC
erred in not rendering a complete judgment and ordering the partition
of the co-ownership and giving to [him] six per centum (6%) of the
properties.[22]
While the Court of Appeals agreed to some of the RTCs factual
findings, it also established that Antonieta Jarantilla was not part of the
partnership formed in 1946, and that her 8% share was limited to the
businesses enumerated in the Acknowledgement of Participating
Capital. On July 30, 2002, the Court of Appeals rendered the herein
challenged decision setting aside the RTCs decision, as follows:
WHEREFORE, the decision of the trial court, dated 18
December 1992 is SET ASIDE and a new one is hereby entered
ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla
be given her share of 8% in the assets and
profits of Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in
Cotabato City;
(2) after accounting, defendant Federico Jarantilla,
Jr. be given his share of 6% of the assets and
profits of the above-mentioned enterprises;
and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in
the following corporations to the extent stated
in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial
Development Corp.
(4) No costs.[23]
The respondents, on August 20, 2002, filed a Motion for Partial
Reconsideration but the Court of Appeals denied this in a
Resolution[24] dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for
review on certiorari[25] dated September 16, 2002, assailing the Court of
Appeals decision on similar grounds and similar assignments of errors as
this present case[26] but it was dismissed on November 20, 2002 for
failure to file the appeal within the reglementary period of fifteen (15)
days in accordance with Section 2, Rule 45 of the Rules of Court.[27]
Petitioner filed before us this petition for review on the sole
ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT
RULING THAT PETITIONER FEDERICO JARANTILLA, JR. IS
ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE
OTHER DEFENDANTS USING COMMON FUNDS FROM THE
BUSINESSES WHERE HE HAD OWNED SUCH SHARE.[28]
Petitioner asserts that he was in a partnership with the
Remotigue spouses, the Deocampo spouses, Rosita Jarantilla, Rafael
Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by
the Acknowledgement of Participating Capital the Remotigue spouses
executed in 1957. He contends that from this partnership, several other
corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his
6% share in the subject real properties. He is relying on the
Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantillas testimony to support this contention.
The core issue is whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the subject real
properties. In other words, what is the petitioners right over these real
properties?
It is a settled rule that in a petition for review
on certiorari under Rule 45 of the Rules of Civil Procedure, only
questions of law may be raised by the parties and passed upon by this
Court.[29]
A question of law arises when there is doubt as to
what the law is on a certain state of facts, while there is a
question of fact when the doubt arises as to the truth or falsity
of the alleged facts. For a question to be one of law, the same
must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that
the issue invites a review of the evidence presented, the
question posed is one of fact. Thus, the test of whether a
question is one of law or of fact is not the appellation given to
such question by the party raising the same; rather, it is
whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it
is a question of law; otherwise it is a question of fact.[30]
Since the Court of Appeals did not fully adopt the factual
findings of the RTC, this Court, in resolving the questions of law that are
now in issue, shall look into the facts only in so far as the two courts a
quo differed in their appreciation thereof.
 The RTC found that an unregistered partnership existed since
1946 which was affirmed in the 1957 document, the Acknowledgement
of Participating Capital. The RTC used this as its basis for giving Antonieta
Jarantilla an 8% share in the three businesses listed therein and in the
other businesses and real properties of the respondents as they had
supposedly acquired these through funds from the partnership.[31]
The Court of Appeals, on the other hand, agreed with the RTC
as to Antonietas 8% share in the business enumerated in the
Acknowledgement of Participating Capital, but not as to her share in the
other corporations and real properties. The Court of Appeals ruled that
Antonietas claim of 8% is based on the Acknowledgement of
Participating Capital, a duly notarized document which was specific as to
the subject of its coverage. Hence, there was no reason to pattern her
share in the other corporations from her share in the partnerships
businesses. The Court of Appeals also said that her claim in the
respondents real properties was more precarious as these were all
covered by certificates of title which served as the best evidence as to
all the matters contained therein.[32] Since petitioners claim was
essentially the same as Antonietas, the Court of Appeals also ruled that
petitioner be given his 6% share in the same businesses listed in the
Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the
Court of Appeals, are final and conclusive except in the following cases:
(1) when the inference made is manifestly mistaken, absurd or
impossible; (2) when there is a grave abuse of discretion; (3) when the
finding is grounded entirely on speculations, surmises or conjectures; (4)
when the judgment of the Court of Appeals is based on misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when
the Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties and which, if properly considered, would justify
a different conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted
by the evidence on record.[33]
In this case, we find no error in the ruling of the Court of
Appeals.
Both the petitioner and Antonieta Jarantilla characterize their
relationship with the respondents as a co-ownership, but in the same
breath, assert that a verbal partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right
belongs to different persons.[34] It is a partnership when two or more
persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among
themselves.[35] The Court, in Pascual v. The Commissioner of Internal
Revenue,[36] quoted the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista v. The Collector of Internal Revenue[37] to further
elucidate on the distinctions between a co-ownership and a partnership,
to wit:
I wish however to make the following
observation: Article 1769 of the new Civil Code lays down the
rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and
3, provides;
(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property
from which the returns are derived;
From the above it appears that the fact that those
who agree to form a co- ownership share or do not share any
profits made by the use of the property held in common does
not convert their venture into a partnership. Or the sharing of
the gross returns does not of itself establish a partnership
whether or not the persons sharing therein have a joint or
common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other
elements constituting partnership is necessary, such as the
clear intent to form a partnership, the existence of a juridical
personality different from that of the individual partners, and
the freedom to transfer or assign any interest in the property
by one with the consent of the others.
It is evident that an isolated transaction whereby
two or more persons contribute funds to buy certain real estate
for profit in the absence of other circumstances showing a
contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a
common enterprise and agree to share the gross returns of
that enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution, are
not thereby rendered partners. They have no common stock
or capital, and no community of interest as principal
proprietors in the business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute
a co-partnership in respect thereto; nor does an agreement to
share the profits and losses on the sale of land create a
partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to
become owners of a single tract of realty, holding as tenants
in common, and to divide the profits of disposing of it, the
brother and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three
parties, whatever their relation may have been as to third
parties.
In order to constitute a partnership inter sese there
must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as
enables each party to make contract, manage the business,
and dispose of the whole property. x x x.
The common ownership of property does not itself
create a partnership between the owners, though they may
use it for the purpose of making gains; and they may, without
becoming partners, agree among themselves as to the
management, and use of such property and the application of
the proceeds therefrom.[38] (Citations omitted.)
 Under Article 1767 of the Civil Code, there are two essential
elements in a contract of partnership: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide
the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, all the parties in
this case have agreed to, and did, contribute money and property to a
common fund. Hence, the issue narrows down to their intent in acting as
they did.[39] It is not denied that all the parties in this case have agreed
to contribute capital to a common fund to be able to later on share its
profits. They have admitted this fact, agreed to its veracity, and even
submitted one common documentary evidence to prove such
partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the
Acknowledgement of Participating Capital, it would be instructive to
examine the pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita
Jarantilla de Remotigue, both of legal age, Filipinos and
residents of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the
Remotigue Trading of Calle Real, Iloilo City and the Remotigue
Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic
goods and equipments, and general merchandise are
recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by
them as such:
That they are not the only owners of the capital of
the three establishments and their participation in the capital
of the three establishments together with the other co-
owners as of the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE P25,000.00
THOUSAND)
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE
THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
That aside from the persons mentioned in the next preceding
paragraph, no other person has any interest in the above-
mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of
Manila, P.I., this 29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE[
The Acknowledgement of Participating Capital is a duly notarized
document voluntarily executed by Conchita Jarantilla-Remotigue and
Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed
in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each
in the losses shall be in the same proportion.
In the absence of stipulation, the share of each
partner in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial partner
shall receive such share as may be just and equitable under
the circumstances. If besides his services he has contributed
capital, he shall also receive a share in the profits in proportion
to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to
his share as agreed upon, or in the absence of any such stipulations, then
to his share in proportion to his contribution to the partnership. The
petitioner himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However, petitioner fails to
realize that this document specifically enumerated the businesses
covered by the partnership: Manila Athletic Supply, Remotigue Trading
in Iloilo City and Remotigue Trading in Cotabato City. Since there was a
clear agreement that the capital the partners contributed went to the
three businesses, then there is no reason to deviate from such
agreement and go beyond the stipulations in the document. Therefore,
the Court of Appeals did not err in limiting petitioners share to the assets
of the businesses enumerated in the Acknowledgement of Participating
Capital.
In Villareal v. Ramirez,[41] the Court held that since a
partnership is a separate juridical entity, the shares to be paid out to the
partners is necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct
entity, that must refund the shares of the partners, the
amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its
coffers, which consists of all its assets. However, before the
partners can be paid their shares, the creditors of the
partnership must first be compensated. After all the creditors
have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners shares.[42]
There is no evidence that the subject real properties were
assets of the partnership referred to in the Acknowledgement of
Participating Capital.
The petitioner further asserts that he is entitled to
respondents properties based on the concept of trust. He claims that
since the subject real properties were purchased using funds of the
partnership, wherein he has a 6% share, then law and equity mandates
that he should be considered as a co-owner of those properties in such
proportion.[43] In Pigao v. Rabanillo,[44] this Court explained the concept
of trusts, to wit:
Express trusts are created by the intention of the trustor or of
the parties, while implied trusts come into being by operation
 of law, either through implication of an intention to create a
trust as a matter of law or through the imposition of the trust
irrespective of, and even contrary to, any such intention. In
turn, implied trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine that
valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have
been contemplated by the parties. They arise from the nature
or circumstances of the consideration involved in a transaction
whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit
of another.[45]
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that
a trust was created. Noting the need to prove the existence
of a trust, this Court has held thus:
As a rule, the burden of proving the
existence of a trust is on the party asserting its
existence, and such proof must be clear and
satisfactorily show the existence of the trust and its
elements. While implied trusts may be proved by
oral evidence, the evidence must be trustworthy
and received by the courts with extreme caution,
and should not be made to rest on loose, equivocal
or indefinite declarations. Trustworthy evidence is
required because oral evidence can easily be
fabricated. [46]
The petitioner has failed to prove that there exists a trust over
the subject real properties. Aside from his bare allegations, he has failed
to show that the respondents used the partnerships money to purchase
the said properties. Even assuming arguendo that some partnership
income was used to acquire these properties, the petitioner should have
successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity
in the partnership.
In essence, the petitioner is claiming his 6% share in the
subject real properties, by relying on his own self-serving testimony and
the equally biased testimony of Antonieta Jarantilla.Petitioner has not
presented evidence, other than these unsubstantiated testimonies, to
prove that the respondents did not have the means to fund their other
businesses and real properties without the partnerships income. On the
other hand, the respondents have not only, by testimonial evidence,
proven their case against the petitioner, but have also presented
sufficient documentary evidence to substantiate their claims, allegations
and defenses. They presented preponderant proof on how they
acquired and funded such properties in addition to tax receipts and tax
declarations.[47] It has been held that while tax declarations and realty
tax receipts do not conclusively prove ownership, they may constitute
strong evidence of ownership when accompanied by possession for a
period sufficient for prescription.[48] Moreover, it is a rule in this
jurisdiction that testimonial evidence cannot prevail over documentary
evidence.[49] This Court had on several occasions, expressed our
disapproval on using mere self-serving testimonies to support ones
claim. In Ocampo v. Ocampo,[50] a case on partition of a co-ownership,
we held that:
Petitioners assert that their claim of co-ownership
of the property was sufficiently proved by their witnesses --
Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their
testimonies cannot prevail over the array of documents
presented by Belen. A claim of ownership cannot be based
simply on the testimonies of witnesses; much less on those of
interested parties, self-serving as they are.[51]
It is true that a certificate of title is merely an evidence of
ownership or title over the particular property described
therein. Registration in the Torrens system does not create or vest title
as registration is not a mode of acquiring ownership; hence, this cannot
deprive an aggrieved party of a remedy in law.[52] However, petitioner
asserts ownership over portions of the subject real properties on the
strength of his own admissions and on the testimony of Antonieta
Jarantilla. As held by this Court in Republic of the Philippines v. Orfinada,
Sr.[53]:
Indeed, a Torrens title is generally conclusive evidence of
ownership of the land referred to therein, and a strong
presumption exists that a Torrens title was regularly issued
and valid. A Torrens title is incontrovertible against
any informacion possessoria, of other title existing prior to the
issuance thereof not annotated on the Torrens
title. Moreover, persons dealing with property covered by a
Torrens certificate of title are not required to go beyond what
appears on its face.[54]
As we have settled that this action never really was for
partition of a co-ownership, to permit petitioners claim on these
properties is to allow a collateral, indirect attack on respondents
admitted titles. In the words of the Court of Appeals, such evidence
cannot overpower the conclusiveness of these certificates of title, more
so since plaintiffs [petitioners] claims amount to a collateral attack,
which is prohibited under Section 48 of Presidential Decree No. 1529,
the Property Registration Decree.[55]
SEC. 48. Certificate not subject to collateral attack. A
certificate of title shall not be subject to collateral attack. It
cannot be altered, modified, or cancelled except in a direct
proceeding in accordance with law.
This Court has deemed an action or proceeding to be an attack
on a title when its objective is to nullify the title, thereby challenging the
judgment pursuant to which the title was decreed.[56]In Aguilar v.
Alfaro,[57] this Court further distinguished between a direct and an
indirect or collateral attack, as follows:
A collateral attack transpires when, in another
action to obtain a different relief and as an incident to the
present action, an attack is made against the judgment
granting the title. This manner of attack is to be distinguished
from a direct attack against a judgment granting the title,
through an action whose main objective is to annul, set aside,
or enjoin the enforcement of such judgment if not yet
implemented, or to seek recovery if the property titled under
the judgment had been disposed of. x x x.
Petitioners only piece of documentary evidence is the
Acknowledgement of Participating Capital, which as discussed above,
failed to prove that the real properties he is claiming co-ownership of
were acquired out of the proceeds of the businesses covered by such
document. Therefore, petitioners theory has no factual or legal leg to
stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision
of the Court of Appeals in CA-G.R. CV No. 40887, dated July 30, 2002
is AFFIRMED.
SO ORDERED.
VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING CORPORATION, and
SBT[1] TRUCKING CORPORATION, petitioners,
vs.
HON. COURT OF APPEALS and JAIME SAHOT, respondents.
[G.R. No. 142293. February 27, 2003]
This petition for review seeks the reversal of the decision[2] of the Court
of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming
with modification the decision[3] of the National Labor Relations
Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-
96. Petitioners also pray for the reinstatement of the decision[4] of the
Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.
Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot[5] started
working as a truck helper for petitioners family-owned trucking business
named Vicente Sy Trucking. In 1965, he became a truck driver of the
same family business, renamed T. Paulino Trucking Service, later 6Bs
Trucking Corporation in 1985, and thereafter known as SBT Trucking
Corporation since 1994. Throughout all these changes in names and for
36 years, private respondent continuously served the trucking business
of petitioners.
In April 1994, Sahot was already 59 years old. He had been
incurring absences as he was suffering from various
ailments. Particularly causing him pain was his left thigh, which greatly
affected the performance of his task as a driver. He inquired about his
medical and retirement benefits with the Social Security System (SSS) on
April 25, 1994, but discovered that his premium payments had not been
remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May
27th, he was medically examined and treated for EOR, presleyopia,
hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and
heart enlargement (Annex G, p. 107).[8] On said grounds, Belen Paulino
of the SBT Trucking Service management told him to file a formal request
for extension of his leave. At the end of his week-long absence, Sahot
applied for extension of his leave for the whole month of June, 1994. It
was at this time when petitioners allegedly threatened to terminate his
employment should he refuse to go back to work.
At this point, Sahot found himself in a dilemma. He was facing
dismissal if he refused to work, But he could not retire on pension
because petitioners never paid his correct SSS premiums. The fact
remained he could no longer work as his left thigh hurt abominably.
Petitioners ended his dilemma. They carried out their threat and
dismissed him from work, effective June 30, 1994. He ended up sick,
jobless and penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration
Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case No.
00-09-06717-94. He prayed for the recovery of separation pay and
attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino,
Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking and SBT
Trucking, herein petitioners.
For their part, petitioners admitted they had a trucking business in
the 1950s but denied employing helpers and drivers. They contend that
private respondent was not illegally dismissed as a driver because he was
in fact petitioners industrial partner. They add that it was not until the
year 1994, when SBT Trucking Corporation was established, and only
then did respondent Sahot become an employee of the company, with
a monthly salary that reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime prior to June 1, 1994,
Sahot went on leave and was not able to report for work for almost
seven days. On June 1, 1994, Sahot asked permission to extend his leave
of absence until June 30, 1994. It appeared that from the expiration of
his leave, private respondent never reported back to work nor did he file
an extension of his leave. Instead, he filed the complaint for illegal
dismissal against the trucking company and its owners.
Petitioners add that due to Sahots refusal to work after the
expiration of his authorized leave of absence, he should be deemed to
have voluntarily resigned from his work. They contended that Sahot had
all the time to extend his leave or at least inform petitioners of his health
condition. Lastly, they cited NLRC Case No. RE-4997-76,
entitled Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a
defense in view of the alleged similarity in the factual milieu and issues
of said case to that of Sahots, hence they are in pari material and Sahots
complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel
Cadiente Santos, ruled that there was no illegal dismissal in Sahots case.
Private respondent had failed to report to work. Moreover, said the
Labor Arbiter, petitioners and private respondent were industrial
partners before January 1994. The Labor Arbiter concluded by ordering
petitioners to pay financial assistance of P15,000 to Sahot for having
served the company as a regular employee since January 1994 only.
On appeal, the National Labor Relations Commission modified the
judgment of the Labor Arbiter. It declared that private respondent was
an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was
terminated on account of his illness, pursuant to Article 284[9] of the
Labor Code. Accordingly, the NLRC ordered petitioners to pay private
respondent separation pay in the amount of P60,320.00, at the rate of
P2,080.00 per year for 29 years of service.
Petitioners assailed the decision of the NLRC before the Court of
Appeals. In its decision dated February 29, 2000, the appellate court
affirmed with modification the judgment of the NLRC. It held that private
respondent was indeed an employee of petitioners since 1958. It also
increased the amount of separation pay awarded to private respondent
to P74,880, computed at the rate of P2,080 per year for 36 years of
service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with
MODIFICATION. SB Trucking Corporation is hereby directed to pay
complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT
HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10]
Hence, the instant petition anchored on the following contentions:
I RESPONDENT COURT OF APPEALS IN PROMULGATING THE
QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE
DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT
IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL
CODE.[11]
II RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING
THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE
FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A
BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF
THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT
UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION
(305 SCRA 233).[12]
III PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT
TRUCKING CORPORATION.[13]
Three issues are to be resolved: (1) Whether or not an employer-
employee relationship existed between petitioners and respondent
Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or
not respondent Sahot is entitled to separation pay.
Crucial to the resolution of this case is the determination of the
first issue. Before a case for illegal dismissal can prosper, an employer-
employee relationship must first be established.[14]
Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente
Santos which found that respondent Sahot was not an employee but was
in fact, petitioners industrial partner.[15] It is contended that it was the
Labor Arbiter who heard the case and had the opportunity to observe
the demeanor and deportment of the parties. The same conclusion, aver
petitioners, is supported by substantial evidence.[16] Moreover, it is
argued that the findings of fact of the Labor Arbiter was wrongly
overturned by the NLRC when the latter made the following
pronouncement:
We agree with complainant that there was error committed by the Labor
Arbiter when he concluded that complainant was an industrial partner
prior to 1994. A computation of the age of complainant shows that he
was only twenty-three (23) years when he started working with
respondent as truck helper. How can we entertain in our mind that a
twenty-three (23) year old man, working as a truck helper, be considered
an industrial partner. Hence we rule that complainant was only an
employee, not a partner of respondents from the time complainant
started working for respondent.[17]
Because the Court of Appeals also found that an employer-
employee relationship existed, petitioners aver that the appellate courts
decision gives an imprimatur to the illegal finding and conclusion of the
NLRC.
Private respondent, for his part, denies that he was ever an
industrial partner of petitioners. There was no written agreement, no
proof that he received a share in petitioners profits, nor was there
anything to show he had any participation with respect to the running of
the business.[18]
The elements to determine the existence of an employment
relationship are: (a) the selection and engagement of the employee; (b)
the payment of wages; (c) the power of dismissal; and (d) the employers
power to control the employees conduct. The most important element
is the employers control of the employees conduct, not only as to the
result of the work to be done, but also as to the means and methods to
accomplish it.[19]
As found by the appellate court, petitioners owned and operated
a trucking business since the 1950s and by their own allegations, they
determined private respondents wages and rest day.[20] Records of the
case show that private respondent actually engaged in work as an
employee. During the entire course of his employment he did not have
the freedom to determine where he would go, what he would do, and
how he would do it. He merely followed instructions of petitioners and
was content to do so, as long as he was paid his wages. Indeed, said the
CA, private respondent had worked as a truck helper and driver of
petitioners not for his own pleasure but under the latters control.
Article 1767[21] of the Civil Code states that in a contract of
partnership two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing
the profits among themselves.[22] Not one of these circumstances is
present in this case. No written agreement exists to prove the
partnership between the parties. Private respondent did not contribute
money, property or industry for the purpose of engaging in the supposed
business. There is no proof that he was receiving a share in the profits as
a matter of course, during the period when the trucking business was
under operation. Neither is there any proof that he had actively
participated in the management, administration and adoption of policies
of the business. Thus, the NLRC and the CA did not err in reversing the
finding of the Labor Arbiter that private respondent was an industrial
partner from 1958 to 1994.
On this point, we affirm the findings of the appellate court and the
NLRC. Private respondent Jaime Sahot was not an industrial partner but
an employee of petitioners from 1958 to 1994. The existence of an
employer-employee relationship is ultimately a question of fact[23] and
the findings thereon by the NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when supported by substantial
evidence. Substantial evidence is such amount of relevant evidence
which a reasonable mind might accept as adequate to justify a
conclusion.[24]
Time and again this Court has said that if doubt exists between the
evidence presented by the employer and the employee, the scales of
justice must be tilted in favor of the latter.[25] Here, we entertain no
doubt. Private respondent since the beginning was an employee of, not
an industrial partner in, the trucking business.
Coming now to the second issue, was private respondent validly
dismissed by petitioners?
Petitioners contend that it was private respondent who refused to
go back to work. The decision of the Labor Arbiter pointed out that
during the conciliation proceedings, petitioners requested respondent
Sahot to report back for work. However, in the same proceedings, Sahot
stated that he was no longer fit to continue working, and instead he
demanded separation pay. Petitioners then retorted that if Sahot did not
like to work as a driver anymore, then he could be given a job that was
less strenuous, such as working as a checker. However, Sahot declined
that suggestion. Based on the foregoing recitals, petitioners assert that
it is clear that Sahot was not dismissed but it was of his own volition that
he did not report for work anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant
continue working with respondents despite his alleged illness, there is
no direct evidence that will prove that complainants illness prevents or
incapacitates him from performing the function of a driver. The fact
remains that complainant suddenly stopped working due to boredom or
otherwise when he refused to work as a checker which certainly is a
much less strenuous job than a driver.[26]
But dealing the Labor Arbiter a reversal on this score the NLRC,
concurred in by the Court of Appeals, held that:
While it was very obvious that complainant did not have any intention
to report back to work due to his illness which incapacitated him to
perform his job, such intention cannot be construed to be an
abandonment. Instead, the same should have been considered as one
of those falling under the just causes of terminating an employment. The
insistence of respondent in making complainant work did not change the
scenario.
It is worthy to note that respondent is engaged in the trucking business
where physical strength is of utmost requirement (sic). Complainant
started working with respondent as truck helper at age twenty-three
(23), then as truck driver since 1965. Complainant was already fifty-nine
(59) when the complaint was filed and suffering from various illness
triggered by his work and age.
x x x[27]
In termination cases, the burden is upon the employer to show by
substantial evidence that the termination was for lawful cause and
validly made.[28] Article 277(b) of the Labor Code puts the burden of
proving that the dismissal of an employee was for a valid or authorized
cause on the employer, without distinction whether the employer
admits or does not admit the dismissal.[29] For an employees dismissal to
be valid, (a) the dismissal must be for a valid cause and (b) the employee
must be afforded due process.[30]
Article 284 of the Labor Code authorizes an employer to terminate
an employee on the ground of disease, viz:
Art. 284. Disease as a ground for termination- An employer may
terminate the services of an employee who has been found to be
suffering from any disease and whose continued employment is
prohibited by law or prejudicial to his health as well as the health of his
co-employees: xxx
However, in order to validly terminate employment on this
ground, Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of
the Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers
from a disease and his continued employment is prohibited by law or
prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a
certification by competent public health authority that the disease is of
such nature or at such a stage that it cannot be cured within a period of
six (6) months even with proper medical treatment. If the disease or
ailment can be cured within the period, the employer shall not terminate
the employee but shall ask the employee to take a leave. The employer
shall reinstate such employee to his former position immediately upon
the restoration of his normal health. (Italics supplied).
As this Court stated in Triple Eight integrated Services, Inc. vs.
NLRC,[31] the requirement for a medical certificate under Article 284 of
the Labor Code cannot be dispensed with; otherwise, it would sanction
the unilateral and arbitrary determination by the employer of the gravity
or extent of the employees illness and thus defeat the public policy in
the protection of labor.
In the case at bar, the employer clearly did not comply with the
medical certificate requirement before Sahots dismissal was effected. In
the same case of Sevillana vs. I.T. (International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee
rests on the employer, the latter should likewise bear the burden of
showing that the requisites for a valid dismissal due to a disease have
been complied with. In the absence of the required certification by a
competent public health authority, this Court has ruled against the
validity of the employees dismissal. It is therefore incumbent upon the
private respondents to prove by the quantum of evidence required by
law that petitioner was not dismissed, or if dismissed, that the dismissal
was not illegal; otherwise, the dismissal would be unjustified. This Court
will not sanction a dismissal premised on mere conjectures and
suspicions, the evidence must be substantial and not arbitrary and must
be founded on clearly established facts sufficient to warrant his
separation from work.[32]
In addition, we must likewise determine if the procedural aspect
of due process had been complied with by the employer.
From the records, it clearly appears that procedural due process
was not observed in the separation of private respondent by the
management of the trucking company. The employer is required to
furnish an employee with two written notices before the latter is
dismissed: (1) the notice to apprise the employee of the particular acts
or omissions for which his dismissal is sought, which is the equivalent of
a charge; and (2) the notice informing the employee of his dismissal, to
be issued after the employee has been given reasonable opportunity to
answer and to be heard on his defense.[33] These, the petitioners failed
to do, even only for record purposes. What management did was to
threaten the employee with dismissal, then actually implement the
threat when the occasion presented itself because of private
respondents painful left thigh.
All told, both the substantive and procedural aspects of due
process were violated. Clearly, therefore, Sahots dismissal is tainted with
invalidity.
On the last issue, as held by the Court of Appeals, respondent
Jaime Sahot is entitled to separation pay. The law is clear on the matter.
An employee who is terminated because of disease is entitled to
separation pay equivalent to at least one month salary or to one-half
month salary for every year of service, whichever is greater
xxx.[34] Following the formula set in Art. 284 of the Labor Code, his
separation pay was computed by the appellate court at P2,080 times 36
years (1958 to 1994) or P74,880. We agree with the computation, after
noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error nor grave abuse of
discretion on the part of appellate court, we are constrained to sustain
its decision. To avoid further delay in the payment due the separated
worker, whose claim was filed way back in 1994, this decision is
immediately executory. Otherwise, six percent (6%) interest per annum
should be charged thereon, for any delay, pursuant to provisions of the
Civil Code.
WHEREFORE, the petition is DENIED and the decision of the Court
of Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay
private respondent Jaime Sahot his separation pay for 36 years of service
at the rate of one-half monthly pay for every year of service, amounting
to P74,880.00, with interest of six per centum (6%) per annum from
finality of this decision until fully paid.
Costs against petitioners.
SO ORDERED.

ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
[G.R. No. 134559. December 9, 1999]
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 pay damages equivalent to 60 percent of the value of the property,
Article 1773 of the Civil Code, which provides: which was their share in the profits under the Joint Venture Agreement.

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.
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.

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
LIM TONG LIM, petitioner,
service by another.[15]
vs.
In this case, the cause of the contract of sale consisted not in the PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
stated peso value of the land, but in the expectation of profits from the [G.R. No. 136448. November 3, 1999]
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 A partnership may be deemed to exist among parties who agree to
partnership as [petitioners] participation therein. x x x There was borrow money to pursue a business and to divide the profits or losses
therefore a consideration for the sale, the [petitioners] acting in the that may arise therefrom, even if it is shown that they have not
expectation that, should the venture come into fruition, they [would] get contributed any capital of their own to a "common fund." Their
sixty percent of the net profits. contribution may be in the form of credit or industry, not necessarily
cash or fixed assets. Being partners, they are all liable for debts incurred
Liability of the Parties
by or on behalf of the partnership. The liability for a contract entered
into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly transacted on
Claiming that respondent was solely responsible for the failure of
its behalf, but reaped benefits from that contract.
the subdivision project, petitioners maintain that he should be made to
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails
the November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision,
the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial Court (RTC)
ruling, which was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued
by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following
amounts, subject to the modifications as hereinafter made by reason of
the special and unique facts and circumstances and the proceedings that
transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing
nets covered by the Agreement plus P68,000.00 representing the
unpaid price of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiffs invoices and
computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80
dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00
dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00
dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00
representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the amount
of P532,045.00 and P68,000.00, respectively, or for the total amount
of P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at public
auction for not less than P900,000.00 for which the plaintiff was the sole
and winning bidder. The proceeds of the sale paid for by plaintiff was
deposited in court. In effect, the amount of P900,000.00 replaced the
attached property as a guaranty for any judgment that plaintiff may be
able to secure in this case with the ownership and possession of the nets
and floats awarded and delivered by the sheriff to plaintiff as the highest
bidder in the public auction sale. It has also been noted that ownership
of the nets [was] retained by the plaintiff until full payment [was] made
as stipulated in the invoices; hence, in effect, the plaintiff attached its
own properties. It [was] for this reason also that this Court earlier
ordered the attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash bidded and
paid for by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment
the plaintiff may be entitled to in this case will have to be satisfied from
the amount of P900,000.00 as this amount replaced the attached nets
and floats. Considering, however, that the total judgment obligation as
computed above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the defendants
who are not entitled to damages and who did not put up a single centavo
to raise the amount of P900,000.00 aside from the fact that they are not
the owners of the nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to retain
possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of
Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua
and Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing Gear
Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the
floats; hence, private respondent filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as
general partners, on the allegation that Ocean Quest Fishing Corporation
was a nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission.[5] On September 20, 1990, the
lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was
then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within which to
pay. He also turned over to respondent some of the nets which were in
his possession. Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment.[6] The trial court maintained the Writ, and upon motion of
private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling
that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly
liable to pay respondent.[8]
 The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and (2)
on a Compromise Agreement executed by the three[9] in Civil Case No.
1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial
documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages.[10] The
Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full payment
for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into
3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00
whatever the deficiency shall be shouldered and paid to JL Holding
Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise Agreement was silent
as to the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a
partner of Chua and Yao in a fishing business and may thus be held liable
as a such for the fishing nets and floats purchased by and for the use of
the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing x x x. Obviously, the ultimate
undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is x x x. By a contract
of partnership, two or more persons bind themselves to contribute
money, property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New Civil Code).[13]
Hence, petitioner brought this recourse before this Court.[14]
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse
the assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING
FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE
NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIMS GOODS.
In determining whether petitioner may be held liable for the
fishing nets and floats purchased from respondent, the Court must
resolve this key issue: whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and Petitioner's
Liability
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding that
a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the purchase
of the nets, alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a lessor, not
a partner, of Chua and Yao, for the "Contract of Lease" dated February
1, 1990, showed that he had merely leased to the two the main asset of
the purported partnership -- the fishing boat F/B Lourdes. The lease was
for six months, with a monthly rental of P37,500 plus 25 percent of the
gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts
as found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the
Civil Code which provides:
Article 1767 - By the contract of partnership, two or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Specifically, both lower courts ruled that a partnership among the
three existed based on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged
in commercial fishing to join him, while Antonio Chua was already Yaos
partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally
agreed to acquire two fishing boats, the FB Lourdes and the FB
Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping,
repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended
a loan to the partnership in the amount of P1 million secured by a check,
because of which, Yao and Chua entrusted the ownership papers of two
other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio
Chua bought nets from Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon
RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for
(a) declaration of nullity of commercial documents; (b) reformation of
contracts; (c) declaration of ownership of fishing boats; (4) injunction;
and (e) damages.
(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of which
are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua,
Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured
from Jesus Lim who was petitioners brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term
common fund under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and
operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but
not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the main assets
of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present
case should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the
exceptions to the rule.[16] In assailing the factual findings of the two
lower courts, petitioner effectively goes beyond the bounds of a petition
for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming
the existence of a partnership was the Compromise Agreement. He also
claims that the settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its
execution.
A proper adjudication of claimants rights mandates that courts
must review and thoroughly appraise all relevant facts.Both lower courts
have done so and have found, correctly, a preexisting partnership among
the parties. In implying that the lower courts have decided on the basis
of one piece of document alone, petitioner fails to appreciate that the
CA and the RTC delved into the history of the document and explored all
the possible consequential combinations in harmony with law, logic and
fairness. Verily, the two lower courts factual findings mentioned above
nullified petitioners argument that the existence of a partnership was
based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely
the lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease
and the registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to
believe that he consented to the sale of his own boats to pay a debt
of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner
did. Indeed, his consent to the sale proved that there was a preexisting
partnership among all three.
Verily, as found by the lower courts, petitioner entered into a
business agreement with Chua and Yao, in which debts were undertaken
in order to finance the acquisition and the upgrading of the vessels which
would be used in their fishing business. The sale of the boats, as well as
the division among the three of the balance remaining after the payment
of their loans, proves beyond cavil that F/B Lourdes, though registered
in his name, was not his own property but an asset of the partnership. It
is not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for
petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-lessee,
instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by
estoppel, liability can be imputed only to Chua and Yao, and not to
him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising
as a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or
on any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. The reason behind this doctrine is obvious - an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes
of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person
who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of
a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or
for other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages
and benefits.
On the other hand, a third party who, knowing an association to
be unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in a
suit brought against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold.The only question
here is whether petitioner should be held jointly[18] liable with Chua and
Yao. Petitioner contests such liability, insisting that only those who dealt
in the name of the ostensible corporation should be held liable. Since his
name does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be
held liable.
Unquestionably, petitioner benefited from the use of the nets
found inside F/B Lourdes, the boat which has earlier been proven to be
an asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua
and Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of
it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf
of the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel. We reiterate the
ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position , entraps
and destroys the other. It is, rather, a contest in which each contending
party fully and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all imperfections of form
and technicalities of procedure, asks that justice be done upon the
merits. Lawsuits, unlike duels, are not to be won by a rapiers
thrust. Technicality, when it deserts its proper office as an aid to justice
and becomes its great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights in
technicalities.
Third Issue: Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was
improperly issued against the nets. We agree with the Court of Appeals
that this issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were bought and
used in the fishing venture they agreed upon. Hence, the issuance of the
Writ to assure the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the nets remained
with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION;
CHARTER INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION;
COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE
CO., INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION;
DOMESTIC INSURANCE COMPANY OF THE PHILIPPINES; EASTERN
ASSURANCE COMPANY & SURETY CORP.; EMPIRE INSURANCE
COMPANY; EQUITABLE INSURANCE CORPORATION; FEDERAL
INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION;
FIDELITY & SURETY COMPANY OF THE PHILS., INC.; FILIPINO
MERCHANTS INSURANCE CO., INC.; GOVERNMENT SERVICE INSURANCE
SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE
CO., INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN
INSURANCE COMPANY; METRO-TAISHO INSURANCE CORPORATION;
NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE
CORPORATION; PARAMOUNT INSURANCE CORPORATION; PEOPLES
TRANS-EAST ASIA INSURANCE CORPORATION; PERLA COMPANIA DE
SEGUROS, INC.; PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE
FIRST INSURANCE CO., INC.; PIONEER INSURANCE & SURETY CORP.;
PIONEER INTERCONTINENTAL INSURANCE CORPORATION; PROVIDENT
INSURANCE COMPANY OF THE PHILIPPINES; PYRAMID INSURANCE CO.,
INC.; RELIANCE SURETY & INSURANCE COMPANY; RIZAL SURETY &
INSURANCE COMPANY; SANPIRO INSURANCE CORPORATION;
SEABOARD-EASTERN INSURANCE CO., INC.; SOLID GUARANTY, INC.;
SOUTH SEA SURETY & INSURANCE CO., INC.; STATE BONDING &
INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION;TABACALERA
INSURANCE CO., INC.all assessed as POOL OF
MACHINERYINSURERS, petitioners,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents.
[G.R. No. 112675. January 25, 1999]
Pursuant to reinsurance treaties, a number of local insurance firms
formed themselves into a pool in order to facilitate the handling of
business contracted with a nonresident foreign reinsurance
company. May the clearing house or insurance pool so formed be
deemed a partnership or an association that is taxable as a corporation
under the National Internal Revenue Code (NIRC)? Should the pools
remittances to the member companies and to the said foreign firm be
taxable as dividends? Under the facts of this case, has the governments
right to assess and collect said tax prescribed?
The Case
These are the main questions raised in the Petition for Review
on Certiorari before us, assailing the October 11, 1993 Decision[1] of the
Court of Appeals[2]in CA-GR SP 29502, which dismissed petitioners
appeal of the October 19, 1992 Decision[3] of the Court of Tax
Appeals[4] (CTA) which had previously sustained petitioners liability for
deficiency income tax, interest and withholding tax. The Court of
Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs against petitioners.[5]
The petition also challenges the November 15, 1993 Court of
Appeals (CA) Resolution[6] denying reconsideration.
The Facts
The petitioners are 41 non-life insurance corporations, organized and
existing under the laws of the Philippines. Upon issuance by them of
Erection, Machinery Breakdown, Boiler Explosion and Contractors All
Risk insurance policies, the petitioners on August 1, 1965 entered into a
Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with
the Munchener Ruckversicherungs-Gesselschaft (hereafter called
Munich), a non-resident foreign insurance corporation. The reinsurance
treaties required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial
statement and filed an Information Return of Organization Exempt from
Income Tax for the year ending in 1975, on the basis of which it was
assessed by the Commissioner of Internal Revenue deficiency corporate
taxes in the amount of P1,843,273.60, and withholding taxes in the
amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich
and to the petitioners, respectively. These assessments were protested
by the petitioners through its auditors Sycip, Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of Internal Revenue denied the
protest and ordered the petitioners, assessed as Pool of Machinery
Insurers, to pay deficiency income tax, interest, and with[h]olding tax,
itemized as follows:
Net income per information
return P3,737,370.00
===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
to 4/15/79 545,193.60
TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE ===========
Dividend paid to Munich
Reinsurance Company P3,728,412.00
===========
35% withholding tax at
source due thereon P1,304,944.20
Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penalty-
non-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P1,768,799.39
COLLECTIBLE ===========
Dividend paid to Pool Members P 655,636.00
===========
10% withholding tax at
source due thereon P 65,563.60
Add: 25% surcharge 16,390.90
14% interest from
1/25/76 to 1/25/79 6,884.18
Compromise penalty-
non-filing of return 300.00
late payment 300.00
TOTAL AMOUNT DUE & P 89,438.68
COLLECTIBLE ===========[8]
The CA ruled in the main that the pool of machinery insurers was
a partnership taxable as a corporation, and that the latters collection of
premiums on behalf of its members, the ceding companies, was taxable
income. It added that prescription did not bar the Bureau of Internal
Revenue (BIR) from collecting the taxes due, because the taxpayer
cannot be located at the address given in the information return
filed. Hence, this Petition for Review before us.[9]
The Issues
Before this Court, petitioners raise the following issues:
1.Whether or not the Clearing House, acting as a mere agent and
performing strictly administrative functions, and which did not insure or
assume any risk in its own name, was a partnership or association
subject to tax as a corporation;
2.Whether or not the remittances to petitioners and MUNICHRE of their
respective shares of reinsurance premiums, pertaining to their individual
and separate contracts of reinsurance, were dividends subject to tax;
and
3.Whether or not the respondent Commissioners right to assess the
Clearing House had already prescribed.[10]
The Courts Ruling
The petition is devoid of merit. We sustain the ruling of the Court
of Appeals that the pool is taxable as a corporation, and that the
governments right to assess and collect the taxes had not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding that
the pool or clearing house was an informal partnership, which was
taxable as a corporation under the NIRC. They point out that the
reinsurance policies were written by them individually and separately,
and that their liability was limited to the extent of their allocated share
in the original risks thus reinsured.[11] Hence, the pool did not act or earn
income as a reinsurer.[12] Its role was limited to its principal function of
allocating and distributing the risk(s) arising from the original insurance
among the signatories to the treaty or the members of the pool based
on their ability to absorb the risk(s) ceded[;] as well as the performance
of incidental functions, such as records, maintenance, collection and
custody of funds, etc.[13]
Petitioners belie the existence of a partnership in this case,
because (1) they, the reinsurers, did not share the same risk or solidary
liability;[14] (2) there was no common fund;[15] (3) the executive board of
the pool did not exercise control and management of its funds, unlike
the board of directors of a corporation;[16] and (4) the pool or clearing
house was not and could not possibly have engaged in the business of
reinsurance from which it could have derived income for itself.[17]
The Court is not persuaded. The opinion or ruling of the
Commission of Internal Revenue, the agency tasked with the
enforcement of tax laws, is accorded much weight and even finality,
when there is no showing that it is patently wrong,[18] particularly in this
case where the findings and conclusions of the internal revenue
commissioner were subsequently affirmed by the CTA, a specialized
body created for the exclusive purpose of reviewing tax cases, and the
Court of Appeals.[19] Indeed,
[I]t has been the long standing policy and practice of this Court to respect
the conclusions of quasi-judicial agencies, such as the Court of Tax
Appeals which, by the nature of its functions, is dedicated exclusively to
the study and consideration of tax problems and has necessarily
developed an expertise on the subject, unless there has been an abuse
or improvident exercise of its authority.[20]
This Court rules that the Court of Appeals, in affirming the CTA
which had previously sustained the internal revenue commissioner,
committed no reversible error. Section 24 of the NIRC, as worded in the
year ending 1975, provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic
corporations. -- A tax is hereby imposed upon the taxable net income
received during each 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-
partnership (compaias colectivas), general professional partnerships,
private educational institutions, and building and loan associations xxx.
Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as unregistered
partnerships and associations. Parenthetically, the NLRCs inclusion of
such entities in the tax on corporations was made even clearer by the
Tax Reform Act of 1997,[21] which amended the Tax Code. Pertinent
provisions of the new law read as follows:
SEC. 27. Rates of Income Tax on Domestic Corporations. --
(A) In General. -- Except as otherwise provided in this Code, an income
tax of thirty-five percent (35%) is hereby imposed upon the taxable
income derived during each taxable year from all sources within and
without the Philippines by every corporation, as defined in Section 22 (B)
of this Code, and taxable under this Title as a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations, or insurance companies,
but does not include general professional partnerships [or] a joint
venture or consortium formed for the purpose of undertaking
construction projects or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating or
consortium agreement under a service contract without the
Government. General professional partnershipsare partnerships
formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived
from engaging in any trade or business.
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector of Internal
Revenue[22] held that Section 24 covered these unregistered
partnerships and even associations or joint accounts, which had no legal
personalities apart from their individual members.[23] The Court of
Appeals astutely applied Evangelista:[24]
xxx Accordingly, a pool of individual real property owners dealing in real
estate business was considered a corporation for purposes of the tax in
sec. 24 of the Tax Code in Evangelista v. Collector of Internal Revenue,
supra. The Supreme Court said:
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 Mertens Law of Federal Income Taxation, p.
562 Note 63)
Article 1767 of the Civil Code recognizes the creation of a contract
of partnership when two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.[25] Its requisites are: (1) mutual
contribution to a common stock, and (2) a joint interest in the
profits.[26] In other words, a partnership is formed when persons
contract to devote to a common purpose either money, property, or
labor with the intention of dividing the profits between
themselves.[27] Meanwhile, an association implies associates who enter
into a joint enterprise x x x for the transaction of business.[28]
In the case before us, the ceding companies entered into a Pool
Agreement[29] or an association[30] that would handle all the insurance
businesses covered under their quota-share reinsurance treaty[31] and
surplus reinsurance treaty[32]with Munich. The following unmistakably
indicates a partnership or an association covered by Section 24 of the
NIRC:
(1) The pool has a common fund, consisting of money and other
valuables that are deposited in the name and credit of the
pool.[33] This common fund pays for the administration and
operation expenses of the pool.[34]
(2) The pool functions through an executive board, which
resembles the board of directors of a corporation, composed
of one representative for each of the ceding companies.[35]
(3) True, the pool itself is not a reinsurer and does not issue any
insurance policy; however, its work is indispensable, beneficial
and economically useful to the business of the ceding
companies and Munich, because without it they would not
have received their premiums. The ceding companies share in
the business ceded to the pool and in the expenses according
to a Rules of Distribution annexed to the Pool
Agreement.[36] Profit motive or business is, therefore, the
primordial reason for the pools formation. As aptly found by
the CTA:
 xxx The fact that the pool does not retain any profit or income does
not obliterate an antecedent fact, that of the pool being used in
the transaction of business for profit. It is apparent, and
petitioners admit, that their association or coaction was
indispensable [to] the transaction of the business. x x x If together
they have conducted business, profit must have been the object
as, indeed, profit was earned. Though the profit was apportioned
among the members, this is only a matter of consequence, as it
implies that profit actually resulted.[37]
The petitioners reliance on Pascual v. Commissioner[38] is
misplaced, because the facts obtaining therein are not on all fours with
the present case. In Pascual, there was no unregistered partnership, but
merely a co-ownership which took up only two isolated
transactions.[39] The Court of Appeals did not err in
applying Evangelista, which involved a partnership that engaged in a
series of transactions spanning more than ten years, as in the case
before us.
Second Issue:
Pools Remittances Are Taxable
Petitioners further contend that the remittances of the pool to the
ceding companies and Munich are not dividends subject to tax. They
insist that taxing such remittances contravene Sections 24 (b) (I) and 263
of the 1977 NIRC and would be tantamount to an illegal double taxation,
as it would result in taxing the same premium income twice in the hands
of the same taxpayer.[40] Moreover, petitioners argue that since Munich
was not a signatory to the Pool Agreement, the remittances it received
from the pool cannot be deemed dividends.[41] They add that even if
such remittances were treated as dividends, they would have been
exempt under the previously mentioned sections of the 1977 NIRC,[42] as
well as Article 7 of paragraph 1[43] and Article 5 of paragraph 5[44] of the
RP-West German Tax Treaty.[45]
Petitioners are clutching at straws. Double taxation means taxing
the same property twice when it should be taxed only once. That is, xxx
taxing the same person twice by the same jurisdiction for the same
thing.[46] In the instant case, the pool is a taxable entity distinct from the
individual corporate entities of the ceding companies. The tax on
its income is obviously different from the tax on the dividends received
by the said companies. Clearly, there is no double taxation here.
The tax exemptions claimed by petitioners cannot be granted,
since their entitlement thereto remains unproven and
unsubstantiated. It is axiomatic in the law of taxation that taxes are the
lifeblood of the nation. Hence, exemptions therefrom are highly
disfavored in law and he who claims tax exemption must be able to
justify his claim or right.[47]Petitioners have failed to discharge this
burden of proof. The sections of the 1977 NIRC which they cite are
inapplicable, because these were not yet in effect when the income was
earned and when the subject information return for the year ending
1975 was filed.
Referring to the 1975 version of the counterpart sections of the
NIRC, the Court still cannot justify the exemptions claimed. Section 255
provides that no tax shall xxx be paid upon reinsurance by any company
that has already paid the tax xxx. This cannot be applied to the present
case because, as previously discussed, the pool is a taxable entity distinct
from the ceding companies; therefore, the latter cannot individually
claim the income tax paid by the former as their own.
On the other hand, Section 24 (b) (1)[48] pertains to tax on foreign
corporations; hence, it cannot be claimed by the ceding companies
which are domestic corporations. Nor can Munich, a foreign
corporation, be granted exemption based solely on this provision of the
Tax Code, because the same subsection specifically taxes dividends, the
type of remittances forwarded to it by the pool. Although not a signatory
to the Pool Agreement, Munich is patently an associate of the ceding
companies in the entity formed, pursuant to their reinsurance treaties
which required the creation of said pool.
Under its pool arrangement with the ceding companies, Munich
shared in their income and loss. This is manifest from a reading of
Articles 3[49] and 10[50] of the Quota Share Reinsurance Treaty and
Articles 3[51] and 10[52] of the Surplus Reinsurance Treaty. The foregoing
interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
exemption must be construed strictissimi juris, and the statutory
exemption claimed must be expressed in a language too plain to be
mistaken.[53]
Finally, the petitioners claim that Munich is tax-exempt based on
the RP-West German Tax Treaty is likewise unpersuasive, because the
internal revenue commissioner assessed the pool for corporate taxes on
the basis of the information return it had submitted for the year ending
1975, a taxable year when said treaty was not yet in effect.[54]Although
petitioners omitted in their pleadings the date of effectivity of the treaty,
the Court takes judicial notice that it took effect only later, on December
14, 1984.[55]
Third Issue: Prescription
Petitioners also argue that the governments right to assess and
collect the subject tax had prescribed. They claim that the subject
information return was filed by the pool on April 14, 1976. On the basis
of this return, the BIR telephoned petitioners on November 11, 1981, to
give them notice of its letter of assessment dated March 27, 1981. Thus,
the petitioners contend that the five-year statute of limitations then
provided in the NIRC had already lapsed, and that the internal revenue
commissioner was already barred by prescription from making an
assessment.[56]
We cannot sustain the petitioners. The CA and the CTA
categorically found that the prescriptive period was tolled under
then Section 333 of the NIRC,[57] because the taxpayer cannot be located
at the address given in the information return filed and for which reason
there was delay in sending the assessment.[58] Indeed, whether the
governments right to collect and assess the tax has prescribed involves
facts which have been ruled upon by the lower courts. It is axiomatic that
in the absence of a clear showing of palpable error or grave abuse of
discretion, as in this case, this Court must not overturn the factual
findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool changed its
address, for they stated that the pools information return filed in 1980
indicated therein its present address. The Court finds that this falls short
of the requirement of Section 333 of the NIRC for the suspension of the
prescriptive period. The law clearly states that the said period will be
suspended only if the taxpayer informs the Commissioner of Internal
Revenue of any change in the address.
WHEREFORE, the petition is DENIED. The Resolutions of the Court
of Appeals dated October 11, 1993 and November 15, 1993 are
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
 PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. 148187 April 16, 2008
This is a petition for review on certiorari of the June 30, 2000 Decision1
of
the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the
Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also
assailed is the April 3, 2001 Resolution3 denying the motion for
reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
entered into an agreement4 with Baguio Gold Mining Company ("Baguio
Gold") for the former to manage and operate the latter’s mining claim,
known as the Sto. Nino mine, located in Atok and Tublay, Benguet
Province. The parties’ agreement was denominated as "Power of
Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS within the said 3-year
period, for use in the MANAGEMENT of the STO. NINO MINE. The said
ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for
internal audit purposes, as the owner’s account in the Sto. Nino
PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO
MINE, which is left with the Sto. Nino PROJECT, shall be added to such
owner’s account.
5. Whenever the MANAGERS shall deem it necessary and convenient
in connection with the MANAGEMENT of the STO. NINO MINE, they
may transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
(a) The properties shall be appraised and, together with the
cash, shall be carried by the Sto. Nino PROJECT as a special fund
to be known as the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall not exceed
P11,000,000.00, except with prior approval of the PRINCIPAL;
provided, however, that if the compensation of the MANAGERS
as herein provided cannot be paid in cash from the Sto. Nino
PROJECT, the amount not so paid in cash shall be added to the
MANAGERS’ account.
(c) The cash and property shall not thereafter be withdrawn
from the Sto. Nino PROJECT until termination of this Agency.
(d) The MANAGERS’ account shall not accrue interest. Since it is
the desire of the PRINCIPAL to extend to the MANAGERS the
benefit of subsequent appreciation of property, upon a
projected termination of this Agency, the ratio which the
MANAGERS’ account has to the owner’s account will be
determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims, shall be
transferred to the MANAGERS, except that such transferred
assets shall not include mine development, roads, buildings, and
similar property which will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the other hand, require at
their option that property originally transferred by them to the
Sto. Nino PROJECT be re-transferred to them. Until such assets
are transferred to the MANAGERS, this Agency shall remain
subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of
the net profit of the Sto. Nino PROJECT before income tax. It is
understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of
the MANAGERS. This Power of Attorney has been executed as security
for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the
same. Therefore, this Agency shall be irrevocable while any obligation
of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive
of the MANAGERS’ account. After all obligations of the PRINCIPAL in
favor of the MANAGERS have been paid and satisfied in full, this
Agency shall be revocable by the PRINCIPAL upon 36-month notice to
the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the PRINCIPAL.
The MANAGERS shall not in any manner be held liable to the
PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof
shall be operative in case of the MANAGERS’ withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioner’s withdrawal as manager of the mine on
January 28, 1982 and in the eventual cessation of mine operations on
February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a
"Compromise with Dation in Payment"7 wherein Baguio Gold admitted
an indebtedness to petitioner in the amount of P179,394,000.00 and
agreed to pay the same in three segments by first assigning Baguio
Gold’s tangible assets to petitioner, transferring to the latter Baguio
Gold’s equitable title in its Philodrill assets and finally settling the
remaining liability through properties that Baguio Gold may acquire in
the future.
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment"8 where the parties determined
that Baguio Gold’s indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to other
creditors that petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of America NT & SA and
Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
segments by first assigning its tangible assets for P127,838,051.00 and
then transferring its equitable title in its Philodrill assets for
P16,302,426.00. The parties then ascertained that Baguio Gold had a
remaining outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in 1981
and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of
receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed
the amount as deduction for bad debt and assessed petitioner a
deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be
allowed since all requisites for a bad debt deduction were satisfied, to
wit: (a) there was a valid and existing debt; (b) the debt was ascertained
to be worthless; and (c) it was charged off within the taxable year when
it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management
contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold’s "pecuniary
obligations" to petitioner. It also included payments made by petitioner
as guarantor of Baguio Gold’s long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
Petitioner also asserted that due to Baguio Gold’s irreversible losses, it
became evident that it would not be able to recover the advances and
payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to
institute a judicial action for collection against the debtor nor to sell or
dispose of collateral assets in satisfaction of the debt. It is enough that a
taxpayer exerted diligent efforts to enforce collection and exhausted all
reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s protest for lack of legal
and factual basis. It held that the alleged debt was not ascertained to be
worthless since Baguio Gold remained existing and had not filed a
petition for bankruptcy; and that the deduction did not consist of a valid
and subsisting debt considering that, under the management contract,
petitioner was to be paid fifty percent (50%) of the project’s net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED for lack of merit. The assessment in
question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY respondent Commissioner of Internal Revenue the
amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-
day grace period given by the respondent within which petitioner
has to pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the advances it made for the
Sto. Nino mine were in the nature of a loan. It instead characterized the
advances as petitioner’s investment in a partnership with Baguio Gold
for the development and exploitation of the Sto. Nino mine. The CTA
held that the "Power of Attorney" executed by petitioner and Baguio
Gold was actually a partnership agreement. Since the advanced amount
partook of the nature of an investment, it could not be deducted as a
bad debt from petitioner’s gross income.
The CTA likewise held that the amount paid by petitioner for the long-
term loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not
in default since its loans were not yet due and demandable. What
petitioner did was to pre-pay the loans as evidenced by the notice sent
by Bank of America showing that it was merely demanding payment of
the installment and interests due. Moreover, Citibank imposed and
collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon
denial of its motion for reconsideration,13petitioner took this recourse
under Rule 45 of the Rules of Court, alleging that:
I. The Court of Appeals erred in construing that the advances made
by Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather
than a loan.
II. The Court of Appeals erred in ruling that the 50%-50% sharing in
the net profits of the Sto. Nino Mine indicates that Philex is a partner
of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex
and Baguio Gold to form a partnership.
III. The Court of Appeals erred in relying only on the Power of
Attorney and in completely disregarding the Compromise
Agreement and the Amended Compromise Agreement when it
construed the nature of the advances made by Philex.
IV. The Court of Appeals erred in refusing to delve upon the issue of
the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business
relationship with Baguio Gold, we should not only rely on the "Power of
Attorney", but also on the subsequent "Compromise with Dation in
Payment" and "Amended Compromise with Dation in Payment" that the
parties executed in 1982. These documents, allegedly evinced the
parties’ intent to treat the advances and payments as a loan and
establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the
business relationship between petitioner and Baguio Gold. Before resort
may be had to the two compromise agreements, the parties’ contractual
intent must first be discovered from the expressed language of the
primary contract under which the parties’ business relations were
founded. It should be noted that the compromise agreements were
mere collateral documents executed by the parties pursuant to the
termination of their business relationship created under the "Power of
Attorney". On the other hand, it is the latter which established the
juridical relation of the parties and defined the parameters of their
dealings with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or contemporaneous act that is reflective of
the parties’ true intent. The compromise agreements were executed
eleven years after the "Power of Attorney" and merely laid out a plan or
procedure by which petitioner could recover the advances and
payments it made under the "Power of Attorney". The parties entered
into the compromise agreements as a consequence of the dissolution of
their business relationship. It did not define that relationship or indicate
its real character.
An examination of the "Power of Attorney" reveals that a partnership or
joint venture was indeed intended by the parties. Under a contract of
partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing
the profits among themselves.15 While a corporation, like petitioner,
cannot generally enter into a contract of partnership unless authorized
by law or its charter, it has been held that it may enter into a joint
venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has
no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. x x x It
is in fact hardly distinguishable from the partnership, since their
elements are similar – community of interest in the business, sharing
of profits and losses, and a mutual right of control. x x x The main
distinction cited by most opinions in common law jurisdictions is that
the partnership contemplates a general business with some degree
of continuity, while the joint venture is formed for the execution of
a single transaction, and is thus of a temporary nature. x x x 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.
x x x It would seem therefore that under Philippine law, a joint
venture is a form of partnership and should be governed by the law
of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it
may however engage in a joint venture with others. x x x (Citations
omitted) 16
Perusal of the agreement denominated as the "Power of Attorney"
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint interest
in the profits of the business as shown by a 50-50 sharing in the income
of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook
to contribute money, property and industry to the common fund known
as the Sto. Niño mine.17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the
development and operation of the mine. Pursuant to paragraphs 4 and
5 of the agreement, petitioner and Baguio Gold were to contribute
equally to the joint venture assets under their respective accounts.
Baguio Gold would contribute P11M under its owner’s account plus any
of its income that is left in the project, in addition to its actual mining
claim. Meanwhile, petitioner’s contribution would consist of
its expertise in the management and operation of mines, as well as the
manager’s account which is comprised of P11M in funds and property
and petitioner’s "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a
partnership agreement with Baguio Gold because it did not "bind" itself
to contribute money or property to the project; that under paragraph 5
of the agreement, it was only optional for petitioner to transfer funds or
property to the Sto. Niño project "(w)henever the MANAGERS shall
deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to petitioner’s contribution to
the common fund does not detract from the fact that petitioner
transferred its funds and property to the project as specified in
paragraph 5, thus rendering effective the other stipulations of the
contract, particularly paragraph 5(c) which prohibits petitioner from
withdrawing the advances until termination of the parties’ business
relations. As can be seen, petitioner became bound by its contributions
once the transfers were made. The contributions acquired an obligatory
nature as soon as petitioner had chosen to exercise its option under
paragraph 5.
There is no merit to petitioner’s claim that the prohibition in paragraph
5(c) against withdrawal of advances should not be taken as an indication
that it had entered into a partnership with Baguio Gold; that the
stipulation only showed that what the parties entered into was actually
a contract of agency coupled with an interest which is not revocable at
will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be
revoked or withdrawn by the principal due to an interest of a third party
that depends upon it, or the mutual interest of both principal and
agent.19 In this case, the non-revocation or non-withdrawal under
paragraph 5(c) applies to the advances made by petitioner who is
supposedly the agent and not the principal under the contract. Thus, it
cannot be inferred from the stipulation that the parties’ relation under
the agreement is one of agency coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement be taken as an indication
that the relationship of the parties was one of agency and not a
partnership. Although the said provision states that "this Agency shall be
irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does
not necessarily follow that the parties entered into an agency contract
coupled with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney"
was not to confer a power in favor of petitioner to contract with third
persons on behalf of Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former was to manage
and operate the latter’s mine through the parties’ mutual contribution
of material resources and industry. The essence of an agency, even one
that is coupled with interest, is the agent’s ability to represent his
principal and bring about business relations between the latter and third
persons.20 Where representation for and in behalf of the principal is
merely incidental or necessary for the proper discharge of one’s
paramount undertaking under a contract, the latter may not necessarily
be a contract of agency, but some other agreement depending on the
ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the
parties’ agreement indubitably lead to the conclusion that a partnership
was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated
to return the advances made by petitioner under the agreement.
Paragraph 5 (d) thereof provides that upon termination of the parties’
business relations, "the ratio which the MANAGER’S account has to the
owner’s account will be determined, and the corresponding proportion
of the entire assets of the STO. NINO MINE, excluding the claims" shall
be transferred to petitioner.22 As pointed out by the Court of Tax
Appeals, petitioner was merely entitled to a proportionate return of the
mine’s assets upon dissolution of the parties’ business relations. There
was nothing in the agreement that would require Baguio Gold to make
payments of the advances to petitioner as would be recognized as an
item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for
a distribution of assets of the Sto. Niño mine upon termination, a
provision that is more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a contract of loan, a
person who receives a loan or money or any fungible thing acquires
ownership thereof and is bound to pay the creditor an equal amount of
the same kind and quality.23 In this case, however, there was no
stipulation for Baguio Gold to actually repay petitioner the cash and
property that it had advanced, but only the return of an amount pegged
at a ratio which the manager’s account had to the owner’s account.
In this connection, we find no contractual basis for the execution of the
two compromise agreements in which Baguio Gold recognized a debt in
favor of petitioner, which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The "Power of Attorney"
clearly provides that petitioner would only be entitled to the return of a
proportionate share of the mine assets to be computed at a ratio that
the manager’s account had to the owner’s account. Except to provide a
basis for claiming the advances as a bad debt deduction, there is no
reason for Baguio Gold to hold itself liable to petitioner under the
compromise agreements, for any amount over and above the
proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation
with neither security, or collateral, nor a specific deed evidencing the
terms and conditions of such loans. The parties also did not provide a
specific maturity date for the advances to become due and demandable,
and the manner of payment was unclear. All these point to the inevitable
conclusion that the advances were not loans but capital contributions to
a partnership.
The strongest indication that petitioner was a partner in the Sto Niño
mine is the fact that it would receive 50% of the net profits as
"compensation" under paragraph 12 of the agreement. The entirety of
the parties’ contractual stipulations simply leads to no other conclusion
than that petitioner’s "compensation" is actually its share in the income
of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by
a person of a share in the profits of a business is prima facie evidence
that he is a partner in the business." Petitioner asserts, however, that no
such inference can be drawn against it since its share in the profits of the
Sto Niño project was in the nature of compensation or "wages of an
employee", under the exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid "wages" pursuant to an
employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture in
order to ensure its viability and profitability. By pegging its compensation
to profits, petitioner also stood not to be remunerated in case the mine
had no income. It is hard to believe that petitioner would take the risk of
not being paid at all for its services, if it were truly just an ordinary
employee.
Consequently, we find that petitioner’s "compensation" under
paragraph 12 of the agreement actually constitutes its share in the net
profits of the partnership. Indeed, petitioner would not be entitled to an
equal share in the income of the mine if it were just an employee of
Baguio Gold.25 It is not surprising that petitioner was to receive a 50%
share in the net profits, considering that the "Power of Attorney" also
provided for an almost equal contribution of the parties to the St. Nino
mine. The "compensation" agreed upon only serves to reinforce the
notion that the parties’ relations were indeed of partners and not
employer-employee.
All told, the lower courts did not err in treating petitioner’s advances as
investments in a partnership known as the Sto. Nino mine. The advances
were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former
under the "Power of Attorney". As for the amounts that petitioner paid
as guarantor to Baguio Gold’s creditors, we find no reason to depart
from the tax court’s factual finding that Baguio Gold’s debts were not
yet due and demandable at the time that petitioner paid the same.
Verily, petitioner pre-paid Baguio Gold’s outstanding loans to its bank
creditors and this conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction
from its gross income. Deductions for income tax purposes partake of
the nature of tax exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that he is entitled to
the deduction claimed.27 In this case, petitioner failed to substantiate its
assertion that the advances were subsisting debts of Baguio Gold that
could be deducted from its gross income. Consequently, it could not
claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed
the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to
PAY the deficiency tax on its 1982 income in the amount of
P62,811,161.31, with 20% delinquency interest computed from
February 10, 1995, which is the due date given for the payment of the
deficiency income tax, up to the actual date of payment.
SO ORDERED.
Article 1768
ALFREDO N. AGUILA, JR, petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE
ABROGAR, respondents.
[G.R. No. 127347. November 25, 1999]
This is a petition for review on certiorari of the decision[1] of the Court of
Appeals, dated November 29, 1990, which reversed the decision of the
Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April
11, 1995. The trial court dismissed the petition for declaration of nullity
of a deed of sale filed by private respondent Felicidad S. Vda. de Abrogar
against petitioner Alfredo N. Aguila, Jr.
 The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership
engaged in lending activities. Private respondent and her late husband,
Ruben M. Abrogar, were the registered owners of a house and lot,
covered by Transfer Certificate of Title No. 195101, in Marikina, Metro
Manila. On April 18, 1991, private respondent, with the consent of her
late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-
described property from the FIRST PARTY [Felicidad S. Vda. de Abrogar],
and pursuant to this agreement, a Deed of Absolute Sale shall be
executed by the FIRST PARTY conveying the property to the SECOND
PARTY for and in consideration of the sum of Two Hundred Thousand
Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to
repurchase the said property within a period of ninety (90) days from
the execution of this memorandum of agreement effective April 18,
1991, for the amount of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days, the
FIRST PARTY is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the
expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to
file any lis pendens or whatever claims on the property nor shall be
cause the annotation of say claim at the back of the title to the said
property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of
the SECOND PARTY against any party whom may have any interests over
the property;
(6) All expenses for documentation and other incidental expenses shall
be for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the
property to the SECOND PARTY after the expiration of the 15-day grace
period given in paragraph 3 above, the FIRST PARTY shall pay an amount
equivalent to Five Percent of the principal amount of TWO HUNDRED
PESOS (P200.00) or P10,000.00 per month of delay as and for rentals
and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the
property within ninety (90) days period above-mentioned, this
memorandum of agreement shall be deemed cancelled and the Deed of
Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY shall
proceed to transfer ownership of the property above described to its
name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a
deed of absolute sale,[3]dated June 11, 1991, wherein private
respondent, with the consent of her late husband, sold the subject
property to A.C. Aguila & Sons, Co., represented by petitioner, for
P200,000.00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the
cancellation of TCT No. 195101 and the issuance of a new certificate of
title in the name of A.C. Aguila and Sons, Co., in the event she failed to
redeem the subject property as provided in the Memorandum of
Agreement.[4]
Private respondent failed to redeem the property within the 90-
day period as provided in the Memorandum of Agreement. Hence,
pursuant to the special power of attorney mentioned above, petitioner
caused the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co.[5]
Private respondent then received a letter dated August 10, 1991
from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co.,
demanding that she vacate the premises within 15 days after receipt of
the letter and surrender its possession peacefully to A.C. Aguila & Sons,
Co. Otherwise, the latter would bring the appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case against her in
the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a
decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor
of A.C. Aguila & Sons, Co. on the ground that private respondent did not
redeem the subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig, Metro
Manila, then to the Court of Appeals, and later to this Court, but she lost
in all the cases.
Private respondent then filed a petition for declaration of nullity
of a deed of sale with the Regional Trial Court, Branch 273, Marikina,
Metro Manila on December 4, 1993. She alleged that the signature of
her husband on the deed of sale was a forgery because he was already
dead when the deed was supposed to have been executed on June 11,
1991.
It appears, however, that private respondent had filed a criminal
complaint for falsification against petitioner with the Office of the
Prosecutor of Quezon City which was dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its
decision:
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery
because they could not personally appear before Notary Public
Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben
Abrogar, died on May 8, 1991 or one month and 2 days before the
execution of the Deed of Absolute Sale, while the plaintiff was still in the
Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be
sustained. The Court is convinced that the three required documents, to
wit: the Memorandum of Agreement, the Special Power of Attorney,
and the Deed of Absolute Sale were all signed by the parties on the same
date on April 18, 1991. It is a common and accepted business practice
of those engaged in money lending to prepare an undated absolute
deed of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The
plaintiff never questioned receiving the sum of P200,000.00
representing her loan from the defendant. Common sense dictates that
an established lending and realty firm like the Aguila & Sons, Co. would
not part with P200,000.00 to the Abrogar spouses, who are virtual
strangers to it, without the simultaneous accomplishment and signing
of all the required documents, more particularly the Deed of Absolute
Sale, to protect its interest.
....
WHEREFORE, foregoing premises considered, the case in caption is
hereby ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-
appellant and defendant-appellee is indubitably an equitable
mortgage. Article 1602 of the New Civil Code finds strong application in
the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is
unusually inadequate. The property is a two hundred forty (240) sq. m.
lot. On said lot, the residential house of plaintiff-appellant stands. The
property is inside a subdivision/village. The property is situated in
Marikina which is already part of Metro Manila. The alleged sale took
place in 1991 when the value of the land had considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00
or P833.33 per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides
that plaintiff-appellant is obliged to deliver peacefully the possession of
the property to the SECOND PARTY within fifteen (15) days after the
expiration of the said ninety (90) day grace period. Otherwise stated,
plaintiff-appellant is to retain physical possession of the thing allegedly
sold.
In fact, plaintiff-appellant retained possession of the property sold as if
they were still the absolute owners. There was no provision for
maintenance or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay
taxes on the property sold. It is well-known that payment of taxes
accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under
whose name the real taxes were declared has a claim of right over the
land.
It is well-settled that the presence of even one of the circumstances in
Article 1602 of the New Civil Code is sufficient to declare a contract of
sale with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is
unusually inadequate, has retained possession of the subject property
and has continued paying the realty taxes over the subject property,
(circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the
New Civil Code), it must be conclusively presumed that the transaction
the parties actually entered into is an equitable mortgage, not a sale
with right to repurchase. The factors cited are in support to the finding
that the Deed of Sale/Memorandum of Agreement with right to
repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase
was executed by reason of the loan extended by defendant-appellee to
plaintiff-appellant. The amount of loan being the same with the amount
of the purchase price.
....
Since the real intention of the party is to secure the payment of debt,
now deemed to be repurchase price: the transaction shall then be
considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the
nature of a pactum commissorium which is clearly prohibited by Article
2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary
is null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing
pledged and mortgaged in the event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan
to plaintiff-appellant secured by a mortgage on the property of plaintiff-
appellant. The loan was payable within ninety (90) days, the period
within which plaintiff-appellant can repurchase the property.Plaintiff-
appellant will pay P230,000.00 and not P200,000.00, the P30,000.00
excess is the interest for the loan extended. Failure of plaintiff-appellee
to pay the P230,000,00 within the ninety (90) days period, the property
shall automatically belong to defendant-appellee by virtue of the deed
of sale executed.
Clearly, the agreement entered into by the parties is in the nature
of pactum commissorium. Therefore, the deed of sale should be
declared void as we hereby so declare to be invalid, for being violative
of law.
....
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant
and the issuance of TCT No. 267073 issued in favor of defendant-
appellee pursuant to the questioned Deed of Sale is hereby declared
VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101
of the Registry of Marikina is hereby ordered REINSTATED. The loan in
the amount of P230,000.00 shall be paid within ninety (90) days from
the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold
at public auction to satisfy the mortgage debt and costs and if there is
an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in
interest but A.C. Aguila & Co., against which this case should have been
brought; (2) the judgment in the ejectment case is a bar to the filing of
the complaint for declaration of nullity of a deed of sale in this case; and
(3) the contract between A.C. Aguila & Sons, Co. and private respondent
is a pacto de retro sale and not an equitable mortgage as held by the
appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint
in this case was filed, provided that every action must be prosecuted and
defended in the name of the real party in interest. A real party in interest
is one who would be benefited or injured by the judgment, or who is
entitled to the avails of the suit.[7] This ruling is now embodied in Rule 3,
2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered
against a person who is not a real party in interest in the case cannot be
executed.[8] Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action.[9]
Under Art. 1768 of the Civil Code, a partnership has a juridical
personality separate and distinct from that of each of the partners. The
partners cannot be held liable for the obligations of the partnership
unless it is shown that the legal fiction of a different juridical personality
is being used for fraudulent, unfair, or illegal purposes.[10] In this case,
private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of
A.C. Aguila & Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of her late
husband, and A. C. Aguila & Sons, Co., represented by petitioner. Hence,
it is the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint.[11] We
cannot understand why both the Regional Trial Court and the Court of
Appeals sidestepped this issue when it was squarely raised before them
by petitioner.
Our conclusion that petitioner is not the real party in interest
against whom this action should be prosecuted makes it unnecessary to
discuss the other issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby
REVERSED and the complaint against petitioner is DISMISSED.
SO ORDERED.
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO
JOSE, petitioners,
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ, respondents.
[G.R. No. 144214. July 14, 2003]
A share in a partnership can be returned only after the completion of
the latters dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the
March 23, 2000 Decision[1] and the July 26, 2000 Resolution[2] of the
Court of Appeals[3] (CA) in CA-GR CV No. 41026. The assailed Decision
disposed as follows:
WHEREFORE, foregoing premises considered, the Decision dated July
21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City
is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is
rendered ordering the [petitioners] jointly and severally to pay and
reimburse to [respondents] the amount of P253,114.00. No
pronouncement as to costs.[4]
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for the operation of a
restaurant and catering business under the name Aquarius Food House
and Catering Services.[5] Villareal was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business
on September 5, 1984. His capital contribution of P250,000 was paid by
his parents, Respondents Cesar and Carmelita Ramirez.[6]
After Jesus Jose withdrew from the partnership in January 1987, his
capital contribution of P250,000 was refunded to him in cash by
agreement of the partners.[7]
In the same month, without prior knowledge of respondents, petitioners
closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents
house for storage.[8]
On March 1, 1987, respondent spouses wrote petitioners, saying that
they were no longer interested in continuing their partnership or in
reopening the restaurant, and that they were accepting the latters offer
to return their capital contribution.[9]
On October 13, 1987, Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and
equipment stored in their house. She also reiterated the request for the
return of their one-third share in the equity of the partnership. The
repeated oral and written requests were, however, left unheeded.[10]
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint[11] dated November 10, 1987, for the
collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed
a desire to withdraw from the partnership and had called for its
dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and
equipment worth over P400,000; and that the latter had no right to
demand a return of their equity because their share, together with the
rest of the capital of the partnership, had been spent as a result of
irreversible business losses.[12]
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation
were true, then the loans incurred by petitioners should be regarded as
purely personal and, as such, not chargeable to the partnership. The
former further averred that they had not received any regular report or
accounting from the latter, who had solely managed the
business. Respondents also alleged that they expected the equipment
and the furniture stored in their house to be removed by petitioners as
soon as the latter found a better location for the restaurant.[13]
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment[14] on July 8, 1988. The
furniture and the equipment stored in their house were inventoried and
appraised at P29,000.[15] The display freezer was sold for P5,000 and the
proceeds were paid to them.[16]
After trial, the RTC[17] ruled that the parties had voluntarily entered into
a partnership, which could be dissolved at any time. Petitioners clearly
intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held them
liable as follows:[18]
WHEREFORE, judgment is hereby rendered in favor of [respondents]
and against the [petitioners] ordering the [petitioners] to pay jointly and
severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the
return of their capital contribution, the partnership was nonetheless
dissolved when petitioners lost interest in continuing the restaurant
business with them. Because petitioners never gave a proper accounting
of the partnership accounts for liquidation purposes, and because no
sufficient evidence was presented to show financial losses, the CA
computed their liability as follows:
Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of P240,658.00, although
contracted by the partnership before [respondents] have joined the
partnership but in accordance with Article 1826 of the New Civil Code,
they are liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount
of P1,000,000.00 resulting in the amount of P759,342.00, and in order
to get the share of [respondents], this amount of P759,342.00 must be
divided into three (3) shares or in the amount of P253,114.00 for each
share and which is the only amount which [petitioner] will return to
[respondents] representing the contribution to the partnership minus
the outstanding debt thereof.[19]
Hence, this Petition.[20]
Issues
In their Memorandum,[21] petitioners submit the following issues
for our consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the
distribution of the capital contribution, instead of the net capital after
the dissolution and liquidation of a partnership, thereby treating the
capital contribution like a loan, is in accordance with law and
jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and
9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs.[22]
On closer scrutiny, the issues are as follows: (1) whether
petitioners are liable to respondents for the latters share in the
partnership; (2) whether the CAs computation of P253,114 as
respondents share is correct; and (3) whether the CA was likewise
correct in not assessing costs.
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership
had indeed existed, and that it was dissolved on March 1, 1987. They
found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the formers
dissatisfaction with, and loss of trust in, the latters management of the
partnership affairs. These findings were amply supported by the
evidence on record. Respondents consequently demanded from
petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from
petitioners the return of their equity share. Except as managers of the
partnership, petitioners did not personally hold its equity or assets. The
partnership has a juridical personality separate and distinct from that of
each of the partners.[23] Since the capital was contributed to the
partnership, not to petitioners, it is the partnership that must refund the
equity of the retiring partners.[24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that
must refund the shares of the partners, the amount to be refunded is
necessarily limited to its total resources. In other words, it can only pay
out what it has in its coffers, which consists of all its assets. However,
before the partners can be paid their shares, the creditors of the
partnership must first be compensated.[25]After all the creditors have
been paid, whatever is left of the partnership assets becomes available
for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund
equivalent to respondents one-third share in the partnership cannot be
determined until all the partnership assets will have been liquidated --
in other words, sold and converted to cash -- and all partnership
creditors, if any, paid.The CAs computation of the amount to be
refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the
misapprehension that the total capital contribution was equivalent to
the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea
that the capital contribution at the beginning of the partnership remains
intact, unimpaired and available for distribution or return to the
partners. Such idea is speculative, conjectural and totally without factual
or legal support.
Generally, in the pursuit of a partnership business, its capital is
either increased by profits earned or decreased by losses sustained. It
does not remain static and unaffected by the changing fortunes of the
business. In the present case, the financial statements presented before
the trial court showed that the business had made meager
profits.[26] However, notable therefrom is the omission of any provision
for the depreciation[27] of the furniture and the equipment. The
amortization of the goodwill[28] (initially valued at P500,000) is not
reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses,
which consequently decreased the capital of the partnership. Both the
trial and the appellate courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed to recognize the
consequent corresponding decrease of the capital.
Second, the CAs finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by
evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership
for the following reason:
x x x [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. 4) does not reveal
the total loan. The Agreement (Exh. A) par. 6 shows an outstanding
obligation of P240,055.00 which the partnership owes to different
creditors, while the Certification issued by Mercator Finance (Exh. 8)
shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal,
the former being the nominal party defendant in the instant case, who
obtained a loan of P355,000.00 on Oct. 1983, when the original
partnership was not yet formed.
 Third, the CA failed to reduce the capitalization by P250,000,
which was the amount paid by the partnership to Jesus Jose when he
withdrew from the partnership.
Because of the above-mentioned transactions, the partnership
capital was actually reduced.When petitioners and respondents
ventured into business together, they should have prepared for the fact
that their investment would either grow or shrink. In the present case,
the investment of respondents substantially dwindled. The original
amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the
time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve
parties from the effects of unwise, foolish or disastrous contracts they
have entered into with all the required formalities and with full
awareness of what they were doing. Courts have no power to relieve
them from obligations they have voluntarily assumed, simply because
their contracts turn out to be disastrous deals or unwise investments.[29]
Petitioners further argue that respondents acted negligently by
permitting the partnership assets in their custody to deteriorate to the
point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered
the proceeds as payment of their net capital. Hence, petitioners argue
that the turnover of the remaining partnership assets to respondents
was precisely the manner of liquidating the partnership and fully settling
the latters share in the partnership.
We disagree. The delivery of the store furniture and equipment to
private respondents was for the purpose of storage. They were unaware
that the restaurant would no longer be reopened by petitioners. Hence,
the former cannot be faulted for not disposing of the stored items to
recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise
provided in these rules, costs shall be allowed to the prevailing party as
a matter of course, but the court shall have power, for special reasons,
to adjudge that either party shall pay the costs of an action, or that the
same be divided, as may be equitable. No costs shall be allowed against
the Republic of the Philippines unless otherwise provided by law.
Although, as a rule, costs are adjudged against the losing party,
courts have discretion, for special reasons, to decree otherwise. When
a lower court is reversed, the higher court normally does not award
costs, because the losing party relied on the lower courts judgment
which is presumed to have been issued in good faith, even if found later
on to be erroneous. Unless shown to be patently capricious, the award
shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision
and Resolution SET ASIDE. This disposition is without prejudice to
proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No
pronouncement as to costs.
SO ORDERED.
Article 1769
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.
G.R. No. L-68118 October 29, 1985
This case is about the income tax liability of four brothers and sisters
who sold two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co.,
Ltd. on two lots with areas of 1,124 and 963 square meters located at
Greenhills, San Juan, Rizal. The next day he transferred his rights to his
four children, the petitioners, to enable them to build their residences.
The company sold the two lots to petitioners for P178,708.12 on March
13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to
them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the
petitioners resold them to the Walled City Securities Corporation and
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They
derived from the sale a total profit of P134,341.88 or P33,584 for each
of them. They treated the profit as a capital gain and paid an income tax
on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue required the
four petitioners to pay corporate income tax on the total profit of
P134,336 in addition to individual income tax on their shares thereof He
assessed P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or a total
of P71,074.56.
Not only that. He considered the share of the profits of each petitioner
in the sum of P33,584 as a " taxable in full (not a mere capital gain of
which ½ is taxable) and required them to pay deficiency income taxes
aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes
and penalties totalling P127,781.76 on their profit of P134,336, in
addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had
formed an unregistered partnership or joint venture within the meaning
of sections 24(a) and 84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court
sustained the same. Judge Roaquin dissented. Hence, the instant
appeal.
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same
and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered
partnership would result in oppressive taxation and confirm the dictum
that the power to tax involves the power to destroy. That eventuality
should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as partners would
obliterate the distinction between a co-ownership and a partnership.
The petitioners were not engaged in any joint venture by reason of that
isolated transaction.
Their original purpose was to divide the lots for residential purposes. If
later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to
resell the same to dissolve the co-ownership. The division of the profit
was merely incidental to the dissolution of the co-ownership which was
in the nature of things a temporary state. It had to be terminated sooner
or later. Castan Tobeñas says:
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 señala 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 Oña vs.
** This view is supported by the following rulings of respondent
Commissioner:
Co-owership distinguished from partnership.—We find that the case
at bar is fundamentally similar to the De Leon case. Thus, like the De
Leon heirs, the Longa heirs inherited the 'hacienda' in question pro-
indiviso from their deceased parents; they did not contribute or
invest additional ' capital to increase or expand the inherited
properties; they merely continued dedicating the property to the
use to which it had been put by their forebears; they individually
reported in their tax returns their corresponding shares in the
income and expenses of the 'hacienda', and they continued for
many years the status of co-ownership in order, as conceded by
respondent, 'to preserve its (the 'hacienda') value and to continue
the existing contractual relations with the Central Azucarera de Bais
for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31,
1963).
All co-ownerships are not deemed unregistered pratnership.—Co-
Ownership who own properties which produce income should not
automatically be considered partners of an unregistered
partnership, or a corporation, within the purview of the income tax
law. To hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations,
inasmuch as if a property does not produce an income at all, it is not
subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De Leon vs. CI R, CTA
Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax Code
Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
where after an extrajudicial settlement the co-heirs used the inheritance
or the incomes derived therefrom as a common fund to produce profits
for themselves, it was held that they were taxable as an unregistered
partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue,
24 SCRA 198, where father and son purchased a lot and building,
entrusted the administration of the building to an administrator and
divided equally the net income, and from Evangelista vs. Collector of
Internal Revenue, 102 Phil. 140, where the three Evangelista sisters
bought four pieces of real property which they leased to various tenants
and derived rentals therefrom. Clearly, the petitioners in these two
cases had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated
was whether the father donated the two lots to the petitioners and
whether he paid the donor's tax (See Art. 1448, Civil Code). We are not
prejudging this matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The assessments are cancelled. No costs.
SO ORDERED.
 be collected from the War Damage Commission. Later, they
received from said Commission the amount of P50,000.00, more or
less. This amount 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 the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3,
pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally
with Lorenzo T. Oña, 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.).

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. Although the project of partition was approved by the Court on May
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B. 16, 1949, no attempt was made to divide the properties therein
OÑA, JR., petitioners, listed. Instead, the properties remained under the management of
vs. Lorenzo T. Oña who used said properties in business by leasing or
THE COMMISSIONER OF INTERNAL REVENUE, respondent. selling them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and securities. As
G.R. No. L-19342 May 25, 1972
a result, petitioners' properties and investments gradually increased
from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned
Petition for review of the decision of the Court of Tax Appeals in CTA from the following year-end balances:
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 Year Investment Land Building
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 Account Account Account
1% monthly interest from December 15, 1958, subject to the provisions
of Section 51 (e) (2) of the Internal Revenue Code, as amended by 1949 — P87,860.00 P17,590.00
Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as
1950 P24,657.65 128,566.72 96,076.26
the resolution of said court denying petitioners' motion for
reconsideration of said decision.
1951 51,301.31 120,349.28 110,605.11

The facts are stated in the decision of the Tax Court as follows: 1952 67,927.52 87,065.28 152,674.39

Julia Buñales died on March 23, 1944, leaving as heirs her surviving 1953 61,258.27 84,925.68 161,463.83
spouse, Lorenzo T. Oña and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the 1954 63,623.37 99,001.20 167,962.04
settlement of her estate. Later, Lorenzo T. Oña the surviving spouse
was appointed administrator of the estate of said deceased (Exhibit 1955 100,786.00 120,249.78 169,262.52
3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator
submitted the project of partition, which was approved by the Court 1956 175,028.68 135,714.68 169,262.52
on May 16, 1949 (See Exhibit K). Because three of the heirs, namely
Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
when the project of partition was approved, Lorenzo T. Oña, their
father and administrator of the estate, filed a petition in Civil Case
From said investments and properties petitioners derived such
No. 9637 of the Court of First Instance of Manila for appointment as
incomes as profits from installment sales of subdivided lots, profits
guardian of said minors. On November 14, 1949, the Court
from sales of stocks, dividends, rentals and interests (see p. 3 of
appointed him guardian of the persons and property of the
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are
aforenamed minors (See p. 3, BIR rec.).
recorded in the books of account kept by Lorenzo T. Oña where the
corresponding shares of the petitioners in the net income for the
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows
year are also known. Every year, petitioners returned for income tax
that the heirs have undivided one-half (1/2) interest in ten parcels
purposes their shares in the net income derived from said properties
of land with a total assessed value of P87,860.00, six houses with a
and securities and/or from transactions involving them (Exhibit
total assessed value of P17,590.00 and an undetermined amount to
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. Oña
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 ..............................................
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 ..............................................
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
2,010.50 questions: (1) Under the facts found by the Court of Tax Appeals, should
petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buñales and the profits derived from
transactions involving the same, or, must they be deemed to have
formed an unregistered partnership subject to tax under Sections 24
and 84(b) of the National 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
3,462.25 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. Oña, the assessment in
question refers to the later years 1955 and 1956. We believe this point
to be important because, apparently, at the start, or in the years 1944
to 1954, the respondent Commissioner of Internal Revenue did treat
petitioners as co-owners, not liable to corporate tax, and it was only
from 1955 that he considered them as having formed an unregistered
partnership. At least, there is nothing in the record indicating that an
earlier assessment had already been made. Such being the case, and We
see no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are co-owners and not unregistered co-
partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they
were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of
the deceased among themselves pursuant to the project of partition
approved in 1949, "the properties remained under the management of
Lorenzo T. Oña who used said properties in business by leasing or selling
them and investing the income derived therefrom and the proceed from
the sales thereof in real properties and securities," as a result of which
said properties and investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956. And all these
became possible because, admittedly, petitioners never actually
received any share of the income or profits from Lorenzo T. Oña and
instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of the profits of their
common business as reported by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties inherited
by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit,
and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in
the purchase and sale of corporate securities. It is likewise admitted that
all the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the
inheritance. In these circumstances, it is Our considered view that from
the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oña as a common fund in
undertaking several transactions or in business, with the intention of
deriving profit to be shared by them proportionally, such act was
tantamonut to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within
the purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period
when the heirs can be considered as co-owners rather than unregistered
co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of
the deceased, all the income thereof does belong commonly to all the
heirs, obviously, without them becoming thereby unregistered co-
partners, but it does not necessarily follow that such status as co-owners
continues until the inheritance is actually and physically distributed
among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding
said shares under the common management of the administrator or
executor or of anyone chosen by them and engage in business on that
basis. Withal, if this were to be allowed, it would be the easiest thing for
heirs in any inheritance to circumvent and render meaningless Sections
24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
among the reasons for holding the appellants therein to be unregistered
co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no
unregistered co-partnership. As already indicated, for tax purposes, the
co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties
and/or the incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate 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 inherited
properties.
Besides, as already observed earlier, the income derived from inherited
properties may be considered as individual income of the respective
heirs only so long as the inheritance or estate is not distributed or, at
least, partitioned, but the moment their respective known shares are
used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered
partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned resolution
denying petitioners' motion for reconsideration of the decision of said
court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court
that the herein petitioners have formed an unregistered
partnership and, therefore, have to be taxed as such, it might be
recalled that the petitioners in their individual income tax
returns reported their shares of the profits of the unregistered
partnership. We think it only fair and equitable that the various
amounts paid by the individual petitioners as income tax on their
respective shares of the unregistered partnership should be
deducted from the deficiency income tax found by this
Honorable Court against the unregistered partnership. (page 7,
Memorandum for the Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable
income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership
profits. This is not correct; rather, it should be the other way around.
The partnership profits distributable to the partners (petitioners
herein) should be reduced by the amounts of income tax assessed
against the partnership. Consequently, each of the petitioners in his
individual capacity overpaid his income tax for the years in question,
but the income tax due from the partnership has been correctly
assessed. Since the individual income tax liabilities of petitioners are
not in issue in this proceeding, it is not proper for the Court to pass
upon the same.
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
time that has lapsed since they paid their individual income taxes, they
may already be barred by prescription from recovering their
overpayments in a separate action. We do not agree. As We see it, the
case of petitioners as regards the point under discussion is simply that
of a taxpayer who has paid the wrong tax, assuming that the failure to
pay the corporate taxes in question was not deliberate. Of course, such
taxpayer has the right to be reimbursed what he has erroneously paid,
but the law is very clear that the claim and action for such
reimbursement are subject to the bar of prescription. And since the
period for the recovery of the excess income taxes in the case of herein
petitioners has already lapsed, it would not seem right to virtually
disregard prescription merely upon the ground that the reason for the
delay is precisely because the taxpayers failed to make the proper return
and payment of the corporate taxes legally due from them. In principle,
it is but proper not to allow any relaxation of the tax laws in favor of
persons who are not exactly above suspicion in their conduct vis-a-vis
their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax
Appeals appealed from is affirm with costs against petitioners.
FRANCISCO BASTIDA, plaintiff-appellee,
vs.
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
G.R. No. L-35840 March 31, 1933
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
answer thereto of September 1, 1928. For the sake of clearness, we shall
incorporate herein the principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I That the defendant J.M. Menzi, together with his wife and daughter,
owns ninety-nine per cent (99%) of the capital stock of the defendant
Menzi & Co., Inc., that the plaintiff has been informed and therefore
believes that the defendant J.M. Menzi, his wife and daughter, together
with the defendant P.C. Schlobohm and one Juan Seiboth, constitute the
board of directors of the defendant, Menzi & Co., Inc.;
II That on April 27, 1922, the defendant Menzi & Co., Inc. through its
president and general manager, J.M. Menzi, under the authority of the
board of directors, entered into a contract with the plaintiff to engage
in the business of exploiting prepared fertilizers, as evidenced by the
contract marked Exhibit A, attached to the original complaint as a part
thereof, and likewise made a part of the amended complaint, as if it
were here copied verbatim;
III That in pursuance of said contract, plaintiff and defendant Menzi &
Co., Inc., began to manufacture prepared fertilizers, the former
superintending the work of actual preparation, and the latter, through
defendants J.M. Menzi and P. C. Schlobohm, managing the business and
opening an account entitled "FERTILIZERS" on the books of the
defendant Menzi & Co., Inc., where all the accounts of the partnership
business were supposed to be kept; the plaintiff had no participation in
the making of these entries, which were wholly in the defendants'
charge, under whose orders every entry was made;
IV That according to paragraph 7 of the contract Exhibit A, the defendant
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;
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 Compañia, de Manila, como
Primera Parte, y D. Francisco Bastada, tambien de Manila, como
Segunda Parte, bajo las siguientes
CONDICIONES
1.ª El objeto de este contrato es la explotacion del negocio de
Abonos o Fertilizantes Preparados, para diversas aplicaciones
agricolas;
2.ª La duracion de este contrato sera de cinco años, a contrar desde
la fecha de su firma;
3.ª La Primera Parte se compromete a facilitar la ayuda financiera
necesaria para el negocio;
4.ª La Segunda Parte se compromete a poner su entero tiempo y
toda su experiencia a la disposicion del negocio;
5.ª 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.ª 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.ª 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 año;
8.ª La Primera Parte facilitara la Segunda, mensualmente, la
cantidad de P300 (trescientos pesos), a cuenta de su parte de
beneficios.
9.ª Durante el año 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 año, 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 Compañia 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 Compañia 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 Compañia 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 Compañia 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:
The appellant makes the following assignment of error:
(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.
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 Compañia 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.
G.R. No. 126881 October 3, 2000
In this petition for review on certiorari, petitioners pray for the reversal
of the Decision1 dated March 13, 1996 of the former Fifth Division2 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 decedent's brother TAN ENG LAY on February 19, 1990. The
complaint,3docketed 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
complaint4 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
Kee's 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
judgment6 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 venture 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 reconsideration7 was denied by
the Court of Appeals in a Resolution8 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 judgment9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I 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 BAGUIO CITY AS BENGUET
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17,
DECISION).
In reversing the trial court, the Court of Appeals ruled, to wit:
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
supported by the evidence.10 Our jurisdiction, it must be emphasized,
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 [emphasis 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
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
venture.
When mention is made of a joint venture, 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
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 Kee's 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
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 Kee's 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
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 latter's 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 venture. 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:
. . . 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 venture, 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 venture "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
venture may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin.
It has no precise legal definition, but it has been generally
understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920])
It is 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 venture is formed
for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin, 395 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 venture is a form
of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaños, 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[emphasis 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
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 installment 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.
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
employee's 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 quarreling 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 respondent's 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.
[G.R. No. 127405. September 20, 2001]
The inherent powers of a Court to amend and control its processes
and orders so as to make them conformable to law and justice includes
the right to reverse itself, especially when in its honest opinion it has
committed an error or mistake in judgment, and that to adhere to its
decision will cause injustice to a party litigant.[1]
On November 14, 2001, petitioners Marjorie Tocao and William T.
Belo filed a Motion for Reconsideration of our Decision dated October
4, 2000. They maintain that there was no partnership bettween
petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the
other hand; and that the latter being merely an employee of petitioner
Tocao.
After a careful review of the evidence presented, we are
convinced that, indeed, petitioner Belo acted merely as guarantor of
Geminesse Enterprise. This was categorically affirmed by respondents
own witness, Elizabeth Bantilan, during her cross-
examination. Furthermore, Bantilan testified that it was Peter Lo who
was the companys financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is
the role of William Belo with Geminesse Enterprise?
 A William Belo is the friend of Marjorie Tocao and he was the
guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody who is Peter
Lo and he acts as guarantor for us. We can borrow money
from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the Geminesse Enterprise?
A He is the one fixing our orders that open the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely the guarantor of
Geminesse Enterprise, am I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor contradicted by
respondents evidence. It should be recalled that the business
relationship created between petitioner Tocao and respondent Anay
was an informal partnership, which was not even recorded with the
Securities and Exchange Commission. As such, it was understandable
that Belo, who was after all petitioner Tocaos good friend and
confidante, would occasionally participate in the affairs of the business,
although never in a formal or official capacity.[3] Again, respondents
witness, Elizabeth Bantilan, confirmed that petitioner Belos presence in
Geminesse Enterprises meetings was merely as guarantor of the
company and to help petitioner Tocao.[4]
Furthermore, no evidence was presented to show that petitioner
Belo participated in the profits of the business enterprise. Respondent
herself professed lack of knowledge that petitioner Belo received any
share in the net income of the partnership.[5] On the other hand,
petitioner Tocao declared that petitioner Belo was not entitled to any
share in the profits of Geminesse Enterprise.[6] With no participation in
the profits, petitioner Belo cannot be deemed a partner since the
essence of a partnership is that the partners share in the profits and
losses.[7]
Consequently, inasmuch as petitioner Belo was not a partner in
Geminesse Enterprise, respondent had no cause of action against him
and her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that
respondent should be deemed in bad faith for failing to account for
stocks of Geminesse Enterprise amounting to P208,250.00 and that,
accordingly, her claim for damages should be barred to that extent. We
do not agree. Given the circumstances surrounding private respondents
sudden ouster from the partnership by petitioner Tocao, her act of
withholding whatever stocks were in her possession and control was
justified, if only to serve as security for her claims against the
partnership. However, while we do not agree that the same renders
private respondent in bad faith and should bar her claim for damages,
we find that the said sum of P208,250.00 should be deducted from
whatever amount is finally adjudged in her favor on the basis of the
formal account of the partnership affairs to be submitted to the Regional
Trial Court.
WHEREFORE, based on the foregoing, the Motion for
Reconsideration of petitioners is PARTIALLY GRANTED. The Regional
Trial Court of Makati is hereby ordered to DISMISS the complaint,
docketed as Civil Case No. 88-509, as against petitioner William T. Belo
only. The sum of P208,250.00 shall be deducted from whatever amount
petitioner Marjorie Tocao shall be held liable to pay respondent after
the formal accounting of the partnership affairs.
SO ORDERED.
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-
appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
G.R. No. L-12541 August 28, 1959
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.
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA
EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.
G.R. No. L-9996 October 15, 1957
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and
Francisca Evangelista, for review of a decision of the Court of Tax
Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for
the income tax, real estate dealer's tax and the residence tax for the
years 1945 to 1949, inclusive, in accordance with the respondent's
assessment for the same in the total amount of P6,878.34, which is
hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of
P59,1400.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina
Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon from the sum of P100,000.00; this property
has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21
parcels of land with an aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this property has an
assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular
Investments Inc., a lot of 4,353 sq. m. including improvements
thereon for P108,825.00. This property has an assessed value of
P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a
lot of 8,371 sq. m. including improvements thereon for P237,234.34.
This property has an assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their
brother Simeon Evangelista to 'manage their properties with full
power to lease; to collect and receive rents; to issue receipts
therefor; in default of such payment, to bring suits against the
defaulting tenants; to sign all letters, contracts, etc., for and in their
behalf, and to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;
8. That from the month of March, 1945 up to an including
December, 1945, the total amount collected as rents on their real
properties was P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of
P24,786.30, out of which amount was deducted in the sum of
P16,288.27 for expenses thereby leaving them a net rental income
of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00
out of the which amount was deducted the sum of P4,837.65 as
expenses, thereby leaving them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of
Internal Revenue demanded the payment of income tax on
corporations, real estate dealer's fixed tax and corporation residence tax
for the years 1945-1949, computed, according to assessment made by
said officer, as follows:
INCOME TAXES
1945 14.84
1946 1,144.71
1947 10.34
1948 1,912.30
1949 1,575.90
Total including surcharge and compromise P6,157.09
 SEC. 84 (b). The term 'corporation' includes partnerships, no matter
REAL ESTATE DEALER'S FIXED TAX
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations or insurance companies, but
1946 P37.50
does not include duly registered general copartnerships.
1947 150.00 (compañias colectivas).

1948 150.00 Article 1767 of the Civil Code of the Philippines provides:

1949 150.00 By the contract of partnership two or more persons bind themselves
to contribute money, properly, or industry to a common fund, with
Total including penalty P527.00 the intention of dividing the profits among themselves.

RESIDENCE TAXES OF CORPORATION Pursuant to the article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to
1945 P38.75
a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case
1946 38.75
at bar, for, admittedly, petitioners have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows down
1947 38.75
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
1948 38.75
purpose was to engage in real estate transactions for monetary gain and
1949 38.75 then divide the same among themselves, because:

Total including surcharge P193.75 1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
TOTAL TAXES DUE P6,878.34. created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common fund.

Said letter of demand and corresponding assessments were delivered to

2. They invested the same, not merely not merely in one transaction,
petitioners on December 3, 1954, whereupon they instituted the
but in a series of transactions. On February 2, 1943, they bought a
present case in the Court of Tax Appeals, with a prayer that "the decision
lot for P100,000.00. On April 3, 1944, they purchased 21 lots for
of the respondent contained in his letter of demand dated September
P18,000.00. This was soon followed on April 23, 1944, by the
24, 1954" be reversed, and that they be absolved from the payment of
acquisition of another real estate for P108,825.00. Five (5) days later
the taxes in question, with costs against the respondent.
(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
After appropriate proceedings, the Court of Tax Appeals the above-
brief interregnum between each, particularly the last three
mentioned decision for the respondent, and a petition for
purchases, is strongly indicative of a pattern or common design that
reconsideration and new trial having been subsequently denied, the
was not limited to the conservation and preservation of the
case is now before Us for review at the instance of the petitioners.
aforementioned common fund or even of the property acquired by
the petitioners in February, 1943. In other words, one cannot but
The issue in this case whether petitioners are subject to the tax on perceive a character of habitually peculiar to business transactions
corporations provided for in section 24 of Commonwealth Act. No. 466, engaged in the purpose of gain.
otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax.
3. The aforesaid lots were not devoted to residential purposes, or to
With respect to the tax on corporations, the issue hinges on the meaning
other personal uses, of petitioners herein. The properties were
of the terms "corporation" and "partnership," as used in section 24 and
leased separately to several persons, who, from 1945 to 1948
84 of said Code, the pertinent parts of which read:
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
SEC. 24. Rate of tax on corporations.—There shall be levied, suggest that there has been any change in the utilization thereof.
assessed, collected, and paid annually upon the total net income
received in the preceding taxable year from all sources by every
4. Since August, 1945, the properties have been under the
corporation organized in, or existing under the laws of the
management of one person, namely Simeon Evangelista, with full
Philippines, no matter how created or organized but not including
power to lease, to collect rents, to issue receipts, to bring suits, to
duly registered general co-partnerships (compañias colectivas), a tax
sign letters and contracts, and to indorse and deposit notes and
upon such income equal to the sum of the following: . . .
checks. Thus, the affairs relative to said properties have been
 handled as if the same belonged to a corporation or business and
enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first property
was acquired, and over twelve (12) years, since Simeon Evangelista
became the manager.
6. Petitioners have not testified or introduced any evidence, either
on their purpose in creating the set up already adverted to, or on
the causes for its continued existence. They did not even try to offer
an explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein,
and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not
copartners, for, in consequence of the acts performed by them, a legal
entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are
lacking in the case at bar. This pretense was correctly rejected by the
Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations",
which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in
the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general
partnerships which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of
said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or
in conformity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax on
corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality
of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition
essential to the existence of the partnerships therein referred to. In fact,
as above stated, "duly registered general copartnerships" — which are
possessed of the aforementioned personality — have been expressly
excluded by law (sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that petitioners'
allegation to the effect that their liability in connection with the leasing
of the lots above referred to, under the management of one person —
even if true, on which we express no opinion — tends to increase the
similarity between the nature of their venture and that corporations,
and is, therefore, an additional argument in favor of the imposition of
said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations"
are taxed differently from "partnerships". By specific provisions of said
laws, such "corporations" include "associations, joint-stock companies
and insurance companies." However, the term "association" is not used
in the aforementioned laws.
. . . in any narrow or technical sense. It includes any
organization, created for the transaction of designed affairs,
or the attainment of some object, which like a corporation,
continues notwithstanding that its members or participants
change, and the affairs of which, like corporate affairs, are
conducted by a single individual, a committee, a board, or
some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an
agreement, a declaration of trust, a statute, or otherwise. It
includes a voluntary association, a joint-stock corporation or
company, a 'business' trusts a 'Massachusetts' trust, a
'common law' trust, and 'investment' trust (whether of the
fixed or the management type), an interinsuarance exchange
operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever
name known) which is not, within the meaning of the Code, a
trust or an estate, or a partnership. (7A Mertens Law of
Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term
'partnership 'it includes not only a partnership as known at
common law but, as well, a syndicate, group, pool, joint
venture or other unincorporated organizations which carries
on any business financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a
corporation. . . (7A Merten's Law of Federal Income taxation,
p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint
venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is
carried on, . . .. ( 8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue
Code, includes these partnerships — with the exception only of duly
registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:
 Entities liable to residence tax.-Every corporation, no matter how
created or organized, whether domestic or resident foreign,
engaged in or doing business in the Philippines shall pay an annual
residence tax of five pesos and an annual additional tax which in no
case, shall exceed one thousand pesos, in accordance with the
following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock
company, partnership, joint account (cuentas en participacion),
association or insurance company, no matter how created or
organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that
of section 24 and 84 (b) of our National Internal Revenue Code
(commonwealth Act No. 466), and that the latter was approved on June
15, 1939, the day immediately after the approval of said Commonwealth
Act No. 465 (June 14, 1939), it is apparent that the terms "corporation"
and "partnership" are used in both statutes with substantially the same
meaning. Consequently, petitioners are subject, also, to the residence
tax for corporations.
Lastly, the records show that petitioners have habitually engaged in
leasing the properties above mentioned for a period of over twelve
years, and that the yearly gross rentals of said properties from June 1945
to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the
tax provided in section 193 (q) of our National Internal Revenue Code,
for "real estate dealers," inasmuch as, pursuant to section 194 (s)
thereof:
'Real estate dealer' includes any person engaged in the
business of buying, selling, exchanging, leasing, or renting
property or his own account as principal and holding himself
out as a full or part time dealer in real estate or as an owner
of rental property or properties rented or offered to rent for
an aggregate amount of three thousand pesos or more a year.
. . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby
affirmed with costs against the petitioners herein. It is so ordered.
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B.
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B.
OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
G.R. No. L-19342 May 25, 1972
Petition for review of the decision of the Court of Tax Appeals in CTA
Case No. 617, similarly entitled as above, holding that petitioners have
constituted an unregistered partnership and are, therefore, subject to
the payment of the deficiency corporate income taxes assessed against
them by respondent Commissioner of Internal Revenue for the years
1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and
1% monthly interest from December 15, 1958, subject to the provisions
of Section 51 (e) (2) of the Internal Revenue Code, as amended by
Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as
the resolution of said court denying petitioners' motion for
reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buñales died on March 23, 1944, leaving as heirs her surviving
spouse, Lorenzo T. Oña and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First Instance of Manila for the
settlement of her estate. Later, Lorenzo T. Oña the surviving spouse
was appointed administrator of the estate of said deceased (Exhibit
3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator
submitted the project of partition, which was approved by the Court
on May 16, 1949 (See Exhibit K). Because three of the heirs, namely
Luz, Virginia and Lorenzo, Jr., all surnamed Oña, were still minors
when the project of partition was approved, Lorenzo T. Oña, their
father and administrator of the estate, filed a petition in Civil Case
No. 9637 of the Court of First Instance of Manila for appointment as
guardian of said minors. On November 14, 1949, the Court
appointed him guardian of the persons and property of the
aforenamed minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows
that the heirs have undivided one-half (1/2) interest in ten parcels
of land 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 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 the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3,
pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally
with Lorenzo T. Oña, 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.).
Although the project of partition was approved by the Court on May
16, 1949, no attempt was made to divide the properties therein
listed. Instead, the properties remained under the management of
Lorenzo T. Oña who used said properties in business by leasing or
selling them and investing the income derived therefrom and the
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-end balances:
1949 — P87,860.00 P17,590.00
1950 P24,657.65 128,566.72 96,076.26
1951 51,301.31 120,349.28 110,605.11
 Income tax due thereon ............................... 13,849.00
1952 67,927.52 87,065.28 152,674.39
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
1953 61,258.27 84,925.68 161,463.83
Total ............................................................... P17,361.25
1954 63,623.37 99,001.20 167,962.04
(See Exhibit 13, page 50, BIR records)
1955 100,786.00 120,249.78 169,262.52
Upon further consideration of the case, the 25% surcharge was
1956 175,028.68 135,714.68 169,262.52 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
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
for the years 1955 and 1956 and the "Compromise for non-filing,"
the latter item obviously referring to the compromise in lieu of the
From said investments and properties petitioners derived such
criminal liability for failure of petitioners to file the corporate income
incomes as profits from installment sales of subdivided lots, profits
tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-
from sales of stocks, dividends, rentals and interests (see p. 3 of
3, Annex C to Petition)
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. Oña where the
Petitioners have assigned the following as alleged errors of the Tax
corresponding shares of the petitioners in the net income for the
Court:
year are also known. Every year, petitioners returned for income tax
purposes their shares in the net income derived from said properties
I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE
and securities and/or from transactions involving them (Exhibit
PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;
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. Oña II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
who, as heretofore pointed out, invested them in real properties PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED
and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104). AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM
(sic);

On the basis of the foregoing facts, respondent (Commissioner of

Internal Revenue) decided that petitioners formed an unregistered III. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
partnership and therefore, subject to the corporate income tax, PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES FOR
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
Accordingly, he assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and IV. ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN
1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED
86, BIR rec.). Petitioners protested against the assessment and IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED
asked for reconsideration of the ruling of respondent that they have PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE
formed an unregistered partnership. Finding no merit in petitioners' PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See LOANS RECEIVED USING THE INHERITED PROPERTIES AS
pp. 1-4, Memorandum for Respondent, June 12, 1961). COLLATERALS;

The original assessment was as follows: V . ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
1955 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,
Net income as per investigation ................ P40,209.89
FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.

Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50 In other words, petitioners pose for our resolution the following
Compromise for non-filing .......................... 50.00 questions: (1) Under the facts found by the Court of Tax Appeals, should
Total ............................................................... P10,102.50 petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buñales and the profits derived from
transactions involving the same, or, must they be deemed to have
1956
formed an unregistered partnership subject to tax under Sections 24
and 84(b) of the National Internal Revenue Code? (2) Assuming they
Net income as per investigation ................ P69,245.23
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. Oña, the assessment in
question refers to the later years 1955 and 1956. We believe this point
to be important because, apparently, at the start, or in the years 1944
to 1954, the respondent Commissioner of Internal Revenue did treat
petitioners as co-owners, not liable to corporate tax, and it was only
from 1955 that he considered them as having formed an unregistered
partnership. At least, there is nothing in the record indicating that an
earlier assessment had already been made. Such being the case, and We
see no reason how it could be otherwise, it is easily understandable why
petitioners' position that they are co-owners and not unregistered co-
partners, for the purposes of the impugned assessment, cannot be
upheld. Truth to tell, petitioners should find comfort in the fact that they
were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of
the deceased among themselves pursuant to the project of partition
approved in 1949, "the properties remained under the management of
Lorenzo T. Oña who used said properties in business by leasing or selling
them and investing the income derived therefrom and the proceed from
the sales thereof in real properties and securities," as a result of which
said properties and investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956. And all these
became possible because, admittedly, petitioners never actually
received any share of the income or profits from Lorenzo T. Oña and
instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding
income taxes on the basis of their respective shares of the profits of their
common business as reported by the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties inherited
by them. Indeed, it is admitted that during the material years herein
involved, some of the said properties were sold at considerable profit,
and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in
the purchase and sale of corporate securities. It is likewise admitted that
all the profits from these ventures were divided among petitioners
proportionately in accordance with their respective shares in the
inheritance. In these circumstances, it is Our considered view that from
the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oña as a common fund in
undertaking several transactions or in business, with the intention of
deriving profit to be shared by them proportionally, such act was
tantamonut to actually contributing such incomes to a common fund
and, in effect, they thereby formed an unregistered partnership within
the purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period
when the heirs can be considered as co-owners rather than unregistered
co-partners within the contemplation of our corporate tax laws
aforementioned. Before the partition and distribution of the estate of
the deceased, all the income thereof does belong commonly to all the
heirs, obviously, without them becoming thereby unregistered co-
partners, but it does not necessarily follow that such status as co-owners
continues until the inheritance is actually and physically distributed
among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding
said shares under the common management of the administrator or
executor or of anyone chosen by them and engage in business on that
basis. Withal, if this were to be allowed, it would be the easiest thing for
heirs in any inheritance to circumvent and render meaningless Sections
24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated,
among the reasons for holding the appellants therein to be unregistered
co-partners for tax purposes, that their common fund "was not
something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances
where an inheritance is not actually divided, there can be no
unregistered co-partnership. As already indicated, for tax purposes, the
co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties
and/or the incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective
shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the
corresponding testate or intestate 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 inherited
properties.
Besides, as already observed earlier, the income derived from inherited
properties may be considered as individual income of the respective
heirs only so long as the inheritance or estate is not distributed or, at
least, partitioned, but the moment their respective known shares are
used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be
considered as the part of the taxable income of an unregistered
partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned resolution
denying petitioners' motion for reconsideration of the decision of said
court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court
that the herein petitioners have formed an unregistered
partnership and, therefore, have to be taxed as such, it might be
recalled that the petitioners in their individual income tax
returns reported their shares of the profits of the unregistered
partnership. We think it only fair and equitable that the various
amounts paid by the individual petitioners as income tax on their
respective shares of the unregistered partnership should be
 deducted from the deficiency income tax found by this
Honorable Court against the unregistered partnership. (page 7,
Memorandum for the Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable
income of the partnership must be reduced by the amounts of
income tax paid by each petitioner on his share of partnership
profits. This is not correct; rather, it should be the other way around.
The partnership profits distributable to the partners (petitioners
herein) should be reduced by the amounts of income tax assessed
against the partnership. Consequently, each of the petitioners in his
individual capacity overpaid his income tax for the years in question,
but the income tax due from the partnership has been correctly
assessed. Since the individual income tax liabilities of petitioners are
not in issue in this proceeding, it is not proper for the Court to pass
upon the same.
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
time that has lapsed since they paid their individual income taxes, they
may already be barred by prescription from recovering their
overpayments in a separate action. We do not agree. As We see it, the
case of petitioners as regards the point under discussion is simply that
of a taxpayer who has paid the wrong tax, assuming that the failure to
pay the corporate taxes in question was not deliberate. Of course, such
taxpayer has the right to be reimbursed what he has erroneously paid,
but the law is very clear that the claim and action for such
reimbursement are subject to the bar of prescription. And since the
period for the recovery of the excess income taxes in the case of herein
petitioners has already lapsed, it would not seem right to virtually
disregard prescription merely upon the ground that the reason for the
delay is precisely because the taxpayers failed to make the proper return
and payment of the corporate taxes legally due from them. In principle,
it is but proper not to allow any relaxation of the tax laws in favor of
persons who are not exactly above suspicion in their conduct vis-a-vis
their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax
Appeals appealed from is affirm with costs against petitioners.
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,
- versus -
JULIET VILLA LIM, Respondent.
GR NO. 172690 March 03, 2010
Before this Court is a Petition for Review on Certiorari[1] under Rule 45
of the Rules of Civil Procedure, assailing the Court of Appeals (CA)
Decision[2] dated June 29, 2005, which reversed and set aside the
decision[3] of the Regional Trial Court (RTC) of LucenaCity, dated April
12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda,
Edelyna and Edison, all surnamed Lim (petitioners), represented by
Elenito Lim (Elenito). They filed a Complaint[4] for Partition, Accounting
and Damages against respondent Juliet Villa Lim (respondent), widow of
the late Elfledo Lim (Elfledo), who was the eldest son of Jose and
Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill
in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his
friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a
partnership to engage in the trucking business. Initially, with a
contribution of P50,000.00 each, they purchased a truck to be used in
the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15,
1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for Elfledo to
use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his 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.
Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his
demise. Respondent also stressed that Jose left no properties that
Elfledo could have held in trust. Respondent maintained that all the
properties involved in this case were purchased and acquired through
her and her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent
submitted that these are conjugal partnership properties; and thus, she
had the right to refuse to render an accounting for the income or profits
of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its
decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby
rendered:
1) Ordering the partition of the above-mentioned properties
equally between the plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all
incomes, profits and rentals received by her from said
properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted,
petitioners filed their Motion for Reconsideration,[5] which the CA,
however, denied in its Resolution[6] dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED
BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS
BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON
THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?[7]
In essence, petitioners argue that according to the testimony of Jimmy,
the sole surviving partner, Elfledo was not a partner; and that he and
Norberto entered into a partnership with Jose. Thus, the CA erred in not
giving that testimony greater weight than that of Cresencia, who was
merely the spouse of Jose and not a party to the partnership.[8]
Respondent counters that the issue raised by petitioners is not proper
in a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review, evaluation, calibration, and re-
weighing of the factual findings of the CA. Moreover, respondent
invokes the rationale of the CA decision that, in light of the admissions
of Cresencia and Edison and the testimony of respondent, the testimony
of Jimmy was effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the
instant Petition.
Verily, the evaluation and calibration of the evidence necessarily
involves consideration of factual issues an exercise that is not
appropriate for a petition for review on certiorariunder Rule 45. This rule
provides that the parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound
to analyze again and weigh the evidence introduced in and considered
by the tribunals below.[10] When supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties and
are not reviewable by this Court, unless the case falls under any of the
following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or
impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to the admissions of
both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of
specific evidence on which they are based;
(9) When the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are premised
on the supposed absence of evidence and contradicted by the
evidence on record.[11]
We note, however, that the findings of fact of the RTC are contrary to
those of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of
merit.
A partnership exists when two or more persons agree to place their
money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits
and losses among them. A contract of partnership is defined by the Civil
Code as one where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.[12]
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is none
in this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose
and Elfledo was the partner in the trucking business.
A careful review of the records persuades us to affirm the CA
decision. The evidence presented by petitioners falls short of the
quantum of proof required to establish that: (1) Jose was the partner
and not Elfledo; and (2) all the properties acquired by Elfledo and
respondent form part of the estate of Jose, having been derived from
the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just
one piece of evidence against respondent. It must be considered and
weighed along with petitioners' other evidence vis--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.

Article 1773
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-
appellees.
G.R. No. L-24193 June 28, 1968
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.
[G.R. No. 134559. December 9, 1999]
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.
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:

The project did not push through, and the land was subsequently
x x x [The] Court of Appeals erred in concluding that the transaction x x
foreclosed by the bank.
x between the petitioners and respondent was that of a joint
According to petitioners, the project failed because of venture/partnership, ignoring outright the provision of Article 1769, and
respondents lack of funds or means and skills. They add that respondent other related provisions of the Civil Code of the Philippines.[8]
used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company. The Courts Ruling
On the other hand, respondent alleged that he used the loan to The Petition is bereft of merit.
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 Main Issue: Existence of a Partnership
Councils approval of the subdivision project which he advertised in a
Petitioners deny having formed a partnership with
local newspaper. He also caused the construction of roads, curbs and
respondent. They contend that the Joint Venture Agreement and the
gutters. Likewise, he entered into a contract with an engineering firm
earlier Deed of Sale, both of which were the bases of the appellate
for the building of sixty low-cost housing units and actually even set up
courts finding of a partnership, were void.
a model house on one of the subdivision lots.He did all of these for a
total expense of P85,000. In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to implement the
Respondent claimed that the subdivision project failed, however,
project. Because the agreement entitled them to receive 60 percent of
because petitioners and their relatives had separately caused the
the proceeds from the sale of the subdivision lots, they pray that
annotations of adverse claims on the title to the land, which eventually
respondent pay them damages equivalent to 60 percent of the value of
scared away prospective buyers. Despite his requests, petitioners
the property.[9]
refused to cause the clearing of the claims, thereby forcing him to give
up on the project.[5] The pertinent portions of the Joint Venture Agreement read as
follows:
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 KNOW ALL MEN BY THESE PRESENTS:
dismissed by the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for further This AGREEMENT, is made and entered into at Cebu City, Philippines,
proceedings. Thereafter, the RTC issued its assailed Decision, which, as this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
earlier stated, was affirmed by the CA. x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND PARTY:
Hence, this Petition.[6]

Ruling of the Court of Appeals W I T N E S S E T H:

In affirming the trial court, the Court of Appeals held that

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY,
petitioners and respondent had formed a partnership for the
this property located at Lapu-Lapu City, Island of Mactan, under Lot No.
development of the subdivision. Thus, they must bear the loss suffered
by the partnership in the same proportion as their share in the profits
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 WHEREFORE, the Petition is hereby DENIED and the challenged
third persons. Thus, the eminent Arturo M. Tolentino states that under Decision AFFIRMED. Costs against petitioners.
the aforecited provision which is a complement of Article 1771,[12] the
execution of a public instrument would be useless if there is no SO ORDERED.
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.
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.

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.
G.R. NOS. 166299-300 December 13, 2005
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-1attached 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.
Article 1782
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
G.R. No. L-25532 February 28, 1969
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
formed on 30 September 1947 by herein respondent William J. Suter as
the general partner, and Julia Spirig and Gustav Carlson, as the limited
partners. The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the
limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the
importation, marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement machines, their
parts and accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central
Bank.
In 1948, however, general partner Suter and limited partner Spirig got
married and, thereafter, on 18 December 1948, limited partner Carlson
sold his share in the partnership to Suter and his wife. The sale was duly
recorded with the Securities and Exchange Commission on 20 December
1948.
The limited partnership had been filing its income tax returns as a
corporation, without objection by the herein petitioner, Commissioner
of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the
partners-spouses Suter and Spirig resulting in a determination of a
deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision,
on 11 November 1965, reversing that of the Commissioner of Internal
Revenue.
The present case is a petition for review, filed by the Commissioner of
Internal Revenue, of the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig
Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of
the partners, respondent William J. Suter and Julia Spirig Suter and the
subsequent sale to them by the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the partnership for a nominal amount
of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that
the marriage of Suter and Spirig and their subsequent acquisition of the
interests of remaining partner Carlson in the partnership dissolved the
limited partnership, and if they did not, the fiction of juridical personality
of the partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control of the
business; consequently the income tax return of respondent Suter for
the years in question should have included his and his wife's individual
incomes and that of the limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. — In the case of married persons,
whether citizens, residents or non-residents, only one
consolidated return for the taxable year shall be filed by either
spouse to cover the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court
of Tax Appeals held, that his marriage with limited partner Spirig and
their acquisition of Carlson's interests in the partnership in 1948 is not a
ground for dissolution of the partnership, either in the Code of
Commerce or in the New Civil Code, and that since its juridical
personality had not been affected and since, as a limited partnership, as
contra distinguished from a duly registered general partnership, it is
taxable on its income similarly with corporations, Suter was not bound
to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co.,
Ltd., has been dissolved by operation of law because of the marriage of
the only general partner, William J. Suter to the originally limited
partner, Julia Spirig one year after the partnership was organized is
rested by the appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
 A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code, which
applies in the absence of express provision in the Code of
Commerce, persons prohibited from making donations to
each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that
the marriage of partners necessarily brings about the
dissolution of a pre-existing partnership. (1 Guy de Montella
58)
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but
a particular one. As appears from Articles 1674 and 1675 of the Spanish
Civil Code, of 1889 (which was the law in force when the subject firm
was organized in 1947), a universal partnership requires either that the
object of the association be all the present property of the partners, as
contributed by them to the common fund, or else "all that the partners
may acquire by their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a
universal partnership, since the contributions of the partners were fixed
sums of money, P20,000.00 by William Suter and P18,000.00 by Julia
Spirig and neither one of them was an industrial partner. It follows that
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan,
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1,
says with regard to the prohibition contained in the aforesaid Article
1677:
Los conyuges, segun esto, no pueden celebrar entre si el
contrato de sociedad universal, pero o podran constituir
sociedad particular? Aunque el punto ha sido muy debatido,
nos inclinamos a la tesis permisiva de los contratos de
sociedad particular entre esposos, ya que ningun precepto de
nuestro Codigo los prohibe, y hay que estar a la norma general
segun la que toda persona es capaz para contratar mientras
no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en
su resolution de 3 de febrero de 1936, mas parece cambiar de
rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve
it, such marriage not being one of the causes provided for that purpose
either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were
separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code (Article
1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter
"Morcoin" Co., Ltd. did not become common property of both after their
marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory mandates and basic principles of
our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members.
True, section 24 of the Internal Revenue Code merges registered general
co-partnerships (compañias colectivas) with the personality of the
individual partners for income tax purposes. But this rule is exceptional
in its disregard of a cardinal tenet of our partnership laws, and can not
be extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964, and
Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding
the fiction of legal personality of the corporations involved therein are
not applicable to the present case. In the cited cases, the corporations
were already subject to tax when the fiction of their corporate
personality was pierced; in the present case, to do so would exempt the
limited partnership from income taxation but would throw the tax
burden upon the partners-spouses in their individual capacities. The
corporations, in the cases cited, merely served as business conduits
or alter egos of the stockholders, a factor that justified a disregard of
their corporate personalities for tax purposes. This is not true in the
present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate business
purposes; it conducted its own dealings with its customers prior to
appellee's marriage, and had been filing its own income tax returns as
such independent entity. The change in its membership, brought about
by the marriage of the partners and their subsequent acquisition of all
interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As
far as the records show, the partners did not enter into matrimony and
thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income,
to require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In
fact, it would even conflict with what it specifically provides in its Section
24: for the appellant Commissioner's stand results in equal treatment,
tax wise, of a general copartnership (compañia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus, the
code taxes the latter on its income, but not the former, because it is in
the case of compañias colectivas that the members, and not the firm,
are taxable in their individual capacities for any dividend or share of the
profit derived from the duly registered general partnership (Section 26,
N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
88-89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually or
constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito
vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila,
60 Phil. 167, the fruits of the wife's parapherna become conjugal only
when no longer needed to defray the expenses for the administration
and preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the
legal personality of the limited partnership, which is not essential to the
income taxability of the partnership since the law taxes the income of
even joint accounts that have no personality of their own. 1 Appellant is,
likewise, mistaken in that it assumes that the conjugal partnership of
gains is a taxable unit, which it is not. What is taxable is the "income of
both spouses" (Section 45 [d] in their individual capacities. Though the
amount of income (income of the conjugal partnership vis-a-vis the joint
income of husband and wife) may be the same for a given taxable year,
their consequences would be different, as their contributions in the
business partnership are not the same.

The difference in tax rates between the income of the limited

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

FOR THE FOREGOING REASONS, the decision under review is hereby

affirmed. No costs.

Article 1786
MAXIMILIANO SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
The plaintiff brought an action for the rescission of a partnership
contract between himself and the defendant, entered into on October
15, 1920, the reimbursement by the latter of his 50,000 peso investment
therein, with interest at 12 per cent per annum form October 15, 1920,
with costs, and any other just and equitable remedy against said
defendant.
The defendant denies generally and specifically all the allegations of the
complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager
and administrator of P500 monthly from October 15, 1920, until the
final dissolution, with interest, one-half of said amount to be charged to
the plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the
capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was
constituted, and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the court the result
of the liquidation together with the accounts and vouchers within the
period of thirty days from receipt of notice of said judgment, without
costs.
The plaintiff appealed from said decision making the following
assignments of error:
1. In holding that the plaintiff and appellant is not entitled to
the rescission of the partnership contract, Exhibit A, and that
article 1124 of the Civil Code is not applicable to the present
case.
2. In failing to order the defendant to return the sum of
P50,000 to the plaintiff with interest from October 15, 1920,
until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is
raised purporting to show that this appeal is premature and therefore
will not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts,
have not been made and submitted, the case cannot be deemed
terminated in said court and its ruling is not yet appealable. In support
of this contention counsel cites section 123 of the Code of Civil
Procedure, and the decision of this court in the case of Natividad vs.
Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered
as ordered by the trial court, and until they have been either approved
or disapproved, the litigation involved in this action cannot be
considered as completely decided; and, as it was held in said case of
Natividad vs .Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the dissolution of
partnership, the appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower court's
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and 1682
of the Civil Code have been properly applied. Owing to the defendant's
failure to pay to the partnership the whole amount which he bound
himself to pay, he became indebted to it for the remainder, with interest
and any damages occasioned thereby, but the plaintiff did not thereby
acquire the right to demand rescission of the partnership contract
according to article 1124 of the Code. This article cannot be applied to
the case in question, because it refers to the resolution of obligations in
general, whereas article 1681 and 1682 specifically refer to the contract
of partnership in particular. And it is a well known principle that special
provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of
costs. So ordered.
same building for P50,000.00 and the contents thereof for
P70,000.00.
On July 31, 1975, the building and the contents were totally razed
by fire.
Adjustment Standard Corporation submitted a report as follow
xxx xxx xxx
... Thus the apportioned share of each company is as follows:

Pol Compa Risk Ins Pays

icy ny ure
No s
..

MI Zenith Buil P50 P17,6

RO ding ,00 10.93
0

F- Insuran
02 ce
50
0

Corp.

F- Phil. Hou 70, 24,65

84 seh 000 5.31
Article 1800 59 old
0
TAI TONG CHUACHE & CO., petitioner,
vs. British
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, respondents.
Assco.
This petition for review on certiorari seeks the reversal of the decision Co.
of the Insurance Commission in IC Case #367 1dismissing the
complaint 2 for recovery of the alleged unpaid balance of the proceeds
Inc. FFF 50, 39,18
of the Fire Insurance Policies issued by herein respondent insurance
& F5 000 6.10
company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are
Pol Compa Risk Ins Pays
as follows:
icy ny ure
Complainants acquired from a certain Rolando Gonzales a parcel of No s
land and a building located at San Rafael Village, Davao City. .
Complainants assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent S.S.S. Accredited
FIC SSSAcc
Group of Insurers for P25,000.00.
- re
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong 15
Chuache Inc. in the amount of P100,000.00. To secure the payment 38
of the loan, a mortgage was executed over the land and the building 1
in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April
25, 1975, Arsenio Chua, representative of Thai Tong Chuache &
Co. insured the latter's interest with Travellers Multi-Indemnity dited
Corporation for P100,000.00 (P70,000.00 for the building and Group
P30,000.00 for the contents thereof) (Exhibit "A-a," contents
thereof) (Exhibit "A-a"). of Buil P25 P8,80
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. Insurer ding ,00 5.47
F- 02500 (Exhibit "A"), covering the building for P50,000.00 with s 0
respondent Zenith Insurance Corporation. On July 16, 1975, another
Fire Insurance Policy No. 8459 (Exhibit "B") was procured from
respondent Philippine British Assurance Company, covering the
 Tota P19 P90,2 Mult II- 70,000 16,62
ls 5,0 57.81 i Buildi 8.00
00 ng

We are showing hereunder another apportionment of the loss

Total P295.0 P90,2
which includes the Travellers Multi-Indemnity policy for reference
s 00 57.81
purposes.
Based on the computation of the loss, including the Travellers Multi-
Poli Com Risk Injures Pays
Indemnity, respondents, Zenith Insurance, Phil. British Assurance
cy pany
and S.S.S. Accredited Group of Insurers, paid their corresponding
No.
shares of the loss. Complainants were paid the following:
P41,546.79 by Philippine British Assurance Co., P11,877.14 by Zenith
MIR Zenit Insurance Corporation, and P5,936.57 by S.S.S. Group of Accredited
O/ h Insurers (Par. 6. Amended Complaint). Demand was made from
respondent Travellers Multi-Indemnity for its share in the loss but
the same was refused. Hence, complainants demanded from the
F- Insur
other three (3) respondents the balance of each share in the loss
025 ance
based on the computation of the Adjustment Standards Report
00
excluding Travellers Multi-Indemnity in the amount of P30,894.31
(P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and
Corp Buildi P50,00 P11,8 P2,866.90, SSS Accredited) but the same was refused, hence, this
. ng 0 77.14 action.
In their answers, Philippine British Assurance and Zenith Insurance
F- Phil. Corporation admitted the material allegations in the complaint, but
845 denied liability on the ground that the claim of the complainants had
90 already been waived, extinguished or paid. Both companies set up
counterclaim in the total amount of P 91,546.79.
Britis Instead of filing an answer, SSS Accredited Group of Insurers
h informed the Commission in its letter of July 22, 1977 that the herein
claim of complainants for the balance had been paid in the amount
of P 5,938.57 in full, based on the Adjustment Standards
Assc I- 70,000 16,62
Corporation Report of September 22, 1975.
o. Buildi 8.00
Co. ng Travellers Insurance, on its part, admitted the issuance of the
Policy No. 599 DV and alleged as its special and affirmative defenses
the following, to wit: that Fire Policy No. 599 DV, covering the
II- furniture and building of complainants was secured by a
Buildin certain Arsenio Chua, mortgage creditor, for the purpose of
g protecting his mortgage credit against the complainants; that the
said policy was issued in the name of Azucena Palomo, only to
FFF & 50,000 24,91 indicate that she owns the insured premises; that the policy contains
PE 8.79 an endorsement in favor of Arsenio Chua as his mortgage interest
may appear to indicate that insured was Arsenio Chua and the
complainants; that the premium due on said fire policy was paid by
PVC SSS Accre
Arsenio Chua; that respondent Travellers is not liable to pay
- dited
complainants.
151
81 On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the fire Insurance Policy No.
F-559 DV, issued by respondent Travellers Multi-Indemnity.
Grou
p of Travellers Insurance, in answer to the complaint in intervention,
alleged that the Intervenor is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of the
Insur Buildi 25,000 5,938. insured premises and that the complainants, spouses Pedro and
ers ng 50 Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor. 3
F- Insur I-Ref 30,000 14,46 As adverted to above respondent Insurance Commission dismissed
599 ers 7.31 spouses Palomos' complaint on the ground that the insurance policy
DV subject of the complaint was taken out by Tai Tong Chuache & Company,
petitioner herein, for its own interest only as mortgagee of the insured
property and thus complainant as mortgagors of the insured property
have no right of action against herein respondent. It likewise dismissed
petitioner's complaint in intervention in the following words:
 We move on the issue of liability of respondent Travellers Multi-
Indemnity to the Intervenor-mortgagee. The complainant testified
that she was still indebted to Intervenor in the amount of
P100,000.00. Such allegation has not however, been sufficiently
proven by documentary evidence. The certification (Exhibit 'E-e')
issued by the Court of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua and not Tai Tong
Chuache & Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a
motion for reconsideration but it was likewise denied hence, the present
petition.
It is the contention of the petitioner that respondent Insurance
Commission decided an issue not raised in the pleadings of the parties
in that it ruled that a certain Arsenio Lopez Chua is the one entitled to
the insurance proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous
interpretation of the decision appealed from considering the manner it
was written. 5 As correctly pointed out by respondent insurance
commission in their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest over the insured
property. Perusal of the decision reveals however that it readily
absolved respondent insurance company from liability on the basis of
the commissioner's conclusion that at the time of the occurrence of the
peril insured against petitioner as mortgagee had no more insurable
interest over the insured property. It was based on the inference that
the credit secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire. The
foregoing conclusion was arrived at on the basis of the certification
issued by the then Court of First Instance of Davao, Branch II that in a
certain civil action against the Palomos, Antonio Lopez Chua stands as
the complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known
postulate that the case of a party is constituted by his own affirmative
allegations. Under Section 1, Rule 131 6 each party must prove his own
affirmative allegations by the amount of evidence required by law which
in civil cases as in the present case is preponderance of evidence. The
party, whether plaintiff or defendant, who asserts the affirmative of the
issue has the burden of presenting at the trial such amount of evidence
as required by law to obtain favorable judgment. 7 Thus, petitioner who
is claiming a right over the insurance must prove its case. Likewise,
respondent insurance company to avoid liability under the policy by
setting up an affirmative defense of lack of insurable interest on the part
of the petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the
validity of the insurance policy taken out by petitioner over the
mortgaged property. Neither did it deny that the said property was
totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense of
lack of insurable interest on the part of the petitioner that before the
occurrence of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having admitted the
material allegations in the complaint, has the burden of proof to show
that petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of
proof. Respondent, it will be noted, exerted no effort to present any
evidence to substantiate its claim, while petitioner did. For said
respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis of
the certification issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the Palomos, Arsenio Lopez
Chua stands as the complainant and not Tai Tong Chuache. From said
evidence respondent commission inferred that the credit extended by
herein petitioner to the Palomos secured by the insured property must
have been paid. Such is a glaring error which this Court cannot sanction.
Respondent Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for
the insurance proceeds offered as evidence the contract of mortgage
(Exh. 1) which has not been cancelled nor released. It has been held in a
long line of cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was
not assailed by private respondent. Moreover, petitioner's claim that
the loan extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that they are still
indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed
from the loan granted to Azucena Palomo by petitioner the same should
have been brought by Tai Tong Chuache or by its representative in its
own behalf. From the above premise respondent concluded that the
obligation secured by the insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec.
2 10 respondent pointed out that the action must be brought in the
name of the real party in interest. We agree. However, it should be
borne in mind that petitioner being a partnership may sue and be sued
in its name or by its duly authorized representative. The fact that Arsenio
Lopez Chua is the representative of petitioner is not questioned.
Petitioner's declaration that Arsenio Lopez Chua acts as the managing
partner of the partnership was corroborated by respondent insurance
company. 11 Thus Chua as the managing partner of the partnership may
execute all acts of administration 12 including the right to sue debtors of
the partnership in case of their failure to pay their obligations when it
became due and demandable. Or at the very least, Chua being a partner
of petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for and in
behalf of the firm. 13 Public respondent's allegation that the civil case
flied by Arsenio Chua was in his capacity as personal creditor of spouses
Palomo has no basis.
The respondent insurance company having issued a policy in favor of
herein petitioner which policy was of legal force and effect at the time
of the fire, it is bound by its terms and conditions. Upon its failure to
prove the allegation of lack of insurable interest on the part of the
petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET
ASIDE and ANOTHER judgment is rendered order private respondent
Travellers Multi-Indemnity Corporation to pay petitioner the face value
of Insurance Policy No. 599-DV in the amount of P100,000.00. Costs
against said private respondent.
SO ORDERED.
Article 1802
GEORGE LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
This is a petition to review on certiorari the decision of the Court of
Appeals in a case originating from the Court of First Instance of Manila
wherein the herein petitioner George Litton was the plaintiff and the
respondents Hill & Ceron, Robert Hill, Carlos Ceron and Visayan Surety
& Insurance Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and
delivered to Carlos Ceron, who is one of the managing partners of Hill &
Ceron, a certain number of mining claims, and by virtue of said
transaction, the defendant Carlos Ceron delivered to the plaintiff a
document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429
and 6699 for 5,000, 5,000 and 7,000 shares respectively — total
17,000 shares of Big Wedge Mining Company, which we have sold
at P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent
brokerage.
HILL & CERON
By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance
of P720, and unable to collect this sum either from Hill & Ceron or from
its surety Visayan Surety & Insurance Corporation, Litton filed a
complaint in the Court of First Instance of Manila against the said
defendants for the recovery of the said balance. The court, after trial,
ordered Carlos Ceron personally to pay the amount claimed and
absolved the partnership Hill & Ceron, Robert Hill and the Visayan Surety
& Insurance Corporation. On appeal to the Court of Appeals, the latter
affirmed the decision of the court on May 29, 1937, having reached the
conclusion that Ceron did not intend to represent and did not act for the
firm Hill & Ceron in the transaction involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the
Court of Appeals as to the question of fact just mentioned, namely, that
Ceron individually entered into the transaction with the plaintiff, but in
view, however, of certain undisputed facts and of certain regulations
and provisions of the Code of Commerce, we reach the conclusion that
the transaction made by Ceron with the plaintiff should be understood
in law as effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified
at the trial that he and Ceron, during the partnership, had the same
power to buy and sell; that in said partnership Hill as well as Ceron made
the transaction as partners in equal parts; that on the date of the
transaction, February 14, 1934, the partnership between Hill and Ceron
was in existence. After this date, or on February 19th, Hill & Ceron sold
shares of the Big Wedge; and when the transaction was entered into
with Litton, it was neither published in the newspapers nor stated in the
commercial registry that the partnership Hill & Ceron had been
dissolved.
Hill testified that a few days before February 14th he had a conversation
with the plaintiff in the course of which he advised the latter not to
deliver shares for sale or on commission to Ceron because the
partnership was about to be dissolved; but what importance can be
attached to said advice if the partnership was not in fact dissolved on
February 14th, the date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties
until it has been recorded in the commercial registry. (See also
Cardell vs. Mañeru, 14 Phil., 368.) The Supreme Court of Spain held that
the dissolution of a partnership by the will of the partners which is not
registered in the commercial registry, does not prejudice third persons.
(Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and
selling shares on their own account. Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market,
irrespective of whether the purchase or sale is made from or to a
private individual, broker or brokerage firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make the
firm responsible to him. According to the articles of copartnership of
'Hill & Ceron,' filed in the Bureau of Commerce.
Sixth. That the management of the business affairs of the
copartnership shall be entrusted to both copartners who shall jointly
administer the business affairs, transactions and activities of the
copartnership, shall jointly open a current account or any other kind
of account in any bank or banks, shall jointly sign all checks for the
withdrawal of funds and shall jointly or singly sign, in the latter case,
with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be signed
by one of the partners if the other partner consented. Without the
consent of one partner, the other cannot bind the firm by a written
contract. Now, assuming for the moment that Ceron attempted to
represent the firm in this contract with the plaintiff (the plaintiff
conceded that the firm name was not mentioned at that time), the
latter has failed to prove that Hill had consented to such contract.
It follows from the sixth paragraph of the articles of partnership of Hill
&n Ceron above quoted that the management of the business of the
partnership has been entrusted to both partners thereof, but we dissent
from the view of the Court of Appeals that for one of the partners to
bind the partnership the consent of the other is necessary. Third
persons, like the plaintiff, are not bound in entering into a contract with
any of the two partners, to ascertain whether or not this partner with
whom the transaction is made has the consent of the other partner. The
public need not make inquires as to the agreements had between the
partners. Its knowledge, is enough that it is contracting with the
partnership which is represented by one of the managing partners.
There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions. (Mills vs. Riggle, 112
Pac., 617.)
The presumption is sufficient to permit third persons to hold the firm
liable on transactions entered into by one of members of the firm
acting apparently in its behalf and within the scope of his authority.
(Le Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads
in part:
Second: That the purpose or object for which this
copartnership is organized is to engage in the business of
brokerage in general, such as stock and bond brokers, real
brokers, investment security brokers, shipping brokers, and
other activities pertaining to the business of brokers in
general.
The kind of business in which the partnership Hill & Ceron is to engage
being thus determined, none of the two partners, under article 130 of
the Code of Commerce, may legally engage in the business of brokerage
in general as stock brokers, security brokers and other activities
pertaining to the business of the partnership. Ceron, therefore, could
not have entered into the contract of sale of shares with Litton as a
private individual, but as a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction
similar to that in which the partnership is engaged without binding the
latter, nevertheless there is no law which prohibits a partner in the stock
brokerage business for engaging in other transactions different from
those of the partnership, as it happens in the present case, because the
transaction made by Ceron is a mere personal loan, and this argument,
so it is said, is corroborated by the Court of Appeals. We do not find this
alleged corroboration because the only finding of fact made by the Court
of Appeals is to the effect that the transaction made by Ceron with the
plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to
pay to the plaintiff, jointly and severally, the sum of P720, with legal
interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (½%) from the original price of P1,870,
with the costs to the respondents. So ordered.
Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and Moran, JJ., concur.
RESOLUTION
July 13, 1939
CONCEPCION, J.:
A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. It is asked that we reconsider our decision, the
said defendant insisting that the appellant had not established that
Carlos Ceron, another of the defendants, had the consent of his
copartner, the movant, to enter with the appellant into the contract
whose breach gave rise to the complaint. It is argued that, it being
stipulated in the articles of partnership that Hill and Ceron, only partners
of the firm Hill & Ceron, would, as managers, have the management of
the business of the partnership, and that either may contract and sign
for the partnership with the consent of the other; the parties of
partnership having been, so it is said, recorded in the commercial
registry, the appellant could not ignore the fact that the consent of the
movant was necessary for the validity of the contract which he had with
the other partner and defendant, Ceron, and there being no evidence
that said consent had been obtained, the complaint to compel
compliance with the said contract had to be, as it must be in fact, a
procedural failure.
Although this question has already been considered and settled in our
decision, we nevertheless take cognizance of the motion in order to
enlarge upon our views on the matter.
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the partnership
with the consent of the other, undoubtedly creates an obligation
between the two partners, which consists in asking the other's consent
before contracting for the partnership. This obligation of course is not
imposed upon a third person who contracts with the partnership.
Neither is it necessary for the third person to ascertain if the managing
partner with whom he contracts has previously obtained the consent of
the other. A third person may and has a right to presume that the
partner with whom he contracts has, in the ordinary and natural course
of business, the consent of his copartner; for otherwise he would not
enter into the contract. The third person would naturally not presume
that the partner with whom he enters into the transaction is violating
the articles of partnership but, on the contrary, is acting in accordance
therewith. And this finds support in the legal presumption that the
ordinary course of business has been followed (No. 18, section 334,
Code of Civil Procedure), and that the law has been obeyed (No. 31,
section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the
partners did not consent to his copartner entering into a contract with
a third person, and that the latter with knowledge thereof entered into
said contract, the aforesaid presumption with all its force and legal
effects should be taken into account.
There is nothing in the case at bar which destroys this presumption; the
only thing appearing in he findings of fact of the Court of Appeals is that
the plaintiff "has failed to prove that Hill had consented to such
contract". According to this, it seems that the Court of Appeals is of the
opinion that the two partners should give their consent to the contract
and that the plaintiff should prove it. The clause of the articles of
partnership should not be thus understood, for it means that one of the
two partners should have the consent of the other to contract for the
partnership, which is different; because it is possible that one of the
partners may not see any prospect in a transaction, but he may
nevertheless consent to the realization thereof by his copartner in
reliance upon his skill and ability or otherwise. And here we have to hold
once again that it is not the plaintiff who, under the articles of
partnership, should obtain and prove the consent of Hill, but the latter's
partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third
person, the plaintiff, who asks for it. While the said presumption stands,
the plaintiff has nothing to prove.
Passing now to another aspect of the case, had Ceron in any way stated
to the appellant at the time of the execution of the contract, or if it could
be inferred by his conduct, that he had the consent of Hill, and should it
turn out later that he did not have such consent, this alone would not
annul the contract judging from the provisions of article 130 of the Code
of Commerce reading as follows:
No new obligation shall be contracted against the will of one
of the managing partners, should he have expressly stated it;
but if, however, it should be contracted it shall not be annulled
for this reason, and shall have its effects without prejudice to
the liability of the partner or partners who contracted it to
reimburse the firm for any loss occasioned by reason thereof.
(Emphasis supplied.)
Under the aforequoted provisions, when, not only without the consent
but against the will of any of the managing partners, a contract is
entered into with a third person who acts in good faith, and the
transaction is of the kind of business in which the partnership is
engaged, as in the present case, said contract shall not be annulled,
without prejudice to the liability of the guilty partner.
The reason or purpose behind these legal provisions is no other than to
protect a third person who contracts with one of the managing partners
of the partnership, thus avoiding fraud and deceit to which he may easily
fall a victim without this protection which the Code of Commerce wisely
provides.
If we are to interpret the articles of partnership in question by holding
that it is the obligation of the third person to inquire whether the
managing copartner of the one with whom he contracts has given his
consent to said contract, which is practically casting upon him the
obligation to get such consent, this interpretation would, in similar
cases, operate to hinder effectively the transactions, a thing not
desirable and contrary to the nature of business which requires
promptness and dispatch one the basis of good faith and honesty which
are always presumed.
In view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. So ordered.
Article 1809

DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed
the decision of the then Court of First Instance of Manila, Branch II in
Civil Case No. 116725 declaring private respondent Leung Yiu a partner
of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and
ordering the petitioner to pay to the private respondent his share in the
annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived
from the operation of Sun Wah Panciteria since October, 1955 from
petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres
Street, Sta. Cruz, Manila, was established sometime in October, 1955. It
was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a partnership and
that he was one of the partners having contributed P4,000.00 to its
initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational,
the private respondent gave P4,000.00 as his contribution to the
partnership. This is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of the P4,000.00
by affixing his signature thereto. The receipt was written in Chinese
characters so that the trial court commissioned an interpreter in the
person of Ms. Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that the translation to
the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the
petitioner (Exhibit A-3) because it was affixed by the latter in his (private
respondents') presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the
petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing delivery of his own
investment in another amount of P4,000.00 An examination was
conducted by the PC Crime Laboratory on orders of the trial court
granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of
the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the
Savings Department of the China Banking Corporation testified that said
check (Exhibit B) was deposited by and duly credited to the private
respondents savings account with the bank after it was cleared by the
drawee bank, the Equitable Banking Corporation. Another witness Elvira
Rana of the Equitable Banking Corporation testified that the check in
question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and
indicated in the petitioner's statement of account after the check
(Exhibit B) was duly cleared. Rana further testified that upon clearance
of the check and pursuant to normal banking procedure, said check was
returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of
the receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started
the Sun Wah Panciteria. He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than P2,000.00 as capital in
establishing Sun Wah Panciteria. To bolster his contention that he was
the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to the private
respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the
former, the sum equivalent to 22% of the annual profit derived from
the operation of Sun Wah Panciteria from October, 1955, until fully
paid, and attorney's fees in the amount of P5,000.00 and cost of suit.
(p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion,
he requested that the decision rendered should include the net profit of
the Sun Wah Panciteria which was not specified in the decision, and
allow private respondent to adduce evidence so that the said decision
will be comprehensively adequate and thus put an end to further
litigation.
The motion was granted over the objections of the petitioner. After
hearing the trial court rendered an amended decision, the dispositive
portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of
said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic)
and against the defendant, ordering the latter to pay the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from the
time of judicial demand, until fully paid, plus the sum of P5,000.00 as
and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further
modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
WHEREFORE, the decision appealed from is modified, the
dispositive portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial
demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00
a day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the
net profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court's decision. The dispositive portion of the
resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of
the court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from
the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that
the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by
petitioner was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations
of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual
findings that the respondent invested in the business as a partner.
Hence, the two courts declared that the private petitioner is entitled to
a share of the annual profits of the restaurant. The petitioner, however,
claims that this factual finding is erroneous. Thus, the petitioner argues:
"The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the
Sun Wah Panciteria, in return of which private respondent allegedly will
receive a share in the profits of the restaurant. The same complaint did
not claim that private respondent is a partner of the business. It was,
therefore, a serious error for the lower court and the Hon. Intermediate
Appellate Court to grant a relief not called for by the complaint. It was
also error for the Hon. Intermediate Appellate Court to interpret or
construe 'financial assistance' to mean the contribution of capital by a
partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant
sought the financial assistance of plaintiff in operating the
defendant's eatery known as Sun Wah Panciteria, located in the
given address of defendant; as a return for such financial assistance.
plaintiff would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the
sum of four thousand pesos (P4,000.00), Philippine Currency, of
which copy for the receipt of such amount, duly acknowledged by
the defendant is attached hereto as Annex "A", and form an integral
part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with the
understanding that he would be entitled to twenty-two percent (22%)
of the annual profit derived from the operation of the said panciteria.
These allegations, which were proved, make the private respondent and
the petitioner partners in the establishment of Sun Wah Panciteria
because Article 1767 of the Civil Code provides that "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".
Therefore, the lower courts did not err in construing the complaint as
one wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given
its ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of
destitution. But this circumstance under which the P4,000.00 was given
to the petitioner does not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial assistance,
plaintiff (private respondent) would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the
said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"...
nature of the action filed in court is determined by the facts alleged in
the complaint as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner of
the petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on
the ground that the alleged standards or specimens used by the PC
Crime Laboratory in arriving at the conclusion were never testified to by
any witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The supposed
standards or specimens of handwriting were marked as Exhibits "H" "H-
1" to "H-24" and admitted as evidence for the private respondent over
the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by
the petitioner to the private respondent and So Sia (Exhibits "A" and "D")
and compared the signatures on them with the signatures of the
petitioner on the various pay envelopes (Exhibits "H", "H-1" to 'H-24") of
Antonio Ah Heng and Maria Wong, employees of the restaurant. After
the usual examination conducted on the questioned documents, the PC
Crime Laboratory submitted its findings (Exhibit J) attesting that the
signatures appearing in both receipts (Exhibits "A" and "D") were the
signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1"
to "H-24") were presented by the private respondent for marking as
exhibits, the petitioner did not interpose any objection. Neither did the
petitioner file an opposition to the motion of the private respondent to
have these exhibits together with the two receipts examined by the PC
Crime Laboratory despite due notice to him. Likewise, no explanation
has been offered for his silence nor was any hint of objection registered
for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving
the issue of prescription in favor of petitioner. The alleged receipt is
dated October 1, 1955 and the complaint was filed only on July 13, 1978
or after the lapse of twenty-two (22) years, nine (9) months and twelve
(12) days. From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are
filed before the court, when there is a written extra-judicial demand
by the creditor, and when there is any written acknowledgment of
the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are — 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 (Article 1767, Civil Code; Yulo v. Yang
Chiao Cheng, 106 Phil. 110)-have been established. As stated by the
respondent, a partner shares not only in profits but also in the losses of
the firm. If excellent relations exist among the partners at the start of
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. It would be incorrect to state that if a partner does
not assert his rights anytime within ten years from the start of
operations, such rights are irretrievably lost. The private respondent's
cause of action is premised upon the failure of the petitioner to give him
the agreed profits in the operation of Sun Wah Panciteria. In effect the
private respondent was asking for an accounting of his interests in the
partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and
1155 which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement
to the contrary.
Regarding the prescriptive period within which the private respondent
may demand an accounting, Articles 1806, 1807, and 1809 show that
the right to demand an accounting exists as long as the partnership
exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in
favor of the private respondent for being excessive and unconscionable
and above the claim of private respondent as embodied in his complaint
and testimonial evidence presented by said private respondent to
support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L.
Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you
were in charge of the custody of the cashier's box, of the money,
being the cashier, is that correct?
 A Yes, sir.
Q So that every time there is a customer who pays, you were the
one who accepted the money and you gave the change, if any, is
that correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what
do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please
tell us, how much is the gross income of the restaurant?
A For regular days, I received around P7,000.00 a day during my shift
alone and during pay days I receive more than P10,000.00. That is
excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable
Court how many times a week were there catering services?
A Sometimes three times a month; sometimes two times a month
or more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the
catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses
an income of P7,000.00 in a regular day?
A Yes.
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15,
1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of
income but he failed to comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued to the petitioner for
the production of their records of sale, his counsel voluntarily offered to
bring them to court. He asked for sufficient time prompting the court to
cancel all hearings for January, 1981 and reset them to the later part of
the following month. The petitioner's counsel never produced any
books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and
for this purpose, employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records and counsel for
the defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for quite
sometime. To bemuddle the issue, defendant instead of presenting
the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other
poultry products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court gave
warning to the defendant's counsel that if he failed to produce the
books, the same will be considered a waiver on the part of the
defendant to produce the said books inimitably showing decisive
records on the income of the eatery pursuant to the Rules of Court
(Sec. 5(e) Rule 131). "Evidence willfully suppressed would be
adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.
The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25,
1981, however, after presenting several witnesses, counsel for
defendant promised that he will present the defendant as his last
witness. Notably there were several postponement asked by
counsel for the defendant and the last one was on October 1, 1981
when he asked that this case be postponed for 45 days because said
defendant was then in Hongkong and he (defendant) will be back
after said period. The Court acting with great concern and
understanding reset the hearing to November 17, 1981. On said
date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November
24, 1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date that
if the defendant cannot be presented, counsel is deemed to have
waived the presentation of said witness and will submit his case for
decision.
On November 24, 1981, there being a typhoon prevailing in Manila
said date was declared a partial non-working holiday, so much so,
the hearing was reset to December 7 and 22, 1981. On December 7,
1981, on motion of defendant's counsel, the same was again reset
to December 22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on December 22,
1981, the defendant's counsel asked for postponement on the
ground that the defendant was sick. the Court, after much tolerance
and judicial magnanimity, denied said motion and ordered that the
case be submitted for resolution based on the evidence on record
and gave the parties 30 days from December 23, 1981, within which
to file their simultaneous memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila
in front of the Republic Supermarket. It is near the corner of Claro M.
Recto Street. According to the trial court, it is in the heart of Chinatown
where people who buy and sell jewelries, businessmen, brokers,
manager, bank employees, and people from all walks of life converge
and patronize Sun Wah.
There is more than substantial evidence to support the factual findings
of the trial court and the appellate court. If the respondent court
awarded damages only from judicial demand in 1978 and not from the
opening of the restaurant in 1955, it is because of the petitioner's
contentions that all profits were being plowed back into the expansion
of the business. There is no basis in the records to sustain the petitioners
contention that the damages awarded are excessive. Even if the Court
is minded to modify the factual findings of both the trial court and the
appellate court, it cannot refer to any portion of the records for such
modification. There is no basis in the records for this Court to change or
set aside the factual findings of the trial court and the appellate court.
The petitioner was given every opportunity to refute or rebut the
respondent's submissions but, after promising to do so, it deliberately
failed to present its books and other evidence.
The resolution of the Intermediate Appellate Court ordering the
payment of the petitioner's obligation shows that the same continues
until fully paid. The question now arises as to whether or not the
payment of a share of profits shall continue into the future with no fixed
ending date.
Considering the facts of this case, the Court may decree a dissolution of
the partnership under Article 1831 of the Civil Code which, in part,
provides:
Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return
of capital, and other incidents of dissolution because the continuation
of the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the parties is
ordered dissolved.
SO ORDERED.
EMILIO EMNACE, petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN
TABANAO, VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY,
VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT
TABANAO, respondents.
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business concern known as Ma. Nelma
Fishing Industry. Sometime in January of 1986, they decided to dissolve
their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to
Jacinto Divinagracias withdrawal from the partnership.[1] Among the
assets to be distributed were five (5) fishing boats, six (6) vehicles, two
(2) parcels of land located at Sto. Nio and Talisay, Negros Occidental, and
cash deposits in the local branches of the Bank of the Philippine Islands
and Prudential Bank.
Throughout the existence of the partnership, and even after
Vicente Tabanaos untimely demise in 1994, petitioner failed to submit
to Tabanaos heirs any statement of assets and liabilities of the
partnership, and to render an accounting of the partnerships
finances. Petitioner also reneged on his promise to turn over to
Tabanaos heirs the deceaseds 1/3 share in the total assets of the
partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof.[2]
Consequently, Tabanaos heirs, respondents herein, filed against
petitioner an action for accounting, payment of shares, division of assets
and damages.[3] In their complaint, respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the
assets and liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash,
land(s), fishing vessels, trucks, motor vehicles, and other forms and
substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral
damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the
plaintiffs as entitled to plus P1,000.00 for every appearance in court.[4]
Petitioner filed a motion to dismiss the complaint on the grounds
of improper venue, lack of jurisdiction over the nature of the action or
suit, and lack of capacity of the estate of Tabanao to sue.[5] On August
30, 1994, the trial court denied the motion to dismiss. It held that venue
was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal liability;
hence, the action is not only a personal action but also an action in
personam. As regards petitioners argument of lack of jurisdiction over
the action because the prescribed docket fee was not paid considering
the huge amount involved in the claim, the trial court noted that a
request for accounting was made in order that the exact value of the
partnership may be ascertained and, thus, the correct docket fee may
be paid. Finally, the trial court held that the heirs of Tabanao had a right
to sue in their own names, in view of the provision of Article 777 of the
Civil Code, which states that the rights to the succession are transmitted
from the moment of the death of the decedent.[6]
The following day, respondents filed an amended
complaint,[7] incorporating the additional prayer that petitioner be
ordered to sell all (the partnerships) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs their corresponding
share in the proceeds thereof. In due time, petitioner filed a
manifestation and motion to dismiss,[8] arguing that the trial court did
not acquire jurisdiction over the case due to the plaintiffs failure to pay
the proper docket fees. Further, in a supplement to his motion to
dismiss,[9] petitioner also raised prescription as an additional ground
warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order,[10] denying the
motion to dismiss inasmuch as the grounds raised therein were basically
the same as the earlier motion to dismiss which has been denied.Anent
the issue of prescription, the trial court ruled that prescription begins to
run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a
final accounting. Moreover, an action based on a written contract
prescribes in ten years from the time the right of action accrues.
Petitioner filed a petition for certiorari before the Court of
Appeals,[11] raising the following issues:
I. Whether or not respondent Judge acted without
jurisdiction or with grave abuse of discretion in taking
cognizance of a case despite the failure to pay the
required docket fee;
II. Whether or not respondent Judge acted without
jurisdiction or with grave abuse of discretion in insisting
to try the case which involve (sic) a parcel of land
situated outside of its territorial jurisdiction;
III. Whether or not respondent Judge acted without
jurisdiction or with grave abuse of discretion in allowing
the estate of the deceased to appear as party plaintiff,
when there is no intestate case and filed by one who
was never appointed by the court as administratrix of
the estates; and
IV. Whether or not respondent Judge acted without
jurisdiction or with grave abuse of discretion in not
dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed
decision,[12] dismissing the petition for certiorari, upon a finding that no
grave abuse of discretion amounting to lack or excess of jurisdiction was
committed by the trial court in issuing the questioned orders denying
petitioners motions to dismiss.
Not satisfied, petitioner filed the instant petition for review,
raising the same issues resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial
court is outside the said courts territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of
Vicente Tabanao; and
IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate
objective in instituting the action below was to recover the decedents
1/3 share in the partnerships assets. While they ask for an accounting of
the partnerships assets and finances, what they are actually asking is for
the trial court to compel petitioner to pay and turn over their share, or
the equivalent value thereof, from the proceeds of the sale of the
partnership assets. They also assert that until and unless a proper
accounting is done, the exact value of the partnerships assets, as well as
their corresponding share therein, cannot be ascertained.Consequently,
they feel justified in not having paid the commensurate docket fee as
required by the Rules of Court.
We do not agree. The trial court does not have to employ
guesswork in ascertaining the estimated value of the partnerships
assets, for respondents themselves voluntarily pegged the worth
thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one
which is really not beyond pecuniary estimation, but rather partakes of
the nature of a simple collection case where the value of the subject
assets or amount demanded is pecuniarily determinable.[13] While it is
true that the exact value of the partnerships total assets cannot be
shown with certainty at the time of filing, respondents can and must
ascertain, through informed and practical estimation, the amount they
expect to collect from the partnership, particularly from petitioner, in
order to determine the proper amount of docket and other fees.[14] It is
thus imperative for respondents to pay the corresponding docket fees
in order that the trial court may acquire jurisdiction over the action.[15]
Nevertheless, unlike in the case of Manchester Development Corp.
v. Court of Appeals,[16] where there was clearly an effort to defraud the
government in avoiding to pay the correct docket fees, we see no
attempt to cheat the courts on the part of respondents. In fact, the
lower courts have noted their expressed desire to remit to the court any
payable balance or lien on whatever award which the Honorable Court
may grant them in this case should there be any deficiency in the
payment of the docket fees to be computed by the Clerk of
Court.[17] There is evident willingness to pay, and the fact that the docket
fee paid so far is inadequate is not an indication that they are trying to
avoid paying the required amount, but may simply be due to an inability
to pay at the time of filing. This consideration may have moved the trial
court and the Court of Appeals to declare that the unpaid docket fees
shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of
Appeals erred in condoning the non-payment of the proper legal fees
and in allowing the same to become a lien on the monetary or property
judgment that may be rendered in favor of respondents. There is merit
in petitioners assertion. The third paragraph of Section 16, Rule 141 of
the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment in
favor of the pauper-litigant.
Respondents cannot invoke the above provision in their favor
because it specifically applies to pauper-litigants. Nowhere in the
records does it appear that respondents are litigating as paupers, and as
such are exempted from the payment of court fees.[18]
The rule applicable to the case at bar is Section 5(a) of Rule 141 of
the Rules of Court, which defines the two kinds of claims as: (1) those
which are immediately ascertainable; and (2) those which cannot be
immediately ascertained as to the exact amount. This second class of
claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third
paragraph of said Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or
more in accordance with the appraisal of the court, the difference of fee
shall be refunded or paid as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,[19] this
Court pronounced that the above-quoted provision clearly
contemplates an initial payment of the filing fees corresponding to the
estimated amount of the claim subject to adjustment as to what later
may be proved.[20] Moreover, we reiterated therein the principle that
the payment of filing fees cannot be made contingent or dependent on
the result of the case. Thus, an initial payment of the docket fees based
on an estimated amount must be paid simultaneous with the filing of
the complaint. Otherwise, the court would stand to lose the filing fees
should the judgment later turn out to be adverse to any claim of the
respondent heirs.
The matter of payment of docket fees is not a mere
triviality. These fees are necessary to defray court expenses in the
handling of cases. Consequently, in order to avoid tremendous losses to
the judiciary, and to the government as well, the payment of docket fees
cannot be made dependent on the outcome of the case, except when
the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3
of the value of all the partnership assets but they did not allege a specific
amount. They did, however, estimate the partnerships total assets to be
worth Thirty Million Pesos (P30,000,000.00), in a letter[21] addressed to
petitioner. Respondents cannot now say that they are unable to make
an estimate, for the said letter and the admissions therein form part of
the records of this case. They cannot avoid paying the initial docket fees
by conveniently omitting the said amount in their amended
complaint. This estimate can be made the basis for the initial docket fees
that respondents should pay. Even if it were later established that the
amount proved was less or more than the amount alleged or estimated,
Rule 141, Section 5(a) of the Rules of Court specifically provides that the
court may refund the excess or exact additional fees should the initial
payment be insufficient. It is clear that it is only the difference between
the amount finally awarded and the fees paid upon filing of this
complaint that is subject to adjustment and which may be subjected to
a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon.
Maximiano Asuncion,[22] this Court held that when the specific claim has
been left for the determination by the court, the additional filing fee
therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to
enforce said lien and assess and collect the additional fee. Clearly, the
rules and jurisprudence contemplate the initial payment of filing and
docket fees based on the estimated claims of the plaintiff, and it is only
when there is a deficiency that a lien may be constituted on the
judgment award until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the
complaint outright despite their failure to pay the proper docket
fees. Nevertheless, as in other procedural rules, it may be liberally
construed in certain cases if only to secure a just and speedy disposition
of an action. While the rule is that the payment of the docket fee in the
proper amount should be adhered to, there are certain exceptions
which must be strictly construed.[23]
In recent rulings, this Court has relaxed the strict adherence to
the Manchester doctrine, allowing the plaintiff to pay the proper docket
fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period.[24]
In the recent case of National Steel Corp. v. Court of
Appeals,[25] this Court held that:
The court acquires jurisdiction over the action if the filing of the
initiatory pleading is accompanied by the payment of the requisite fees,
or, if the fees are not paid at the time of the filing of the pleading, as of
the time of full payment of the fees within such reasonable time as the
court may grant, unless, of course, prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed
the complaint for failure of private respondent to pay the correct
amount of docket fees. Although the payment of the proper docket fees
is a jurisdictional requirement, the trial court may allow the plaintiff in
an action to pay the same within a reasonable time before the expiration
of the applicable prescriptive or reglementary period. If the plaintiff fails
to comply within this requirement, the defendant should timely raise
the issue of jurisdiction or else he would be considered in estoppel. In
the latter case, the balance between the appropriate docket fees and
the amount actually paid by the plaintiff will be considered a lien or any
award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the
proper docket fee based on the estimated amount that respondents
seek to collect from petitioner, and direct them to pay the same within
a reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired. Failure to comply therewith, and upon
motion by petitioner, the immediate dismissal of the complaint shall
issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of
the trial court and the Court of Appeals in holding that the case below is
a personal action which, under the Rules, may be commenced and tried
where the defendant resides or may be found, or where the plaintiffs
reside, at the election of the latter.[26]
Petitioner, however, insists that venue was improperly laid since
the action is a real action involving a parcel of land that is located outside
the territorial jurisdiction of the court a quo. This contention is not well-
taken. The records indubitably show that respondents are asking that
the assets of the partnership be accounted for, sold and distributed
according to the agreement of the partners. The fact that two of the
assets of the partnership are parcels of land does not materially change
the nature of the action. It is an action in personam because it is an
action against a person, namely, petitioner, on the basis of his personal
liability. It is not an action in rem where the action is against the thing
itself instead of against the person.[27] Furthermore, there is no showing
that the parcels of land involved in this case are being disputed. In fact,
it is only incidental that part of the assets of the partnership under
liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,[28] settled
this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership,
including the fishpond in question, did not change the nature or
character of the action, such sale being merely a necessary incident of
the liquidation of the partnership, which should precede and/or is part
of its process of dissolution.
The action filed by respondents not only seeks redress against
petitioner. It also seeks the enforcement of, and petitioners compliance
with, the contract that the partners executed to formalize the
partnerships dissolution, as well as to implement the liquidation and
partition of the partnerships assets. Clearly, it is a personal action that,
in effect, claims a debt from petitioner and seeks the performance of a
personal duty on his part.[29] In fine, respondents complaint seeking the
liquidation and partition of the assets of the partnership with damages
is a personal action which may be filed in the proper court where any of
the parties reside.[30] Besides, venue has nothing to do with jurisdiction
for venue touches more upon the substance or merits of the case.[31] As
it is, venue in this case was properly laid and the trial court correctly
ruled so.
On the third issue, petitioner asserts that the surviving spouse of
Vicente Tabanao has no legal capacity to sue since she was never
appointed as administratrix or executrix of his estate. Petitioners
objection in this regard is misplaced. The surviving spouse does not need
to be appointed as executrix or administratrix of the estate before she
can file the action. She and her children are complainants in their own
right as successors of Vicente Tabanao. From the very moment of
Vicente Tabanaos death, his rights insofar as the partnership was
concerned were transmitted to his heirs, for rights to the succession are
transmitted from the moment of death of the decedent.[32]
Whatever claims and rights Vicente Tabanao had against the
partnership and petitioner were transmitted to respondents by
operation of law, more particularly by succession, which is a mode of
acquisition by virtue of which the property, rights and obligations to the
extent of the value of the inheritance of a person are
transmitted.[33] Moreover, respondents became owners of their
respective hereditary shares from the moment Vicente Tabanao died.[34]
A prior settlement of the estate, or even the appointment of
Salvacion Tabanao as executrix or administratrix, is not necessary for any
of the heirs to acquire legal capacity to sue. As successors who stepped
into the shoes of their decedent upon his death, they can commence
any action originally pertaining to the decedent.[35] From the moment of
his death, his rights as a partner and to demand fulfillment of petitioners
obligations as outlined in their dissolution agreement were transmitted
to respondents. They, therefore, had the capacity to sue and seek the
courts intervention to compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have
dismissed the complaint on the ground of prescription, arguing that
respondents action prescribed four (4) years after it accrued in
1986. The trial court and the Court of Appeals gave scant consideration
to petitioners hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2)
winding-up; and (3) termination.[36] The partnership, although dissolved,
continues to exist and its legal personality is retained, at which time it
completes the winding up of its affairs, including the partitioning and
distribution of the net partnership assets to the partners.[37] For as long
as the partnership exists, any of the partners may demand an accounting
of the partnerships business. Prescription of the said right starts to run
only upon the dissolution of the partnership when the final accounting
is done.[38]
Contrary to petitioners protestations that respondents right to
inquire into the business affairs of the partnership accrued in 1986,
prescribing four (4) years thereafter, prescription had not even begun
to run in the absence of a final accounting. Article 1842 of the Civil Code
provides:
The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the
date of dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with
the duty to account, the above-cited provision states that the right to
demand an accounting accrues at the date of dissolution in the absence
of any agreement to the contrary. When a final accounting is made, it is
only then that prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what respondents are
seeking in their action before the trial court, since petitioner has failed
or refused to render an accounting of the partnerships business and
assets. Hence, the said action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when
it denied petitioners motions to dismiss. Likewise, the Court of Appeals
did not commit reversible error in upholding the trial courts
orders. Precious time has been lost just to settle this preliminary issue,
with petitioner resurrecting the very same arguments from the trial
court all the way up to the Supreme Court. The litigation of the merits
and substantial issues of this controversy is now long overdue and must
proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is
DENIED for lack of merit, and the case is REMANDED to the Regional
Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the
proper docket fee based on the estimated amount that plaintiffs therein
seek to collect, and direct said plaintiffs to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired. Thereafter, the trial court is ORDERED to
conduct the appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.
SO ORDERED.
 There has been laid before us for consideration and decision a question
of some importance and of some intricacy. The issue in the case relates
to a determination of the nature of the mercantile establishment which
operated under the name of Teck Seing & co., Ltd., and this issue
requires us to look into, and analyze, the document constituting Teck
Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung Cang, mayor de edad
comerciante, vecino y residente del municipio de Tabogon
Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu Provincia
de Cebu, Islas Filipinas, Yap Gueco, mayor de edad, comerciante,
vecino y residente del municipio y Provincia de Cebu, Islas
Filipinas, Lim Yogsing, mayor de edad comerciante, vecino y
residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas,
y Jo Ybec, mayor de edad, comerciante, vecino y residente del
municipio de Jagna, Provincia de Bohol, Islas Filipinas, hacemos
constar por la presente, que constituimos y formamos una
sociedad mercantil limitada, bajo las leyes vigentes en las Islas
Filipinas y para ser registrada de acuerdo con los reglamentos
vigentes del Codigo de Comercio en Filipinas.
Que la razon social se denominara "Teck Seing & Co., Ltd." y tendra
su domicilio principal en la Calle Magallanes No. 94, de la Ciudad
de Cebu, Provincia de Cebu, Islas Filipinas.
Que el capital social sera de treinta mil pesos (P30,000) moneda
legal de las Islas Filipinas, dividido en cinco acciones de a P6,000
como sigue:

Santiago P6,000.00
Jo
Chung
Cang . . .
........
..

Go 6,000.00
Tayco . .
........
........
........

Article 1815 Yap 6,000.00

Gueco . .
TECK SEING AND CO., LTD., petitioner-appellee. ........
SANTIAGO JO CHUNG, ET AL., partners, ........
vs. ......
PACIFIC COMMERCIAL COMPANY, ET AL., creditors-appellants.
Jo Ybec . 6,000.00
Following the presentation of an application to be adjudged an insolvent
........
by the "Sociedad Mercantil, Teck Seing & Co., Ltd.," the creditors, the
........
Pacific Commercial Company, Piñol & Company, Riu Hermanos, and W.
........
H. Anderson & Company, filed a motion in which the Court was prayed
..
to enter an order: "(A) Declaring the individual partners as described in
paragraph 5 parties to this proceeding; (B) to require each of said
partners to file an inventory of his property in the manner required by Lim 6,000.00
section 51 of Act No. 1956; and (C) that each of said partners be Yogsing
adjudicated insolvent debtors in this proceeding." The trial judge first ........
granted the motion, but, subsequently, on opposition being renewed, ........
denied it. It is from this last order that an appeal was taken in accordance .......
with section 82 of the Insolvency Law.
 justifiquen la concesion de una gratificacion especial, aparte del
Total . . . 30,000.00
salario aqui dispuesto y especificado.
........
........ Que pasado el termino de seis años, y es de la conveniencia de los
... accionistas la continuacion del negocio de esta sociedad, dicho
termino sera prorrogado por igual numero de años, sin necesidas
Que la duracion de la sociedad sera la de seis años, a contar de la del otorgamiento de ulteriores escrituras, quedando la presente
fecha de esta escritura, pudiendo prorrogarse este tiempo a en vigor hasta el termino dispuesto por todos los accionistas.
discrecion unanime de todos los accionistas. Que las diferencias que pudieran suscitarse entre los accionistas,
El objeto de la sociedad sera la compra y venta de mercaderias en bien sea por razon de lo estipulado en esta en ella comprendidos,
general. se procurara arreglar entre los mismos amistosa y
extrajudicialmente, y si no se consiguiere un arreglo de este modo,
El administrador o administradores de la sociedad podran, previa
dichos accionistas nombraran un arbitro, cuya resolucion estan
conformidad de los accionistas, establecer cuantas sucursales o
todos obligados y por la presente se comprometen y se obligan a
establecimientos considere necesarios para facilitar sus negocios
acatarla en todas sus partes, renunciando ulteriores recursos.
y el mayor desarrollo del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean convenientes para el En cuyos terminos dejamos formalizada esta escritura de sociedad
fomento de su capital. mercantillimitada, y prometemos cumplirla fiel y estrictamente
segun los pactos que hemos establecido.
Las ganancias o perdidas que resultaren durante cada año
comercial, se distribuiran proporcionalmente entre los En testimonio de todo lo cual, firmamos en la Ciudad de Cebu,
accionistas, de acuerdo con el capital aportado por cada uno de Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de mil
los mismos. novecientos diez y nueve.
Las ganancias que resultaren en cada año comercial, si resultaren (Fdos.) "LIM YOGSING
algunas ganancias, no podran ser retiradas pors los accionistas "Jo YBec por Ho Seng Sian
hasta dentro del termino de tres años a contar de la fecha del "SANTIAGO JO CHUNG CANG
primer balance anual del negocio, quedadno por tanto estas "GO TAYCO
ganancias en reserva, para ampliar el capital aportado opor los "YAP GUECO
accionistas y ampliar por tanto la esfera de accion emprendida por
la misma sociedad. Al pasar o expirar el termino de tres años, cada Firnando en presencia de:
accionista podra retirar o depositar en poder de la sociedad, las (Fdos.) "ATILANO LEYSON
ganancias que le debiera corresponder durante dicho termino "JULIO DIAZ
de tres años.
"ESTADOS UNIDOS DE AMERCA
Que los accionistas no podran extraer ni disponer en ningun "ISLAS FILIPINAS
tiempo cualesquiera cantidad o cantidades de la sociedad, que "PROVINCIA DE CEBU
haya sido aportado por los mismos, para atender sus gastos
particulares ni aun pagando redito alguno sobre la cantidad que En el Municipio de Cebu, de la Provincia antes mencionada, I.F.,
intenen disponer o extraer de dicha sociedad. hoy 31 de octubre de 1919, A.D., ante mi, Notario Publico que
subscribe, comprecieron personalmente Santiago Jo Chung Cang,
El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Go Tayco, Yap Gueco, Lim Yogsing y Jo Ybec, representado este
Vicente Jocson Jo, la administracion de la Compañia, quienes ultimo por Ho Seng Sian, segun autorizacion hecha en telegrama
podran usar indistintamente la firma social, quedando por de fecha 27 de septiembre de 1919 que se me ha presentado en
consiguiente autorizados amobs para hacer en nombre de ella este mismo acto, de quienes doy fe de que les conozco por ser las
toda calse de operaciones, negocios y especulaciones mercantiles, mismas personas que otorgaron el preinserto documento,
practicando judicial y extra-judicialment cuantos actos se ratificando ant emi su contenido y manifestando ser el mismo un
requieran para el bien de la sociedad, nombrar procuradores o acto de su libre y voluntario otorgamiento. El Sr. Santiago Jo Chung
abogados para reclamaciones y cobro de creditos y proponer ante Cang me exhibio su cedula personal expedida en Cebu, Cebu, I.F.
los tribunales las demandas, convenios, transacciones y el dia 19 de septiembre de 1919 bajo el No. H77742, Go Tayco
excepciones procdentes. En caso de ausencia, enfermedad o tambien me exhibio la suya expedida en Cebu, Cebu, I.F., el dia 9
cualquier otro impedimento del accionista administrador Sr. Lim de octubre de 1919 bajo el No. G2042490, Yap Gueco tambien me
Yogsing, este podra conferir poder general o especial al accionista exhibio la suya expedida en Cebu, Cebu, I.F. el dia 20 de enero de
que crea conveniente para que en union del administrador auxiliar 1919 bajo el No. F1452296, Lim Yogsing tambien me exhibio la
Sr. Vicente Jocson Jo, pudieran ambos administrar suya expedida en Cebu, Cebu, I.F., el dia 26 de febrero de 1919
convenientemente los negocios de la sociedad. Que los bajo el No. F1455662, y Ho Seng Sian representante de Jo Ybec,
administradores podran tener los empleados necesarios para el me exhibio su cedula personal expedida en Cebu, Cebu, I.f. el dia
mejor que debieran percibir dichos empleados por servicios 4 de febrero de 1919 bajo el No. F1453733.
rendidos a la sociedad.
Ante mi,
Que ambos administradores podran disponer de mil discientos
pesos (P1,200) moneda filipina, anualmente, para sus gastos (Fdo.) "F.V.ARIAS
particulares, siendo dicha cantidad de P1,200 la que corresponde "Notario Publico
a cada uno de dichos administradores, como emolumentos o "Hasta el 1.º de enero de 1920
salarios que se les asigna a cas uno, por sus trabajos en la
administracion de la sociedad. Entendiendose, que, los accionistas "Asiento No. 157
podran disponer cada fin de añola gratificacion quese concedera Pagina No. 95 de mi
a cada administrador, si los negocios del año fueran boyantes y Registro Notarial
 Serie 1919
Libro 2.º
Presentado a las diez y cuarenta y tres minutos de la mañana de
hoy, segun el asiento No. 125, pagina 9 del Tomo 1.º del Libro
Diario. Cebu, 11 de febrero de 1920.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador
Mercantil Ex-Officio"
Inscrito el documento que preced al folio 84 hoja No. 188,
inscripcion 1.a del Tomo 3.º del Libro Registro de Sociedades
Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta
pesos con cincuenta centavos. Art. 197, Ley No. 2711, Codigo
Administrativo.
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador
Mercantil Ex-Officio"
Proceeding by process of elimination, it is self-evident that Teck Seing &
Co., Ltd., is not a corporation. Neither is it contended by any one that
Teck Seing & Co., Ltd., is accidental partnership denominated cuenta en
participacion (joint account association).
Counsel for the petitioner and appellee described his client in once place
in his opposition to the motion of the creditors as "una verdadera
sociedad anonima" (a true sociedad anonima). The provisions of the
Code of Commerce relating to sociedades anonimas were, however,
repealed by section 191 of the Corporation Law (Act No. 1459), with the
exceptions the sociedades anonimas lawfully organized at the time of
the passage of the Corporation Law were recognized, which is not our
case.
The document providing for the partnership contract purported to
form "una sociedad mercantil limitada," and counsel for the petitioner's
first contention was that Teck Seing & Co., Ltd., was not "una sociedad
regular colectiva, ni siquiera comanditaria, sino una sociedad mercantil
limitada." Let us see if the partnership contract created a "sociedad en
comandita," or, as it is known in English, and will hereafter be spoken of,
"a limited partnership."
To establish a limited partnership there must be, at least, one general
partner and the name of the least one of the general partners must
appear in the firm name. (Code of Commerce, arts. 122 [2], 146, 148.)
But neither of these requirements have been fulfilled. The general rule
is, that those who seek to avail themselves of the protection of laws
permitting the creation of limited partnerships must show a
substantially full compliance with such laws. A limited partnership that
has not complied with the law of its creation is not considered a limited
partnership at all, but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412; Gilmore,
Partnership, pp. 499, 595; 20 R C. L. 1064.)
The contention of the creditors and appellants is that the partnership
contract established a general partnership.
Article 125 of the Code of Commerce provides that the articles of
general copartnership must estate the names, surnames, and domiciles
of the partners; the firm name; the names, and surnames of the partners
to whom the management of the firm and the use of its signature is
instrusted; the capital which each partner contributes in cash, credits,
or property, stating the value given the latter or the basis on which their
appraisement is to be made; the duration of the copartnership; and the
amounts which, in a proper case, are to be given to each managing
partner annually for his private expenses, while the succeeding article of
the Code provides that the general copartnership must transact
business under the name of all its members, of several of them, or of
one only. Turning to the document before us, it will be noted that all of
the requirements of the Code have been met, with the sole exception
of that relating to the composition of the firm name. We leave
consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the
petitioners to the effect that Teck Seing & Co., Ltd., is "una sociedad
mercantil "de facto" solamente" (only a de facto commercial
association), and that the decision of the Supreme court in the case of
Hung-Man-Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil., 498), is controlling.
It was this argument which convinced the trial judge, who gave effect to
his understanding of the case last cited and which here must be given
serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses
that the firm Kieng-Chiong-Seng was not organized by means of any
public document; that the partnership had not been recorded in the
mercantile registry; and that Kieng-Chiong-Seng was not proven to be
the firm name, but rather the designation of the partnership. The
conclusion then was, that the partnership in question was merely de
facto and that, therefore, giving effect to the provisions of article 120 of
the Code of Commerce, the right of action was against the persons in
charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, side by side with the facts before us, a marked difference is
at once disclosed. In the cited case, the organization of the partnership
was not evidenced by any public document; here, it is by a public
document. In the cited case, the partnership naturally could not present
a public instrument for record in the mercantile registry; here, the
contract of partnership has been duly registered. But the two cases are
similar in that the firm name failed to include the name of any of the
partners.
We come then to the ultimate question, which is, whether we should
follow the decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, or
whether we should differentiate the two cases, holding Teck Seing &
Co., Ltd., a general copartnership, notwithstanding the failure of the firm
name to include the name of one of the partners. Let us now notice this
decisive point in the case.
Article 119 of the Code of Commerce requires every commercial
association before beginning its business to state its article, agreements,
and conditions in a public instrument, which shall be presented for
record in the mercantile registry. Article 120, next following, provides
that the persons in charge of the management of the association who
violate the provisions of the foregoing article shall be responsible in
solidum to the persons not members of the association with whom they
may have transacted business in the name of the association. Applied to
the facts before us, it would seem that Teck Seing & Co., Ltd. has fulfilled
the provisions of article 119. Moreover, to permit the creditors only to
look to the person in charge of the management of the association, the
partner Lim Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the
general copartnership transacting business under the name of all its
members or of several of them or of one only, is wisely included in our
commercial law. It would appear, however, that this provision was
inserted more for the protection of the creditors than of the partners
themselves. A distinction could well be drawn between the right of the
alleged partnership to institute action when failing to live up to the
provisions of the law, or even the rights of the partners as among
themselves, and the right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in order to make it
a partnership de jure.
The civil law and the common law alike seem to point to a difference
between the rights of the partners who have failed to comply with the
law and the rights of third persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding
the obligation of the members to register the articles of association in
the commercial registry, agreements containing all the essential
requisites are valid as between the contracting parties, whatever the
form adopted, and that, while the failure to register in the commercial
registry necessarily precludes the members from enforcing rights
acquired by them against third persons, such failure cannot prejudice
the rights of third persons. (See decisions of December 6, 1887, January
25, 1888, November 10, 1890, and January 26, 1900.) The same
reasoning would be applicable to the less formal requisite pertaining to
the firm name.
The common law is to the same effect. The State of Michigan had a
statute prohibiting the transaction of business under an assumed name
or any other than the real name of the individual conducting the same,
unless such person shall file with the county clerk a certificate setting
forth the name under which the business is to be conducted and the real
name of each of the partners, with their residences and post-office
addresses, and making a violation thereof a misdemeanor. The supreme
Court of Michigan said:
The one object of the act is manifestly to protect the public against
imposition and fraud, prohibiting persons from concealing their
identity by doing business under an assumed name, making it unlawful
to use other than their real names in transacting business without a
public record of who they are, available for use in courts, and to punish
those who violate the prohibition. The object of this act is not limited
to facilitating the collection of debts, or the protection of those giving
credit to persons doing business under an assumed name. It is not
unilateral in its application. It applies to debtor and creditor,
contractor and contractee, alike. Parties doing business with those
acting under an assumed name, whether they buy or sell, have a right,
under the law, to know who they are, and who to hold responsible, in
case the question of damages for failure to perform or breach of
warranty should arise.
The general rule is well settled that, where statutes enacted to protect
the public against fraud or imposition, or to safeguard the public
health or morals, contain a prohibition and impose a penalty, all
contracts in violation thereof are void. . . .
As this act involves purely business transactions, and affects only
money interests, we think it should be construed as rendering
contracts made in violation of it unlawful and unforceable at the
instance of the offending party only, but not as designed to take away
the rights of innocent parties who may have dealt with the offenders
in ignorance of their having violated the statute. (Cashin vs. Pliter
[1912], 168 Mich., 386; Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case of Prautch Scholes
& Co. vs. Hernandez [1903], 1 Phil., 705), contains the following
pertinent observations:
Another case may be supposed. A partnership is organized for
commercial purposes. It fails to comply with the requirements of
article 119. A creditor sues the partnership for a debt contracted by it,
claiming to hold the partners severally. They answer that their failure
to comply with the Code of Commerce makes them a civil partnership
and that they are in accordance with article 1698 of the Civil Code only
liable jointly. To allow such liberty of action would be to permit the
parties by a violation of the Code to escape a liability which the law
has seen fit to impose upon persons who organized commercial
partnership; "Because it would be contrary to all legal principles that
the nonperformance of a duty should redound to the benefit of the
person in default either intentional or unintentional." (Mercantile
Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916],
33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the
following comment after articles 121 and 126 of the Code:
From the decisions cited in this and in the previous comments, the
following is deduced: 1st. Defects in the organization cannot affect
relations with third persons. 2d. Members who contract with other
persons before the association is lawfully organized are liable to
these persons. 3d. The intention to form an association is necessary,
so that if the intention of mutual participation in the profits and
losses in a particular business is proved, and there are no articles of
association, there is no association. 4th. An association, the articles
of which have not been registered, is valid in favor of third persons.
5th. The private pact or agreement to form a commercial association
is governed not by the commercial law but by the civil law. 6th.
Secret stipulations expressed in a public instrument, but not inserted
in the articles of association, do not affect third persons, but are
binding on the parties themselves. 7th. An agreement made in a
public instrument, other than the articles of association, by means
of which one of the partners guarantees to another certain profits
or secures him from losses, is valid between them, without affecting
the association. 8th. Contracts entered into by commercial
associations defectively organized are valid when they are
voluntarily executed by the parties, if the only controversy relates to
whether or not they complied with the agreement.
xxx xxx xxx
The name of the collective merchant is called firm name. By this
name, the new being is distinguished from others, its sphere of
action fixed, and the juridical personality better determined,
without constituting an exclusive character of the general
partnership to such an extent as to serve the purpose of giving a
definition of said kind of a mercantile partnership, as is the case in
our Code.
Having in mind that these partnerships are prevailingly of a personal
character, article 126 says that they must transact business under
the name of all its members, of some of them, or of one only, the
words "and company" to be added in the latter two cases.
It is rendered impossible for the general partnership to adopt a firm
name appropriate to its commercial object; the law wants to link,
and does link, the solidary and unlimited responsibility of the
members of this partnership with the formation of its name, and
imposes a limitation upon personal liberty in its selection, not only
by prescribing the requisites, but also by prohibiting persons not
members of the company from including their names in its firm
name under penalty of civil solidary responsibility.
Of course, the form required by the Code for the adoption of the
firm name does not prevent the addition thereto of any other title
connected with the commercial purpose of the association. The
reader may see our commentaries on the mercantile registry about
the business names and firm names of associations, but it is proper
to establish here that, while the business name may be alienated by
any of the means admitted by the law, it seems impossible to
separate the firm names of general partnerships from the juridical
entity for the creation of which it was formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name "Teck Seing &
Co., Ltd." does not contain the name of all or any of the partners as
prescribed by the Code of Commerce prevents the creation of a general
partnership, Professor Jose A. Espiritu, as amicus curiæ, states:
My opinion is that such a fact alone cannot and will not be a
sufficient cause of preventing the formation of a general
partnership, especially if the other requisites are present and the
 requisite regarding registration of the articles of association in the
Commercial Registry has been complied with, as in the present case.
I do not believe that the adoption of a wrong name is a material fact
to be taken into consideration in this case; first, because the mere
fact that a person uses a name not his own does not prevent him
from being bound in a contract or an obligation he voluntarily
entered into; second, because such a requirement of the law is
merely a formal and not necessarily an essential one to the existence
of the partnership, and as long as the name adopted sufficiently
identity the firm or partnership intended to use it, the acts and
contracts done and entered into under such a name bind the firm to
third persons; and third, because the failure of the partners herein
to adopt the correct name prescribed by law cannot shield them
from their personal liabilities, as neither law nor equity will permit
them to utilize their own mistake in order to put the blame on third
persons, and much less, on the firm creditors in order to avoid their
personal possibility.
The legal intention deducible from the acts of the parties controls in
determining the existence of a partnership. If they intend to do a thing
which in law constitutes a partnership, they are partners, although their
purpose was to avoid the creation of such relation. Here, the intention
of the persons making up Teck Seing & co., Ltd. was to establish a
partnership which they erroneously denominated a limited partnership.
If this was their purpose, all subterfuges resorted to in order to evade
liability for possible losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be disregarded. The
partners who have disguised their identity under a designation distinct
from that of any of the members of the firm should be penalized, and
not the creditors who presumably have dealt with the partnership in
good faith.
Articles 127 and 237 of the Code of Commerce make all the members of
the general copartnership liable personally and in solidum with all their
property for the results of the transactions made in the name and for
the account of the partnership. Section 51 of the Insolvency Law,
likewise, makes all the property of the partnership and also all the
separate property of each of the partners liable. In other words, if a firm
be insolvent, but one or more partners thereof are solvent, the creditors
may proceed both against the firm and against the solvent partner or
partners, first exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg of Bankcruptcy, sec. 108; De los
Reyes vs. Lukban and Borja [1916], 35 Phil., 757; Involuntary Insolvency
of Campos Rueda & Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916).
We reach the conclusion that the contract of partnership found in the
document hereinbefore quoted established a general partnership or, to
be more exact, a partnership as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be
returned to the court of origin for further proceedings pursuant to the
motion presented by the creditors, in conformity with the provisions of
the Insolvency Law. Without special findings as to the costs in this
instance, it is ordered.

Article 1816
LA COMPAÑIA MARITIMA, plaintiff-appellant,
vs.
FRANCISCO MUÑOZ, ET AL., defendants-appellees.
The plaintiff brought this action in the Court of First Instance of Manila
against the partnership of Franciso Muñoz & Sons, and against Francisco
Muñoz de Bustillo, Emilio Muñoz de Bustillo, and Rafael Naval to recover
the sum of P26,828.30, with interest and costs. Judgment was rendered
in the court below acquitting Emilio Muñoz de Bustillo and Rafael Naval
of the complaint, and in favor of the plaintiff and against the defendant
partnership, Francisco Muñoz & Sons, and Francisco Muñoz de Bustillo
form the sum of P26,828.30 with interest at the rate of 8 per cent per
annum from the 31st day of March, 1905, and costs. From this judgment
the plaintiff appealed.
On the 31st day of March, 1905, the defendants Francisco Muñoz, Emilio
Muñoz, and Rafael Naval formed on ordinary general mercantile
partnership under the name of Francisco Muñoz & Sons for the purpose
of carrying on the mercantile business in the Province of Albay which
had formerly been carried on by Francisco Muñoz. Francisco Muñoz was
a capitalist partner and Emilio Muñoz and Rafael Naval were industrial
partners.
It is said in the decision of the court below that in the articles of
partnership it was called an ordinary, general mercantile partnership,
but that from the article it does not appear to be such a partnership. In
the brief of the appellees it is also claimed that it is not an ordinary,
general commercial partnership. We see nothing in the case to support
either the statement of the court below in its decision or the claim of
the appellees in their brief. In the articles of partnership signed by the
partners it is expressly stated that they have agreed to form, and do
form, an ordinary, general mercantile partnership. The object of the
partnership, as stated in the fourth paragraph of the articles, is a purely
mercantile one and all the requirements of the Code of Commerce in
reference to such partnership were complied with. The articles of
partnership were recorded in the mercantile registry in the Province of
Albay. If it should be held that the contract made in this case did not
create an ordinary, general mercantile partnership we do not see how
one could be created.
The claim of the appellees that Emilio Muñoz contributed nothing to the
partnership, either in property, money, or industry, can not be
sustained. He contributed as much as did the other industrial partner,
Rafael Naval, the difference between the two being that Rafael Naval
was entitled by the articles of agreement to a fixed salary of P2,500 as
long as he was in charge of the branch office established at Ligao. If he
had left that branch office soon after the partnership was organized, he
would have been in the same condition then that Emilio Muñoz was
from the beginning. Such a change would have deprived him of the
salary P2,500, but would not have affected in any way the partnership
nor have produced the effect of relieving him from liability as a partner.
The argument of the appellees seems to be that, because no yearly or
monthly salary was assigned to Emilio Muñoz, he contributed nothing to
the partnership and received nothing from it. By the articles themselves
he was to receive at the end of five years one-eighth of the profits. It can
not be said, therefore, that he received nothing from the partnership.
The fact that the receipt of this money was postponed for five years is
not important. If the contention of the appellees were sound, it would
result that, where the articles of partnership provided for a distribution
of profits at the end of each year, but did not assign any specific salary
to an industrial partner during that time, he would not be a member of
the partnership. Industrial partners, by signing the articles, agree to
contribute their work to the partnership and article 138 of the Code of
Commerce prohibits them from engaging in other work except by the
express consent of the partnership. With reference to civil partnerships,
section 1683 of the Civil Code relates to the same manner.
It is also said in the brief of the appellees that Emilio Muñoz was entirely
excluded from the management of the business. It rather should be said
that he excluded himself from such management, for he signed the
articles of partnership by the terms of which the management was
expressly conferred by him and the others upon the persons therein
named. That partners in their articles can do this, admits of no doubt.
Article 125 of the Code of Commerce requires them to state the
partners to whom the management is intrusted. This right is recognized
also in article 132. In the case of Reyes vs. The Compania Maritima (3
Phil. Rep., 519) the articles of association provided that the directors for
the first eight years should be certain persons named therein. This court
not only held that such provision was valid but also held that those
directors could not be removed from office during the eight years, even
by a majority vote of all the stockholders of the company.
Emilio Muñoz was, therefore, a general partner, and the important
question in the case is whether, as such general partner, he is liable to
third persons for the obligations contracted by the partnership, or
whether he relieved from such liability, either because he is an industrial
partner or because he was so relieved by the express terms of the
articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
Twelfth. All profits arising from mercantile transactions carried on, as
well as such as may be obtained from the sale of property and other
assets which constitute the corporate capital, shall be distributed, on
completion of the term of five years agreed to for the continuation of
the partnership, in the following manner: Three-fourths thereof for
the capitalist partner Francisco Muñoz de Bustillo and one-eighth
thereof for the industrial partner Emilio Muñoz de Bustillo y Carpiso,
and the remaining one-eighth thereof for the partner Rafael Naval y
Garcia. If, in lieu of profits, losses should result in the winding up of
the partnership, the same shall be for the sole and exclusive account
of the capitalist partner Francisco Muñoz de Bustillo, without either of
the two industrial partners participating in such losses.
Articles 140 and 141 of the Code of Commerce are as follows:
ART. 140. Should there not have been stated in the articles of
copartnership the portion of the profits to be received by each
partner, said profits shall be divided pro rata, in accordance with the
interest each one has on the copartnership, partners who have not
contributed any capital, but giving their services, receiving in the
 distribution the same amount as the partner who contributed the
smallest capital.
ART. 141. Losses shall be charged in the same proportion among the
partners who have contributed capital, without including those who
have not, unless by special agreement the latter have been
constituted as participants therein.
A comparison of these articles with the twelfth paragraph above quoted
will show that the latter is simply a statement of the rule laid down in
the former. The article do not, therefore, change the rights of the
industrial partners as they are declared by the code, and the question
may be reduced to the very simple one namely, Is an industrial partner
in an ordinary, general mercantile partnership liable to third persons for
the debts and obligations contracted by the partnership?
In limited partnership the Code of Commerce recognizes a difference
between general and special partners, but in a general partnership there
is no such distinction-- all the members are general partners. The fact
that some may be industrial and some capitalist partners does not make
the members of either of these classes alone such general partners.
There is nothing in the code which says that the industrial partners shall
be the only general partners, nor is there anything which says that the
capitalist partners shall be the only general partners.
Article 127 of the Code of Commerce is as follows:
All the members of the general copartnership, be they or be they not
managing partners of the same, are liable personally and in
solidum with all their property for the results of the transactions made
in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to make use
thereof.
Do the words "all the partners" found in this article include industrial
partners? The same expression is found in other articles of the code. In
article 129 it is said that, if the management of the partnership has not
been limited by special act to one of the partners, all shall have the right
to participate in the management. Does this mean that the capitalist
partners are the only ones who have that right, or does it include also
industrial partners? Article 132 provides that, when in the articles of
partnership the management has been intrusted to a particular person,
he can not be deprived of such management, but that in certain cases
the remaining partners may appoint a comanager. Does the phrase
"remaining partners" include industrial partners, or is it limited to
capitalist partners, and do industrial partners have no right to
participate in the selection of the comanager? Article 133 provides that
all the partners shall have the right to examine the books of the
partnership. Under this article are the capitalist partners the only ones
who have such right? Article 135 provides that the partners can not use
the firm name in their private business. Does this limitation apply only
to capitalist partners or does it extend also to industrial partners? Article
222 provides that a general partnership shall be dissolve by the death of
one of the general partners unless it is otherwise provided in the articles.
Would such a partnership continue if all the industrial partners should
die? Article 229 provides that upon a dissolution of a general partnership
it shall be liquidated by the former managers, but, if all the partners do
not agree to this, a general meeting shall be called, which shall
determine to whom the settlement of the affairs shall be intrusted. Does
this phrase "all the partners" include industrial partners, or are the
capitalist partners the only ones who have a voice in the selection of a
manager during a period of liquidation? Article 237 provides that the
private property of the general partners shall not be taken in payment
of the obligations of the partnership until its property has been
exhausted. Does the phrase "the general partners" include industrial
partners?
In all of these articles the industrial partners must be included. It can not
have been intended that, in such a partnership as the one in question,
where there were two industrial and only one capitalist partner, the
industrial partners should have no voice in the management of the
business when the articles of partnership were silent on that subject;
that when the manager appointed mismanages the business the
industrial partners should have no right to appoint a comanager; that
they should have no right to examine the books; that they might use the
firm name in their private business; or that they have no voice in the
liquidation of the business after dissolution. To give a person who
contributed no more than, say, P500, these rights and to take them
away from a person who contributed his services, worth, perhaps,
infinitely more than P500, would be discriminate unfairly against
industrial partners.
If the phrase "all the partners" as found in the articles other than article
127 includes industrial partners, then article 127 must include them and
they are liable by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to
be noticed in the first place that this article does not say that they shall
not be liable for losses. Article 140 declares how the profits shall be
divided amongthe partners. This article simply declares how the losses
shall be divided among the partners. The use of the words se
imputaran is significant. The verb means abonar una partida a alguno
en su cuenta o deducirla de su debito. Article 141 says nothing about
third persons and nothing about the obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles
of the code, where it is clearly intended to impose the liability to third
persons, it is not considered sufficient, but the word "obligations" is
added. Thus article 148, in speaking of the liability of limited partners,
uses the phrase las obligaciones y perdidas. There is the same use of the
two same words in article 153, relating to anonymous partnership. In
article 237 the word "obligations" is used and not the word "losses."
The claim of the appellees is that this article 141 fixes the liability of the
industrial partners to third persons for the obligations of the company.
If it does, then it also fixes the liability of the capitalist partners to the
same persons for the same obligations. If this article says that industrial
partners are not liable for the debts of the concern, it also says that the
capitalist partners shall be only liable for such debts in proportion to the
amount of the money which they have contributed to the partnership;
that is to say, that if there are only two capitalist partners, one of whom
has contributed two-thirds of the capital and the other one-third, the
latter is liable to a creditor of the company for only one-third of the debt
and the former for only two-thirds. It is apparent that, when given this
construction, article 141 is directly in conflict with article 127. It is not
disputed by the appellees that by the terms of article 127 each one of
the capitalist partners is liable for all of the debts, regardless of the
amount of his contribution, but the construction which they put upon
article 141 makes such capitalist partners liable for only a proportionate
part of the debts.
There is no injustice in imposing this liability upon the industrial
partners. They have a voice in the management of the business, if no
manager has been named in the articles; they share in the profits and as
to third persons it is no more than right that they should share in the
obligations. It is admitted that if in this case there had been a capitalist
partner who had contributed only P100 he would be liable for this entire
debt of P26,000.
Our construction of the article is that it relates exclusively to the
settlement of the partnership affairs among the partners themselves
and has nothing to do with the liability of the partners to third persons;
that each one of the industrial partners is liable to third persons for the
debts of the firm; that if he has paid such debts out of his private
property during the life of the partnership, when its affairs are settled
he is entitled to credit for the amount so paid, and if it results that there
is not enough property in the partnership to pay him, then the capitalist
partners must pay him. In this particular case that view is strengthened
by the provisions of article 12, above quoted. There it is stated that if,
when the affairs of the partnership are liquidated — that is, at the end
of five years — it turns out that there had been losses instead of gains,
then the capitalist partner, Francisco Muñoz, shall pay such losses —
that is, pay them to the industrial partners if they have been compelled
to disburse their own money in payment of the debts of the partnership.
While this is a commercial partnership and must be governed therefore
by the rules of the Code of Commerce, yet an examination of the
provisions of the Civil Code in reference to partnerships may throw
some light upon the question here to be resolved. Articles 1689 and
1691 contain, in substance, the provisions of articles 140 and 141 of the
Code of Commerce. It is to be noticed that these articles are found in
section 1 of Chapter II [Title VIII] of Book IV. That section treats of the
obligations of the partners between themselves. The liability of the
partners as to third persons is treated in a distinct section, namely,
section 2, comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to
third persons for the debts of the firm, then industrial partners in civil
partnerships are not. Waiving the question as to whether there can be
a commercial partnership composed entirely of industrial partners, it
seems clear that there can be such civil partnership, for article 1678 of
the Civil Code provides as follows:
A particular partnership has for its object specified things only,
their use of profits, or a specified undertaking, or the exercise
of a profession or art.
It might very easily happen, therefor, that a civil partnership could be
composed entirely of industrial partners. If it were, according to the
claim of the appellees, there would be no personal responsibility
whatever for the debts of the partnership. Creditors could rely only
upon the property which the partnership had, which in the case of a
partnership organized for the practice of any art or profession would be
practically nothing. In the case of Agustin vs. Inocencio, 1 just decided by
this court, it was alleged in the complaint, and admitted by the answer —
That is partnership has been formed without articles of association
or capital other than the personal work of each one of the partners,
whose profits are to be equally divided among themselves.
Article 1675 of the Civil Code is as follows:
General partnership of profits include all that the partners may
acquire by their by their industry or work during the continuation of
the partnership.
Personal or real property which each of the partners may possess at
the time of the celebration of the agreement shall continue to be
their private property, the usufruct only passing to the partnership.
It might very well happen in partnership of this kind that no one of the
partners would have any private property and that if they did the
usufruct thereof would be inconsiderable.
Having in mind these different cases which may arise in the practice,
that construction of the law should be avoided which would enable two
persons, each with a large amount of private property, to form and carry
on a partnership and, upon the bankruptcy of the latter, to say to its
creditors that they contributed no capital to the company but only their
services, and that their private property is not, therefore, liable for its
debts.
But little light is thrown upon this question by the authorities. No
judgment of the supreme court of Spain has been called to our
attention, and we have been able to find none which refers in any way
to this question. There is, therefore, no authority from the tribunal for
saying that an industrial partner is not liable to third persons for the
debts of the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho
mercantil) it is said that industrial partners are not liable for debts. The
author, at page 127, divides general partnership into ordinary and
irregular. The irregular partnership are those which include one or more
industrial partners. It may be said in passing that his views can not apply
to this case because the articles of partnership directly state that it is an
ordinary partnership and do not state that it is an irregular one. But his
view of the law seems to be derived from something other than the
Code of Commerce now in force. He says:
. . . but it has not been very fortunate in sketching the characters of
a regular collective partnership (since it says nothing conclusive in
reference to the irregular partnership) . . . . (p. 127.)
And again:
This article would not need to be commented upon were it not
because the writer entirely overlooked the fact that there might
exist industrial partners who did not contribute with capital in
money, credits, or goods, which partners generally participate in the
profits but not in the losses, and whose position must also be
determined in the articles of copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed out in this article is the fact that
it has been forgotten that in collective partnerships there are
industrial partners who, not being jointly liable for the obligations of
the copartnership, should not include their names in that of the firm.
(p. 129.)
As a logical result of his theory he says that an industrial partner has no
right to participate in the administration of the partnership and that his
name can not appear in the firm name. In this last respect his view is
opposed to that of Manresa, who says (Commentaries on the Spanish
Civil Code, vol. 11, p. 330):
It only remains to us to state that a partner who contributes his
industry to the concern can also confer upon it the name or the
corporate name under which such industry should be carried on. In
this case, so long as the copartnership lasts, it can enjoy the credit,
reputation, and name or corporate name under which such industry
is carried on; but upon dissolution thereof the aforesaid name or
corporate name pertains to the partner who contributed the same,
and he alone is entitled to use it, because such a name or style is an
accessory to the work of industrial partner, and upon recovering his
work or his industry he also recovers his name or the style under
which he exercised his activity. It has thus been decided by the
French court of cassation in a decision dated June 6, 1859.
In speaking of limited partnerships Benito says (p. 144) that here are
found two kinds of partners, one with unlimited responsibility and the
other with limited responsibility, but adopting his view as to industrial
partners, it should be said that there are three kinds of partners, one
with unlimited responsibility, another with limited responsibility, and
the third, the industrial partner, with no responsibility at all. In Estasen's
recent publication on mercantile partnerships (Tratado de las
Sociedades Mercantiles) he quotes from the work of Benito, but we do
not understand that he commits himself to the doctrines therein laid
down. In fact, in his former treatise,Instituciones de Derecho
Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes the
existence of these irregular general partnerships, or the exemption from
the liability to third persons of the industrial partners. He says in his
latter work (p. 186) that according to Dr. Benito the irregular general
partner originated from the desire of the partnership to associate with
itself some old clerk or employee as a reward for his services and the
interest which he had shown in the affairs of the partnership, giving him
in place of a fixed salary a proportionate part of the profits of the
business. Article 269 of the Code of Commerce of 1829 relates to this
subject and apparently provides that such partners shall not be liable for
debts. If this article was the basis for Dr. Benito's view, it can be so no
longer, for it does not appear in the present code. We held in the case
of Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100) that a mere
agreement of that kind does not make the employee a partner.
An examination of the works of Manresa and Sanchez Roman on the Civil
Code, and of Blanco's Mercantile Law, will shows that no one of these
mentions in any way the irregular general partnership spoken of by Dr.
Benito, nor is there anything found in any one of these commentaries
which in any way indicates that an industrial partner is not liable to third
persons for the debts of the partnership. An examination of the French
law will also show that no distinction of that kind is therein anywhere
made and nothing can be found therein which indicates that the
industrial partners are not liable for the debts of the partnership.
(Fuzier-Herman, Repertoire de Droit Francais, vol. 34, pp. 256, 361, 510,
and 512.)
Our conclusion is upon this branch of the case that neither on principle
nor on authority can the industrial partner be relieved from liability to
third persons for the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can
not be maintained against the partnership and the individual partners,
this claim being based upon the provisions of article 237 of the Code of
Commerce which provides that the private property of the partners shall
not be taken until the partnership property has been exhausted. But this
article furnishes to argument in support of the appellee's claim. An
action can be maintained against the partnership and partners, but the
judgment should recognize the rights of the individual partners which
are secured by said article 237.lawphil.net
The judgment of the court below is reversed and judgment is ordered
against all of the defendants for the sum of P26,828.30, with interest
thereon at the rate of 8 per cent per annum since the 31st day of March,
1905, and for the cost of this action. Execution of such judgment shall
not issue against the private property of the defendants Francisco
Muñoz, Emilio Muñoz, or Rafael Naval until the property of the
defendant Francisco Muñoz & Sons is exhausted. No costs will be
allowed to their party in this court. So ordered.
Torres, Johnson and Tracey, JJ., concur.
Separate Opinions
ARELLANO, C. J., dissenting:
I consider that the judgment appealed from is entirely in accordance
with the law.lawphil.net
The question set up in the majority decision, "In a regular collective
commercial company, is an industrial partner liable as to third persons
by reason of the debts and obligations contracted by the
copartnership?" I decide in a negative sense; he is not; by express
provision of the law he can not be held to be liable, save, of course, and
agreement to the contrary, which in such case would be a special law,
and would set aside the general law.
The basis for the contrary opinion and decision is article 127 of the Code
of Commerce:
All the members of the general copartnership, be they or be
they not managing partners of the same, are personally and in
solidum liable with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person
authorized to ake use thereof.
Now, do the words "all the members" found in this article include the
industrial partners?
At first it would appear that they do. In order to complete such
reasoning the following premise will be sufficient: That the industrial
partners from the collective partnership; therefore the industrial
partners are personally and jointly liable with all their property for the
results of the transactions made in the name and for account of the
partnership.
But they form the collective partnership in the manner in which our laws
allows the same to be formed — that is, by contributing with their
industry, not with property.
And the word all, in reference to property, which is common with the
three classes of partnership defined by the code, to wit, collective,
limited copartnership (comanditaria), and corporation (anonima), gives
the rule for such personal and joint liability, which is the purpose of the
provision in the above-quoted article.
The above three classes of partnership agree in that property must in
each of them be contributed. "The articles of general copartnership
must state . . . the capital which each partner contributes in cash, credits,
or property, stating the value given the latter or the basis on which their
appraisal is to be made." (Art. 125.) "The same statements shall be
included in articles of limited copartnerships (compañias en comandita)
which are required for those of general copartnerships" — that is,
among other things, the capital which each partner contributes. (Art.
145.) "The articles of incorporation (of corporations) must include . . .
the corporate capital, stating the value at which property, not cash,
contributed has been appraised, or the basis on which the appraisal is
to be made; and the number of shares into which the corporate capital
is divided and represented." (Art. 151.)
Now, then, "The liability of the members of a corporation for the
obligations and losses of the same shall be limited to the funds they
contributed or bound themselves to contribute to the corporate
capital." (Art. 153.) "The liability of special partners for the obligations
and losses of the copartnership shall be limited to the funds which they
contributed or bound themselves to contribute to the limited
copartnership, with the exception of the sense mentioned in article 147"
— that is, if any of them include his name or permit its conclusion in the
firm name. (Art. 148, par. 3.) However, in a collective partnership the
liability is not limited to the funds or property contributed, but extends
to all the property which partners may own within or without the
copartnership.
In every mercantile copartnership it is the corporate capital that
responds for the obligations of the same; this is elemental. The
members of a joint stock, a limited, or a collective company respond
with their capital for the obligations of the association; in the joint stock
concerns, with their shares; in the limited class, with the amount
contributed; in the collective, with their constituted capital. An industrial
partner, with what principal sum, share, or quota in the corporate
capital does he or can he respond for the obligations of the collective
partnership? Evidently with none whatever.
If the capital of the association is exhausted, the extreme case
of losses incurred by the company arises, and third persons can not
recover the amount of the obligations of the company from the
corporate capital, because the latter is sufficient to recover them.
Shareholders in the case of a joint stock company, beyond the value of
their stock, have no longer to think of any ulterior subsidiary
responsibility. Neither do the partners of a limited company. In either
case the partners are only liable to the extent of their corporate capital.
Collective partners have to respond not only with their corporate capital
but also with the whole of their property outside of the association. And
it is desired that the industrial partner who, in a collective copartnership,
did not primarily respond with his corporate capital, because he had
none, shall subsidiary respond with such property as he may have
outside of the company, and with which nobody, either within or
without the copartnership, had counted upon, since both inside and
outside of the company his industry or work only had been reckoned
with. Therefore, the word all, of article 127 cited above, simply denoted
the extent of the ulterior or subsidiary responsibility, and that which
does not appear, which does not materially exist, can hardly be made to
apply.
An industrial partner can not engage in transactions of any class
whatever, otherwise he would be subject to serious consequences (art.
138), while a capitalist partner, as a rule, may so engage without
extending profits or liabilities to the company (arts. 134 and 136); an
industrial partner, as regards profits, can only receive in the distribution
the same amount as the partner who contributed the smallest amount
of capital (art. 140); in the case at bar, one-eighth goes to each of the
two industrial partners, three-fourths being for the capitalist, and even
at the expiration of the copartnership they run the risk of having the
one-eighth of the profits earned in former years absorbed by a total loss
incurred during the last year of the contract of copartnership; and it is
claimed that such industrial partner, so much delayed with regard to
profits, who has not the same rights, shall be under the sameobligations
as regards obligations because he is a collective partner? This seems
neither just nor logical.
And it is not so. Article 141 reads:lawphil.net "Losses shall be charged in
the same proportion among the partners who have contributed capital,
without including" the industrial partners (since they have not
the same rights), and they should not be included therein nor in the
corporation of the partner who contributed the smallest capital, simply
for the reason that the industrial partner has nothing to lose, he not
having contributed anything which the company may lose when the
losses of the copartnership are considered, either among the partners
thereof or with regard to third persons.
There need be no distinction made between obligations and losses.
During the existence of a company the gains or the losses are set off the
one against the other, and the difference is either in favor of or against
the concern. As to the industrial partner, in connection with the
question submitted, it is not a matter of striking a balance from time to
time, but one of the final adjustment of assets and liabilities, because
the matter under discussion refers only to his private property, which
has nothing to do with the company nor with losses in liquidating the
same. Article 127 is affected by article 237: "The private property of the
general partners which is not included in the assets of the copartnership
when it is established can not be seized for the payment of the
obligations contracted by the copartnership until after the common
assets have been attached." And such condition is stated in the majority
decision. As long as there is property belonging to the company,
obligations in favor of third persons are covered by the primary and
direct responsibility of the company; the question arises when the
assets of the company are exhausted and it becomes necessary to
appeal to the ulterior or subsidiary liability of the private property of the
partners; in this case such obligations constitute the extreme losses in
the liquidation of the company.
The case at bar could only thus be set forth: Should an industrial partner
be responsible for such losses, for such obligations in favor of third
persons? Article 141 expressly states that he shall not. In order to state
the contrary it would be necessary to appeal to discriminations in the
wording of said article; and this is neither permitted where the law does
not make them nor would they lead to anything after all. In the aforesaid
article 237 the corroboration of the word all of article 127 may be found:
"The private property of the general partners which isnot included in the
assets of the copartnership," differing from such as were included, can
not seized for the payment of obligations contracted by the
copartnership, until after the common assets have been attached; after
such attachment all the assets, according to article 127, such as were
included, and those that were not included, in this order, shall be subject
to the results of the transactions of the copartnership. An industrial
partner has not contributed any property whatever; he therefore offers
no subject for the principal and direct seizure when the assets of the
copartnership are attached. How is it possible to conceive any ulterior,
subsidiary, indirect responsibility over the property which it was not
even thought to be included, since he only contributed to the company
his industry and work, not property of any class whatever? It seems very
anomalous that one who has not obligated himself in the least should
be responsible or the greater part, that he who is not comprehended
within the explicit terms should be included by implication, and that he
who pledge nothing should be held to respond with his property.
As to the nature of the defendant company in this action, I take it to
be:lawphil.net
1. That the defendant company is really a collective one such as is
described in the Code of Commerce; the firm of "F. Muñoz & Sons" and
the terms of the articles of association prove it so beyond all doubt.
2. That it is a regular collective company; the word regular means, as
employed in the Code of Commerce, that the collective company is the
rule, the standard in all commercial associations, the one combining all
the effects which are consequent upon this form of convention; and the
limited and the joint-stock companies are theexception.
3. That it is not irrelevant in view of the manner in which the present
Code of Commerce, like the former one of 1829, has defined the
collective company, that such a distinguished professor of law as Doctor
Lorenzo de Benito should have established in his "Lessons on Mercantile
Law" a difference between the regular collective associations and
irregular collective companies; "regular are those wherein, as article 122
reads, all the members in a collective name and under a firm name bind
themselves to participate in the proportion which they may establish
with the same rights and obligations." "And irregular, those wherein one
or more members who, though not contributing toward the company
with anything but their industry, participate in the profits in the manner
agreed to in the articles of association or as determined by law,
and ordinarily do not share in the losses which the copartnership may
sustain. Such members are called industrial partners, and the collective
copartnership having a member of said class is also sometimes called an
association of capital and industry.
This is what the law says (he continues), but it has not been very
fortunate in sketching the characters of a regular collective
partnership (since in conclusion it says nothing in reference to the
irregular partnership), because precisely the collective name and
the corporate name are applicable to both the collective and the
limited companies; and as to the covenant entered into by the
partners to participate in the proportion which they may establish
with the same rights and obligations, this is inherent to all
partnerships without distinction as to class. What characterizes this
partnership is that all the members, "with the exception of the
industrial partners," are jointly responsible and with all their property
for the corporate obligations.
4. That the code in force, by means of three articles, 138, 140, and 141,
among those which regulate collective partnerships, has involved this
association of capital and industry; whence irregularity necessarily
arises; the irregularity of such an irregular system is that in a collective
partnership wherein, besides the element property, common or generic
to the three aforesaid classes, there appears this one, to wit, industry, a
special features only in collective partnerships, according to the system
of the code.
Had the system adopted by the codes of Portugal, Brazil, and the
Argentine Republic been followed, a different classification would have
been made of the association of capital and industry which, according
to the last of the codes cited, is properly characterized by means of the
following articles:
435. Habilitacion or association of capital and industry is the name
given to the partnership formed on the one part by one or more
 persons who furnish funds for a general business, or for some
particular commercial transaction, and on the other part by one or
more individuals who join the copartnership with their industry
alone.
438. The obligation of the partners who furnished capital is in
solidum, and extends beyond the capital contributed by them to the
concern.
439. The articles of association, besides the requirements contained
in article 395, must specify the obligations of the industrial partner
or partners and the share in the profits to which they are entitled in
the apportionment.
In the absence of such declaration, the industrial partner shall draw
from the profits a share equal to those of the partner who furnished
the smallest capital.
440. An industrial partner can not contract on behalf of the
partnership nor is he obligated with his own property toward the
creditors of the company.
Nevertheless, if besides his industry he should contribute some
capital toward the company either in money or thing of value, the
association shall then be considered as a collective one, and the
industrial partner, whatever might have been stipulated, shall
respond in solidum.
In my opinion it can not be denied that there is no substantial difference
between the three articles of our code and those transcribed from that
of the Argentine Republic as regards the rights and obligations of
industrial partners in conjunction with partners who furnish capital;
there is no difference except in the system, the code of the Argentine
Republic dealing with this class of association of capital and industry
separately from the only three defined in our code, all of them of capital
only or essentially of partners who furnish capital. Therefore, as said
code has an article almost literally identical with article 127 of our code,
this question can not possibly arise in that country. That code contains
article 454, which reads: "All those who form a collective commercial
company, whether managing the corporate funds or not, are
obligated in solidum (with all their property, as our code would state)
for the results of the transactions made in the name and for account of
the partnership," etc. To the question, Do the words "all the partners"
found in said article include the industrial partners? undoubtedly the
answer would be no.
And it would not suffice to say that the above article of the code of the
Argentine Republic, namely, "on collective copartnership," involves no
section which may refer to industrial partners, and that, therefore, there
can be no question as to the words "all the members;" it is because, by
reason of the nature thereof, whether under one system or another, the
provisions and the principles being identical, the conclusions can not
otherwise than identical. In a copartnership, and as the result of the
obligations thereunder, an industrial partner can not lose except what
he has actually contributed thereto for a limited or an unlimited
purpose, subject ultimately to company or personal obligations; this is
all that law and logic may demand of him; anything else would not come
under the law, but may be demanded of him by reason of his express
covenant, because he has consented to something beyond the
character and the effects of the contract of partnership of capital and
industry entered into by him, called collective; nothing else has been the
subject of his consent and obligation.
Manuel Duran y Bas, a former professor of the University of Barcelona,
in his addition to the work of Marti de Eixala, which is so generally and
specially consulted in that eminently commercial and industrial city, has
offered no remarks to the original text of said work which establish as
an elemental doctrine that "When the copartnership is purely a
collective one, each of its members is jointly obligated for the result of
the transactions which should be charged to the copartnership . . . .
From the general rule which we have just set up the industrial partners
who contract no obligation to secure the liabilities of the company
should be excepted, unless there be an express covenant to the
contrary." (Art. 319 of the code of 1829, identical with art. 141 of the
code now in force.)
During almost half a century no obligation has been raised by the
professors of law, the press, or the bar, to this doctrine regarding the
exemption, not merely with respect to losses but to company
obligations of the industrial partner, on the suppositions, which I do not
admit, as already shown, that it may be possible to discriminate
between losses and obligations in connection with an industrial partner,
for whom there are none but the final losses, such as absorb the assets
of the company, which can not be otherwise than outstanding
obligations in favor of third parties inasmuch as, so long as there are
company assets, no recourse can be held to the private property of any
partner.
TEODORO DE LOS REYES, plaintiff-appellee,
vs.
VICENTE LUKBAN and ESPERIDION BORJA, defendants. VICENTE
LUKBAN, appellant.
On December 5, 1913, Teodoro de los Reyes brought suit in the Court of
First Instance of this city against Vicente Lukban and Esperidion Borja, to
recover from them individually the sum of P853, the balance of a debt
of P1,086.65 owing for merchandise bought on credit in October and
November, 1904, by the firm Lukban & Borja, from the plaintiff's ship
supply store, named La Industria.
In case No. 3759, prosecuted in the said court by the creditor Reyes
against the said firm of Lukban & Borja, the latter was ordered by a final
judgment of October 19, 1905, to pay the said sum of P1,086.65,
together with the interest thereon, amounting to a total of P1,102.95,
in addition to the costs, P46.24.
One of the partner, Esperidion Borja, paid P522.69 on account of the
debt.lawphi1.net There still remains to be paid P610.21, and this sum,
together with the costs and legal interest thereon from July 14, 1905, to
the date of the complaint, December 5, 1913, aggregates the total sum
of P894.17. The plaintiff prayed the court to order the defendants jointly
or severally to pay him, the plaintiff, this last mentioned amount,
together with the legal interest thereon from the date of the complaint,
and the costs.
After due summons the defendants appeared, and one of them,
Esperidion Borja, in answer to the complaint entered a general and
specific denial of each and all of the allegations therein contained, and,
as a special defense, alleged that it was res judicata and that the
plaintiff's action, if it existed, had already prescribed.
The other defendant, Vicente Lukban, in his amended answer set forth
(1) that he denied generally and specifically each and all of the facts
alleged in each and all of the paragraphs of the complaint; (2) that the
issues raised by the complaint had already been decided in case No.
10908, in which the firm of Lukban & Borja was acquitted, without costs;
(3) that the defendant Lukban was merely an industrial partner in the
firm of Lukban & Borja, Espiridion Borja being the partner thereof who
furnished the capital; (4) that the assets of the firm of Lukban & Borja
had not been exhausted (by attachment), wherefore the present action
is premature; and (5) that the plaintiff Reyes' action, as regards this
defendant Lukban, has prescribed.
At the trial of the case the parties made the following stipulation:
1. That on July 15, 1905, the herein plaintiff Teodoro de los Reyes
brought suit against the firm of Lukban & Borja to recover the sum of
P1,086.65 owing for merchandise bought on credit in the months of
 October and November, 1904, from the ship supply store known by
the name of La Industria. The said suit was heard before the
Honorable John C. Sweeney, on October 19, 1905, on which date the
said judge sentenced the defendant firm to pay the sum of P1,086.65,
Philippine currency, with legal interest thereon from July 14, 1905, to
the date of the judgment, amounting to P16.30, Philippine currency,
and costs amounting to P46.24. It does not appear that this obligation
was set forth in writing. All the preceding has been taken from the
record of that court in case No. 3759, De los Reyes vs, Lukban & Borja.
2. On August 19, 1913, the same plaintiff Teodoro de los Reyes
brought suit against Lukban & Borja to recover the sum of P853,
alleging for this purpose that the defendant Espiridion Borja paid
P522.69 on account of the sum of P1,086.65 allowed in the judgment
referred to in the preceding paragraph, there remaining unpaid
P610.21 of the principal debt, to which is added the legal interest
thereon from January 1, 1906, to the date of the commencement of
the said suit, thus forming the total sum above stated of P853. After
hearing the case, the Honorable Judge Del Rosario, on November 20,
1913, rendered judgment absolving the firm of Lukban & Borja from
the complaint without special finding as to costs. All the facts related
in this paragraph appear in case No. 10908 of this court.
3. That several years ago and seven months after its organization, or,
more specifically, on April 13, 1909, the firm of Lukban & Borja was
lawfully dissolved, as stated by Borja; and that the five years from the
13th of the same month of the year 1904, stipulated for its duration
had elapsed. (Judgment in case No. 10908.) The articles of
incorporation of the firm of Lukban & Borja are found in the attached
document, which, for its identification, is marked as Exhibit A of this
agreement.
4. That the assets of the firm of Lukban & Borja had not been
exhausted (by attachment) for the reason that the plaintiff did not
know what property belonged to it.
5. Vicente Lukban and Espiridion Borja, notwithstanding that they
alleged themselves to be copartners of the firm of Lukban & Borja,
were not sued by the herein plaintiff in cases Nos. 3759 and 10908,
but that plaintiff sued the firm of Lukban & Borja, represented by
Borja.
After hearing the evidence, the court rendered judgment on November
25, 1914, sentencing the defendants Vicente Lukban and Espiridion
Borja jointly and severally to pay to the plaintiff Teodoro de los Reyes
the sum of P610.20, together with the legal interest thereon from
December 17, 1913, and the costs. To this judgment Lukban excepted,
announced his intention to file the proper bill of exceptions and moved
for a new trial on the grounds that the evidence did not justify the
decision and that the latter was contrary to law. By an order of
December 10, the motion for a new trial was overruled and an exception
was entered by this defendant-appellant. The other defendant,
Espiridion Borja, made no exception to the said ruling so the judgment
became final with respect to him.
The subject matter of this suit is an acknowledged debt held to be owing
by a judicial pronouncement contained in a judgment rendered in case
No. 3759, prosecuted by the creditor Teodor de los Reyes against the
general partnership of Lukban & Borja, which was sentenced to pay the
said debt. The creditor was unable to collect it in its entirety but
recovered only a part thereof, to wit, P522.69, which was paid by the
partner Borja. In order to demonstrate the propriety of the judgment
appealed from, rendered against the parties who were the partners of
the said firm, we shall confine ourselves in this decision to the four
errors assigned to the said judgment by the defendant Lukban,
inasmuch as the other defendant Borja acquiesced in the said judgment
and the same became final as to him. These error are the following:
1. In not holding that the action brought against this defendant is
improper, inasmuch as prior to its prosecution no attachment was
levied on the assets of the said partnership.
2. In not holding that the action brought against this appellee
[defendant] has not been proven.
3. In not holding that the present is not a true case of res judicata.
4. In not holding that the appellee's action has prescribed in so far
as it concerns this appellant.
With respect to the first assignment of error, the contents of the writ
and the return of the execution of the final judgment rendered in the
said case No. 3759 show that the dissolved partnership of Lukban &
Borja had absolutely no property whatever of its own. Had any property
whatever of the said partnership still remained, the defendant Lukban
would have pointed it out inorder to avoid being obliged to pay in
solidum all the balance of the sum which the firm was sentenced to pay
by the said final judgment of October 19, 1905. He did not do so because
the firm of Lukban & Borja no longer had any kind of property or credits,
as shown by the document setting forth the agreement made by and
between several creditors of the said firm, a third party named Ramon
Tinsay and the former partner of the firm, Espiridion Borja, in which
document it appears that the firm Lukban & Borja owed four creditors,
among them the plaintiff De los Reyes, the total sum of P10,165.01 and
these creditors with some difficulty succeeded in collecting the sum of
P5,000 through a transaction with the said Ramon Tinsay who paid this
last amount for the account of the partner Espiridion Borja. It appears
that the latter paid to the creditor De los Reyes the aforementioned sum
of P522.69, on account of the firm's debt to Teodoro de los Reyes, a debt
which was recognized in the said judgment of October 19, 1905. The
attachment, or recourse to the property, the lack of which proceeding
was complained of, is a proceeding that was resorted to when attempt
was made to execute the final judgment rendered against the
partnership of Lukban & Borja, which proceeding gave negative results;
therefore, if the requirement of article 237 of the Code of Commerce
must be complied with by the creditor it is evident that it has already
been done for the defendant Lukban was unable to show that the
partnership to which he belonged actually possessed any more assets.
With respect to the second assignment of error, if Teodoro de los Reyes
is entitled to collect individually from the partners Lukban and Borja the
amount of the debt that the dissolved partnership owed at the time of
its dissolution, it is unquestionable that such a right has given rise to the
corresponding right of action to demand the payment of the debt from
the partners individually, or from each of them, by the insolvency of the
partnership, inasmuch as they are personally and severally liable with all
their property for the results of the operations of the partnership which
they conducted.
Article 127 of the Code of Commerce provides:
All the member of the general copartnership, be they or be they not
managing partners of the same, are personally and severally liable
with all their property for the results of the transactions made in the
name and for the account of the partnership, under the signature of
the latter, and by a person authorized to make use thereof.
With regard to the third assignment of error. Although the action
brought in case No. 10908 by the creditor Teodoro de los Reyes against
the partnership Lukban & Borja be not different from that brought in the
present case No. 11296, and although it be deemed to have arisen out
of the right of the plaintiff-creditor to collect his credit, yet the first time
it was brought against the partnership. The action against Vicente
Lukban and Espiridion Borja individually ca not be demurred to on the
ground of res judicata by the judgment of acquittal entered in case No.
10908.
Article 1252 of the Civil Code provides:
 In order that the presumption of the res judicata may be valid in
another suit, it is necessary that, between the case decided by the
sentence and that in which the name is invoked, there must be the
most perfect identity between the things causes, and persons of the
litigants, and their capacity as such.
There may be perfect identity between the cause of action and the
things demanded in case no. 10908, wherein the said partnership was
absolved from the complaint, and in the present case No. 11296; it is,
however, undeniable that the parties defendant are not the same nor is
their capacity as such. In the first case it was the partnership that was
sued, while in the present case it is Lukban and Borja individually, as
former members of that dissolved partnership, who are sued jointly and
severally. Therefore, pursuant to the above-cited article of the Civil
Code, the provisions of which harmonize with those of section 307 of
the Code of Civil Procedure, the former judgment can not be set up
as res judicata in the present action.
As regards the last assignment of error, alleging prescription of action,
suffice it to say that from October 19, 1905, to December 5, 1913, even
without counting the interruption caused by the action brought on
August 18th of this latter year, the ten year period fixed by section 43 of
the Code of Civil Procedure has not elapsed. In view of the negative
results of the proceedings had by the sheriff in levying execution of the
final judgment rendered against the partnership of Lukban & Borja, the
creditor in the exercise of his rights has brought the proper action
against those who were the members of that firm for the recovery of
the unpaid balance of his credit, and he filed his complaint within the
period fixed by the law of procedure and the defendants cannot allege
that it is now res judicata.
For the foregoing reasons the judgment appealed from is affirmed with
the costs of this instance against the appellant. So ordered.
Johnson, Carson, Trent and Araullo, JJ., concur.
Separate Opinions
MORELAND, J., dissenting:
This action was begun against Vicente Lukban and Espiridion Borja
personally to recover the sum of P853, the balance due on a judgment
obtained against the partnership known as "Lukban & Borja." The facts
preceding the beginning of this action are stated in a stipulation
between the parties as follows:
1st. That on the 15th of July, 1905, the plaintiff, Teodoro de los
Reyes, sued the firm of Lukban and Borja, a copartnership, for the
recovery of P1,086.65, the purchase price of article sold to the said
partnership during the months of October and November, 1904. The
action was tried before the Hon. John C. Sweeney who, on October
19, 1905, found in favor of the plaintiff for P1,086.65, Philippine
currency, with interest from the 14th of July, 1905, to the date of
the judgment, amounting to P16.30, and costs, amounting to
P46.24. . . .
2d. That on the 19th of August, 1913, the said plaintiff, Tedoro de
los Reyes, began an action against the said partnership, Lukban and
Borja, to recover the sum of P853, alleging that the defendant
Espiridion Borja paid on the above-mentioned judgment the sum of
P522.69, leaving a balance due thereon of P610.21, with interest
from the 1st of January, 1906, to the date of filing the complaint,
principal and interest amounting to P853, already mentioned. On
the trial of the case the Hon. Judge Del Rosario in the month of
November, 1913, entered a judgment dismissing the complaint on
the merits against the said partnership of Lukban and Borja without
costs.
3d. That the partnership of Lukban and Borja was dissolved by
operation of law about five years ago, that is to say, about the 13th
of April, 1909, on which date the five years stipulated in the contract
of partnerships the duration of the same expired, said partnership
having been formed on the 13th of April, 1904. . . .
4th That the plaintiff made no attempt to collect the said judgment
of P1,086.65, or any part thereof, from the partnership property for
the reason that he did not know of the existence of any such
property.
5th. That Vicente Lukban and Espiridion Borja, although they were
members of the firm of Lukban and Borja, were not made parties to
the actions in which the judgments above referred to were
obtained, but in each of said actions the partnership of Lukban and
Borja was the sole defendant.
The trial court found in favor of the plaintiff and entered judgment
against the defendants Vicente Lukban and Espiridion Borja jointly and
severally for the sum of P610.20, with interest from the 17th day of
December, 1913. From that judgment this appeal was taken.
We have these facts before us:
The partnership of Lukban and Borja was formed on the 13th of April,
1904, to run for a period of five years. On the 19th of October, 1905, the
plaintiff obtained a judgment against the said partnership for the sum of
P1,086.65. Later the partnership paid on said judgment the sum of
P522.69, a balance of P610.21. On the 19th of August, 1913, and after
the lapse of more than five years from the date of the judgment and
without execution having been issued thereon, the plaintiff began the
action for the recovery of the balance due on said judgment. The
complaint in that action was dismissed on the ground that, on the date
on which the action was brought, the partnership had ceased to exist,
the five years term having expired, and that no action could be brought
against it. Later the present action was commenced against the
members of the partnership personally for the recovery of the balance
due on said judgment. It is admitted that no attempt has been made by
the plaintiff to collect the original judgment out of the partnership
property.
The first question which arises is: Can an action be maintained against
the partnership, or against any or all of the members thereof, on the old
judgment for the purpose of obtaining another judgment of precisely
similar character? We think not. The only action on a judgment
authorized either by the Civil Code or by the Code of Civil Procedure is
one for the enforcement of the judgment (section 447, Code of Civil
Procedure). 1 A judgment is not recognized by the Civil Code, or by the
Code of Civil Procedure or any other law called to our attention, as a
contract either express or implied, or as a quasi contract, or as a debt,
or any other kind of obligation which can be made the basis of an action
to obtain another judgment of precisely the same nature. In some cases
it is regarded more in the nature of an order for the specific
performance of the contract on which the action is founded; and in
every case it is considered the highest form which men's relations can
take under the law and no action based thereon can make it any better
or higher; and an action for that purpose is useless. It would seem to be
but natural that the law not permit the courts to be moved and parties
perturbed and cause loss of time and money for the sole purpose of
obtaining a thing not one with better than that which the courts have
already given him and cannot be of the slightest legal value to him. When
courts have given a party the very highest thing of which they are
capable their powers cannot be again exercised in that particular regard.
They exhausted. Why should a party who has one judgment which is
completely enforceable be permitted to have another on top of it no
more enforceable?
An action on a judgment as a debt, obligation, or contract being
unknown to the Civil Code or the Spanish law generally, it is a necessary
result that , if any right of action on a judgment exists in this jurisdiction, Nor do we find it necessary to consider at this time whether or not the
it must have been conferred by a statute passed since the American judgment in the second action against the plaintiff and in favor of the
occupation. The only legislation on that subject is found, as we have partnership is res adjudicata in the present action. For the same reason
stated, in section 447 of the Code of Civil Procedure, which permits an we find it unnecessary to decide whether the action has prescribed
action to be brought, not on the judgment as a debt or for the purpose under the provisions of the Code of Civil Procedure.
of securing a new judgment of precisely similar character to the old one,
The judgment appealed from should be reversed and the cause
but to enforce the old judgment after the explanation of the time during
dismissed on the merits, without costs in this instance.
which an execution may be issued. In other words, the action authorized
by section 447 is not to obtain a new judgment but to enforce the old;
and the judgment secured in such an action is not for a sum of money,
but it is simply an order directing the execution of the old judgment. It
simply takes the place of the execution which, five years having elapsed,
is not issuable. In a word, it is another means of obtaining an execution. 2
We are of the opinion, therefore, that the second action against the
partnership to procure a new judgment for the amount remaining due
on the old judgment was not maintainable and was property dismissed
by the court; and, while the dismissal was based on an untenable
ground, it was, nevertheless, correct. No appeal was taken from that
judgment, and it is now, of course, final and was when this action was
commenced.
The second question which arises is: Can an action to recover a
judgment on a judgment be maintained against the members of a
partnership personally if it cannot be maintained against the partnership
itself? As we have already said, the present action is directed against the
members of the partnership personally and is to recover a joint and
several judgment against them upon the old judgment against the
partnership.
It is clear that our reasoning in connection with the first question is
correct, then this action cannot be maintained. If there is no authority
of law for bringing an action on a judgment to secure a new judgment,
then this action cannot be maintained any more than the action against
the partnership under similar circumstances. There is no law giving a
right of action on a judgment in favor of or against anybody, except that
conferred by section 447 above quoted; and that, as we have seen, is
simply a right to enforce the old judgment.
The third question which presents itself is: Even admitting the right of
the plaintiff to maintain an action on the old judgment, is the remedy of
the plaintiff a new judgment against the members of the partnership
personally or it is the execution of the old judgment against them?
Under the law and procedure existing in this jurisdiction prior to
American occupation, a new judgment against the members of the firm
personally under circumstances such as appear in this case was not
permitted. The first step required of a plaintiff who had a judgment
against a partnership of the character described in this action was to
execute the judgment as far as possible against the property of the
partnership; and, after was exhausted, to proceed, by execution, against
the property of the individual members under the same judgment. It
was not necessary, nor was it permitted, to bring a new action against
the members of the firm personally on the old judgment and obtain a
new judgment against them. That procedure has not been changed by
any legislation since American occupation and that is the practice to-
day.
As a necessary result the plaintiff is not entitled to a judgment in this
action.
We do not stop to discuss the question presented by the appellant as to
whether the exhaustion of the property of the partnership is a necessary
prerequisite to the bringing of this action. That question is not involved,
inasmuch as it cannot be reached until has been determined whether
such as an action can be maintained. If the action cannot be maintained
under any theory, then it is unnecessary to determine the validity of the
defenses to that action, one of which is, appellant claims, that the
plaintiff has not exhausted his remedy against the partnership property.
Article 1818

ELMO MUÑASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS,respondents.
In this petition for certiorari, the petitioner seeks to annul and set added
the decision of the Court of Appeals affirming the existence of a
partnership between petitioner and one of the respondents, Celestino
Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be
excluded from the liabilities of the partnership.
Petitioner Elmo Muñasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its
Cebu Branch Manager Pons for remodelling a portion of its building
without exchanging or expecting any consideration from Galan although
the latter was casually named as partner in the contract; that by virtue
of his having introduced the petitioner to the employing company
(Tropical). Galan would receive some kind of compensation in the form
of some percentages or commission; that Tropical, under the terms of
the contract, agreed to give petitioner the amount of P7,000.00 soon
after the construction began and thereafter, the amount of P6,000.00
every fifteen (15) days during the construction to make a total sum of
P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a
check for P7,000.00 not to the plaintiff but to a stranger to the contract,
Galan, who succeeded in getting petitioner's indorsement on the same
check persuading the latter that the same be deposited in a joint
account; that on January 26, 1967 when the second check for P6,000.00
was due, petitioner refused to indorse said cheek presented to him by
Galan but through later manipulations, respondent Pons succeeded in
changing the payee's name from Elmo Muñasque to Galan and
Associates, thus enabling Galan to cash the same at the Cebu Branch of
the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction
materials, the payment of which should have been made from the
P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16,
1967 deadline;that because of the unauthorized disbursement by
respondents Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by respondents
under the terms of the written contract between the petitioner and
respondent company.
The respondents answered the complaint by denying some and
admitting some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed
that the issues to be resolved are:
(1) Whether or not there existed a partners between Celestino Galan
and Elmo Muñasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue
Diamond Glass Palace were allowed to intervene, both having legal
interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which
states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly
and severally the intervenors Cebu and Southern Hardware
Company and Blue Diamond Glass Palace the amount of P6,229.34
and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its
proprietor, Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly
and severally the intervenors Cebu Southern Hardware Company
and Blue Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally
interest at 12% per annum of the sum of P6,229.34 until the amount
is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to Intervenor Cebu
Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court
with the sole modification that the liability imposed in the dispositive
part of the decision on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and severally" to
"jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in behalf of
the partnership of "Galan and Muñasque" as Contractor entered into a
written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was
to be paid under the contract for the entire services of the Contractor.
The terms of payment were as follows: thirty percent (30%) of the whole
amount upon the signing of the contract and the balance thereof
divided into three equal installments at the lute of Six Thousand Pesos
(P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a
check for P7,000.00 in the name of the petitioner.Petitioner, however,
indorsed the check in favor of respondent Galan to enable the latter to
deposit it in the bank and pay for the materials and labor used in the
project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for
his personal use so that when the second check in the amount of
P6,000.00 came and Galan asked the petitioner to indorse it again, the
petitioner refused.
The check was withheld from the petitioner. Since Galan informed the
Cebu branch of Tropical that there was a"misunderstanding" between
him and petitioner, respondent Tropical changed the name of the payee
in the second check from Muñasque to "Galan and Associates" which
was the duly registered name of the partnership between Galan and
petitioner and under which name a permit to do construction business
was issued by the mayor of Cebu City. This enabled Galan to encash the
second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00
from his friend, Mr. Espina and although the expenses had reached the
amount of P29,000.00 because of the failure of Galan to pay what was
partly due the laborers and partly due for the materials, the construction
work was finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were
subsequently given to the petitioner alone with the last check being
given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell
into the hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary damages,
and attorney's fees.
Both the trial and appellate courts not only absolved respondents
Tropical and its Cebu Manager, Pons, from any liability but they also held
the petitioner together with respondent Galan, hable to the intervenors
Cebu Southern Hardware Company and Blue Diamond Glass Palace for
the credit which the intervenors extended to the partnership of
petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows:
(1) Whether or not the appellate court erred in holding that a
partnership existed between petitioner and respondent Galan. (2)
Assuming that there was such a partnership, whether or not the court
erred in not finding Galan guilty of malversing the P13,000.00 covered
by the first and second checks and therefore, accountable to the
petitioner for the said amount; and (3) Whether or not the court
committed grave abuse of discretion in holding that the payment made
by Tropical through its manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also contends that the
appellate court committed grave abuse of discretion in holding that the
payment made by Tropical to Galan was "good" payment when the same
gave occasion for the latter to misappropriate the proceeds of such
payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muñasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966
by Galan and Muñasque hereinafter called the Contractor, and
Tropical Commercial Co., Inc., hereinafter called the owner do
hereby for and in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship
organized by the two men was not a genuine one. If there was a falling
out or misunderstanding between the partners, such does not convert
the partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed
the check in favor of Galan. Respondent Tropical therefore, had every
right to presume that the petitioner and Galan were true partners. If
they were not partners as petitioner claims, then he has only himself to
blame for making the relationship appear otherwise, not only to Tropical
but to their other creditors as well. The payments made to the
partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had acted
in good faith, the appellees also acted in good faith in extending
credit to the partnership. Where one of two innocent persons must
suffer, that person who gave occasion for the damages to be caused
must bear the consequences.
No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which binds
both Galan and the petitioner. Since the two were partners when the
debts were incurred, they, are also both liable to third persons who
extended credit to their partnership. In the case of George Litton v. Hill
and Ceron, et al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions. (Mills vs. Riggle,112
Pan, 617).
The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of the
firm acting apparently in its behalf and within the scope of his
authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave
abuse of discretion in not holding Galan liable for the amounts which he
"malversed" to the prejudice of the petitioner. He adds that although
this was not one of the issues agreed upon by the parties during the
pretrial, he, nevertheless, alleged the same in his amended complaint
which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose
of impleading Ramon Pons in his personal capacity. Although the
petitioner made allegations as to the alleged malversations of Galan,
these were the same allegations in his original complaint. The
malversation by one partner was not an issue actually raised in the
amended complaint but the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the
issues during the pre-trial because he himself agreed to the same.
In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we
ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues contained
in the trial court's order issued on the very day the pre-trial
conference was held. Such an order controls the subsequent course
of the action, unless modified before trial to prevent manifest
injustice.In the case at bar, modification of the pre-trial order was
never sought at the instance of any party.
Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan's personal liability
to their partnership but he chose not to do so, as he vehemently denied
the existence of the partnership. At any rate, the issue raised in this
petition is the contention of Muñasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We note that the
petitioner is not solely burdened by the obligations of their illstarred
partnership. The records show that there is an existing judgment against
respondent Galan, holding him liable for the total amount of P7,000.00
in favor of Eden Hardware which extended credit to the partnership
aside from the P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that
the trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware"jointly and severally" is plain
error since the liability of partners under the law to third persons for
contracts executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners,
including industrial ones, shall be liable prorate with all their property
and after all the partnership assets have been exhausted, for the
contracts which may be entered into the name and fm the account cd
the partnership, under its signature and by a person authorized to act
for the partner-ship. ...". this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily
with the partnership for everything chargeable to the partnership under
Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partner-ship or
with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and t he money or property so
received is misapplied by any partner while it is in the custody of the
partnership.
The obligation is solidary, because the law protects him, who in good
faith relied upon the authority of a partner, whether such authority is
real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is
the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe
that a partnership existed between the petitioner and Galan and no fault
or error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more
true in the cases of Cebu Southern Hardware and Blue Diamond Glass
Palace who supplied materials on credit to the partnership. Thus, it is
but fair that the consequences of any wrongful act committed by any of
the partners therein should be answered solidarily by all the partners
and the partnership as a whole
However. as between the partners Muñasque and Galan,justice also
dictates that Muñasque be reimbursed by Galan for the payments made
by the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad
faith in his dealings with Muñasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is
declared to be joint and solidary. Petitioner may recover from
respondent Galan any amount that he pays, in his capacity as a partner,
to the above intervenors,
SO ORDERED.
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and
ANTONIO C. GOQUIOLAY, plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.
Direct appeal from the decision of the Court of First Instance of Davao
(the amount involved being more than P200,00) dismissing the
plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record,
it would appear that on May 29, 1940, Tan Sin An and Antonio C.
Goquiolay", entered into a general commercial partnership under the
partnership name "Tan Sin An and Antonio C. Goquiolay", for the
purpose in dealing in real state. The partnership had a capital of
P30,000.00, P18,000.00 of which was contributed by Goquiolay and
P12,000.00 by Tan Sin An. The agreement lodge upon Tan Sin An the
sole management of the partnership affairs, stipulating that —
III. The co-partnership shall be composed of said Tan Sin An as sole
managing and partner (sic), andAntonio C. Goquiolay as co-partner.
IV. Vhe affairs of co-partnership shall be managed exclusively by the
managing and partner (sic) or by his authorized agent, and it is
expressly stipulated that the managing and partner (sic) may delegate
the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he
may select upon such terms as regards compensation as he may deem
proper, and vest in such persons, firm or corporation full power and
authority, as the agent of the co-partnership and in his name, place
and stead to do anything for it or on his behalf which he as such
managing and partner (sic) might do or cause to be done.
V. The co-partner shall have no voice or participation in the
management of the affairs of the co-partnership; but he may examine
its accounts once every six (6) months at any time during ordinary
business hours, and in accordance with the provisions of the Code of
Commerce. (Article of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
— filed their claims in the intestate proceedings of Tan Sin An for
In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but
will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership (Art. XII,
Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at
any time upon mutual agreement in writing of the partners (Art. XIII,
articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of
attorney to this effect:
That besides the powers and duties granted the said Tan Sin An by the
articles of co-partnership of said co-partnership "Tan Sin An and
Antonio Goquiolay", that said Tan Sin An should act as the Manager
for said co-partnership for the full period of the term for which said
co-partnership was organized or until the whole period that the said
capital of P30,000.00 of the co-partnership should last, to carry on to
the best advantage and interest of the said co-partnership, to make
and execute, sign, seal and deliver for the co-partnership, and in its
name, all bills, bonds, notes, specialties, and trust receipts or other
instruments or documents in writing whatsoever kind or nature which
shall be necessary to the proper conduction of the said businesses,
including the power to mortgage and pledge real and personal
properties, to secure the obligation of the co-partnership, to buy real
or personal properties for cash or upon such terms as he may deem
advisable, to sell personal or real properties, such as lands and
buildings of the co-partnership in any manner he may deem advisable
for the best interest of said co-partnership, to borrow money on
behalf of the co-partnership and to issue promissory notes for the
repayment thereof, to deposit the funds of the co-partnership in any
local bank or elsewhere and to draw checks against funds so deposited
... .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
purchased the three (3) parcels of land, known as Lots Nos. 526, 441 and
521 of the Cadastral Survey of Davao, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation of
P25,000.00, payable to "La Urbana Sociedad Mutua de Construccion y
Prestamos" for a period of ten (10) years, with 10% interest per annum.
Another 46 parcels were purchased by Tan Sin An in his individual
capacity, and he assumed payment of a mortgage debt thereon for
P35,000.00 with interest. The downpayment and the amortization were
advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated
in an instrument executed by the partnership and Tan Sin An, whereby
the entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound
themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8%
annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow,
Kong Chai Pin, and four minor children, namely: Tan L. Cheng, Tan L.
Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong Chai Pin was
appointed administratrix of the intestate estate of her deceased
husband.
In the meantime, repeated demands for payment were made by
the Banco Hipotecario on the partnership and on Tan Sin An. In March,
1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of
defendant Yutivo Sans Hardware Co., paid the remaining balance of the
mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
P62,415.91 and P54,310.13, respectively, as alleged obligations of the
partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An, for
advances, interest and taxes paid in amortizing and discharging their
obligations to "La Urbana" and the "Banco Hipotecario". Disclaiming
knowledge of said claims at first, Kong Chai Pin later admitted the claims
in her amended answer and they were accordingly approved by the
Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court
for authority to sell all the 49 parcels of land to Washington Z, Sycip and
Betty Y. Lee, for the purpose preliminary of settling the aforesaid debts
of Tan Sin An and the partnership. Pursuant to a court order of April 2,
1949, the administratrix executed on April 4, 1949, a deed of sale1 of the
49 parcels of land to the defendants Washington Sycip and Betty Lee in
consideration of P37,000.00 and of vendees' assuming payments of the
claims filed by Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of
the Insular Development Co., Inc. a deed of transfer covering the said 49
parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio
Goquiolay filed, on or about July 25, 1949, a petition in the intestate
proceedings seeking to set aside the order of the probate court
approving the sale in so far as his interest over the parcels of land sold
was concerned. In its order of December 29, 1949, the probate court
annulled the sale executed by the administratrix with respect to the 60%
interest of Antonio Goquiolay over the properties sold. Kong Chai Pin
appealed to the Court of Appeals, which court later certified the case to
us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered
decision setting aside the orders of the probate court complained of and
remanding the case for new trial, due to the non-inclusion
ofindispensable parties. Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other
things, for the annulment of the sale in favor of Washington Sycip and
Betty Lee, and their subsequent conveyance in favor of Insular
Development Co., Inc., in so far as the three (3) lots owned by the
plaintiff partnership are concerned. The answer averred the validity of
the sale by Kong Chai Pin as successor partner, in lieu of the late Tan Sin
An. After hearing, the complaint was dismissed by the lower court in its
decision dated October 30, 1956; hence, this appeal taken directly to us
by the plaintiffs, as the amount involved is more than P200,000.00.
Plaintiffs-appellants assign as errors that —
I — The lower court erred in holding that Kong Chai Pin became the
managing partner of the partnership upon the death of her husband,
Tan Sin An, by virtue of the articles of Partnership executed between
Tan Sin An and Antonio Goquiolay, and the general power of attorney
granted by Antonio Goquiolay.
II — The lower court erred in holding that Kong Chai Pin could act
alone as sole managing partner in view of the minority of the other
heirs.
III — The lower court erred in holding that Kong Chai Pin was the only
heir qualified to act as managing partner.
IV — The lower court erred in holding that Kong Chai Pin had authority
to sell the partnership properties by virtue of the articles of
partnership and the general power of attorney granted to Tan Sin An
in order to pay the partnership indebtedness.
V — The lower court erred in finding that the partnership did not pay
its obligation to the Banco Hipotecario.
VI — The lower court erred in holding that the consent of Antonio
Goquiolay was not necessary to consummate the sale of the
partnership properties.
VII — The lower court erred in finding that Kong Chai Pin managed the
business of the partnership after the death of her husband, and that
Antonio Goquiolay knew it.
VIII — The lower court erred in holding that the failure of Antonio
Goquiolay to oppose the management of the partnership by Kong Chai
Pin estops him now from attacking the validity of the sale of the
partnership properties.
IX — The lower court erred in holding that the buyers of the
partnership properties acted in good faith.
X — The lower court erred in holding that the sale was not fraudulent
against the partnership and Antonio Goquiolay.
XI — The lower court erred in holding that the sale was not only
necessary but beneficial to the partnership.
XII — The lower court erred in dismissing the complaint and in
ordering Antonio Goquiolay to pay the costs of suit.
There is a merit in the contention that the lower court erred in holding
that the widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in
the sole management of the partnership, upon the latter's death. While,
as we previously stated in our narration of facts, the Articles of Co-
Partnership and the power of attorney executed by Antonio Goquiolay,
conferred upon Tan Sin An the exclusive management of the business,
such power, premised as it is upon trust and confidence, was a mere
personal right that terminated upon Tan's demise. The provision in the
articles stating that "in the event of death of any one of the partners
within the 10-year term of the partnership, the deceased partner shall
be represented by his heirs", could not have referred to the managerial
right given to Tan Sin An; more appropriately, it related to the succession
in the proprietary interest of each partner. The covenant that Antonio
Goquiolay shall have no voice or participation in the management of the
partnership, being a limitation upon his right as a general partner, must
be held coextensive only with Tan's right to manage the affairs, the
contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership
providing for the continuation of the firm notwithstanding the death of
one of the partners, the heirs of the deceased, by never repudiating or
refusing to be bound under the said provision in the articles,
became individual partners with Antonio Goquiolay upon Tan's demise.
The validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce.2
Minority of the heirs is not a bar to the application of that clause in the
articles of co-partnership (2 Vivante, Tratado de Derecho Mercantil,
493; Planiol, Traite Elementaire de Droit Civil, English translation by the
Louisiana State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in
the partnership was limited merely to the value of the share or estate
left by the deceased Tan Sin An, they became no more than limited
partners and, as such, were disqualified from the management of the
business under Article 148 of the Code of Commerce. Although
ordinarily, this effect follows from the continuance of the heirs in the
partnership,3 it was not so with respect to the widow Kong Chai Pin,
who, by her affirmative actions, manifested her intent to be bound by
the partnership agreement not only as a limited but as a general partner.
Thus, she managed and retained possession of the partnership
properties and was admittedly deriving income therefrom up to and
until the same were sold to Washington Sycip and Betty Lee. In fact, by
executing the deed of sale of the parcels of land in dispute in the name
of the partnership, she was acting no less than as a managing partner.
Having thus preferred to act as such, she could be held liable for the
partnership debts and liabilities as a general partner, beyond what she
might have derived only from the estate of her deceased husband. By
allowing her to retain control of the firm's property from 1942 to 1949,
plaintiff estopped himself to deny her legal representation of the
partnership, with the power to bind it by the proper contracts.
The question now arises as to whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties
to Washington Sycip and Betty Lee. The answer is, we believe, in the
negative. Strangers dealing with a partnership have the right to assume,
in the absence of restrictive clauses in the co-partnership agreement,
that every general partner has power to bind the partnership, specially
those partners acting with ostensible authority. And so, we held in one
case:
. . . Third persons, like the plaintiff, are not bound in entering into a
contract with any of the two partners, to ascertain whether or not this
partner with whom the transaction is made has the consent of the
other partner. The public need not make inquiries as to the
agreements had between the partners. Its knowledge is enough that
it is contracting with the partnership which is represented by one of
the managing partners.
"There is a general presumption that each individual partner is an
agent for the firm and that he has authority to bind the firm in carrying
on the partnership transactions." [Mills vs. Riggle, 112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm
liable on transactions entered into by one of the members of the firm
acting apparently in its behalf and within the scope of his authority."
[Le Royvs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill &
Ceron, et al., 67 Phil., 513-514).
We are not unaware of the provision of Article 129 of the Code of
Commerce to the effect that —
If the management of the general partnership has not been limited by
special agreement to any of the members, all shall have the power to
take part in the direction and management of the common business,
and the members present shall come to an agreement for all contracts
or obligations which may concern the association. (Emphasis supplied)
but this obligation is one imposed by law on the partners among
themselves, that does not necessarily affect the validity of the acts of a
partner, while acting within the scope of the ordinary course of business
of the partnership, as regards third persons without notice. The latter
may rightfully assume that the contracting partner was duly authorized
to contract for and in behalf of the firm and that, furthermore, he would
not ordinarily act to the prejudice of his co-partners. The regular course
of business procedure does not require that each time a third person
contracts with one of the managing partners, he should inquire as to the
latter's authority to do so, or that he should first ascertain whether or
not the other partners had given their consent thereto. In fact, Article
130 of the same Code of Commerce provides that even if a new
obligation was contracted against the express will of one of the
managing partners, "it shall not be annulled for such reason, and it shall
produce its effects without prejudice to the responsibility of the
member or members who contracted it, for the damages they may have
caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
367. Primera hipotesis. — A falta de pactos especiales, la facultad de
administrar corresponde a cada socio personalmente. No hay que
esperar ciertamente concordia con tantas cabezas, y para cuando
no vayan de acuerdo, la disciplina del Codigo no ofrece un sistema
eficaz que evite los inconvenientes. Pero, ante el silencio del
contrato, debia quiza el legislador privar de la administracion a uno
de los socios en beneficio del otro? Seria una arbitrariedad. Debera
quiza declarar nula la Sociedad que no haya elegido Administrador?
El remedio seria peor que el mal. Debera, tal vez, pretender que
todos los socios concurran en todo acto de la Sociedad? Pero este
concurso de todos habria reducido a la impotencia la
administracion, que es asunto d todos los dias y de todas horas.
Hubieran sido disposiciones menos oportunas que lo adoptado por
el Codigo, el cual se confia al espiritu de reciproca confianza que
deberia animar la colaboracion de los socios, y en la ley inflexible de
responsabilidad que implica comunidad en los intereses de los
mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los otros,
porque cada uno de ellos ejerce la administracion en la totalidad de
sus relaciones, salvo su responsabilidad en el caso de una
administracion culpable. Si debiera dar noticia, el beneficio de su
simultania actividad, frecuentemente distribuida en lugares y en
tiempos diferentes, se echaria a perder. Se objetara el que de esta
forma, el derecho de oposicion de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de
oposicion concedido por la ley como un remedio excepcional, debe
subordinarse al derecho de ejercer el oficio de Administrador, que
el Codigo concede sin limite: "se presume que los socios se han
concedido reciprocamente la facultad de administrar uno
para otro." Se haria precipitar esta hipotesis en la otra de una
administracion colectiva (art. 1,721, Codigo Civil) y se acabaria con
pedir el consentimiento, a lo menos tacito, de todos los socios — lo
que el Codigo excluye ........, si se obligase al socio Administrador a
dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran.
Commenting on the same subject, Gay de Montella (Codigo de
Comercio, Tomo II, 147-148) opines:
Para obligar a las Compañias enfrente de terceros (art. 128 del
Codigo), no es bastante que los actos y contratos hayan sido
ejecutados por un socio o varios en nombre colectivo, sino que es
preciso el concurso de estos dos elementos, uno, que el socio o socios
tengan reconocida la facultad de administrar la Compañia, y otro, que
el acto o contrato haya sido ejecutado en nombre de la Sociedad y
usando de su firma social. Asi se que toda obligacion contraida bajo la
razon social, se presume contraida por la Compañia. Esta presunion es
impuesta por motivos de necesidad practica. El tercero no puede cada
vez que trata con la Compañia, inquirir si realmente el negocio
concierne a la Sociedad. La presuncion es juris tantum y no juris et de
jure, de modo que si el gerente suscribe bajo la razon social una
obligacion que no interesa a la Sociedad, este podra rechazar la accion
del tercero probando que el acreedor conocia que la obligacion no
tenia ninguna relacion con ella. Si tales actos y contratos no
comportasen la concurrencia de ambos elementos, seria nulos y
podria decretarse la responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente
aprobados por la Compañia, o contabilizados en sus libros, si el acto o
contrato ha sido convalidado sin protesta y se trata de acto o contrato
que ha producido beneficio social, tendria plena validez, aun cuando
le faltase algunos o ambos de aquellos requisitos antes señalados.
Cuando los Estatutos o la escritura social no contienen ninguna
clausula relativa al nombramiento o designacion de uno o mas de un
socio para administrar la Compañia (art. 129 del Codigo) todos tienen
por un igual el derecho de concurir a la decision y manejo de los
negocios comunes. . . .
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of Commerce,
the provisions of the old Civil Code may give us some light on the right
of one partner to bind the partnership. States Art. 1695 thereof:
Should no agreement have been made with respect to the form of
management, the following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one
of the may do individually shall bind the partnership; but each one may
oppose any act of the others before it has become legally binding.
The records fail to disclose that appellant Goquiolay made any
opposition to the sale of the partnership realty to Washington Z. Sycip
and Betty Lee; on the contrary, it appears that he (Goquiolay) only
interposed his objections after the deed of conveyance was executed
and approved by the probate court, and, consequently, his opposition
came too late to be effective.
Appellants assails the correctness of the amounts paid for the account
of the partnership as found by the trial court. This question, however,
need not be resolved here, as in the deed of conveyance executed by
Kong Chai Pin, the purchasers Washington Sycip and Betty Lee assumed,
as part consideration of the purchase, the full claims of the two
creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm
realty, on the ground that it, in effect, threw the partnership into
dissolution, which requires consent of all the partners. This view is
untenable. That the partnership was left without the real property it
originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and
selling real estate, and "in general real estate agency and brokerage
business". Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An, leaves open
the question of accounting and contribution between the co-debtors,
that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties
was only a fraudulent device by the appellees, with the connivance of
Kong Chai Pin, to ease out Antonio Goquiolay from the partnership. The
"devise", according to the appellants, started way back sometime in
1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the
possibility of selling his share in the partnership; and upon his refusal to
sell, was followed by the filing of the claims of Yutivo Sons Hardware Co.
and Sing Yee and Cuan Co., Inc. in the intestate estate proceedings of
Tan Sin An. As creditors of Tan Sin An and the plaintiff partnership
(whose liability was alleged to be joint and several), Yutivo Sons
Hardware Co., and Sing Yee Cuan Co., Inc. had every right to file their
claims in the intestate proceedings. The denial of the claims at first by
Kong Chai Pin ( for lack of sufficient knowledge) negatives any conspiracy
on her part in the alleged fraudulent scheme, even if she subsequently
decided to admit their validity after studying the claims and finding it
best to admit the same. It may not be amiss to remark that the probate
court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which
the properties were sold was unreasonably low, or in any way unfair,
since appellants presented no evidence of the market value of the lots
as of the time of their sale to appellees Sycip and Lee. The alleged value
of P31,056.58 in May of 1955 is no proof of the market value in 1949,
specially because in the interval, the new owners appear to have
converted the land into a subdivision, which they could not do without
opening roads and otherwise improving the property at their own
expense. Upon the other hand, Kong Chai Pin hardly had any choice but
to execute the questioned sale, as it appears that the partnership had
neither cash nor other properties with which to pay its obligations.
Anyway, we cannot consider seriously the inferences freely indulged in
by the appellants as allegedly indicating fraud in the questioned
transactions, leading to the conveyance of the lots in dispute to the
appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we
affirm the same, with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia,
Barrera, and Gutierrez David, JJ.,concur.
REYES, J. B. L., J.:
The matter now pending is the appellant's motion for reconsideration
of our main decision, wherein we have upheld the validity of the sale of
the lands owned by the partnership Goquiolay & Tan Sin An, made in
1949 by the widow of the managing partner, Tan Sin An (executed in her
dual capacity of Administratrix of her husband's estate and as partner,
in lieu of the husband), in favor of buyers Washington Sycip and Betty
Lee for the following consideration:
Cash paid P37,000.00
Debts assumed by purchase:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insists that,
contrary to our holding, Kong Chai Pin, widow of the deceased partner
Tan Sin An, never became more than a limited partner, incapacitated by
law to manage the affairs of the partnership; that the testimony of her
witnesses Young and Lim belies that she took over administration of the
partnership property; and that, in any event, the sale should be set aside
because it was executed with the intent to defraud appellant of his share
in the properties sold.
Three things must be always held in mind in the discussion of this motion
to reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property
by one partner, acting in behalf of the firm, to a stranger. There is no
question between partners inter se, and this aspects of the case was
expressly reserved in the main decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in real
estate business, either by buying and sellingreal estate". The Article of
co-partnership, in fact, expressly provided that:
IV. The object and purpose of the co-partnership are as
follows:
1. To engage in real estate business, either by buying and
selling real estates; to subdivide real estates into lots for the
purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital
(which was in cash) but land precisely acquired to be sold, although
subject a mortgage in favor of the original owners, from whom the
partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon
by appellant.
It is first averred that there is "not one iota evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice
it to point out that appellant Goquiolay himself admitted that —
. . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai
Pin continue to manage the properties (as) she had no other
means of income. Then I said, because I wanted to help Mrs.
Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of
the properties in order to help her and because I believe in
God and I wanted to help her.
Q. — So the answer to my question is you did not take any
steps?
A. — I did not.
Q. — And this conversation which you had with Mrs. Yu Eng
Lai was few months after 1945?
A. — In the year 1945. (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of
30 June 1956, page 8-9, wherein he sated:
that plantation was being occupied at that time by the widow,
Mrs. Tan Sin An, and of course they are receiving quite a lot of
benefit from that plantation.
Discarding the self-serving expressions, these admissions of Goquiolay
are certainly entitled to greater weight than those of Hernando Young
and Rufino Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando
Young, that the witness found the properties "abandoned and
undeveloped", omits to mention that said part of the testimony started
with the question:
Now, you said that about 1942 or 1943 you returned to
Davao. Did you meet Mrs. Kong Chai Pin there in Davao at that
time?
Similarly, the testimony of Rufino Lim, to the effect that the properties
of the partnership were undeveloped, and the family of the widow (Kong
Chai Pin) did not receive any income from the partnership properties,
was given in answer to the question:
According to Mr. Goquiolay, during the Japanese
occupation Tan Sin An and his family lived on the plantation of
the partnership and derived their subsistence from that
plantation. What can you say to that? (Dep. 19 July 1956, p. 8)
And also —
What can you say so to the development of these other
properties of the partnership which you saw during the
occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third
property which is in Tigatto is about eleven (11) hectares and
planted with abaca seedlings planted by Mr. Sin An. When I
went there with Hernando Youngwe saw all the abaca
destroyed. The place was occupied by the Japanese Army.
They planted camotes and vegetables to feed the Japanese
Army. Of course they never paid any money to Tan Sin An or
his family. (Dep., Lim. pp. 13-14.) (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could
just do it" (i e., continue to manage the properties. Witnesses Lim and
Young referred to the period of Japanese occupation; but Goquiolay's
authority was, in fact, given to the widow in 1945,after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation
(1942-1944) does not mean that she did not do so from 1945 to 1949.
We thus fine that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should
manage the partnership properties. Whether or not she complied with
this authority is a question between her and the appellant, and is not
here involved. But the authority was given, and she did have it when she
made the questioned sale, because it has never revoked.
It is argued that the authority given by Goquiolay to the widow Kong
Chai Pin was only to manage the property, and that it did not include
the power to alienate, citing Article 1713 of the Civil Code of 1889. What
this argument overlooks is that the widow was not a mere agent,
because she had become a partner upon her husband's death, as
expressly provided by the articles of co-partnership. Even more,
granting that by succession to her husband, Tan Sin An, the widow only
a became the limited partner, Goquiolay's authorization to manage the
partnership property was proof that he considered and recognized her
has general partner, at least since 1945. The reason is plain: Under the
law (Article 148, last paragraph, Code of Commerce), appellant could
not empower the widow, if she were only a limited partner, to
administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration
with respect to the interests of the co-partnership, not even in
the capacity agents of the managing partners.(Emphasis
supplied)
By seeking authority to manage partnership property, Tan Sin An's
widow showed that she desired to be considered a general partner. By
authorizing the widow to manage partnership property (which a limited
partner could not be authorized to do), Goquiolay recognized her as
such partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and
we did not say "necessarily") becomes a limited partner for his own
protection, because he would normally prefer to avoid any liability in
excess of the value of the estate inherited so as not to jeopardize his
personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect
to become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not only with
the inheritance bud also with the heir's personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the
surviving partner.
It must be remembered that the articles of co-partnership here involved
expressly stipulated that:
In that event of the death of any of the partners at any time
before the expiration of said term, the co-partnership shall
not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns
in said co-partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partner; on the contrary they expressly stipulated that in
case of death of either partner "the co-partnership ... will have to be
continued" with the heirs or assigns. It certainly could not be continued if
it were to be converted from a general partnership into a
limited partnership, since the difference between the two kinds of
associations is fundamental; and specially because the conversion into
a limited association would leave the heirs of the deceased partner
without a share in the management. Hence, the contractual stipulation
does actually contemplate that the heirs would becomegeneral
partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased
partner should they refuse to assume personal and unlimited
responsibility for the obligations of the firm. The heirs, in other words,
can not be compelled to become general partners against their wishes.
But because they are not so compellable, it does not legitimately follow
that they may not voluntarily choose to become general partners,
waiving the protective mantle of the general laws of succession. And in
the latter event, it is pointless to discuss the legality of any conversion
of a limited partner into a general one. The heir never was a limited
partner, but chose to be, and became, a general partner right at the
start.
It is immaterial that the heirs name was not included in the firm name,
since no conversion of status is involved, and the articles of co-
partnership expressly contemplated the admission of the partner's heirs
into the partnership.
It must never be overlooked that this case involves the rights acquired
by strangers, and does not deal with the rights arising between partners
Goquiolay and the widow of Tan Sin An. The issues between the partners
inter se were expressly reversed in our main decision. Now, in
determining what kind of partner the widow of partner Tan Sin An had
elected to become, strangers had to be guided by her conduct and
actuations and those of appellant Goquiolay. Knowing that by law a
limited partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the widow
possessing and managing the firm property with the acquiescense (or at
least without apparent opposition) of the surviving partners were
perfectly justified in assuming that she had become a general partner,
and, therefore, in negotiating with her as such a partner, having
authority to act for, and in behalf of, the firm. This belief, be it noted,
was shared even by the probate court that approved the sale by the
widow of the real property standing in the partnership name. That belief
was fostered by the very inaction of appellant Goquiolay. Note that for
seven long years, from partner Tan Sin An's death in 1942 to the sale in
1949, there was more than ample time for Goquiolay to take up the
management of these properties, or at least ascertain how its affairs
stood. For seven years Goquiolay could have asserted his alleged rights,
and by suitable notice in the commercial registry could have warned
strangers that they must deal with him alone, as sole general partner.
But he did nothing of the sort, because he was not interested (supra),
and he did not even take steps to pay, or settle, the firm debts that were
overdue since before the outbreak of the last war. He did not even take
steps, after Tan Sin An died, to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would have no intervention in
the management of the partnership. This laches certainly contributed to
confirm the view that the widow of Tan Sin An had, or was given,
authority to manage and deal with the firm's properties, apart from the
presumption that a general partner dealing with partnership property
has the requisite authority from his co-partners (Litton vs. Hill and
Ceron, et al., 67 Phil., 513; quoted in our main decision, p. 11).
The stipulation in the articles of partnership that any of the
two managing partners may contract and sign in the name of
the partnership with the consent of the other, undoubtedly
creates an obligation between the two partners, which
consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon
a third person who contracts with the partnership. Neither is
it necessary for the third person to ascertain if the managing
partner with whom he contracts has previously obtained the
consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his co-
partner; for otherwise he would not enter into the contract.
The third person would naturally not presume that the
partner with whom he enters into the transaction is violating
the articles of partnership, but on the contrary, is acting in
accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and
that the law has been obeyed (No. 31, section 334). This last
presumption is equally applicable to contracts which have the
force of law between the parties. (Litton vs. Hill & Ceron, et
al., 67 Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to
sell the real estate of the firm. This argument is lamentably superficial
because it fails to differentiate between real estate acquired and held
as stock-in-trade and real state held merely as business site (Vivante's
"taller o banco social") for the partnership. Where the partnership
business is to deal in merchandise and goods, i.e., movable property, the
sale of its real property (immovables) is not within the ordinary powers
of a partner, because it is not in line with the normal business of the
firm. But where the express and avowed purpose of the partnership is
to buy and sell real estate (as in the present case), the immovables thus
acquired by the firm form part of its stock-in-trade, and the sale thereof
is in pursuance of partnership purposes, hence within the ordinary
powers of the partner. This distinction is supported by the opinion of
Gay de Montella1, in the very passage quoted in the appellant's motion
for reconsideration:
La enajenacion puede entrar en las facultades del gerente:
cuando es conforme a los fines sociales. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociales,
viene limitada a los objetos de comecio o a los productos de
la fabrica para explotacion de los cuales se ha constituido la
Sociedad.Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo
caso el gerente estaria facultado para otorgar las ventas que
fuere necesario. (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either
partner has the legal right to sell the firm real estate
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real
estate, one partner has ample power, as a general agent of
the firm, to enter into an executory contract for the sale of
real estate.
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
If the several partners engaged in the business of buying and
selling real estate can not bind the firm by purchases or sales
of such property made in the regular course of business, then
they are incapable of exercising the essential rights and
powers of general partners and their association is not really
a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective
of the partnership, "to engage * * * in buying and selling real estate"
(Art IV, No. 1, Articles of Copartnership), it can not be maintained that
the sale was made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme
Court of Ohio in McGrath, et al., vs. Cowen, et al., 49 N. E., 338. But the
facts of that case are vastly different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense
that its property was insufficient to pay its debts, though it still had
good credit, and was actively engaged in the prosecution of its
business. On that day, which was Saturday, the plaintiff caused to be
prepared, ready for execution, the four chattel mortgages in question,
which cover all the tangible property then belonging to the
firm, including the counters, shelving, and other furnishings and
fixtures necessary for, and used in carrying on, its business, and signed
the same in this form: "In witness whereof, the said Cowen &
McGrath, a firm, and Owen McGrath, surviving partner of said firm,
and Owen McGrath, individually, have here-unto set their hands, this
20th day of May, A. D. 1893. Cowen & McGrath, by Owen McGrath.
Owen McGrath, Surviving partner of Cowen & McGrath. Owen
McGrath" At the same time, the plaintiff had prepared, ready for
filing, the petition for the dissolution of the partnership and
appointment of a receiver, which he subsequently filed, as hereinafter
stated. On the day the mortgages were signed, they were placed in
the hands of the mortgagees, which was the first intimation to them
that there was any intention to make then. At that timenone of the
claims secured by the mortgages were due, except, it may be, a small
part of one of them, andnone of the creditors to whom the mortgages
were made had requested security, or were pressing for the payment
of their debts. ... The mortgages appear to be without a sufficient
condition of defeasance, and contain a stipulation authorizing the
mortgagees to take immediate possession of the property, which they
did as soon as the mortgages were filed, through the attorney who
then represented them, as well as the plaintiff; and the stores were at
once closed, and possession delivered by them to the
 receiver appointed upon the filing of the petition. The avowed purpose
of the plaintiff in the course pursued by him, was to terminate the
partnership, place its property beyond the control of the firm,
and insure the preference of the mortgages, all of which was known to
them at the time: ... . (Cas cit., p. 343, Emphasis supplied)
It is natural that from these facts the Supreme Court of Ohio should draw
the conclusion that conveyances were made with intent to terminate
the partnership, and that they were not within the powers of McGrath
as partner. But there is no similarly between those acts and the sale by
the widow of Tan Sin An. In the McGrath case, the sale included even
the fixtures used in the business, in our case, the lands sold were those
acquired to be sold. In the McGrath case, none of the creditors were
pressing for payment; in our case, the creditors had been unpaid for
more than seven years, and their claims had been approved by the
probate court for payment. In the McGrath case, the partnership
received nothing beyond the discharge of its debts; in the present case,
not only were its debts assumed by the buyers, but the latter paid, in
addition, P37,000.00 in cash to the widow, to the profit of the
partnership. Clearly, the McGrath ruling is not applicable.
We will now turn to the question to fraud. No direct evidence of it exists;
but appellant points out, as indicia thereof, the allegedly low price paid
for the property, and the relationship between the buyers, the creditors
of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold
for a total of P153,726.04, of which P37,000.00 was in cash, and the rest
in partnership debts assumed by the purchaser. These debts
(P62,415.91 to Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not
questioned; they were approved by the Court, and its approval is now
final. The claims were, in fact, for the balance on the original purchase
price of the land sold (due first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes, redeemed by the two
creditors-claimants. To show that the price was inadequate, appellant
relies on the testimony of the realtor Mata, who in 1955, six years after
the sale in question, asserted that the land was worth P312,000.00.
Taking into account the continued rise of real estate values since
liberation, and the fact that the sale in question was practically a forced
sale because the partnership had no other means to pay its legitimate
debts, this evidence certainly does not show such "gross inadequacy" as
to justify rescission of the sale. If at the time of the sale (1949 the price
of P153,726.04 was really low, how is it that appellant was not able to
raise the amount, even if the creditor's representative, Yu Khe Thai, had
already warned him four years before (1946) that the creditors wanted
their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged,
and had been mortgaged since 1940, first to La Urbana, and then to the
Banco Hipotecario. Was it reasonable to expect that other persons
would loan money to the partnership when it was unable even to pay
the taxes on the property, and the interest on the principal since 1940?
If it had been possible to find lenders willing to take a chance on such a
bad financial record, would not Goquiolay have taken advantage of it?
But the fact is clear on the record that since liberation until 1949
Goquiolay never lifted a finger to discharge the debts of the partnership.
Is he entitled now to cry fraud after the debts were discharged with no
help from him?
With regard to the relationship between the parties, suffice it to say that
the Supreme Court has ruled that relationship alone is not a badge of
fraud (Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad de Smo.
Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence
that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should
be willing to extend credit to them, and not to appellant, is neither illegal
nor immoral; at the very least, these buyers did not have a record of
inveterate defaults like the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members. But
no proof is adduced. If he was such a victim, he could have easily
defeated the conspirators by raising money and paying off the firm's
debts between 1945 and 1949; but he did; he did not even care to look
for a purchaser of the partnership assets. Were it true that the
conspiracy to defraud him arose (as he claims) because of his refusal to
sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly
strange that the conspirators should wait 4 years, until 1949, to have the
sale effected by the widow of Tan Sin An, and that the sale should have
been routed through the probate court taking cognizance of Tan Sin An's
estate, all of which increased the risk that the supposed fraud should be
detected.
Neither was there any anomaly in the filing of the claims of Yutivo and
Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in
proceedings for the settlement of the estate of Tan Sin An. This for two
reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay"
were solidary (joint and several) debtors (Exhibit "N" mortgage to the
Banco Hipotecario), and Rule 87, section 6, is to the effect that:
Where the obligation of the decedent is joint and several with
another debtor, the claim shall be filedagainst the decedent as
if he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor.
(Emphasis supplied)
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sin An personally, and a
mortgage in indivisible, in the sense that each and every parcel under
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one
used to obtain a party's consent to a contract (i.e., not being deceit
or dolus in contrahendo), if there is fraud at all, it can only be a fraud of
creditorsthat gives rise to a rescission of the offending contract. But by
express provision of law (Article 1294, Civil Code of 1889; Article 1383,
New Civil Code), "the action for rescission is subsidiary; it can not be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same". Since there is no allegation,
or evidence, that Goquiolay can not obtain reparation from the widow
and heirs of Tan Sin An, the present suit to rescind the sale in question
is not maintenable, even if the fraud charged actually did exist.
Premises considered, the motion for reconsideration is denied.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao
dismissing the complaint filed by Antonio C. Goquiolay, et al., seeking to
annul the sale made by Kong Chai Pin of three parcels of land to
Washington Z. Sycip and Betty Y. Lee on the ground that it was executed
without proper authority and under fraudulent circumstances. In a
decision rendered on July 26, 1960, we affirmed this decision although
on grounds different from those on which the latter is predicated. The
case is once more before us on a motion for reconsideration filed by
appellants raising both questions of fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in
Davao City a commercial partnership for a period of ten years with a
capital of P30,000.00 of which Goquiolay contributed P18,000.00
representing 60% while Tan Sin An P12,000.00 representing 40%. The
business of the partnership was to engage in buying real estate
properties for subdivision, resale and lease. The partnership was duly
registered, and among the conditions agreed upon in the partnership
agreement which are material to this case are: (1) that Tan Sin An would
be the exclusive managing partner, and (2) in the event of the death of
any of the partners the partnership would continue, the deceased to be
represented by his heirs. On May 31, 1940, Goquiolay executed a
general power of attorney in favor of Tan Sin An appointing the latter
manager of the partnership and conferring upon him the usual powers
of management.
On May 29, 1940, the partnership acquired three parcels of land known
as Lots Nos. 526, 441 and 521 of the cadastral survey of Davao, the only
assets of the partnership, with the capital originally invested, financing
the balance of the purchase price with a mortgage in favor of "La Urbana
Sociedad Mutua de Construccion Prestamos" in the amount of
P25,000.00 payable in ten years. On the same date, Tan Sin An, in his
individual capacity, acquired 46 parcels of land executing a mortgage
thereon in favor of the same company for the sum of P35,000.00. On
September 25, 1940, these two mortgage obligations were consolidated
and transferred to the Banco Hipotecario de Filipinas and as a result Tan
Sin An, in his individual capacity, and the partnership bound themselves
to pay jointly and severally the total amount of P52,282.80, with 8%
annual interest thereon within the period of eight years mortgaging in
favor of said entity the 3 parcels of land belonging to the partnership to
Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow,
defendant Kong Chai Pin, and four children, all of whom are minors of
tender age. On March 18, 1944, Kong Chai Pin was appointed
administratrix of the intestate estate of Tan Sin An. And on the same
date, Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the
remaining unpaid balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai, president
and general manager of Yutivo Sons Hardware Co. and Sing, Yee and
Cuan Co., Inc., called for Goquiolay and the two had a conference in the
office of the former during which he offered to buy the interest of
Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent
her counsel, Atty. Dominador Zuño, to ask Goquiolay to execute in her
favor a power of attorney. Goquiolay refused both to sell his interest in
the partnership as well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo
Sons Hardware Co., and Sing, Yee and Cuan Co., Inc. filed in November,
1946 a claim each in the intestate proceedings of Tan Sin An for the sum
of P84,705.48 and P66,529.91, respectively, alleging that they represent
obligations of both Tan Sin An and the partnership. After first denying
any knowledge of the claims, Kong Chai Pin, as administratrix, admitted
later without qualification the two claims in an amended answer she
filed on February 28, 1947. The admission was predicated on the ground
that she and the creditors were closely related by blood, affinity and
business ties. On due course, these two claims were approved by the
court.
On March 29, 1949, more than two years after the approval of the
claims, Kong Chai Pin filed a petition in the probate court to sell all the
properties of the partnership as well as some of the conjugal properties
left by Tan Sin An for the purpose of paying the claims. Following
approval by the court of the petition for authority to sell, Kong Chai Pin,
in her capacity as administratrix, and presuming to act as managing
partner of the partnership, executed on April 4, 1949 a deed of sale of
the properties owned by Tan Sin An and by the partnership in favor of
Betty Y. Lee and Washington Z. Sycip in consideration of the payment to
Kong Chai Pin of the sum of P37,000.00, and the assumption by the
buyers of the claims filed by Yutivo Sons Hardware Co. and Sing, Yee and
Cuan Co., Inc. in whose favor the buyers executed a mortgage on the
properties purchased. Betty Y. Lee and Washington Z. Sycip
subsequently executed a deed of sale of the same properties in favor of
their co-defendant Insular Development Company, Inc. It should be
noted that these transactions took place without the knowledge of
Goquiolay and it is admitted that Betty Y. Lee and Washington Z. Sycip
bought the properties on behalf of the ultimate buyer, the Insular
Development Company, Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed
on July 25, 1949 in the intestate proceedings a petition to set aside the
order of the court approving the sale. The court granted the petition.
While the order was pending appeal in the Supreme Court, Goquiolay
filed the present case on January 15, 1953 seeking to nullify the sale as
stated in the early part of this decision. In the meantime, the Supreme
Court remanded the original case to the probate court for rehearing due
to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai
Pin to sell the partnership properties on the ground that she had no
authority to sell because even granting that she became a partner upon
the death of Tan Sin An the power of attorney granted in favor of the
latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the
theory that she succeeded to all the rights and prerogatives of Tan Sin
An as managing partner.
The trial court sustained the validity of the sale on the ground that under
the provisions of the articles of partnership allowing the heirs of the
deceased partner to represent him in the partnership after hid death
Kong Chai Pin became a managing partner, this being the capacity held
by Tan Sin An when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this
decision but on different grounds, among which the salient points are:
(1) the power of attorney given by Goquiolay to Tan Sin An as manager
of the partnership expired after his death; (2) his widow Kong Chai Pin
did not inherit the management of the partnership, it being a personal
right; (3) as a general rule, the heirs of a deceased general partner come
into the partnership in the capacity only of limited partners; (4) Kong
Chai Pin, however, became a general partner because she exercised
certain alleged acts of management; and (5) the sale being necessary to
pay the obligations of the partnership, she was therefore authorized to
sell the partnership properties without the consent of Goquiolay under
the principle of estoppel, the buyers having the right to rely on her acts
of management and to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of
law are without legal or factual basis, appellants have in due course filed
a motion for reconsideration which because of the importance of the
issues therein raised has been the subject of mature deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the
partnership as limited partners only, therefore Kong Chai Pin, who
must necessarily have entered the partnership as a limited
partner originally, could have not chosen to be a general partner by
exercising the alleged acts of management, because under Article 148
of the Code of Commerce a limited partner cannot intervene in the
management of the partnership even if given a power of attorney by
the general partners. An Act prohibited by law cannot give rise to any
right and is void under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being
members of the Yu (Yutivo) family, the rest, members of the law firm
which handles the Yutivo interests and handled the papers of sale.
They did not rely on the alleged acts of management — they believed
(this was the opinion of their lawyers) that Kong Chai Pin succeeded
her husband as a managing partner and it was on this theory alone
that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the
very witnesses presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken
and furnish sufficient basis to reconsider our decision if we want to do
justice to Antonio C. Goquiolay. And to justify this conclusion, it is
enough that we lay stress on the following points: (1) there is no
sufficient factual basis to conclude that Kong Chai Pin executed acts of
management to give her the character of general manager of the
partnership, or to serve as basis for estoppel that may benefit the
purchasers of the partnership properties; (2) the alleged acts of
management, even if proven, could not give Kong Chai Pin the character
of general manager for the same is contrary to law and well-known
authorities; (3) even if Kong Chai Pin acted as general manager she had
no authority to sell the partnership properties as to make it legal and
valid; and (4) Kong Chai Pin had no necessity to sell the properties to pay
the obligation of the partnership and if she did so it was merely to favor
the purchasers who were close relatives to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of
management imputed to her our ruling we apparently gave particular
importance to the fact that it was Goquiolay himself who tried to prove
the acts of management. Appellants, however, have emphasized the
fact, and with reason, that the appellees themselvesare the ones who
denied and refuted the so-called acts of management imputed to Kong
Chai Pin. To have a clear view of this factual situation, it becomes
necessary that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he
had a conversation with one Hernando Young in Manila in the year 1945
who informed him that Kong Chai Pin "was attending to the properties
and deriving some income therefrom and she had no other means of
livelihood except those properties and some rentals derived from the
properties." He went on to say by way of remark that she could continue
doing this because he wanted to help her. On point that he emphasized
was that he was "not interested in agricultural lands."
On the other hand, defendants presented Hernando Young, the same
person referred to by Goquiolay, who was a close friend of the family of
Kong Chai Pin, for the purpose of denying the testimony of Goquiolay.
Young testified that in 1945 he was still in Davao, and insisted no less
than six times during his testimony that he was not in Manila in 1945,
the year when he allegedly gave the information to Goquiolay, stating
that he arrived in Manila for the first time in 1947. He testified further
that he had visited the partnership properties during the period covered
by the alleged information given by him to Goquiolay and that he found
them "abandoned and underdeveloped," and that Kong Chai Pin was not
deriving any income from them.
The other witness for the defendants, Rufino Lim, also testified that he
had seen the partnership properties and corroborated the testimony of
Hernando Young in all respects: "the properties in Mamay were
underdeveloped, the shacks were destroyed in Tigato, and the family of
Kong Chai Pin did not receive any income from the partnership
properties." He specifically rebutted the testimony of Goquiolay in his
deposition given on June 30, 1956 that Kong Chai Pin and her family
were living in the partnership properties and stated that the 'family
never actually lived in the properties of the partnership even before the
war or after the war."
It is unquestionable that Goquiolay was merely repeating an information
given to him by a third person, Hernando Young — he stressed this point
twice. A careful analysis of the substance of Goquiolay's testimony will
show that he merely had no objection to allowing Kong Chai Pin to
continue attending to the properties in order to give her some means of
livelihood, because, according to the information given him by
Hernando Young, which he assumed to be true, Kong Chai Pin had no
other means of livelihood. But certainly he made it very clear that he did
not allow her to manage the partnership when he explained his reason
for refusing to sign a general power of attorney for Kong Chai Pin which
her counsel, Atty. Zuño, brought with him to his house in 1948. He said:
. . . Then Mr. Yu Eng Lai told me that he brought with him Atty.
Zuño and he asked me if I could execute a general power of
attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuño what is
the use of executing a general power of attorney for Mrs. Kong
Chai Pin when Mrs. Kong Chai Pin had already got that
plantation for agricultural purposes, I said for agricultural
purposes she can use that plantation ... (T.s.n., p. 9, Hearing
on May 5, 1955)
It must be noted that in his testimony Goquiolay was categorically
stating his opposition to the management of the partnership by Kong
Chai Pin and carefully made the distinction that his conformity was for
her to attend to the partnership properties in order to give her merely a
means of livelihood. It should be stated that the period covered by the
testimony refers to the period of occupation when living condition was
difficult and precarious. And Atty. Zuño, it should also be stated, did not
deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin
exercised certain acts of management of the partnership properties is
highly controverted. The most that we can say is that the alleged acts
are doubtful more so when they are disputed by the defendants
themselves who later became the purchasers of the properties, and yet
these alleged acts, if at all, only refer to management of the
properties and not to management of the partnership, which are two
different things.
In resume, we may conclude that the sale of the partnership properties
by Kong Chai Pin cannot be upheld on the ground of estoppel, first,
because the alleged acts of management have not been clearly proven;
second, because the record clearly shows that the defendants, or the
buyers, were not misled nor did they rely on the acts of management,
but instead they acted solely on the opinion of their counsel, Atty.
Quisumbing, to the effect that she succeeded her husband in the
partnership as managing partner by operation of law; and third, because
the defendants are themselves estopped to invoke a defense which they
tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong
Chai Pin are true, could such acts give her the character of general
manager of the partnership as we have concluded in our decision?
Out answer is in the negative because it is contrary to law and
precedents. Garrigues, a well-known commentator, is clearly of the
opinion that mere acceptance of the inheritance does not make the heir
of a general partner a general partner himself. He emphasized that the
heir must declare that he is entering the partnership as a general
partner unless the deceased partner has made it an express condition in
his will that the heir accepts the condition of entering the partnership as
a prerequisite of inheritance, in which case acceptance of the
inheritance is enough.1 But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to
become general partner by exercising acts of management? We believe
not, for, in consonance with out ruling that as a general rule the heirs of
a deceased partner succeed as limited partners only by operation of law,
it is obvious that the heir, upon entering the partnership, must make a
declaration of his character, otherwise he should be deemed as having
succeeded as limited partner by the mere acceptance of inheritance.
And here Kong Chai Pin did not make such declaration. Being then a
limited partner upon the death of Tan Sin An by operation of law, the
peremptory prohibition contained in Article 1482 of the Code of
Commerce became binding upon her and as a result she could not
change her status by violating its provisions not only under the general
principle that prohibited acts cannot produce any legal effect, but also
because under the provisions of Article 1473 of the same Code she was
precluded from acquiring more rights than those pertaining to her as a
limited partner. The alleged acts of management, therefore, did not give
Kong Chai Pin the character of general manager to authorize her to bind
the partnership.
Assuming also arguendo that the alleged acts of management imputed
to Kong Chai Pin gave her the character of a general partner, could she
sell the partnership properties without authority from the other
partners?
Our answer is also in the negative in the light of the provisions of the
articles of partnership and the pertinent provisions of the Code of
Commerce and the Civil Code. Thus, Article 129 of the Code of
Commerce says:
If the management of the general partnership has not been
limited by special agreement to any of the members, all shall
have the power to take part in the direction and management
of the common business, and the members present shall
come to an agreement for all contracts or obligations which
may concern the association.
And the pertinent portions of the Articles of partnership provides:
VII. The affairs of the co-partnership shall be managed
exclusively by the managing partner or by his authorized
agent, and it is expressly stipulated that the managing partner
may delegate the entire management of the affairs of the co-
partnership by irrevocable power of attorney to any person,
firm or corporation he may select, upon such terms as regards
compensation as he may deem proper, and vest in such
person, firm or corporation full power and authority, as the
agent of the co-partnership and in his name, place and stead
to do anything for it or on his behalf which he as such
managing partner might do or cause to be done. (Page 23,
Record on Appeal)
It would thus be seen that the powers of the managing partner are not
defined either under the provisions of the Code of Commerce or in the
articles of partnership, a situation which, under Article 2 of the same
Code, renders applicable herein the provisions of the Civil Code, And
since, according to well-known authorities, the relationship between a
managing partner and the partnership is substantially the same as that
of the agent and his principal,4the extent of the power of Kong Chai Pin
must, therefore, be determined under the general principles governing
agency. And, on this point, the law says that an agency created in
general terms includes only acts of administration, but with regard to
the power to compromise, sell, mortgage, and other acts of strict
ownership, an express power of attorney is required.5 Here Kong Chai
Pin did not have such power when she sold the properties of the
partnership.
Of course, there is authority to the effect that a managing partner, even
without express power of attorney, may perform acts affecting
ownership if the same are necessary to promote or accomplish a
declared object of the partnership, but here the transaction is not for
this purpose. It was effected not to promote any avowed object of the
partnership.6 Rather, the sale was effected to pay an obligation of the
partnership by selling its real properties which Kong Chai Pin could not
do without express authority. The authorities supporting this view are
overwhelming.
The act of one partner to bind the firm, must be necessary for the
carrying on of its business. If all that can be said of it was that it was
convenient, or that it facilitated the transaction of the business of the
firm, that is not sufficient, in the absence of evidence of saction by
other partners. Nor, it seems, will necessity itself be sufficient if it be
an extraordinary necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and in the usual
way, is the test. Lindl. Partn. Sec. 126. While, within this rule, one
member of a partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale, to a bona fide
purchaser or mortgage, without the consent of the other members of
the firm, it is not within the scope of his implied authority to make a
final disposition of all of its effects, including those employed as the
means of carrying on its business, the object and effect of which is to
immediately terminate the partnership, and place its property beyond
its control. Such a disposition, instead of being within the scope of the
partnership business, or in the usual and ordinary way of carrying it
on, is necessarily subversive of the object of the partnership, and
contrary to the presumed intention of the partnership in its formation.
(McGrath, et al. vs. Cowen, et al., 49 N.F. 338, 343; Emphasis supplied)
Since Kong Chai Pin sold the partnership properties not in line with the
business of the partnership but to pay its obligation without first
obtaining the consent of the other partners, the sale is invalid being in
excess of her authority.
4. Finally, the same under consideration was effected in a suspicious
manner as may be gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three
parcels of land situated in the City of Davao have an area of 200 hectares
more or less, or 2,000,000 square meters. These properties were
purchased by the partnership for purposes of subdivision. According to
realtor Mata, who testified in court, these properties could command at
the time he testified a value of not less than P312,000.00, and according
to Dalton Chen, manager of the firm which took over the administration,
since the date of sale no improvement was ever made thereon precisely
because of this litigation. And yet, for said properties, aside from the
sum of P37,000.00 which was paid for the properties of the deceased
and the partnership, only the paltry sum of P66,529.91 was paid as a
consideration therefor, of which the sum of P46,116.75 was even paid
in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid
reason to sell them if her purpose was only to pay the partnership's
obligation. She could have negotiated a loan if she wanted to pay it by
placing the properties as security, but preferred to sell them even at
such low prices because of her close relationship with the purchasers
and creditors who conveniently organized a partnership to exploit them,
as may be seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a granddaughter of Jose P.
Yutivo, founder of the defendant Yutivo Sons Hardware Co. YUTIVO
SONS HARDWARE CO, and SIN YEE CUAN CO, INC., alleged creditors,
are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan are the
three children of Jose). YU KHE THAI is a grandson of the same Jose P.
Yutivo, and president of the two alleged creditors. He is the
acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of
the original buyers, is married to Ana Yu, a daughter of Yu Khe Thai,
BETTY Y. LEE, the other original buyer is also a daughter of Yu Khe Thai.
The INSULAR DEVELOPMENT CO., the ultimate buyer, was organized
for the specific purpose of buying the partnership properties. Its
incorporators were: Ana Yu and Betty V. Lee, Atty. Quisumbing and
Salazar the lawyers who studied the papers of sale and have been
counsel for the Yutivo interests; Dalton Chen a brother-in-law of Yu
Khe Thai and an executive of Sing Yee & Cuan Co; Lillian Yu, daughter
of Yu Eng Poh, an executive of Yutivo Sons Hardware, and Simeon
Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were
close relatives of Kong Chai Pin, have already conceived the idea of
possessing the lands for purposes of subdivision, excluding Goquiolay
from their plan, and this is evident from the following sequence of
events:
Tan Sin An died in 1942 and intestate proceedings were opened in
1944. In 1946, the creditors of the partnership filed their claim against
the partnership in the intestate proceedings. The creditors studied
ways and means of liquidating the obligation of the partnership,
leading to the formation of the defendant Insular Development Co.,
composed of members of the Yutivo family and the counsel of record
of the defendants, which subsequently bought the properties of the
partnership and assumed the obligation of the latter in favor of the
creditors of the partnership, Yutivo Sons Hardware and Sing, Yee &
Cuan, also of the Yutivo family. The buyers took time to study the
commercial potentialities of the partnership properties and their
lawyers carefully studied the document and other papers involved in
the transaction. All these steps led finally to the sale of the three
partnership properties.
Upon the strength of the foregoing considerations, I vote to grant
motion for reconsideration.
Article 1819
SANTIAGO SYJUCO, INC., petitioner,
vs.
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL
COURT OF THE NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV,
QUEZON CITY, THE CITY SHERIFF OF THE CITY OF MANILA, THE CITY
REGISTER OF DEEDS OF THE CITY OF MANILA, EUGENIO LIM, ARAMIS
LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE
PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO P.
CANLAS, respondents.
This case may well serve as a textbook example of how judicial
processes, designed to promote the swift and efficient disposition of
disputes at law, can be so grossly abused and manipulated as to produce
precisely the opposite result; how they can be utilized by parties with
small scruples to forestall for an unconscionably long time so essentially
simple a matter as making the security given for a just debt answer for
its payment.
The records of the present proceedings and of two other cases already
decided by this Court expose how indeed the routine procedure of an
extrajudicial foreclosure came by dint of brazen forum shopping and
other devious maneuvering to grow into a veritable thicket of litigation
from which the mortgagee has been trying to extricate itself for the last
twenty years.
Back in November 1964, Eugenio Lim, for and in his own behalf and as
attorney-in-fact of his mother, the widow Maria Moreno (now
deceased) and of his brother Lorenzo, together with his other brothers,
Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively
called the Lims, borrowed from petitioner Santiago Syjuco, Inc.
(hereinafter, Syjuco only) the sum of P800,000.00. The loan was given
on the security of a first mortgage on property registered in the names
of said borrowers as owners in common under Transfer Certificates of
Title Numbered 75413 and 75415 of the Registry of Deeds of Manila.
Thereafter additional loans on the same security were obtained by the
Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans
stood at P2,460,000.00, exclusive of interest, and the security had been
augmented by bringing into the mortgage other property, also
registered as owned pro indiviso by the Lims under two titles: TCT Nos.
75416 and 75418 of the Manila Registry.
There is no dispute about these facts, nor about the additional
circumstance that as stipulated in the mortgage deed the obligation
matured on November 8, 1967; that the Lims failed to pay it despite
demands therefor; that Syjuco consequently caused extra-judicial
proceedings for the foreclosure of the mortgage to be commenced by
the Sheriff of Manila; and that the latter scheduled the auction sale of
the mortgaged property on December 27, 1968. 1 The attempt to
foreclose triggered off a legal battle that has dragged on for more than
twenty years now, fought through five (5) cases in the trial courts, 2 two
(2) in the Court of Appeals, 3 and three (3) more in this Court, 4 with the
end only now in sight.
1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-R;
G.R. NO. L-34683
To stop the foreclosure, the Lims — through Atty. Marcial G. Mendiola,
who was later joined by Atty. Raul Correa — filed Civil Case No. 75180
on December 24,1968 in the Court of First Instance of Manila (Branch
5). In their complaint they alleged that their mortgage was void, being
usurious for stipulating interest of 23% on top of 11 % that they had
been required to pay as "kickback." An order restraining the auction sale
was issued two days later, on December 26,1968, premised inter alia on
the Lims' express waiver of "their rights to the notice and re-publication
of the notice of sale which may be conducted at some future date." 5
On November 25,1970, the Court of First Instance (then presided over
by Judge Conrado M. Vasquez 6 rendered judgment finding that usury
tained the mortgage without, however, rendering it void, declaring the
amount due to be only Pl,136,235.00 and allowing the foreclosure to
proceed for satisfaction of the obligation reckoned at only said amount
.7
Syjuco moved for new trial to enable it to present additional evidence
to overthrow the finding of usury, and the Court ordered the case
reopened for that purpose. The Lims tried to negate that order of
reopening in the Court of Appeals, the proceedings being docketed as
CA-G.R. No. 00242-R. They failed. The Court of Appeals upheld the Trial
Court. The Lims then sought to nullify this action of the Appellate Court;
towards that end, they filed with this Court a petition for certiorari and
prohibition, docketed as G.R. No. L-34683. But here, too, they failed;
their petition was dismissed. 8
Thereafter, and on the basis of the additional evidence adduced by
Syjuco on remand of the case from this Court, the Trial Court
promulgated an amended decision on August 16, 1972, reversing its
previous holding that usury had flawed the Lims' loan obligation. It
declared that the principal of said obligation indeed amounted to
P2,460,000.00, exclusive of interest at the rate of 12% per annum from
November 8, 1967, and, that obligation being already due, the
defendants (Syjuco and the Sheriff of Manila) could proceed with the
extrajudicial foreclosure of the mortgage given to secure its
satisfaction. 9
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R.
NO. L-45752
On September 9, 1972, Atty. Paterno R. Canlas entered his appearance
in Civil Case No. 75180 as counsel for the Lims in collaboration with Atty.
Raul Correa, and on the same date appealed to the Court of Appeals
from the amended decision of August 16, 1972. 10 In that appeal, which
was docketed as CA G.R. No. 51752, Messrs. Canlas and Correa prayed
that the loans be declared usurious; that the principal of the loans be
found to be in the total amount of Pl,269,505.00 only, and the interest
thereon fixed at only 6% per annum from the filing of the complaint; and
that the mortgage be also pronounced void ab initio. 11
The appeal met with no success. In a decision promulgated on October
25,1976, the Court of Appeals affirmed in toto the Trial Court's
amended decision. 12
The Lims came to this Court seeking reversal of the appellate Court's
decision. However, their petition for review-filed in their behalf by
Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752-was
denied for lack of merit in a minute resolution dated August 5, 1977. The
Lims' motion for reconsideration was denied and entry of judgment was
made on September 24,1977. 13 Here the matter should have ended; it
marked only the beginning of Syjuco's travails.
3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9
Syjuco then resumed its efforts to proceed with the foreclosure. It
caused the auction sale of the mortgaged property to be scheduled on
December 20, 1977, only to be frustrated again by another action filed
by the Lims on December 19, 1977, docketed as Civil Case No. 112762
of the Court of First Instance of Manila. 14 The action sought to stop the
sale on the ground that the notice of foreclosure had not been
republished; this, notwithstanding that as earlier stressed, the
restraining order of December 26, 1968 issued in Civil Case No 75180
explicitly declared itself to be predicated on the Lims' waiver of "their
rights to the notice and republication of the notice of sale which may be
conducted at some future date." 15 An order restraining the sale issued
in the case, although the petition for preliminary injunction was
subsequently denied. A supplemental complaint was also filed by the
Lims seeking recovery of some Pl million in damages allegedly suffered
by reason of said lack of republication. 16
 4. CIVIL CASE NO. 75180
That very same claim — that there had been no republication of the
notice of sale, which was the foundation of the Lims' action in Civil Case
No. 112762 as aforesaid — was made by the Lims the basis of an urgent
motion filed on December 15, 1977 in Civil Case No. 75180, in which, as
earlier narrated, the judgement authorizing the foreclosure had been
affirmed by both the Court of Appeals and this Court, and had become
final and executory. And that motion sought exactly the same remedy
prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later,
on December 19, 1977), i.e., the prevention of the auction sale. The
Court -- Branch 5, then presided over by Judge Jose H. Tecson — granted
the restraining order on December 19, 1977, 17 the very same day that
the Lims commenced Civil Case No. 112762 in the same Court and in
which subsequent action they asked for and obtained a similar
restraining order.
The Lims' counsel thus brought about the anomalous situation of two
(2) restraining orders directed against the same auction sale, based on
the same ground, issued by different courts having cognizance of two
(2) separate proceedings instituted for identical objectives. This
situation lasted for all of three (3) years, despite the republication of the
notice of sale caused by Syjuco in January, 1978 in an effort to end all
dispute about the matter, and despite Judge Tecson's having been made
aware of Civil Case No. 112762. It should have been apparent to Judge
Tecson that there was nothing more to be done in Civil Case No. 75180
except to enforce the judgment, already final and executory, authorizing
the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to
repeat, by both the Court of Appeals and the Supreme Court; that there
was in truth no need for another publication of the notice since the Lims
had precisely waived such republication, this waiver having been the
condition under which they had earlier obtained an order restraining the
first scheduled sale; that, in any event, the republication effected by
Syjuco had removed the only asserted impediment to the holding of the
same; and that, finally, the Lims were acting in bad faith: they were
maintaining proceedings in two (2) different courts for essentially the
same relief. 18 Incredibly, not only did Judge Tecson refuse to allow the
holding of the auction sale, as was the only just and lawful course
indicated by the circumstances, 19 he authorized the Lims to sell the
mortgaged property in a private sale, 20 with the evident intention that
the proceeds of the sale, which he directed to be deposited in court,
would be divided between Syjuco and the Lims; this, in line with the
patently specious theory advocated by the Lims' counsel that the bond
flied by them for the postponement of the sale, set at P6 million by the
Court (later increased by P 3 million) had superseded and caused
novation of the mortgage. 21 The case lay fallow for a year, certain other,
incidents arising and remaining unresolved on account of numerous
postponements.
5. G.R. No. L-56014
Finally, on January 28, 1981, Syjuco betook itself to this Court,
presumably no longer disposed to await Judge Tecson's pleasure or the
Lims' convenience. It filed a petition for certiorari and prohibition,
docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180,
Judge Tecson had gravely abused discretion in:
(1) unreasonably delaying the foreclosure of the mortgage;
(2) entertaining the Lims' motion to discharge said mortgage
grounded on the theory that it had been superseded and novated
by the Lims' act of filing the bond required by Judge Tecson in
connection with the postponement of the foreclosure sale, and
unreasonably delaying resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the private
sale of the mortgaged property and motu proprio extending the
period granted the Lims for the purpose, in disregard of the final and
executory judgment rendered in the case.
By judgment rendered on September 21, 1982, after due
proceedings, this Court 22 issued the writ prayed for and nullified the
orders and actuations of Judge Tecson in Civil Case No. 75180. The
judgment declared that:
(1) the republication by Syjuco of the notice of foreclosure sale
rendered the complaint in Civil Case No. 112762 moot and
academic; hence, said case could not operate to bar the sale;
(2) the Lims' bonds (of P 6 million and P 3 million), having by the
terms thereof been given to guarantee payment of damages to
Syjuco and the Sheriff of Manila resulting from the suspension of the
auction sale, could not in any sense and from any aspect have the
effect of superseding the mortgage or novating it;
(3) in fact, the bonds had become worthless when, as shown by the
record, the bondsman's authority to transact non-life insurance
business in the Philippines was not renewed, for cause, as of July 1,
1981.
The decision consequently decreed that the Sheriff of Manila should
proceed with the mortgage sale, there being no further impediment
thereto. 23
Notice of the decision was served on the Lims, through Atty. Canlas, on
October 2, 1982. A motion for reconsideration was filed, 24 but the same
was denied with finality for lack of merit and entry of final judgment was
made on March 22,1983. 25
6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE REGIONAL
TRIAL COURT, QUEZON CITY, JUDGE JOSE P. CASTRO, PRESIDING
Twelve (12) days after the Lims were served, as above mentioned, with
notice of this Court's judgment in G.R. No. 56014, or on October
14,1982, they caused the filing with the Regional Trial Court of Quezon
City of still another action, the third, also designed, like the first two, to
preclude enforcement of the mortgage held by Syjuco.
This time the complaint was presented, not in their individual names,
but in the name of a partnership of which they themselves were the only
partners: "Heirs of Hugo Lim." The complaint advocated the theory that
the mortgage which they, together with their mother, had individually
constituted (and thereafter amended during the period from 1964 to
1967) over lands standing in their names in the Property Registry as
owners pro indiviso, in fact no longer belonged to them at that time,
having been earlier deeded over by them to the partnership, "Heirs of
Hugo Lim", more precisely, on March 30, 1959, hence, said mortgage
was void because executed by them without authority from the
partnership.
The complaint was signed by a lawyer other than Atty. Canlas, but the
records disclose that Atty. Canlas took over as counsel as of November
4,1982. The case, docketed as Civil Case No. Q-39295, was assigned to
Branch 35 of the Quezon City Regional Trial Court, then presided over
by Judge Jose P. Castro.
Judge Castro issued a restraining order on October 15, 1982. Then,
Sheriff Perfecto G. Dalangin submitted a return of summons to the
effect that on December 6, 1982 he —
.. served personally and left a copy of summons together with a copy
of Complaint and its annexes x x upon defendant's office formerly at
313 Quirino Ave., Paranaque, Metro-Manila and now at 407 Dona
Felisa Syjuco Building, Remedios St., corner Taft Avenue, Manila,
through the Manager, a person of sufficient age and discretion duly
authorized to receive service of such nature, but who refused to
accept service and signed receipt thereof. 26
A vaguer return will be hard to find. It is impossible to discern from it
where precisely the summons was served, whether at Quirino Avenue,
Paranaque, or Taft Avenue, Manila; and it is inexplicable that the name
of the person that the sheriff had been able to identify as the manager
is not stated, the latter being described merely as "a person of sufficient
age and discretion." In any event, as it was to claim later, Syjuco asserts
that it was never so served with summons, or with any other notice,
pleading, or motion relative to the case, for that matter.
On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare
Syjuco in default. The order of default issued the next day, also directing
the plaintiff partnership to present evidence ex parte within three (3)
days. On February 22, 1983, judgment by default was rendered,
declaring void the mortgage in question because executed by the Lims
without authority from the partnership which was and had been since
March 30,1959 the exclusive owner of the mortgaged property, and
making permanent an injunction against the foreclosure sale that had
issued on January 14,1983. 27 Service of notice of the default judgment
was, according to the return of the same Sheriff Perfecto Dalangin,
effected on the following day, February 23, 1983. His return is a virtual
copy of his earlier one regarding service of summons: it also states the
place of service as the defendant's office, either at its former location,
313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa,
Syjuco Building, Taft Avenue, Manila; and it also fails to identify the
person on whom service was made, describing him only as "the clerk or
person in charge" of the office. 28
Unaccountably, and contrary to what might be expected from the
rapidity with which it was decided-twelve (12) days from February 10,
1983, when the motion to declare defendant Syjuco in default was filed-
the case was afterwards allowed by Atty. Canlas to remain dormant for
seventeen (17) months. He made no effort to have the judgment
executed, or to avail of it in other actions instituted by him against
Syjuco. The judgment was not to be invoked until sometime in or after
July, 1984, again to stop the extrajudicial mortgage sale scheduled at or
about that time at the instance of Syjuco, as shall presently be
recounted.
7. Other Actions in the Interim:
a. CIVIL CASE No. 83-19018, RTC MANILA
While the Lims, through their partnership ("Heirs of Hugo Lim"), were
prosecuting their action in the sala of Judge Castro, as above narrated,
Syjuco once again tried to proceed with the foreclosure after entry of
judgment had been made in G.R. No. 56014 on March 22, 1983. It
scheduled the auction sale on July 30, 1983. But once again it was
frustrated. Another obstacle was put up by the Lims and their counsel,
Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional
Trial Court. The case was filed to stop the sale on the theory that what
was sought to be realized from the sale was much in excess of the
judgment in Civil Case No. 75180, and that there was absence of the
requisite notice. It is significant that the judgment by default rendered
by Judge Castro in Civil Case No. Q-36485 was not asserted as additional
ground to support the cause of action. Be this as it may, a restraining
order was issued on July 20,1983 in said Civil Case No. 83-9018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY
What the outcome of this case, No. 83-19018, is not clear. What is
certain is (1) that the auction sale was re-scheduled for September 20,
1983, (2) that it was aborted because the Lims managed to obtain still
another restraining order in another case commenced by their lawyer,
Atty. Canlas: Civil Case No. Q-32924 of the Court of First Instance of
Quezon City, grounded on the proposition that the publication of the
notice of sale was defective; and (3) that the action was dismissed by
the Regional Trial Court on February 3, 1984. 30
No other salient details about these two (2) cases are available in the
voluminous records before the Court, except that it was Atty. Canlas
who had filed them. He admits having done so unequivocally: "Thus, the
undersigned counsel filed injunction cases in Civil Case No. 83-19018
and Civil Case No. 39294, Regional Trial Courts of Manila and Quezon
City. ... " 31
7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q QUEZON CITY,
BRANCH XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed
its efforts to effect the mortgage sale which had already been stymied
for more than fifteen (15) years. At its instance, the sheriff once again
set a date for the auction sale. But on the date of the sale, a letter of
Atty. Canlas was handed to the sheriff drawing attention to the
permanent injunction of the sale embodied in the judgment by default
rendered by Judge Castro in Civil Case No. Q- 36485. 32 Syjuco lost no
time in inquiring about Civil Case No. Q-36485, and was very quickly
made aware of the judgment by default therein promulgated and the
antecedent events leading thereto. It was also made known that on July
9, 1984, Judge Castro had ordered execution of the judgment; that
Judge Castro had on July 16, 1984 granted Atty. Canlas' motion to
declare cancelled the titles to the Lims' mortgaged properties and as
nun and void the annotation of the mortgage and its amendments on
said titles, and to direct the Register of Deeds of Manila to issue new
titles, in lieu of the old, in the name of the partnership, "Heirs of Hugo
Lim." 33
On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for
reconsideration of the decision and for dismissal of the action, alleging
that it had never been served with summons; that granting arguendo
that service had somehow been made, it had never received notice of
the decision and therefore the same had not and could not have become
final; and that the action should be dismissed on the ground of bar by
prior judgment premised on the final decisions of the Supreme Court in
G.R. No. L-45752 and G.R. No. 56014.
Two other motions by Syjuco quickly followed. The first, dated July 20,
1984, prayed for abatement of Judge Castro's order decreeing the
issuance of new certificates of title over the mortgaged lands in the
name of the plaintiff partnership. 34 The second, filed on July 24, 1984,
was a supplement to the motion to dismiss earlier filed, asserting
another ground for the dismissal of the action, i.e., failure to state a
cause of action, it appearing that the mortgaged property remained
registered in the names of the individual members of the Lim family
notwithstanding that the property had supposedly been conveyed to
the plaintiff partnership long before the execution of the mortgage and
its amendments,-and that even assuming ownership of the property by
the partnership, the mortgage executed by all the partners was valid and
binding under Articles 1811 and 1819 of the Civil Code. 35
The motions having been opposed in due course by the plaintiff
partnership, they remained pending until January 31, 1985 when Syjuco
moved for their immediate resolution. Syjuco now claims that Judge
Castro never acted on the motions. The latter however states that that
he did issue an order on February 22, 1985 declaring that he had lost
jurisdiction to act thereon because, petitio principii, his decision had
already become final and executory.
8. G.R.NO.L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same matter.
It filed on April 3, 1985 the instant petition for certiorari, prohibition and
mandamus. It prays in its petition that the default judgment rendered
against it by Judge Castro in said Civil Case No. Q-36485 be annulled on
the ground of lack of service of summons, res judicata and laches, and
failure of the complaint to state a cause of action; that the sheriff be
commanded to proceed with the foreclosure of the mortgage on the
property covered by Transfer Certificates of Title Numbered 75413,
75415, 75416 and 75418 of the Manila Registry; and that the
respondents the Lims, Judge Castro, the Sheriff and the Register of
Deeds of Manila, the partnership known as "Heirs of Hugo Lim," and
Atty. Paterno R. Canlas, counsel for-the Lims and their partnership-be
perpetually enjoined from taking any further steps to prevent the
foreclosure.
The comment filed for the respondents by Atty. Canlas in substance
alleged that (a) Syjuco was validly served with summons in Civil Case No.
Q-36485, hence, that the decision rendered by default therein was also
valid and, having been also duly served on said petitioner, became final
by operation of law after the lapse of the reglementary appeal period;
(b) finality of said decision removed the case from the jurisdiction of the
trial court, which was powerless to entertain and act on the motion for
reconsideration and motion to dismiss; (c) the petition was in effect an
action to annul a judgment, a proceeding within the original jurisdiction
of the Court of Appeals; (d) the plea of res judicata came too late
because raised after the decision had already become final; moreover,
no Identity of parties existed between the cases invoked, on the one
hand, and Civil Case No. Q-36485, on the other, the parties in the former
being the Lims in their personal capacities and in the latter, the Lim
Partnership, a separate and distinct juridical entity; and the pleaded
causes of action being different, usury in the earlier cases and authority
of the parties to encumber partnership property in the case under
review; (e) the plea of laches also came too late, not having been
invoked in the lower court; and (f) the property involved constituted
assets of the Lim partnership, being registered as such with the
Securities and Exchange Commission. 36
On his own behalf Atty. Canlas submitted that he had no knowledge of
the institution of Civil Case No. Q-36485 (though he admitted being
collaborating counsel in said case); that he did not represent the Lims in
all their cases against Syjuco, having been counsel for the former only
since 1977, not for the last seventeen years as claimed by Syjuco; and
that he had no duty to inform opposing counsel of the pendency of Civil
Case No. Q-36485. 37
Respondent Judge Castro also filed a comment 38 disclaiming knowledge
of previous controversies regarding the mortgaged property. He
asserted that Syjuco had been properly declared in default for having
failed to answer the complaint despite service of summons upon it, and
that his decision in said case which was also properly served on Syjuco
became final when it was not timely appealed, after which he lost
jurisdiction to entertain the motion for reconsideration and motion to
dismiss. He also denied having failed to act on said motions, adverting
to an alleged order of February 22, 1985 where he declared his lack of
jurisdiction to act thereon.
The respondent Register of Deeds for his part presented a comment
wherein he stated that by virtue of an order of execution in Civil Case
No. Q-36485, he had cancelled TCTs Nos. 75413, 75415, 75416 and
75418 of his Registry and prepared new certificates of title in lieu
thereof, but that cancellation had been held in abeyance for lack of
certain registration requirements and by reason also of the motion of
Syjuco's Atty. Formoso to hold in abeyance enforcement of the trial
court's order of July 16, 1984 as well as of the temporary restraining
order subsequently issued by the Court. 39
It is time to write finis to this unedifying narrative which is notable
chiefly for the deception, deviousness and trickery which have marked
the private respondents' thus far successful attempts to avoid the
payment of a just obligation. The record of the present proceeding and
the other records already referred to, which the Court has examined at
length, make it clear that the dispute should have been laid to rest more
than eleven years ago, with entry of judgment of this Court (on
September 24, 1977) in G.R. No. L-45752 sealing the fate of the Lims'
appeal against the amended decision in Civil Case No. 75180 where they
had originally questioned the validity of the mortgage and its
foreclosure. That result, the records also show, had itself been nine (9)
years in coming, Civil Case No. 75180 having been instituted in
December 1968 and, after trial and judgment, gone through the Court
of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683),
both at the instance of the Lims, on the question of reopening before
the amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil Case No.
75180) to stop the foreclosure sale on the ground of lack of
republication. On December 19,1977 they obtained a restraining order
in said case, but this notwithstanding, on the very same date they filed
another action (Civil Case No. 117262) in a different branch of the same
Court of First Instance of Manila to enjoin the foreclosure sale on the
same ground of alleged lack of republication. At about this time, Syjuco
republished the notice of sale in order, as it was later to manifest, to end
all further dispute.
That move met with no success. The Lims managed to persuade the
judge in Civil Case No. 75180, notwithstanding his conviction that the
amended decision in said case had already become final, not only to halt
the foreclosure sale but also to authorize said respondents to dispose of
the mortgaged property at a private sale upon posting a bond of
P6,000,000.00 (later increased by P3,000,000.00) to guarantee payment
of Syjuco's mortgage credit. This gave the Lims a convenient excuse for
further suspension of the foreclosure sale by introducing a new wrinkle
into their contentions-that the bond superseded the mortgage which
should, they claimed, therefore be discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a period of
three years, Syjuco found itself fighting a legal battle on two fronts: in
the already finally decided Civil Case No. 75180 and in Civil Case No.
117262, upon the single issue of alleged lack of republication, an issue
already mooted by the Lims' earlier waiver of republication as a
condition for the issuance of the original restraining order of December
26,1968 in Civil Case No. 75180, not to mention the fact that said
petitioner had also tried to put an end to it by actually republishing the
notice of sale.
With the advent of 1981, its pleas for early resolution having apparently
fallen on deaf ears, Syjuco went to this Court (in G.R. No. L-56014) from
which, on September 21, 1982, it obtained the decision already referred
to holding, in fine, that there existed no further impediment to the
foreclosure sale and that the sheriff could proceed with the same.
Said decision, instead of deterring further attempts to derail the
foreclosure, apparently gave the signal for the clandestine filing this
time — by the Partnership of the Heirs of Hugo Lim -on October 14,1982
of Civil Case No. Q-36485, the subject of the present petition, which for
the first time asserted the claim that the mortgaged property had been
contributed to the plaintiff partnership long before the execution of the
Syjuco's mortgage in order to defeat the foreclosure.
Syjuco now maintains that it had no actual knowledge of the existence
and pendency of Civil Case No. Q-36485 until confronted, in the manner
already adverted to, with the fait accompli of a "final" judgment with
permanent injunction therein, and nothing in the record disabuses the
Court about the truth of this disclaimer. Indeed, considering what had
transpired up to that denouement, it becomes quite evident that
actuations of the Lims and their lawyer had been geared to keeping
Syjuco in the dark about said case. Their filing of two other cases also
seeking to enjoin the foreclosure sale (Civil Case No. 83-19018, Regional
Trial Court of Manila in July 1983, and Civil Case No. Q-32924, Regional
Trial Court of Quezon City in September of the same year) after said sale
had already been permanently enjoined by default judgment in Civil
Case No. Q-36485, appears in retrospect to be nothing but a brace of
feints calculated to keep Syjuco in that state of ignorance and to lull any
apprehensions it mat may have harbored about encountering further
surprises from any other quarter.
Further credence is lent to this appraisal by the unusually rapid
movement of Civil Case No. Q-36485 itself in its earlier stages, which saw
the motion to declare Syjuco in default filed, an order of default issued,
evidence ex parte for the plaintiffs received and judgment by default
rendered, all within the brief span of twelve days, February 10-22, 1983.
Notice of said judgment was "served" on February 23, 1983, the day
after it was handed down, only to be followed by an unaccountable lull
of well over a year before it was ordered executed on July 9, 1984 —
unaccountable, considering that previous flurry of activity, except in the
context of a plan to rush the case to judgment and then divert Syjuco's
attention to the Lims' moves in other directions so as to prevent
discovery of the existence of the case until it was too late.
The Court cannot but condemn in the strongest terms this trifling with
the judicial process which degrades the administration of justice, mocks,
subverts and misuses that process for purely dilatory purposes, thus
tending to bring it into disrepute, and seriously erodes public confidence
in the will and competence of the courts to dispense swift justice.
Upon the facts, the only defense to the foreclosure that could possibly
have merited the full-blown trial and appeal proceedings it actually went
through was that of alleged usury pleaded in Civil Case No. 75180 and
finally decided against the respondent Lims in G.R. No. L-45752 in
September 1977. The other issues of failure to republish and discharge
of mortgage by guarantee set up in succeeding actions were sham
issues, questions without substance raised only for purposes of delay by
the private respondents, in which they succeeded only too well. The
claim urged in this latest case: that the mortgaged property had been
contributed to the respondent partnership and was already property of
said partnership when the individual Lims unauthorizedly mortgaged it
to Syjuco, is of no better stripe, and this, too, is clear from the
undisputed facts and the legal conclusions to be drawn therefrom.
The record shows that the respondent partnership is composed
exclusively of the individual Lims in whose name all the cases herein
referred to, with the sole exception of Civil Case No. Q-36485, were
brought and prosecuted, their contribution to the partnership consisting
chiefly, if not solely, of the property subject of the Syjuco mortgage. It is
also a fact that despite its having been contributed to the partnership,
allegedly on March 30, 1959, the property was never registered with the
Register of Deeds in the name of the partnership, but to this date
remains registered in the names of the Lims as owners in common. The
original mortgage deed of November 14,1964 was executed by the Lims
as such owners, as were all subsequent amendments of the mortgage.
There can be no dispute that in those circumstances, the respondent
partnership was chargeable with knowledge of the mortgage from the
moment of its execution. The legal fiction of a separate juridical
personality and existence will not shield it from the conclusion of having
such knowledge which naturally and irresistibly flows from the undenied
facts. It would violate all precepts of reason, ordinary experience and
common sense to propose that a partnership, as commonly known to
all the partners or of acts in which all of the latter, without exception,
have taken part, where such matters or acts affect property claimed as
its own by said partnership.
If, therefore, the respondent partnership was inescapably chargeable
with knowledge of the mortgage executed by all the partners thereof,
its silence and failure to impugn said mortgage within a reasonable time,
let alone a space of more than seventeen years, brought into play the
doctrine of estoppel to preclude any attempt to avoid the mortgage as
allegedly unauthorized.
The principles of equitable estoppel, sometimes called estoppel in pais,
are made part of our law by Art. 1432 of the Civil Code. Coming under
this class is estoppel by silence, which obtains here and as to which it
has been held that:
... an estoppel may arise from silence as well as from words.
'Estoppel by silence' arises where a person, who by force of
circumstances is under a duty to another to speak, refrains from
doing so and thereby leads the other to believe in the existence of a
state of facts in reliance on which he acts to his prejudice. Silence
may support an estoppel whether the failure to speak is intentional
or negligent.
Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise an
equitable estoppel. When the silence is of such a character and
under such circumstances that it would become a fraud on the other
party to permit the party who has kept silent to deny what his
silence has induced the other to believe and act on, it will operate
as an estoppel. This doctrine rests on the principle that if one
maintains silence, when in conscience he ought to speak, equity will
debar him from speaking when in conscience he ought to remain
silent. He who remains silent when he ought to speak cannot be
heard to speak when he should be silent. 40
And more to the point:
A property owner who knowingly permits another to sell or
encumber the property, without disclosing his title or objecting to
the transaction, is estopped to set up his title or interest as against
a person who has been thereby misled to his injury.
xxx
An owner of real property who stands by and sees a third person
selling or mortgaging it under claim of title without asserting his own
title or giving the purchaser or mortgagee any notice thereof is
estopped, as against such purchaser or mortgagee, afterward to
assert his title; and, although title does not pass under these
circumstances, a conveyance will be decreed by a court of equity.
Especially is the rule applicable where the party against whom the
estoppel is claimed, in addition to standing by, takes part in malting
the sale or mortgage. 41
More specifically, the concept to which that species of estoppel
which results from the non-disclosure of an estate or interest in real
property has ordinarily been referred is fraud, actual or
constructive. ... Although fraud is not an essential element of the
original conduct working the estoppel, it may with perfect property
be said that it would be fraudulent for the party to repudiate his
conduct, and to assert a right or claim in contravention thereof. 42
Equally or even more preclusive of the respondent partnership's claim
to the mortgaged property is the last paragraph of Article 1819 of the
Civil Code, which contemplates a situation duplicating the
circumstances that attended the execution of the mortgage in favor of
Syjuco and therefore applies foursquare thereto:
Where the title to real property is in the names of all the partners a
conveyance executed by all the partners passes all their rights in
such property.
The term "conveyance" used in said provision, which is taken from
Section 10 of the American Uniform Partnership Act, includes a
mortgage.
Interpreting Sec. 10 of the Uniform Partnership Act, it has been held
that the right to mortgage is included in the right to convey. This is
different from the rule in agency that a special power to sell excludes
the power to mortgage (Art. 1879). 43
As indisputable as the propositions and principles just stated is that the
cause of action in Civil Case No. Q-36485 is barred by prior judgment.
The right subsumed in that cause is the negation of the mortgage,
postulated on the claim that the parcels of land mortgaged by the Lims
to Syjuco did not in truth belong to them but to the partnership.
Assuming this to be so, the right could have been asserted at the time
that the Lims instituted their first action on December 24, 1968 in the
Manila Court of First Instance, Civil Case No. 75180, or when they filed
their subsequent actions: Civil Case No. 112762, on December 19, 1977;
Civil Case No. 83-19018, in 1983, and Civil Case No. Q-39294, also in
1983. The claim could have been set up by the Lims, as members
composing the partnership, "Heirs of Hugo Lim." It could very well have
been put forth by the partnership itself, as co-plaintiff in the
corresponding complaints, considering that the actions involved
property supposedly belonging to it and were being prosecuted by the
entire membership of the partnership, and therefore, the partnership
was in actuality, the real party in interest. In fact, consistently with the
Lims' theory, they should be regarded, in all the actions presented by
them, as having sued for vindication, not of their individual rights over
the property mortgaged, but those of the partnership. There is thus no
reason to distinguish between the Lims, as individuals, and the
partnership itself, since the former constituted the entire membership
of the latter. In other words, despite the concealment of the existence
of the partnership, for all intents and purposes and consistently with the
Lims' own theory, it was that partnership which was the real party in
interest in all the actions; it was actually represented in said actions by
all the individual members thereof, and consequently, those members'
acts, declarations and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in law, those of the
partnership.
What was done by the Lims — or by the partnership of which they were
the only members-was to split their cause of action in violation of the
well known rule that only one suit may be instituted for a single cause
of action. 44 The right sought to be enforced by them in all their actions
was, at bottom, to strike down the mortgage constituted in favor of
Syjuco, a right which, in their view, resulted from several circumstances,
namely that the mortgage was constituted over property belonging to
the partnership without the latter's authority; that the principal
obligation thereby secured was usurious; that the publication of the
notice of foreclosure sale was fatally defective, circumstances which had
already taken place at the time of the institution of the actions. They
instituted four (4) actions for the same purpose on one ground or the
other, making each ground the subject of a separate action. Upon these
premises, application of the sanction indicated by law is caned for, i.e.,
the judgment on the merits in any one is available as a bar in the
others. 45
The first judgment-rendered in Civil Case No. 75180 and affirmed by
both the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R. No.
L-45752) should therefore have barred all the others, all the requisites
of res judicata being present. The judgment was a final and executory
judgment; it had been rendered by a competent court; and there was,
between the first and subsequent cases, not only identity of subject-
matter and of cause of action, but also of parties. As already pointed
out, the plaintiffs in the first four (4) actions, the Lims, were representing
exactly the same claims as those of the partnership, the plaintiff in the
fifth and last action, of which partnership they were the only members,
and there was hence no substantial difference as regards the parties
plaintiff in all the actions. Under the doctrine of res judicata, the
judgment in the first was and should have been regarded as conclusive
in all other, actions not only "with respect to the matter directly
adjudged," but also "as to any other matter that could have been raised
in relation thereto. " 46 It being indisputable that the matter of the
partnership's being the owner of the mortgaged properties "could have
been raised in relation" to those expressly made issuable in the first
action, it follows that that matter could not be re-litigated in the last
action, the fifth.
Though confronted with the facts thus precluding the respondent
partnership's claim to the property under both the principle of estoppel
and the provisions of Article 1819, last paragraph, of the Civil Code, as
well as the familiar doctrine of res judicata, the respondent Judge
refused to act on Syjuco's motions on the ground that he no longer had
jurisdiction to do so because they were filed after judgment by default
against Syjuco, which failed to answer the complaint despite valid
service of summons, had been rendered and become final. The sheriffs
return, however, creates grave doubts about the correctness of the
Judge's basic premise that summons had been validly served on Syjuco.
For one thing, the return 47 is unspecific about where service was
effected. No safe conclusion about the place of service can be made
from its reference to a former and a present office of Syjuco in widely
separate locations, with nothing to indicate whether service was
effected at one address or the other, or even at both. A more serious
defect is the failure to name the person served who is, with equal
ambiguity, identified only as "the Manager" of the defendant
corporation (petitioner herein). Since the sheriffs return constitutes
primary evidence of the manner and incidents of personal service of a
summons, the Rules are quite specific about what such a document
should contain:
SEC. 20. Proof of service. — The proof of service of a summons shall
be made in writing by the server and shall set forth the manner,
place and date of service; shall specify any papers which have been
served with the process and the name of the person who received
the same; and shall be sworn to when made by a person other than
a sheriff or his deputy. 48
In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held
that:"
(a) strict compliance with the mode of service is necessary to confer
jurisdiction of the court over a corporation. The officer upon whom
service is made must be one who is named in the statute; otherwise the
service is insufficient. So, where the statute requires that in the case of
a domestic corporation summons should be served on 'the president or
head of the corporation, secretary, treasurer, cashier or managing agent
thereof, service of summons on the secretary's wife did not confer
jurisdiction over the corporation in the foreclosure proceeding against
it. Hence, the decree of foreclosure and the deficiency judgment were
void and should be vacated (Reader vs. District Court, 94 Pacific 2nd
858).
The purpose is to render it reasonably certain that the corporation
will receive prompt and proper notice in an action against it or to
insure that the summons be served on a representative so
integrated with the corporation that such person will know what to
do with the legal papers served on him. In other words, 'to bring
home to the corporation notice of the filing of the action'. (35 A
C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co., 48 F. Supp. 848;
MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).
The liberal construction rule cannot be invoked and utilized as a
substitute for the plain legal requirements as to the manner in which
summons should be served on a domestic corporation (U.S. vs.
Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd 260).'
The rule cannot be any less exacting as regards adherence to the
requirements of proof of service, it being usually by such proof that
sufficiency of compliance with the prescribed mode of service is
measured. Here the only proof of service of summons is the questioned
sheriff's return which, as already pointed out, is not only vague and
unspecific as to the place of service, but also neglects to Identify by
name the recipient of the summons as required by Rule 20, Section 14,
of the Rules of Court. Where the sheriffs return is defective the
presumption of regularity in the performance of official functions will
not lie. 50 The defective sheriffs return thus being insufficient and
incompetent to prove that summons was served in the manner
prescribed for service upon corporations, there is no alternative to
affirming the petitioner's claim that it had not been validly summoned
in Civil Case No. Q-36485. It goes without saying that lacking such valid
service, the Trial Court did not acquire jurisdiction over the petitioner
Syjuco, rendering null and void all subsequent proceedings and
issuances in the action from the order of default up to and including the
judgment by default and the order for its execution. 51
The respondents' contention that the petition is in effect an action to
annul a judgment which is within the exclusive original jurisdiction of the
Court of Appeals 52 has already been answered in Matanguihan vs.
Tengco 53where, by declaring that an action for annulment of judgment
is not a plain, speedy and adequate remedy, this Court in effect affirmed
that certiorari is an appropriate remedy against judgments or
proceedings alleged to have been rendered or had without valid service
of summons. 54
Respondent Judge Castro begged the question when, instead of
resolving on the merits the issue of the invalidity of his default judgment
and of the proceedings leading thereto because of absence of valid
service of summons on the defendant, which had been expressly raised
in the defendant's motion for reconsideration, he simply refused to do
so on the excuse that he had lost jurisdiction over the case. This refusal
was, in the premises, a grave abuse of judicial discretion which must be
rectified.
What has been said makes unnecessary any further proceedings in the
Court below, which might otherwise be indicated by the consideration
that two of the postulates of petitioner's unresolved motions which the
Court considers equally as decisive as res judicata, to wit: estoppel by
silence and Article 1819, last paragraph, of the Civil Code, do not
constitute grounds for a motion to dismiss under rule 16, of the Rules of
Court. Such a step would only cause further delay. And delay has been
the bane of petitioner's cause, defying through all these years all its
efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear that the
claim to the mortgaged property belatedly and in apparent bad faith
pressed by the respondent partnership is foreclosed by both law and
equity. Further proceedings will not make this any clearer than it already
is. The Court is clothed with ample authority, in such a case, to call a halt
to all further proceedings and pronounce judgment on the basis of what
is already manifestly of record.
So much for the merits; the consequences that should attend the
inexcusable and indefensible conduct of the respondents Lims, the
respondent partnership and their counsel, Atty. Paterno R. Canlas,
should now be addressed. That the Lims and their partnership acted in
bad faith and with intent to defraud is manifest in the record of their
actuations, presenting as they did, piecemeal and in one case after
another, defenses to the foreclosure or claims in derogation thereof
that were available to them from the very beginning — actuations that
were to stave off the liquidation of an undenied debt for more than
twenty years and culminated in the clandestine filing and prosecution of
the action subject of the present petition.
What has happened here, it bears repeating, is nothing less than an
abuse of process, a trifling with the courts and with the rights of access
thereto, for which Atty. Canlas must share responsibility equally with his
clients. The latter could not have succeeded so well in obstructing the
course of justice without his aid and advice and his tireless espousal of
their claims and pretensions made in the various cases chronicled here.
That the cause to which he lent his advocacy was less than just or worthy
could not have escaped him, if not at the start of his engagement, in the
years that followed when with his willing assistance, if not instigation, it
was shuttled from one forum to another after each setback. This Court
merely stated what is obvious and cannot be gainsaid when, inSurigao
Mineral Reservation Board vs. Cloribel, 55 it held that a party's lawyer of
record has control of the proceedings and that '(w)hatever steps his
client takes should be within his knowledge and responsibility."
In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case,
which are described in the following paragraph taken from this Court's
decision therein:
Respondents' foregoing actuations reveal an 'unholy alliance'
between them and a clear indication of partiality for the party
represented by the other to the detriment of the objective
dispensation of justice. Writs of Attachment and Execution were
issued and implemented with lightning speed; the case itself was
railroaded to a swift conclusion through a similar judgment;
astronomical sums were awarded as damages and attorney's fees;
and topping it all, the right to appeal was foreclosed by clever
maneuvers," and which, the Court found, followed a pattern of
conduct in other cases of which judicial notice was taken, were
deemed sufficient cause for disbarment.
Atty. Canlas even tried to mislead this Court by claiming that he became
the Lims' lawyer only in 1977, 57 when the record indubitably shows that
he has represented them since September 9, 1972 when he first
appeared for them to prosecute their appeal in Civil Case No.
75180. 58 He has also quite impenitently disclaimed a duty to inform
opposing counsel in Civil Case No. Q-39294 of the existence of Civil Case
No. Q-36485, as plaintiffs' counsel in both actions, even while the
former, which involved the same mortgage, was already being litigated
when the latter was filed, although in the circumstances such disclosure
was required by the ethics of his profession, if not indeed by his lawyer's
oath.
A clear case also exists for awarding at least nominal damages to
petitioner, though damages are not expressly prayed for, under the
general prayer of the petition for "such other reliefs as may be just and
equitable under the premises," and the action being not only of
certiorari and prohibition, but also of mandamus-in which the payment
of "damages sustained by the petitioner by reason of the wrongful acts
of the defendant' is expressly authorized.59
There is no question in the Court's mind that such interests as may have
accumulated on the mortgage loan will not offset the prejudice visited
upon the petitioner by the excruciatingly long delay in the satisfaction
of said debt that the private respondents have engineered and
fomented.
These very same considerations dictate the imposition of exemplary
damages in accordance with Art. 2229 of the Civil Code.
WHEREFORE, so that complete justice may be dispensed here and, as
far as consistent with that end, all the matters and incidents with which
these proceedings are concerned may be brought to a swift conclusion:
(1) the assailed judgment by default in Civil Case
No.Q-36485, the writ of execution and all other
orders issued in implementation thereof, and all
proceedings in the case leading to said judgment
after the filing of the complaint are DECLARED null
and void and are hereby SET ASIDE; and the
complaint in said case is DISMISSED for being barred
by prior judgment and estoppel, and for lack of
merit;
(2) the City Sheriff of Manila is ORDERED, upon
receipt of this Decision, to schedule forthwith and
thereafter conduct with all due dispatch the sale at
public auction of the mortgaged property in
question for the satisfaction of the mortgage debt
of the respondents Lims to petitioner, in the
principal amount of P2,460,000.00 as found in the
amended decision in Civil Case No. 75180 of the
Court of First Instance of Manila, interests thereon
at the rate of twelve (12%) percent per annum from
November 8, 1967 until the date of sale, plus such
other and additional sums for commissions,
expenses, fees, etc. as may be lawfully chargeable in
extrajudicial foreclosure and sale proceedings;
(3) the private respondents, their successors and
assigns, are PERPETUALLY ENJOINED from taking
any action whatsoever to obstruct, delay or prevent
said auction sale;
 (4) the private respondents (the Lims, the
Partnership of the Heirs of Hugo Lim and Atty.
Paterno R. Canlas) are sentenced, jointly and
severally, to pay the petitioner P25,000.00 as
nominal damages and P100,000.00 as exemplary
damages, as well as treble costs; and
(5) let this matter be referred to the Integrated Bar
of the Philippines for investigation, report, and
recommendation insofar as the conduct of Atty.
Canlas as counsel in this case and in the other cases
hereinabove referred to is concerned.
SO ORDERED.
Article 1822-1823
ELMO MUÑASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL
COMPANY and RAMON PONS,respondents.
In this petition for certiorari, the petitioner seeks to annul and set added
the decision of the Court of Appeals affirming the existence of a
partnership between petitioner and one of the respondents, Celestino
Galan and holding both of them liable to the two intervenors which
extended credit to their partnership. The petitioner wants to be
excluded from the liabilities of the partnership.
Petitioner Elmo Muñasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its
Cebu Branch Manager Pons for remodelling a portion of its building
without exchanging or expecting any consideration from Galan although
the latter was casually named as partner in the contract; that by virtue
of his having introduced the petitioner to the employing company
(Tropical). Galan would receive some kind of compensation in the form
of some percentages or commission; that Tropical, under the terms of
the contract, agreed to give petitioner the amount of P7,000.00 soon
after the construction began and thereafter, the amount of P6,000.00
every fifteen (15) days during the construction to make a total sum of
P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a
check for P7,000.00 not to the plaintiff but to a stranger to the contract,
Galan, who succeeded in getting petitioner's indorsement on the same
check persuading the latter that the same be deposited in a joint
account; that on January 26, 1967 when the second check for P6,000.00
was due, petitioner refused to indorse said cheek presented to him by
Galan but through later manipulations, respondent Pons succeeded in
changing the payee's name from Elmo Muñasque to Galan and
Associates, thus enabling Galan to cash the same at the Cebu Branch of
the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction
materials, the payment of which should have been made from the
P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16,
1967 deadline;that because of the unauthorized disbursement by
respondents Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by respondents
under the terms of the written contract between the petitioner and
respondent company.
The respondents answered the complaint by denying some and
admitting some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed
that the issues to be resolved are:
(1) Whether or not there existed a partners between Celestino Galan
and Elmo Muñasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue
Diamond Glass Palace were allowed to intervene, both having legal
interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which
states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly
and severally the intervenors Cebu and Southern Hardware
Company and Blue Diamond Glass Palace the amount of P6,229.34
and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its
proprietor, Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its
judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muñasque and defendant Galan to pay jointly
and severally the intervenors Cebu Southern Hardware Company
and Blue Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally
interest at 12% per annum of the sum of P6,229.34 until the amount
is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to Intervenor Cebu
Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court
with the sole modification that the liability imposed in the dispositive
part of the decision on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and severally" to
"jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in behalf of
the partnership of "Galan and Muñasque" as Contractor entered into a
written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was
to be paid under the contract for the entire services of the Contractor.
The terms of payment were as follows: thirty percent (30%) of the whole
amount upon the signing of the contract and the balance thereof
divided into three equal installments at the lute of Six Thousand Pesos
(P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a
check for P7,000.00 in the name of the petitioner.Petitioner, however,
indorsed the check in favor of respondent Galan to enable the latter to
deposit it in the bank and pay for the materials and labor used in the
project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for
his personal use so that when the second check in the amount of
P6,000.00 came and Galan asked the petitioner to indorse it again, the
petitioner refused.
The check was withheld from the petitioner. Since Galan informed the
Cebu branch of Tropical that there was a"misunderstanding" between
him and petitioner, respondent Tropical changed the name of the payee
in the second check from Muñasque to "Galan and Associates" which
was the duly registered name of the partnership between Galan and
petitioner and under which name a permit to do construction business
was issued by the mayor of Cebu City. This enabled Galan to encash the
second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00
from his friend, Mr. Espina and although the expenses had reached the
amount of P29,000.00 because of the failure of Galan to pay what was
partly due the laborers and partly due for the materials, the construction
work was finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were
subsequently given to the petitioner alone with the last check being
given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents,seeking to recover the
following: the amounts covered by the first and second checks which fell
into the hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary damages,
and attorney's fees.
Both the trial and appellate courts not only absolved respondents
Tropical and its Cebu Manager, Pons, from any liability but they also held
the petitioner together with respondent Galan, hable to the intervenors
Cebu Southern Hardware Company and Blue Diamond Glass Palace for
the credit which the intervenors extended to the partnership of
petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows:
(1) Whether or not the appellate court erred in holding that a
partnership existed between petitioner and respondent Galan. (2)
Assuming that there was such a partnership, whether or not the court
erred in not finding Galan guilty of malversing the P13,000.00 covered
by the first and second checks and therefore, accountable to the
petitioner for the said amount; and (3) Whether or not the court
committed grave abuse of discretion in holding that the payment made
by Tropical through its manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also contends that the
appellate court committed grave abuse of discretion in holding that the
payment made by Tropical to Galan was "good" payment when the same
gave occasion for the latter to misappropriate the proceeds of such
payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muñasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966
by Galan and Muñasque hereinafter called the Contractor, and
Tropical Commercial Co., Inc., hereinafter called the owner do
hereby for and in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship
organized by the two men was not a genuine one. If there was a falling
out or misunderstanding between the partners, such does not convert
the partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed
the check in favor of Galan. Respondent Tropical therefore, had every
right to presume that the petitioner and Galan were true partners. If
they were not partners as petitioner claims, then he has only himself to
blame for making the relationship appear otherwise, not only to Tropical
but to their other creditors as well. The payments made to the
partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had acted
in good faith, the appellees also acted in good faith in extending
credit to the partnership. Where one of two innocent persons must
suffer, that person who gave occasion for the damages to be caused
must bear the consequences.
No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which binds
both Galan and the petitioner. Since the two were partners when the
debts were incurred, they, are also both liable to third persons who
extended credit to their partnership. In the case of George Litton v. Hill
and Ceron, et al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions. (Mills vs. Riggle,112
Pan, 617).
The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of the
firm acting apparently in its behalf and within the scope of his
authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave
abuse of discretion in not holding Galan liable for the amounts which he
"malversed" to the prejudice of the petitioner. He adds that although
this was not one of the issues agreed upon by the parties during the
pretrial, he, nevertheless, alleged the same in his amended complaint
which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose
of impleading Ramon Pons in his personal capacity. Although the
petitioner made allegations as to the alleged malversations of Galan,
these were the same allegations in his original complaint. The
malversation by one partner was not an issue actually raised in the
amended complaint but the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the
issues during the pre-trial because he himself agreed to the same.
In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we
ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues contained
in the trial court's order issued on the very day the pre-trial
conference was held. Such an order controls the subsequent course
of the action, unless modified before trial to prevent manifest
injustice.In the case at bar, modification of the pre-trial order was
never sought at the instance of any party.
Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan's personal liability
to their partnership but he chose not to do so, as he vehemently denied
the existence of the partnership. At any rate, the issue raised in this
petition is the contention of Muñasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We note that the
petitioner is not solely burdened by the obligations of their illstarred
partnership. The records show that there is an existing judgment against
respondent Galan, holding him liable for the total amount of P7,000.00
in favor of Eden Hardware which extended credit to the partnership
aside from the P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that
the trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware"jointly and severally" is plain
error since the liability of partners under the law to third persons for
contracts executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners,
including industrial ones, shall be liable prorate with all their property
and after all the partnership assets have been exhausted, for the
contracts which may be entered into the name and fm the account cd
the partnership, under its signature and by a person authorized to act
for the partner-ship. ...". this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily
with the partnership for everything chargeable to the partnership under
Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partner-ship or
with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its business receives
money or property of a third person and t he money or property so
received is misapplied by any partner while it is in the custody of the
partnership.
The obligation is solidary, because the law protects him, who in good
faith relied upon the authority of a partner, whether such authority is
real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is
the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe
that a partnership existed between the petitioner and Galan and no fault
or error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more
true in the cases of Cebu Southern Hardware and Blue Diamond Glass
Palace who supplied materials on credit to the partnership. Thus, it is
but fair that the consequences of any wrongful act committed by any of
the partners therein should be answered solidarily by all the partners
and the partnership as a whole
However. as between the partners Muñasque and Galan,justice also
dictates that Muñasque be reimbursed by Galan for the payments made
by the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad
faith in his dealings with Muñasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is
declared to be joint and solidary. Petitioner may recover from
respondent Galan any amount that he pays, in his capacity as a partner,
to the above intervenors,
SO ORDERED.
INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA. CORAZON
M. AKOL, MIGUEL UY, EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN, REX C.
DRILON, MIGUEL HILADO, LEY SALCEDO, and MANUEL ALCUAZ
JR., petitioners, vs. COMMISSION ON ELECTIONS; COMELEC
CHAIRMANBENJAMIN ABALOS SR.; COMELEC BIDDING and
AWARD COMMITTEE CHAIRMAN EDUARDO D. MEJOS and MEMBERS GIDEON
DE GUZMAN, JOSE F. BALBUENA, LAMBERTO P. LLAMAS, and BARTOLOME
SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.; and MEGA PACIFIC
CONSORTIUM, respondents.
There is grave abuse of discretion (1) when an act is done contrary
to the Constitution, the law or jurisprudence;[1] or (2) when it is executed
whimsically, capriciously or arbitrarily out of malice, ill will or personal
bias.[2] In the present case, the Commission on Elections approved the
assailed Resolution and awarded the subject Contract not only in clear
violation of law and jurisprudence, but also in reckless disregard of its
own bidding rules and procedure. For the automation of the counting
and canvassing of the ballots in the 2004 elections, Comelec awarded
the Contract to Mega Pacific Consortium an entity that had not
participated in the bidding. Despite this grant, the poll body signed the
actual automation Contract with Mega Pacific eSolutions, Inc., a
company that joined the bidding but had not met the eligibility
requirements.
Comelec awarded this billion-peso undertaking with inexplicable
haste, without adequately checking and observing mandatory financial,
technical and legal requirements. It also accepted the proferred
computer hardware and software even if, at the time of the award, they
had undeniably failed to pass eight critical requirements designed to
safeguard the integrity of elections, especially the following three items:
They failed to achieve the accuracy rating criteria
of 99.9995 percent set-up by the Comelec itself
They were not able to detect previously
downloaded results at various canvassing or
consolidation levels and to prevent these from
being inputted again
They were unable to print the statutorily required
audit trails of the count/canvass at different levels
without any loss of data
Because of the foregoing violations of law and the glaring grave
abuse of discretion committed by Comelec, the Court has no choice but
to exercise its solemn constitutional duty[3] to void the assailed
Resolution and the subject Contract. The illegal, imprudent and hasty
actions of the Commission have not only desecrated legal and
jurisprudential norms, but have also cast serious doubts upon the poll
bodys ability and capacity to conduct automated elections. Truly, the
pith and soul of democracy -- credible, orderly, and peaceful elections -
- has been put in jeopardy by the illegal and gravely abusive acts of
Comelec.
The Case
Before us is a Petition[4] under Rule 65 of the Rules of Court,
seeking (1) to declare null and void Resolution No. 6074 of the
Commission on Elections (Comelec), which awarded Phase II of the
Modernization Project of the Commission to Mega Pacific Consortium
(MPC); (2) to enjoin the implementation of any further contract that
may have been entered into by Comelec either with Mega Pacific
Consortium and/or Mega Pacific eSolutions, Inc. (MPEI); and (3) to
compel Comelec to conduct a re-bidding of the project.
The Facts
The following facts are not disputed. They were culled from
official documents, the parties pleadings, as well as from admissions
during the Oral Argument on October 7, 2003.
 On June 7, 1995, Congress passed Republic Act 8046,[5] which responsible or liable for a particular contract,
authorized Comelec to conduct a nationwide demonstration of a provided that Filipino ownership thereof shall be at
computerized election system and allowed the poll body to pilot-test the least sixty percent (60%); and
system in the March 1996 elections in the Autonomous Region in
e. Cooperatives duly registered with the Cooperatives
Muslim Mindanao (ARMM).
Development Authority.
On December 22, 1997, Congress enacted Republic Act
Bid documents for the three (3) phases may be obtained starting 10
8436[6] authorizing Comelec to use an automated election system (AES)
February 2003, during office hours from the Bids and Awards Committee
for the process of voting, counting votes and canvassing/consolidating
(BAC) Secretariat/Office of Commissioner Resurreccion Z. Borra,
the results of the national and local elections. It also mandated the poll
7th Floor, Palacio del Governador, Intramuros, Manila, upon payment at
body to acquire automated counting machines (ACMs), computer
the Cash Division, Commission on Elections, in cash or cashiers check,
equipment, devices and materials; and to adopt new electoral forms and
payable to the Commission on Elections, of a non-refundable amount of
printing materials.
FIFTEEN THOUSAND PESOS (Php15,000.00) for each phase. For this
Initially intending to implement the automation during the May purpose, interested offerors, vendors, suppliers or lessors have the
11, 1998 presidential elections, Comelec -- in its Resolution No. 2985 option to participate in any or all of the three (3) phases of the
dated February 9, 1998[7] -- eventually decided against full national comprehensive Automated Election System.
implementation and limited the automation to the Autonomous Region
A Pre-Bid Conference is scheduled on 13 February 2003, at 9:00 a.m. at
in Muslim Mindanao (ARMM). However, due to the failure of the
the Session Hall, Commission on Elections, Postigo Street, Intramuros,
machines to read correctly some automated ballots in one town, the poll
Manila. Should there be questions on the bid documents, bidders are
body later ordered their manual count for the entire Province of Sulu.[8]
required to submit their queries in writing to the BAC Secretariat prior
In the May 2001 elections, the counting and canvassing of votes to the scheduled Pre-Bid Conference.
for both national and local positions were also done manually, as no
Deadline for submission to the BAC of applications for eligibility and bid
additional ACMs had been acquired for that electoral exercise allegedly
envelopes for the supply of the comprehensive Automated Election
because of time constraints.
System shall be at the Session Hall, Commission on Elections, Postigo
On October 29, 2002, Comelec adopted in its Resolution 02-0170 Street, Intramuros, Manila on 28 February 2003 at 9:00 a.m.
a modernization program for the 2004 elections. It resolved to conduct
The COMELEC reserves the right to review the qualifications of the
biddings for the three (3) phases of its Automated Election System;
bidders after the bidding and before the contract is executed. Should
namely, Phase I - Voter Registration and Validation System; Phase II -
such review uncover any misrepresentation made in the eligibility
Automated Counting and Canvassing System; and Phase III - Electronic
statements, or any changes in the situation of the bidder to materially
Transmission.
downgrade the substance of such statements, the COMELEC shall
On January 24, 2003, President Gloria Macapagal-Arroyo issued disqualify the bidder upon due notice without any obligation
Executive Order No. 172, which allocated the sum of P2.5 billion to fund whatsoever for any expenses or losses that may be incurred by it in the
the AES for the May 10, 2004 elections. Upon the request of Comelec, preparation of its bid.[9]
she authorized the release of an additional P500 million.
On February 11, 2003, Comelec issued Resolution No. 5929
On January 28, 2003, the Commission issued an Invitation to Apply clarifying certain eligibility criteria for bidders and the schedule of
for Eligibility and to Bid, which we quote as follows: activities for the project bidding, as follows:
INVITATION TO APPLY FOR ELIGIBILITY AND TO BID 1.) Open to Filipino and foreign corporation duly registered
and licensed to do business and is actually doing
The Commission on Elections (COMELEC), pursuant to the mandate of
business in the Philippines, subject to Sec. 43 of RA
Republic Act Nos. 8189 and 8436, invites interested offerors, vendors,
9184 (An Act providing In the Modernization
suppliers or lessors to apply for eligibility and to bid for the procurement
Standardization and Regulation of the Procurement
by purchase, lease, lease with option to purchase, or otherwise,
Activities of the Government and for other purposes
supplies, equipment, materials and services needed for a
etc.)
comprehensive Automated Election System, consisting of three (3)
phases: (a) registration/verification of voters, (b) automated counting 2.) Track Record:
and consolidation of votes, and (c) electronic transmission of election
a) For counting machines should have been used in at
results, with an approved budget of TWO BILLION FIVE HUNDRED
least one (1) political exercise with no less than
MILLION (Php2,500,000,000) Pesos.
Twenty Million Voters;
Only bids from the following entities shall be entertained:
b) For verification of voters the reference site of an
a. Duly licensed Filipino citizens/proprietorships; existing data base installation using Automated
Fingerprint Identification System (AFIS) with at
b. Partnerships duly organized under the laws of the
least Twenty Million.
Philippines and of which at least sixty percent (60%)
of the interest belongs to citizens of the Philippines; 3.) Ten percent (10%) equity requirement shall be based on
the total project cost; and
c. Corporations duly organized under the laws of the
Philippines, and of which at least sixty percent (60%) 4.) Performance bond shall be twenty percent (20%) of the
of the outstanding capital stock belongs to citizens bid offer.
of the Philippines;
RESOLVED moreover, that:
d. Manufacturers, suppliers and/or distributors forming
1) A. Due to the decision that the eligibility requirements
themselves into a joint venture, i.e., a group of two
and the rest of the Bid documents shall be released
(2) or more manufacturers, suppliers and/or
at the same time, and the memorandum of Comm.
distributors that intend to be jointly and severally
Resurreccion Z. Borra dated February 7, 2003, the
 documents to be released on Friday, February 14,
2003 at 2:00 oclock p.m. shall be the eligibility
criteria, Terms of Reference (TOR) and other
pertinent documents;
B. Pre-Bid conference shall be on February 18, 2003; and
C. Deadline for the submission and receipt of the Bids
shall be on March 5, 2003.
2) The aforementioned documents will be available at the following
offices:
a) Voters Validation: Office of Comm. Javier
b) Automated Counting Machines: Office of
Comm. Borra
c) Electronic Transmission: Office of Comm. Tancangco[10]
On February 17, 2003, the poll body released the Request for
Proposal (RFP) to procure the election automation machines. The Bids
and Awards Committee (BAC) of Comelec convened a pre-bid
conference on February 18, 2003 and gave prospective bidders until
March 10, 2003 to submit their respective bids.
Among others, the RFP provided that bids from manufacturers,
suppliers and/or distributors forming themselves into a joint venture
may be entertained, provided that the Philippine ownership thereof
shall be at least 60 percent. Joint venture is defined in the RFP as a group
of two or more manufacturers, suppliers and/or distributors that intend
to be jointly and severally responsible or liable for a particular
contract.[11]
Basically, the public bidding was to be conducted under a two-
envelope/two stage system. The bidders first envelope or the Eligibility
Envelope should establish the bidders eligibility to bid and its
qualifications to perform the acts if accepted. On the other hand, the
second envelope would be the Bid Envelope itself. The RFP outlines the
bidding procedures as follows:
25. Determination of Eligibility of Prospective Bidders
25.1 The eligibility envelopes of prospective Bidders shall be
opened first to determine their eligibility. In case any of the
requirements specified in Clause 20 is missing from the first
bid envelope, the BAC shall declare said prospective Bidder
as ineligible to bid. Bid envelopes of ineligible Bidders shall
be immediately returned unopened.
25.2 The eligibility of prospective Bidders shall be
determined using simple pass/fail criteria and shall be
determined as either eligible or ineligible. If the prospective
Bidder is rated passed for all the legal, technical and
financial requirements, he shall be considered eligible. If
the prospective Bidder is rated failed in any of the
requirements, he shall be considered ineligible.
26. Bid Examination/Evaluation
26.1 The BAC will examine the Bids to determine whether
they are complete, whether any computational errors have
been made, whether required securities have been
furnished, whether the documents have been properly
signed, and whether the Bids are generally in order.
26.2 The BAC shall check the submitted documents of each
Bidder against the required documents enumerated under
Clause 20, to ascertain if they are all present in the Second
bid envelope (Technical Envelope). In case one (1) or more
of the required documents is missing, the BAC shall rate the
Bid concerned as failed and immediately return to the
Bidder its Third bid envelope (Financial Envelope)
unopened. Otherwise, the BAC shall rate the first bid
envelope as passed.
26.3 The BAC shall immediately open the Financial
Envelopes of the Bidders whose Technical Envelopes were
passed or rated on or above the passing score. Only Bids
that are determined to contain all the bid requirements for
both components shall be rated passed and shall
immediately be considered for evaluation and comparison.
26.4 In the opening and examination of the Financial
Envelope, the BAC shall announce and tabulate the Total
Bid Price as calculated. Arithmetical errors will be rectified
on the following basis: If there is a discrepancy between
words and figures, the amount in words will prevail. If there
is a discrepancy between the unit price and the total price
that is obtained by multiplying the unit price and the
quantity, the unit price shall prevail and the total price shall
be corrected accordingly. If there is a discrepancy between
the Total Bid Price and the sum of the total prices, the sum
of the total prices prevail and the Total Bid Price shall be
corrected accordingly.
26.5 Financial Proposals which do not clearly state the Total
Bid Price shall be rejected. Also, Total Bid Price as calculated
that exceeds the approved budget for the contract shall
also be rejected.
27. Comparison of Bids
27.1 The bid price shall be deemed to embrace all costs,
charges and fees associated with carrying out all the
elements of the proposed Contract, including but not
limited to, license fees, freight charges and taxes.
27.2 The BAC shall establish the calculated prices of all Bids
rated passed and rank the same in ascending order.
xxxxxxxxx
29. Postqualification
29.1 The BAC will determine to its satisfaction whether the
Bidder selected as having submitted the lowest calculated
bid is qualified to satisfactorily perform the Contract.
29.2 The determination will take into account the Bidders
financial, technical and production
capabilities/resources. It will be based upon an examination
of the documentary evidence of the Bidders qualification
submitted by the Bidder as well as such other information
as the BAC deems necessary and appropriate.
29.3 A bid determined as not substantially responsive will be
rejected by the BAC and may not subsequently be made
responsive by the Bidder by correction of the non-
conformity.
29.4 The BAC may waive any informality or non-conformity
or irregularity in a bid which does not constitute a material
deviation, provided such waiver does not prejudice or
affect the relative ranking of any Bidder.
29.5 Should the BAC find that the Bidder complies with the
legal, financial and technical requirements, it shall make an
affirmative determination which shall be a prerequisite for
award of the Contract to the Bidder. Otherwise, it will make
a negative determination which will result in rejection of
the Bidders bid, in which event the BAC will proceed to the
next lowest calculated bid to make a similar determination
of that Bidders capabilities to perform satisfactorily.[12]
 Out of the 57 bidders,[13] the BAC found MPC and the Total
Information Management Corporation (TIMC) eligible. For technical
evaluation, they were referred to the BACs Technical Working Group
(TWG) and the Department of Science and Technology (DOST).
In its Report on the Evaluation of the Technical Proposals on Phase
II, DOST said that both MPC and TIMC had obtained a number of failed
marks in the technical evaluation.Notwithstanding these failures,
Comelec en banc, on April 15, 2003, promulgated Resolution No. 6074
awarding the project to MPC. The Commission publicized this Resolution
and the award of the project to MPC on May 16, 2003.
On May 29, 2003, five individuals and entities (including the herein
Petitioners Information Technology Foundation of the
Philippines, represented by its president, Alfredo M. Torres; and Ma.
Corazon Akol) wrote a letter[14] to Comelec Chairman Benjamin Abalos
Sr. They protested the award of the Contract to Respondent MPC due
to glaring irregularities in the manner in which the bidding process had
been conducted. Citing therein the noncompliance with eligibility as
well as technical and procedural requirements (many of which have
been discussed at length in the Petition), they sought a re-bidding.
In a letter-reply dated June 6, 2003,[15] the Comelec chairman -
- speaking through Atty. Jaime Paz, his head executive assistant --
rejected the protest and declared that the award would stand up to the
strictest scrutiny.
Hence, the present Petition.[16]
The Issues
In their Memorandum, petitioners raise the following issues for
our consideration:
1. The COMELEC awarded and contracted with a non-
eligible entity; x x x
2. Private respondents failed to pass the Technical Test as
required in the RFP. Notwithstanding, such failure
was ignored. In effect, the COMELEC changed the
rules after the bidding in effect changing the nature
of the contract bidded upon.
3. Petitioners have locus standi.
4. Instant Petition is not premature. Direct resort to the
Supreme Court is justified.[17]
In the main, the substantive issue is whether the Commission on
Elections, the agency vested with the exclusive constitutional mandate
to oversee elections, gravely abused its discretion when, in the exercise
of its administrative functions, it awarded to MPC the contract for the
second phase of the comprehensive Automated Election System.
Before discussing the validity of the award to MPC, however, we
deem it proper to first pass upon the procedural issues: the legal
standing of petitioners and the alleged prematurity of the Petition.
This Courts Ruling
The Petition is meritorious.
First Procedural Issue:
Locus Standi of Petitioners
Respondents chorus that petitioners do not possess locus standi,
inasmuch as they are not challenging the validity or constitutionality of
RA 8436. Moreover, petitioners supposedly admitted during the Oral
Argument that no law had been violated by the award of the
Contract. Furthermore, they allegedly have no actual and material
interest in the Contract and, hence, do not stand to be injured or
prejudiced on account of the award.
On the other hand, petitioners -- suing in their capacities as
taxpayers, registered voters and concerned citizens -- respond that the
issues central to this case are of transcendental importance and of
national interest. Allegedly, Comelecs flawed bidding and questionable
award of the Contract to an unqualified entity would impact directly on
the success or the failure of the electoral process. Thus, any taint on the
sanctity of the ballot as the expression of the will of the people would
inevitably affect their faith in the democratic system of
government.Petitioners further argue that the award of any contract for
automation involves disbursement of public funds in gargantuan
amounts; therefore, public interest requires that the laws governing the
transaction must be followed strictly.
We agree with petitioners. Our nations political and economic
future virtually hangs in the balance, pending the outcome of the 2004
elections. Hence, there can be no serious doubt that the subject matter
of this case is a matter of public concern and imbued with public
interest;[18] in other words, it is of paramount public interest[19] and
transcendental importance.[20]This fact alone would justify relaxing the
rule on legal standing, following the liberal policy of this Court whenever
a case involves an issue of overarching significance to our
society.[21]Petitioners legal standing should therefore be recognized and
upheld.
Moreover, this Court has held that taxpayers are allowed to sue
when there is a claim of illegal disbursement of public funds,[22] or if
public money is being deflected to any improper purpose;[23] or when
petitioners seek to restrain respondent from wasting public funds
through the enforcement of an invalid or unconstitutional law.[24] In the
instant case, individual petitioners, suing as taxpayers, assert a material
interest in seeing to it that public funds are properly and lawfully used. In
the Petition, they claim that the bidding was defective, the winning
bidder not a qualified entity, and the award of the Contract contrary to
law and regulation. Accordingly, they seek to restrain respondents from
implementing the Contract and, necessarily, from making any
unwarranted expenditure of public funds pursuant thereto. Thus, we
hold that petitioners possess locus standi.
Second Procedural Issue:
Alleged Prematurity Due to Non-Exhaustion
of Administrative Remedies
Respondents claim that petitioners acted prematurely, since they
had not first utilized the protest mechanism available to them under RA
9184, the Government Procurement Reform Act, for the settlement of
disputes pertaining to procurement contracts.
Section 55 of RA 9184 states that protests against decisions of the
Bidding and Awards Committee in all stages of procurement may be
lodged with the head of the procuring entity by filing a verified position
paper and paying a protest fee. Section 57 of the same law mandates
that in no case shall any such protest stay or delay the bidding process,
but it must first be resolved before any award is made.
On the other hand, Section 58 provides that court action may be
resorted to only after the protests contemplated by the statute shall
have been completed. Cases filed in violation of this process are to be
dismissed for lack of jurisdiction. Regional trial courts shall have
jurisdiction over final decisions of the head of the procuring entity, and
court actions shall be instituted pursuant to Rule 65 of the 1997 Rules
of Civil Procedure.
Respondents assert that throughout the bidding process,
petitioners never questioned the BAC Report finding MPC eligible to bid
and recommending the award of the Contract to it (MPC). According to
respondents, the Report should have been appealed to the Comelec en
banc, pursuant to the aforementioned sections of RA 9184. In the
absence of such appeal, the determination and recommendation of the
BAC had become final.
The Court is not persuaded.
Respondent Comelec came out with its en banc Resolution No.
6074 dated April 15, 2003, awarding the project to Respondent MPC
even before the BAC managed to issue its written report and
recommendation on April 21, 2003. Thus, how could petitioners have
appealed the BACs recommendation or report to the head of the
procuring entity (the chairman of Comelec), when the Comelec en
banc had already approved the award of the contract to MPC even
before petitioners learned of the BAC recommendation?
It is claimed[25] by Comelec that during its April 15, 2003 session,
it received and approved the verbal report and recommendation of the
BAC for the award of the Contract to MPC, and that the BAC
subsequently re-affirmed its verbal report and recommendation by
submitting it in writing on April 21, 2003. Respondents insist that the law
does not require that the BAC Report be in writing before Comelec can
act thereon; therefore, there is allegedly nothing irregular about the
Report as well as the en banc Resolution.
However, it is obvious that petitioners could have appealed the
BACs report and recommendation to the head of the procuring entity
(the Comelec chair) only upon their discoverythereof, which at the very
earliest would have been on April 21, 2003, when the BAC actually put
its report in writing and finally released it. Even then, what would have
been the use of protesting/appealing the report to the Comelec chair,
when by that time the Commission en banc (including the chairman
himself) had already approved the BAC Report and awarded the
Contract to MPC?
And even assuming arguendo that petitioners had somehow
gotten wind of the verbal BAC report on April 15, 2003 (immediately
after the en banc session), at that point the Commission en banc had
already given its approval to the BAC Report along with the award to
MPC. To put it bluntly, the Comelec en banc itself made it legally
impossible for petitioners to avail themselves of the administrative
remedy that the Commission is so impiously harping on. There is no
doubt that they had not been accorded the opportunity to avail
themselves of the process provided under Section 55 of RA 9184,
according to which a protest against a decision of the BAC may be
filed with the head of the procuring entity. Nemo tenetur ad
impossible,[26] to borrow private respondents favorite Latin excuse.[27]
Some Observations on the
BAC Report to the Comelec
We shall return to this issue of alleged prematurity shortly, but at
this interstice, we would just want to put forward a few observations
regarding the BAC Report and the Comelec en bancs approval thereof.
First, Comelec contends that there was nothing unusual about the
fact that the Report submitted by the BAC came only after the former
had already awarded the Contract, because the latter had been asked
to render its report and recommendation orally during the Commissions
en banc session on April 15, 2003. Accordingly, Comelec supposedly
acted upon such oral recommendation and approved the award to MPC
on the same day, following which the recommendation was
subsequently reduced into writing on April 21, 2003. While not entirely
outside the realm of the possible, this interesting and unique spiel does
not speak well of the process that Comelec supposedly went through in
making a critical decision with respect to a multi-billion-peso contract.
We can imagine that anyone else standing in the shoes of the
Honorable Commissioners would have been extremely conscious of the
overarching need for utter transparency. They would have scrupulously
avoided the slightest hint of impropriety, preferring to maintain an
exacting regularity in the performance of their duties, instead of trying
to break a speed record in the award of multi-billion-peso
contracts. After all, between April 15 and April 21 were a mere six (6)
days. Could Comelec not have waited out six more days for the written
report of the BAC, instead of rushing pell-mell into the arms of
MPC? Certainly, respondents never cared to explain the nature of the
Commissions dire need to act immediately without awaiting the formal,
written BAC Report.
In short, the Court finds it difficult to reconcile the uncommon
dispatch with which Comelec acted to approve the multi-billion-peso
deal, with its claim of having been impelled by only the purest and most
noble of motives.
At any rate, as will be discussed later on, several other factors
combine to lend negative credence to Comelecs tale.
Second, without necessarily ascribing any premature malice or
premeditation on the part of the Comelec officials involved, it should
nevertheless be conceded that this cart-before-the-horse maneuver
(awarding of the Contract ahead of the BACs written report) would
definitely serve as a clever and effective way of averting and frustrating
any impending protest under Section 55.
Having made the foregoing observations, we now go back to the
question of exhausting administrative remedies. Respondents may not
have realized it, but the letter addressed to Chairman Benjamin Abalos
Sr. dated May 29, 2003[28] serves to eliminate the prematurity issue as it
was an actual written protest against the decision of the poll body to
award the Contract. The letter was signed by/for, inter alia, two of
herein petitioners: the Information Technology Foundation of the
Philippines, represented by its president, Alfredo M. Torres; and Ma.
Corazon Akol.
Such letter-protest is sufficient compliance with the requirement
to exhaust administrative remedies particularly because it hews closely
to the procedure outlined in Section 55 of RA 9184.
And even without that May 29, 2003 letter-protest, the Court still
holds that petitioners need not exhaust administrative remedies in the
light of Paat v. Court of Appeals.[29] Paatenumerates the instances when
the rule on exhaustion of administrative remedies may be disregarded,
as follows:
(1) when there is a violation of due process,
(2) when the issue involved is purely a legal question,
(3) when the administrative action is patently illegal
amounting to lack or excess of jurisdiction,
(4) when there is estoppel on the part of the administrative
agency concerned,
(5) when there is irreparable injury,
(6) when the respondent is a department secretary whose
acts as an alter ego of the President bears the
implied and assumed approval of the latter,
(7) when to require exhaustion of administrative remedies
would be unreasonable,
(8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case
proceedings,
(10) when the rule does not provide a plain, speedy and
adequate remedy, and
(11) when there are circumstances indicating the urgency of
judicial intervention.[30]
The present controversy precisely falls within the exceptions listed
as Nos. 7, 10 and 11: (7) when to require exhaustion of administrative
remedies would be unreasonable; (10) when the rule does not provide a
plain, speedy and adequate remedy, and (11) when there are
circumstances indicating the urgency of judicial intervention. As already
stated, Comelec itself made the exhaustion of administrative remedies
legally impossible or, at the very least, unreasonable.
In any event, the peculiar circumstances surrounding the
unconventional rendition of the BAC Report and the precipitate
awarding of the Contract by the Comelec en banc -- plus the fact that it
was racing to have its Contract with MPC implemented in time for the
elections in May 2004 (barely four months away) -- have combined to
bring about the urgent need for judicial intervention, thus prompting
this Court to dispense with the procedural exhaustion of administrative
remedies in this case.
Main Substantive Issue:
Validity of the Award to MPC
We come now to the meat of the controversy. Petitioners contend
that the award is invalid, since Comelec gravely abused its discretion
when it did the following:
1. Awarded the Contract to MPC though it did not even participate
in the bidding
2. Allowed MPEI to participate in the bidding despite its failure to
meet the mandatory eligibility requirements
3. Issued its Resolution of April 15, 2003 awarding the Contract to
MPC despite the issuance by the BAC of its Report, which formed the
basis of the assailed Resolution, only on April 21, 2003[31]
4. Awarded the Contract, notwithstanding the fact that during the
bidding process, there were violations of the mandatory requirements
of RA 8436 as well as those set forth in Comelecs own Request for
Proposal on the automated election system
5. Refused to declare a failed bidding and to conduct a re-bidding
despite the failure of the bidders to pass the technical tests conducted
by the Department of Science and Technology
6. Failed to follow strictly the provisions of RA 8436 in the conduct
of the bidding for the automated counting machines
After reviewing the slew of pleadings as well as the matters raised
during the Oral Argument, the Court deems it sufficient to focus
discussion on the following major areas of concernthat impinge on the
issue of grave abuse of discretion:
A. Matters pertaining to the identity, existence and eligibility of MPC as
a bidder
B. Failure of the automated counting machines (ACMs) to pass the DOST
technical tests
C. Remedial measures and re-testings undertaken by Comelec and DOST
after the award, and their effect on the present controversy
A.
Failure to Establish the Identity,
Existence and Eligibility of the
Alleged Consortium as a Bidder
On the question of the identity and the existence of the real
bidder, respondents insist that, contrary to petitioners allegations, the
bidder was not Mega Pacific eSolutions, Inc. (MPEI), which was
incorporated only on February 27, 2003, or 11 days prior to the bidding
itself. Rather, the bidder was Mega Pacific Consortium (MPC), of which
MPEI was but a part. As proof thereof, they point to the March 7, 2003
letter of intent to bid, signed by the president of MPEI allegedly for and
on behalf of MPC. They also call attention to the official receipt issued
to MPC, acknowledging payment for the bidding documents, as proof
that it was the consortium that participated in the bidding process.
We do not agree. The March 7, 2003 letter, signed by only one
signatory -- Willy U. Yu, President, Mega Pacific eSolutions, Inc., (Lead
Company/ Proponent) For: Mega Pacific Consortium -- and without any
further proof, does not by itself prove the existence of the consortium. It
does not show that MPEI or its president have been duly pre-authorized
by the other members of the putative consortium to represent them, to
bid on their collective behalf and, more important, to commit them
jointly and severally to the bid undertakings. The letter is purely self-
serving and uncorroborated.
Neither does an official receipt issued to MPC, acknowledging
payment for the bidding documents, constitute proof that it was the
purported consortium that participated in the bidding.Such receipts are
issued by cashiers without any legally sufficient inquiry as to the real
identity or existence of the supposed payor.
To assure itself properly of the due existence (as well as eligibility
and qualification) of the putative consortium, Comelecs BAC should
have examined the bidding documents submitted on behalf of
MPC. They would have easily discovered the following fatal flaws.
Two-Envelope,
Two-Stage System
As stated earlier in our factual presentation, the public bidding
system designed by Comelec under its RFP (Request for Proposal for the
Automation of the 2004 Election) mandated the use of a two-envelope,
two-stage system. A bidders first envelope (Eligibility Envelope) was
meant to establish its eligibility to bid and its qualifications and capacity
to perform the contract if its bid was accepted, while the second
envelope would be the Bid Envelope itself.
The Eligibility Envelope was to contain legal documents such as
articles of incorporation, business registrations, licenses and permits,
mayors permit, VAT certification, and so forth;technical
documents containing documentary evidence to establish the track
record of the bidder and its technical and production capabilities to
perform the contract; and financial documents, including audited
financial statements for the last three years, to establish the bidders
financial capacity.
In the case of a consortium or joint venture desirous of
participating in the bidding, it goes without saying that the Eligibility
Envelope would necessarily have to include a copy of the joint venture
agreement, the consortium agreement or memorandum of agreement
-- or a business plan or some other instrument of similar import --
establishing the due existence, composition and scope of such
aggrupation. Otherwise, how would Comelec know who it was dealing
with, and whether these parties are qualified and capable of delivering
the products and services being offered for bidding?[32]
In the instant case, no such instrument was submitted to Comelec
during the bidding process. This fact can be conclusively ascertained by
scrutinizing the two-inch thick Eligibility Requirements file submitted by
Comelec last October 9, 2003, in partial compliance with this Courts
instructions given during the Oral Argument. This file purports to
replicate the eligibility documents originally submitted to Comelec by
MPEI allegedly on behalf of MPC, in connection with the bidding
conducted in March 2003. Included in the file are the incorporation
papers and financial statements of the members of the supposed
consortium and certain certificates, licenses and permits issued to them.
However, there is no sign whatsoever of any joint
venture agreement, consortium agreement, memorandum of
agreement, or business plan executed among the members of the purported
consortium.
 The only logical conclusion is that no such agreement was ever
submitted to the Comelec for its consideration, as part of the bidding
process.
It thus follows that, prior the award of the Contract, there was no
documentary or other basis for Comelec to conclude that a consortium
had actually been formed amongst MPEI, SK C&C and WeSolv, along
with Election.com and ePLDT.[33] Neither was there anything to indicate
the exact relationships between and among these firms; their diverse
roles, undertakings and prestations, if any, relative to the prosecution of
the project, the extent of their respective investments (if any) in the
supposed consortium or in the project; and the precise nature and
extent of their respective liabilities with respect to the contract being
offered for bidding. And apart from the self-serving letter of March 7,
2003, there was not even any indication that MPEI was the lead
company duly authorized to act on behalf of the others.
So, it necessarily follows that, during the bidding process, Comelec
had no basis at all for determining that the alleged consortium really
existed and was eligible and qualified; and that the arrangements among
the members were satisfactory and sufficient to ensure delivery on the
Contract and to protect the governments interest.
Notwithstanding such deficiencies, Comelec still deemed the
consortium eligible to participate in the bidding, proceeded to open its
Second Envelope, and eventually awarded the bid to it, even though --
per the Comelecs own RFP -- the BAC should have declared the MPC
ineligible to bid and returned the Second (Bid) Envelope unopened.
Inasmuch as Comelec should not have considered MPEI et al. as
comprising a consortium or joint venture, it should not have allowed
them to avail themselves of the provision in Section 5.4 (b) (i) of the IRR
for RA 6957 (the Build-Operate-Transfer Law), as amended by RA
7718. This provision states in part that a joint venture/consortium
proponent shall be evaluated based on the individual or collective
experience of the member-firms of the joint venture or consortium and
of the contractor(s) that it has engaged for the project. Parenthetically,
respondents have uniformly argued that the said IRR of RA 6957, as
amended, have suppletory application to the instant case.
Hence, had the proponent MPEI been evaluated based solely on
its own experience, financial and operational track record or lack
thereof, it would surely not have qualified and would have been
immediately considered ineligible to bid, as respondents readily admit.
At any rate, it is clear that Comelec gravely abused its discretion in
arbitrarily failing to observe its own rules, policies and guidelines with
respect to the bidding process, thereby negating a fair, honest and
competitive bidding.
Commissioners Not
Aware of Consortium
In this regard, the Court is beguiled by the statements of
Commissioner Florentino Tuason Jr., given in open court during the Oral
Argument last October 7, 2003. The good commissioner affirmed that
he was aware, of his own personal knowledge, that there had indeed
been a written agreement among the consortium members,[34] although
it was an internal matter among them,[35] and of the fact that it would
be presented by counsel for private respondent.[36]
However, under questioning by Chief Justice Hilario G. Davide Jr.
and Justice Jose C. Vitug, Commissioner Tuason in effect admitted that,
while he was the commissioner-in-charge of Comelecs Legal
Department, he had never seen, even up to that late date, the
agreement he spoke of.[37] Under further questioning, he was likewise
unable to provide any information regarding the amounts invested into
the project by several members of the claimed consortium.[38] A short
while later, he admitted that the Commission had not taken a look at the
agreement (if any).[39]
He tried to justify his position by claiming that he was not a
member of the BAC. Neither was he the commissioner-in-charge of the
Phase II Modernization project (the automated election system); but
that, in any case, the BAC and the Phase II Modernization Project Team
did look into the aspect of the composition of the consortium.
It seems to the Court, though, that even if the BAC or the Phase II
Team had taken charge of evaluating the eligibility, qualifications and
credentials of the consortium-bidder, still, in all probability, the former
would have referred the task to Commissioner Tuason, head of
Comelecs Legal Department. That task was the appreciation and
evaluation of the legal effects and consequences of the terms,
conditions, stipulations and covenants contained in any joint venture
agreement, consortium agreement or a similar document -- assuming of
course that any of these was available at the time. The fact that
Commissioner Tuason was barely aware of the situation bespeaks the
complete absence of such document, or the utter failure or neglect of
the Comelec to examine it -- assuming it was available at all -- at the time
the award was made on April 15, 2003.
In any event, the Court notes for the record that Commissioner
Tuason basically contradicted his statements in open court about there
being one written agreement among all the consortium members, when
he subsequently referred[40] to the four (4) Memoranda of Agreement
(MOAs) executed by them.[41]
At this juncture, one might ask: What, then, if there are four MOAs
instead of one or none at all? Isnt it enough that there are these
corporations coming together to carry out the automation project? Isnt
it true, as respondent aver, that nowhere in the RFP issued by Comelec
is it required that the members of the joint venture execute a single
written agreement to prove the existence of a joint venture. Indeed, the
intention to be jointly and severally liable may be evidenced not only by
a single joint venture agreement, but also by supplementary documents
executed by the parties signifying such intention. What then is the big
deal?
The problem is not that there are four agreements instead of only
one. The problem is that Comelec never bothered to check. It never
based its decision on documents or other proof that would concretely
establish the existence of the claimed consortium or joint venture or
agglomeration. It relied merely on the self-serving representation in an
uncorroborated letter signed by only one individual, claiming that his
company represented a consortium of several different corporations. It
concluded forthwith that a consortium indeed existed, composed of
such and such members, and thereafter declared that the entity was
eligible to bid.
True, copies of financial statements and incorporation papers of
the alleged consortium members were submitted. But these papers did
not establish the existence of a consortium, as they could have been
provided by the companies concerned for purposes other than to prove
that they were part of a consortium or joint venture. For instance, the
papers may have been intended to show that those companies were
each qualified to be a sub-contractor (and nothing more) in a major
project. Those documents did not by themselves support the
assumption that a consortium or joint venture existed among the
companies.
In brief, despite the absence of competent proof as to the
existence and eligibility of the alleged consortium (MPC), its capacity to
deliver on the Contract, and the members joint and several liability
therefor, Comelec nevertheless assumed that such consortium existed
and was eligible. It then went ahead and considered the bid of MPC, to
which the Contract was eventually awarded, in gross violation of the
formers own bidding rules and procedures contained in its RFP. Therein
lies Comelecs grave abuse of discretion.
Sufficiency of the
Four Agreements
Instead of one multilateral agreement executed by, and effective
and binding on, all the five consortium members -- as earlier claimed by
Commissioner Tuason in open court -- it turns out that what was actually
executed were four (4) separate and distinct bilateral
Agreements.[42] Obviously, Comelec was furnished copies of these
Agreements only after the bidding process had been terminated, as
these were not included in the Eligibility Documents. These Agreements
are as follows:
A Memorandum of Agreement between MPEI and SK
C&C
A Memorandum of Agreement between MPEI and
WeSolv
A Teaming Agreement between MPEI and Election.com
Ltd.
A Teaming Agreement between MPEI and ePLDT.
In sum, each of the four different and separate bilateral
Agreements is valid and binding only between MPEI and the other
contracting party, leaving the other consortium members total
strangers thereto. Under this setup, MPEI dealt separately with each of
the members, and the latter (WeSolv, SK C&C, Election.com, and ePLDT)
in turn had nothing to do with one another, each dealing only with MPEI.
Respondents assert that these four Agreements were sufficient
for the purpose of enabling the corporations to still qualify (even at that
late stage) as a consortium or joint venture, since the first two
Agreements had allegedly set forth the joint and several undertakings
among the parties, whereas the latter two clarified the parties
respective roles with regard to the Project, with MPEI being the
independent contractor and Election.com and ePLDT the subcontractors.
Additionally, the use of the phrase particular contract in the
Comelecs Request for Proposal (RFP), in connection with the joint and
several liabilities of companies in a joint venture, is taken by them to
mean that all the members of the joint venture need not be solidarily
liable for the entire project or joint venture, because it is sufficient that
the lead company and the member in charge of a particular contract or
aspect of the joint venture agree to be solidarily liable.
At this point, it must be stressed most vigorously that the
submission of the four bilateral Agreements to Comelec after the end of
the bidding process did nothing to eliminate the grave abuse of
discretion it had already committed on April 15, 2003.
Deficiencies Have
Not Been Cured
In any event, it is also claimed that the automation Contract
awarded by Comelec incorporates all documents executed by the
consortium membersF, even if these documents are not referred to
therein. The basis of this assertion appears to be the passages from
Section 1.4 of the Contract, which is reproduced as follows:
All Contract Documents shall form part of the Contract even if they or
any one of them is not referred to or mentioned in the Contract as
forming a part thereof. Each of the Contract Documents shall be
mutually complementary and explanatory of each other such that what
is noted in one although not shown in the other shall be considered
contained in all, and what is required by any one shall be as binding as if
required by all, unless one item is a correction of the other.
The intent of the Contract Documents is the proper, satisfactory and
timely execution and completion of the Project, in accordance with the
Contract Documents. Consequently, all items necessary for the proper
and timely execution and completion of the Project shall be deemed
included in the Contract.
Thus, it is argued that whatever perceived deficiencies there were
in the supplementary contracts -- those entered into by MPEI and the
other members of the consortium as regards their joint and several
undertakings -- have been cured. Better still, such deficiencies have
supposedly been prevented from arising as a result of the above-quoted
provisions, from which it can be immediately established that each of
the members of MPC assumes the same joint and several liability as the
other members.
The foregoing argument is unpersuasive. First, the contract being
referred to, entitled The Automated Counting and Canvassing Project
Contract, is between Comelec and MPEI, not the alleged consortium,
MPC. To repeat, it is MPEI -- not MPC -- that is a party to the
Contract. Nowhere in that Contract is there any mention of a consortium
or joint venture, of members thereof, much less of joint and several
liability. Supposedly executed sometime in May 2003,[43] the Contract
bears a notarization date of June 30, 2003, and contains the signature
of Willy U. Yu signing as president of MPEI (not for and on behalf of
MPC), along with that of the Comelec chair. It provides in Section 3.2
that MPEI (not MPC) is to supply the Equipment and perform the
Services under the Contract, in accordance with the appendices thereof;
nothing whatsoever is said about any consortium or joint venture or
partnership.
Second, the portions of Section 1.4 of the Contract reproduced
above do not have the effect of curing (much less preventing)
deficiencies in the bilateral agreements entered into by MPEI with the
other members of the consortium, with respect to their joint and several
liabilities. The term Contract Documents, as used in the quoted passages
of Section 1.4, has a well-defined meaning and actually refers only to the
following documents:
The Contract itself along with its appendices
The Request for Proposal (also known as Terms of
Reference) issued by the Comelec, including the Tender
Inquiries and Bid Bulletins
The Tender Proposal submitted by MPEI
In other words, the term Contract Documents cannot be
understood as referring to or including the MOAs and the Teaming
Agreements entered into by MPEI with SK C&C, WeSolv, Election.com
and ePLDT. This much is very clear and admits of no debate. The attempt
to use the provisions of Section 1.4 to shore up the MOAs and the
Teaming Agreements is simply unwarranted.
Third and last, we fail to see how respondents can arrive at the
conclusion that, from the above-quoted provisions, it can be
immediately established that each of the members of MPC assumes the
same joint and several liability as the other members. Earlier,
respondents claimed exactly the opposite -- that the two MOAs
(between MPEI and SK C&C, and between MPEI and WeSolv) had set
forth the joint and several undertakings among the parties; whereas the
two Teaming Agreements clarified the parties respective roles with
regard to the Project, with MPEI being the independent contractor and
Election.com and ePLDT the subcontractors.
Obviously, given the differences in their relationships, their
respective liabilities cannot be the same. Precisely, the very clear terms
and stipulations contained in the MOAs and the Teaming Agreements --
entered into by MPEI with SK C&C, WeSolv, Election.com and ePLDT --
negate the idea that these members are on a par with one another and
are, as such, assuming the same joint and several liability.
Moreover, respondents have earlier seized upon the use of the
term particular contract in the Comelecs Request for Proposal (RFP), in
order to argue that all the members of the joint venture did not need to
be solidarily liable for the entire project or joint venture. It was sufficient
that the lead company and the member in charge of a particular
contract or aspect of the joint venture would agree to be solidarily
liable. The glaring lack of consistency leaves us at a loss. Are
respondents trying to establish the same joint and solidary liability
among all the members or not?
Enforcement of
Liabilities Problematic
Next, it is also maintained that the automation Contract between
Comelec and the MPEI confirms the solidary undertaking of the lead
company and the consortium member concernedfor each particular
Contract, inasmuch as the position of MPEI and anyone else performing
the services contemplated under the Contract is described therein
as that of an independent contractor.
The Court does not see, however, how this conclusion was arrived
at. In the first place, the contractual provision being relied upon by
respondents is Article 14, Independent Contractors, which
states: Nothing contained herein shall be construed as establishing or
creating between the COMELEC and MEGA the relationship of employee
and employer or principal and agent, it being understood that the
position of MEGA and of anyone performing the Services contemplated
under this Contract, is that of an independent contractor.
Obviously, the intent behind the provision was simply to avoid the
creation of an employer-employee or a principal-agent relationship and
the complications that it would produce.Hence, the Article states that
the role or position of MPEI, or anyone else performing on its behalf, is
that of an independent contractor. It is obvious to the Court that
respondents arestretching matters too far when they claim that,
because of this provision, the Contract in effect confirms the solidary
undertaking of the lead company and the consortium member
concerned for the particular phase of the project. This assertion is an
absolute non sequitur.
Enforcement of Liabilities
Under the Civil Code Not Possible
In any event, it is claimed that Comelec may still enforce the
liability of the consortium members under the Civil Code provisions
on partnership, reasoning that MPEI et al. represented themselves as
partners and members of MPC for purposes of bidding for the
Project. They are, therefore, liable to the Comelec to the extent that the
latter relied upon such representation.Their liability as partners is
solidary with respect to everything chargeable to the partnership under
certain conditions.
The Court has two points to make with respect to this
argument. First, it must be recalled that SK C&C, WeSolv, Election.com
and ePLDT never represented themselves as partners and members of
MPC, whether for purposes of bidding or for something else. It was
MPEI alone that represented them to be members of a consortium it
supposedly headed. Thus, its acts may not necessarily be held against
the other members.
Second, this argument of the OSG in its Memorandum[44] might
possibly apply in the absence of a joint venture agreement or some other
writing that discloses the relationship of the members with one
another. But precisely, this case does not deal with a situation in which
there is nothing in writing to serve as reference, leaving Comelec to rely
on mere representations and therefore justifying a falling back on the
rules on partnership. For, again, the terms and stipulations of the MOAs
entered into by MPEI with SK C&C and WeSolv, as well as the Teaming
Agreements of MPEI with Election.com and ePLDT (copies of which have
been furnished the Comelec) are very clear with respect to the extent
and the limitations of the firms respective liabilities.
In the case of WeSolv and SK C&C, their MOAs state that their
liabilities, while joint and several with MPEI, are limited only to the
particular areas of work wherein their services are engaged or their
products utilized. As for Election.com and ePLDT, their separate Teaming
Agreements specifically ascribe to them the role of subcontractor vis--
vis MPEI as contractor and, based on the terms of their particular
agreements, neither Election.com nor ePLDT is, with MPEI, jointly and
severally liable to Comelec.[45] It follows then that in the instant case,
there is no justification for anyone, much less Comelec, to resort to the
rules on partnership and partners liabilities.
Eligibility of a Consortium
Based on the Collective
Qualifications of Its Members
Respondents declare that, for purposes of assessing the eligibility
of the bidder, the members of MPC should be evaluated on a collective
basis. Therefore, they contend, the failure of MPEI to submit financial
statements (on account of its recent incorporation) should not by itself
disqualify MPC, since the other members of the consortium could meet
the criteria set out in the RFP.
Thus, according to respondents, the collective nature of the
undertaking of the members of MPC, their contribution of assets and
sharing of risks, and the community of their interest in the performance
of the Contract lead to these reasonable conclusions: (1) that
their collective qualifications should be the basis for evaluating their
eligibility; (2) that the sheer enormity of the project renders it
improbable to expect any single entity to be able to comply with all the
eligibility requirements and undertake the project by itself; and (3) that,
as argued by the OSG, the RFP allows bids from manufacturers, suppliers
and/or distributors that have formed themselves into a joint venture, in
recognition of the virtual impossibility of a single entitys ability to
respond to the Invitation to Bid.
Additionally, argues the Comelec, the Implementing Rules and
Regulations of RA 6957 (the Build-Operate-Transfer Law) as amended by
RA 7718 would be applicable, as proponents of BOT projects usually
form joint ventures or consortiums. Under the IRR, a joint
venture/consortium proponent shall be evaluated based on the
individual or the collective experience of the member-firms of the joint
venture/consortium and of the contractors the proponent has engaged
for the project.
Unfortunately, this argument seems to assume that the collective
nature of the undertaking of the members of MPC, their contribution of
assets and sharing of risks, and the community of their interest in the
performance of the Contract entitle MPC to be treated as a joint venture
or consortium; and to be evaluated accordingly on the basis of the
members collective qualifications when, in fact, the evidence before the
Court suggest otherwise.
This Court in Kilosbayan v. Guingona[46] defined joint venture as an
association of persons or companies jointly undertaking some
commercial enterprise; generally, all contribute assets and share risks. It
requires a community of interest in the performance of the subject
matter, a right to direct and govern the policy in connection therewith,
and [a] duty, which may be altered by agreement to share both in profit
and losses.
Going back to the instant case, it should be recalled that the
automation Contract with Comelec was not executed by the consortium
MPC -- or by MPEI for and on behalf of MPC -- but by MPEI, period. The
said Contract contains no mention whatsoever of any consortium or
members thereof. This fact alone seems to contradict all the
suppositions about a joint undertaking that would normally apply to a
joint venture or consortium: that it is a commercial enterprise involving
a community of interest, a sharing of risks, profits and losses, and so on.
Now let us consider the four bilateral Agreements, starting with
the Memorandum of Agreement between MPEI and WeSolv Open
Computing, Inc., dated March 5, 2003. The body of the MOA consists of
just seven (7) short paragraphs that would easily fit in one page. It reads
as follows:
1. The parties agree to cooperate in successfully implementing the
Project in the substance and form as may be most beneficial to both
parties and other subcontractors involved in the Project.
2. Mega Pacific shall be responsible for any contract negotiations and
signing with the COMELEC and, subject to the latters approval, agrees
to give WeSolv an opportunity to be present at meetings with the
COMELEC concerning WeSolvs portion of the Project.
3. WeSolv shall be jointly and severally liable with Mega Pacific only for
the particular products and/or services supplied by the former for the
Project.
4. Each party shall bear its own costs and expenses relative to this
agreement unless otherwise agreed upon by the parties.
5. The parties undertake to do all acts and such other things incidental
to, necessary or desirable or the attainment of the objectives and
purposes of this Agreement.
6. In the event that the parties fail to agree on the terms and conditions
of the supply of the products and services including but not limited to
the scope of the products and services to be supplied and payment
terms, WeSolv shall cease to be bound by its obligations stated in the
aforementioned paragraphs.
7. Any dispute arising from this Agreement shall be settled amicably by
the parties whenever possible. Should the parties be unable to do so,
the parties hereby agree to settle their dispute through arbitration in
accordance with the existing laws of the Republic of the Philippines.
(Underscoring supplied.)
Even shorter is the Memorandum of Agreement between MPEI
and SK C&C Co. Ltd., dated March 9, 2003, the body of which consists of
only six (6) paragraphs, which we quote:
1. All parties agree to cooperate in achieving the Consortiums objective
of successfully implementing the Project in the substance and form as
may be most beneficial to the Consortium members and in accordance
w/ the demand of the RFP.
2. Mega Pacific shall have full powers and authority to represent the
Consortium with the Comelec, and to enter and sign, for and in behalf
of its members any and all agreement/s which maybe required in the
implementation of the Project.
3. Each of the individual members of the Consortium shall be jointly and
severally liable with the Lead Firm for the particular products and/or
services supplied by such individual member for the project, in
accordance with their respective undertaking or sphere of
responsibility.
4. Each party shall bear its own costs and expenses relative to this
agreement unless otherwise agreed upon by the parties.
5. The parties undertake to do all acts and such other things incidental
to, necessary or desirable for the attainment of the objectives and
purposes of this Agreement.
6. Any dispute arising from this Agreement shall be settled amicably by
the parties whenever possible. Should the parties be unable to do so,
the parties hereby agree to settle their dispute through arbitration in
accordance with the existing laws of the Republic of the Philippines.
(Underscoring supplied.)
It will be noted that the two Agreements quoted above are very
similar in wording. Neither of them contains any specifics or details as
to the exact nature and scope of the parties respective undertakings,
performances and deliverables under the Agreement with respect to the
automation project. Likewise, the two Agreements are quite bereft of
pesos-and-centavos data as to the amount of investments each party
contributes, its respective share in the revenues and/or profit from the
Contract with Comelec, and so forth -- all of which are normal for
agreements of this nature. Yet, according to public and private
respondents, the participation of MPEI, WeSolv and SK C&C comprises
fully 90 percent of the entire undertaking with respect to the election
automation project, which is worth about P1.3 billion.
As for Election.com and ePLDT, the separate Teaming Agreements
they entered into with MPEI for the remaining 10 percent of the entire
project undertaking are ironically much longer and more detailed than
the MOAs discussed earlier. Although specifically ascribing to them the
role of subcontractor vis--vis MPEI as contractor, these Agreements are,
however, completely devoid of any pricing data or payment terms. Even
the appended Schedules supposedly containing prices of goods and
services are shorn of any price data. Again, as mentioned earlier, based
on the terms of their particular Agreements, neither Election.com nor
ePLDT -- with MPEI -- is jointly and severally liable to Comelec.
It is difficult to imagine how these bare Agreements -- especially
the first two -- could be implemented in practice; and how a dispute
between the parties or a claim by Comelec against them, for instance,
could be resolved without lengthy and debilitating litigations. Absent
any clear-cut statement as to the exact nature and scope of the parties
respective undertakings, commitments, deliverables and covenants,
one party or another can easily dodge its obligation and deny or contest
its liability under the Agreement; or claim that it is the other party that
should have delivered but failed to.
Likewise, in the absence of definite indicators as to the amount of
investments to be contributed by each party, disbursements for
expenses, the parties respective shares in the profits and the like, it
seems to the Court that this situation could readily give rise to all kinds
of misunderstandings and disagreements over money matters.
Under such a scenario, it will be extremely difficult for Comelec to
enforce the supposed joint and several liabilities of the members of the
consortium. The Court is not even mentioning the possibility of a
situation arising from a failure of WeSolv and MPEI to agree on the
scope, the terms and the conditions for the supply of the products and
services under the Agreement.In that situation, by virtue of paragraph 6
of its MOA, WeSolv would perforce cease to be bound by its obligations
-- including its joint and solidary liability with MPEI under the MOA -- and
could forthwith disengage from the project. Effectively, WeSolv could at
any time unilaterally exit from its MOA with MPEI by simply failing to
agree. Where would that outcome leave MPEI and Comelec?
To the Court, this strange and beguiling arrangement of MPEI with
the other companies does not qualify them to be treated as a
consortium or joint venture, at least of the type that government
agencies like the Comelec should be dealing with. With more reason is
it unable to agree to the proposal to evaluate the members of MPC on
a collective basis.
In any event, the MPC members claim to be a joint
venture/consortium; and respondents have consistently been arguing
that the IRR for RA 6957, as amended, should be applied to the instant
case in order to allow a collective evaluation of consortium
members. Surprisingly, considering these facts, respondents have not
deemed it necessary for MPC members to comply with Section 5.4 (a)
(iii) of the IRR for RA 6957 as amended.
According to the aforementioned provision, if the project
proponent is a joint venture or consortium, the members or participants
thereof are required to submit a sworn statement that, if awarded the
contract, they shall bind themselves to be jointly, severally and solidarily
liable for the project proponents obligations thereunder. This provision
was supposed to mirror Section 5 of RA 6957, as amended, which
states: In all cases, a consortium that participates in a bid must present
proof that the members of the consortium have bound themselves jointly
and severally to assume responsibility for any project. The withdrawal of
any member of the consortium prior to the implementation of the project
could be a ground for the cancellation of the contract.
The Court has certainly not seen any joint and several undertaking
by the MPC members that even approximates the tenor of that which is
described above. We fail to see why respondents should invoke the IRR
if it is for their benefit, but refuse to comply with it otherwise.
B.
DOST Technical Tests Flunked by the
Automated Counting Machines
Let us now move to the second subtopic, which deals with the
substantive issue: the ACMs failure to pass the tests of the Department
of Science and Technology (DOST).
After respondent consortium and the other bidder, TIM, had
submitted their respective bids on March 10, 2003, the Comelecs BAC -
- through its Technical Working Group (TWG) and the DOST -- evaluated
their technical proposals. Requirements that were highly technical in
nature and that required the use of certain equipment in the evaluation
process were referred to the DOST for testing.
According to respondents, it was only after the TWG and the DOST
had conducted their separate tests and submitted their respective
reports that the BAC, on the basis of these reports formulated its
comments/recommendations on the bids of the consortium and TIM.
The BAC, in its Report dated April 21, 2003, recommended that
the Phase II project involving the acquisition of automated counting
machines be awarded to MPEI. It said:
After incisive analysis of the technical reports of the DOST and the
Technical Working Group for Phase II Automated Counting Machine, the
BAC considers adaptability to advances in modern technology to ensure
an effective and efficient method, as well as the security and integrity of
the system.
The results of the evaluation conducted by the TWG and that of the
DOST (14 April 2003 report), would show the apparent advantage of
Mega-Pacific over the other competitor, TIM.
The BAC further noted that both Mega-Pacific and TIM obtained some
failed marks in the technical evaluation. In general, the failed marks of
Total Information Management as enumerated above affect the
counting machine itself which are material in nature, constituting non-
compliance to the RFP. On the other hand, the failed marks of Mega-
Pacific are mere formalities on certain documentary requirements
which the BAC may waive as clearly indicated in the Invitation to Bid.
In the DOST test, TIM obtained 12 failed marks and mostly attributed to
the counting machine itself as stated earlier. These are requirements of
the RFP and therefore the BAC cannot disregard the same.
Mega-Pacific failed in 8 items however these are mostly on the software
which can be corrected by reprogramming the software and therefore
can be readily corrected.
The BAC verbally inquired from DOST on the status of the retest of the
counting machines of the TIM and was informed that the report will be
forthcoming after the holy week. The BAC was informed that the retest
is on a different parameters theyre being two different machines being
tested. One purposely to test if previously read ballots will be read again
and the other for the other features such as two sided ballots.
The said machine and the software therefore may not be considered the
same machine and program as submitted in the Technical proposal and
therefore may be considered an enhancement of the original proposal.
Advance information relayed to the BAC as of 1:40 PM of 15 April 2003
by Executive Director Ronaldo T. Viloria of DOST is that the result of the
test in the two counting machines of TIM contains substantial errors that
may lead to the failure of these machines based on the specific items of
the RFP that DOST has to certify.
OPENING OF FINANCIAL BIDS
The BAC on 15 April 2003, after notifying the concerned bidders opened
the financial bids in their presence and the results were as follows:
Mega-Pacific:
Option 1 Outright purchase: Bid Price of Php1,248,949,088.00
Option 2 Lease option:
70% Down payment of cost of hardware or
Php642,755,757.07
Remainder payable over 50 months or a total of
Php642,755,757.07
Discount rate of 15% p.a. or 1.2532% per month.
Total Number of Automated Counting Machine 1,769 ACMs
(Nationwide)
TIM:
Total Bid Price Php1,297,860,560.00
Total Number of Automated Counting Machine 2,272 ACMs
(Mindanao and NCR only)
Premises considered, it appears that the bid of Mega Pacific is the lowest
calculated responsive bid, and therefore, the Bids and Awards
Committee (BAC) recommends that the Phase II project re Automated
Counting Machine be awarded to Mega Pacific eSolutions, Inc.[48]
The BAC, however, also stated on page 4 of its Report: Based on
the 14 April 2003 report (Table 6) of the DOST, it appears that both
Mega-Pacific and TIM (Total Information Management Corporation)
failed to meet some of the requirements. Below is a comparative
presentation of the requirements wherein Mega-Pacific or TIM or both
of them failed: x x x. What followed was a list of key requirements,
referring to technical requirements, and an indication of which of the
two bidders had failed to meet them.
Failure to Meet the
Required Accuracy Rating
The first of the key requirements was that the counting machines
were to have an accuracy rating of at least 99.9995 percent. The BAC
Report indicates that both Mega Pacific and TIM failed to meet this
standard.
The key requirement of accuracy rating happens to be part and
parcel of the Comelecs Request for Proposal (RFP). The RFP, on page 26,
even states that the ballot counting machines and ballot counting
software must have an accuracy rating of 99.9995% (not merely
99.995%) or better as certified by a reliable independent testing agency.
When questioned on this matter during the Oral Argument,
Commissioner Borra tried to wash his hands by claiming that the
required accuracy rating of 99.9995 percent had been set by a private
sector group in tandem with Comelec. He added that the Commission
had merely adopted the accuracy rating as part of the groups
recommended bid requirements, which it had not bothered to amend
even after being advised by DOST that such standard was
unachievable. This excuse, however, does not in any way lessen
Comelecs responsibility to adhere to its own published bidding rules, as
well as to see to it that the consortium indeed meets the accuracy
standard. Whichever accuracy rating is the right standard -- whether
99.995 or 99.9995 percent -- the fact remains that the machines of the
so-called consortium failed to even reach the lesser of the two. On this
basis alone, it ought to have been disqualified and its bid rejected
outright.
At this point, the Court stresses that the essence of public bidding
is violated by the practice of requiring very high standards or unrealistic
specifications that cannot be met -- like the 99.9995 percent accuracy
rating in this case -- only to water them down after the bid has been
award. Such scheme, which discourages the entry of prospective bona
fide bidders, is in fact a sure indication of fraud in the bidding, designed
to eliminate fair competition. Certainly, if no bidder meets the
mandatory requirements, standards or specifications, then no award
should be made and a failed bidding declared.
Failure of Software to Detect
Previously Downloaded Data
Furthermore, on page 6 of the BAC Report, it appears that the
consortium as well as TIM failed to meet another key requirement -- for
the counting machines software program to beable to detect previously
downloaded precinct results and to prevent these from being entered
again into the counting machine. This same deficiency on the part of
both bidders reappears on page 7 of the BAC Report, as a result of the
recurrence of their failure to meet the said key requirement.
That the ability to detect previously downloaded data at different
canvassing or consolidation levels is deemed of utmost importance can
be seen from the fact that it is repeated three times in the RFP. On page
30 thereof, we find the requirement that the city/municipal canvassing
system software must be able to detect previously downloaded precinct
results and prevent these from being inputted again into the
system. Again, on page 32 of the RFP, we read that
the provincial/district canvassing system software must be able to
detect previously downloaded city/municipal results and prevent these
from being inputted again into the system. And once more, on page 35
of the RFP, we find the requirement that the national canvassing system
software must be able to detect previously downloaded
provincial/district results and prevent these from being inputted again
into the system.
Once again, though, Comelec chose to ignore this crucial
deficiency, which should have been a cause for the gravest concern.
Come May 2004, unscrupulous persons may take advantage of and
exploit such deficiency by repeatedly downloading and feeding into the
computers results favorable to a particular candidate or candidates. We
are thus confronted with the grim prospect of election fraud on a massive
scale by means of just a few key strokes. The marvels and woes of the
electronic age!
Inability to Print
the Audit Trail
But that grim prospect is not all. The BAC Report, on pages 6 and
7, indicate that the ACMs of both bidders were unable to print the audit
trail without any loss of data. In the case of MPC, the audit trail system
was not yet incorporated into its ACMs.
This particular deficiency is significant, not only to this bidding but
to the cause of free and credible elections. The purpose of requiring
audit trails is to enable Comelec to trace and verify the identities of the
ACM operators responsible for data entry and downloading, as well as
the times when the various data were downloaded into the canvassing
system, in order to forestall fraud and to identify the perpetrators.
Thus, the RFP on page 27 states that the ballot counting machines
and ballot counting software must print an audit trail of all machine
operations for documentation and verification purposes. Furthermore,
the audit trail must be stored on the internal storage device and be
available on demand for future printing and verifying. On pages 30-31,
the RFP also requires that the city/municipal canvassing
system software be able to print an audit trail of the canvassing
operations, including therein such data as the date and time the
canvassing program was started, the log-in of the authorized users (the
identity of the machine operators), the date and time the canvass data
were downloaded into the canvassing system, and so on and so forth.On
page 33 of the RFP, we find the same audit trail requirement with
respect to the provincial/district canvassing system software; and again
on pages 35-36 thereof, the same audit trail requirement with respect
to the national canvassing system software.
That this requirement for printing audit trails is not to be lightly
brushed aside by the BAC or Comelec itself as a mere formality or
technicality can be readily gleaned from the provisions of Section 7 of
RA 8436, which authorizes the Commission to use an automated system
for elections.
The said provision which respondents have quoted several times,
provides that ACMs are to possess certain features divided into two
classes: those that the statute itself considersmandatory and other
features or capabilities that the law deems optional. Among those
considered mandatory are provisions for audit trails! Section 7 reads as
follows: The System shallcontain the following features: (a) use of
appropriate ballots; (b) stand-alone machine which can count votes and
an automated system which can consolidate the results immediately;
(c)with provisions for audit trails; (d) minimum human intervention; and
(e) adequate safeguard/security measures. (Italics and emphases
supplied.)
In brief, respondents cannot deny that the provision requiring
audit trails is indeed mandatory, considering the wording of Section 7 of
RA 8436. Neither can Respondent Comelec deny that it has relied on the
BAC Report, which indicates that the machines or the software was
deficient in that respect. And yet, the Commission simply disregarded
this shortcoming and awarded the Contract to private respondent,
thereby violating the very law it was supposed to implement.
C.
Inadequacy of Post Facto
Remedial Measures
Respondents argue that the deficiencies relating to the detection
of previously downloaded data, as well as provisions for audit trails, are
mere shortcomings or minor deficiencies in software or programming,
which can be rectified. Perhaps Comelec simply relied upon the BAC
Report, which states on page 8 thereof that Mega Pacific failed in 8
items[;] however these are mostly on the software which can be
corrected by re-programming x x x and therefore can be readily
corrected.
The undersigned ponentes questions, some of which were
addressed to Commissioner Borra during the Oral Argument, remain
unanswered to this day. First of all, who made the determination that
the eight fail marks of Mega Pacific were on account of the software --
was it DOST or TWG? How can we be sure these failures were not the
results of machine defects?How was it determined that the software
could actually be re-programmed and thereby rectified? Did a
q u ali fie d t ec hni cal e x per t re ad a nd a n alyz e t he s ou r c e
c o d e [ 4 9 ] for the programs and conclude that these could be saved and
remedied? (Such determination cannot be done by any other means
save by the examination and analysis of the source code.)
Who was this qualified technical expert? When did he carry out
the study? Did he prepare a written report on his findings? Or did the
Comelec just make a wild guess? It does not follow that all defects in
software programs can be rectified, and the programs saved. In the
information technology sector, it is common knowledge that there are
many badly written programs, with significant programming errors
written into them; hence it does not make economic sense to try to
correct the programs; instead, programmers simply abandon them and
just start from scratch. Theres no telling if any of these programs is
unrectifiable, unless a qualified programmer reads the source code.
And if indeed a qualified expert reviewed the source code, did he
also determine how much work would be needed to rectify the
programs? And how much time and money would be spent for that
effort? Who would carry out the work? After the rectification process,
who would ascertain and how would it be ascertained that the programs
have indeed been properly rectified, and that they would work properly
thereafter? And of course, the most important question to ask: could
the rectification be done in time for the elections in 2004?
Clearly, none of the respondents bothered to think the matter
through. Comelec simply took the word of the BAC as gospel truth,
without even bothering to inquire from DOST whether it was true that
the deficiencies noted could possibly be remedied by re-programming
the software. Apparently, Comelec did not care about the software, but
focused only on purchasing the machines.
What really adds to the Courts dismay is the admission made by
Commissioner Borra during the Oral Argument that the software
currently being used by Comelec was merely the demo version,
inasmuch as the final version that would actually be used in the elections
was still being developed and had not yet been finalized.
It is not clear when the final version of the software would be
ready for testing and deployment. It seems to the Court that Comelec is
just keeping its fingers crossed and hoping the final product would
work. Is there a Plan B in case it does not? Who knows? But all these
software programs are part and parcel of the bidding and the Contract
awarded to the Consortium.Why is it that the machines are already
being brought in and paid for, when there is as yet no way of knowing if
the final version of the software would be able to run them properly, as
well as canvass and consolidate the results in the manner required?
The counting machines, as well as the canvassing system, will
never work properly without the correct software programs. There is an
old adage that is still valid to this day: Garbage in, garbage out. No
matter how powerful, advanced and sophisticated the computers and
the servers are, if the software being utilized is defective or has been
compromised, the results will be no better than garbage. And to think
that what is at stake here is the 2004 national elections -- the very basis
of our democratic life.
Correction of Defects?
To their Memorandum, public respondents proudly appended 19
Certifications issued by DOST declaring that some 285 counting
machines had been tested and had passed the acceptance testing
conducted by the Department on October 8-18, 2003. Among those
tested were some machines that had failed previous tests, but had
undergone adjustments and thus passed re-testing.
Unfortunately, the Certifications from DOST fail to divulge in what
manner and by what standards or criteria the condition, performance
and/or readiness of the machines were re-evaluated and re-appraised
and thereafter given the passing mark. Apart from that fact, the
remedial efforts of respondents were, not surprisingly, apparently
focused again on the machines -- the hardware. Nothing was said or
done about the software -- the deficiencies as to detection and
prevention of downloading and entering previously downloaded data,
as well as the capability to print an audit trail. No matter how many times
the machines were tested and re-tested, if nothing was done about the
programming defects and deficiencies, the same danger of massive
electoral fraud remains. As anyone who has a modicum of knowledge of
computers would say, Thats elementary!
And only last December 5, 2003, an Inq7.net news report quoted
the Comelec chair as saying that the new automated poll system would
be used nationwide in May 2004, even as the software for the system
remained unfinished. It also reported that a certain Titus Manuel of the
Philippine Computer Society, which was helping Comelec test the
hardware and software, said that the software for the counting still had
to be submitted on December 15, while the software for the canvassing
was due in early January.
Even as Comelec continues making payments for the ACMs, we
keep asking ourselves: who is going to ensure that the software would
be tested and would work properly?
At any rate, the re-testing of the machines and/or the 100 percent
testing of all machines (testing of every single unit) would not serve to
eradicate the grave abuse of discretion already committed by Comelec
when it awarded the Contract on April 15, 2003, despite the obvious and
admitted flaws in the bidding process, the failure of the winning bidder
to qualify, and the inability of the ACMs and the intended software to
meet the bid requirements and rules.
Comelecs Latest
Assurances Are
Unpersuasive
Even the latest pleadings filed by Comelec do not serve to allay
our apprehensions. They merely affirm and compound the serious
violations of law and gravely abusive acts it has committed. Let us
examine them.
The Resolution issued by this Court on December 9, 2003 required
respondents to inform it as to the number of ACMs delivered and paid
for, as well as the total payment made to date for the purchase
thereof. They were likewise instructed to submit a certification from the
DOST attesting to the number of ACMs tested, the number found to be
defective; and whether the reprogrammed software has been tested and
found to have complied with the requirements under Republic Act No.
8436.[50]
In its Partial Compliance and Manifestation dated December 29,
2003, Comelec informed the Court that 1,991 ACMs had already been
delivered to the Commission as of that date. It further certified that it
had already paid the supplier the sum of P849,167,697.41, which
corresponded to 1,973 ACM units that had passed the acceptance
testing procedures conducted by the MIRDC-DOST[51] and which had
therefore been accepted by the poll body.
In the same submission, for the very first time, Comelec also
disclosed to the Court the following:
The Automated Counting and Canvassing Project involves not only the
manufacturing of the ACM hardware but also the development of three
(3) types of software, which are intended for use in the following:
1. Evaluation of Technical Bids
2. Testing and Acceptance Procedures
3. Election Day Use.
Purchase of the First Type of
Software Without Evaluation
In other words, the first type of software was to be developed
solely for the purpose of enabling the evaluation of the bidders technical
bid. Comelec explained thus: In addition to the presentation of the ACM
hardware, the bidders were required to develop a base software
program that will enable the ACM to function properly. Since the
software program utilized during the evaluation of bids is not the actual
software program to be employed on election day, there being two (2)
other types of software program that will still have to be developed and
thoroughly tested prior to actual election day use, defects in the base
software that can be readily corrected by reprogramming are considered
minor in nature, and may therefore be waived.
In short, Comelec claims that it evaluated the bids and made the
decision to award the Contract to the winning bidder partly on the basis
of the operation of the ACMs running a base software. That software
was therefore nothing but a sample or demo software, which would not
be the actual one that would be used on election day. Keeping in mind
that the Contract involves the acquisition of not just the ACMs or the
hardware, but also the software that would run them, it is now even
clearer that the Contract was awarded without Comelec having seen,
much less evaluated, the final product -- the software that would finally
be utilized come election day. (Not even the near-final product, for that
matter).
What then was the point of conducting the bidding, when the
software that was the subject of the Contract was still to be created and
could conceivably undergo innumerable changes before being
considered as being in final form? And that is not all!
No Explanation for Lapses
in the Second Type of Software
The second phase, allegedly involving the second type of software,
is simply denominated Testing and Acceptance Procedures. As best as
we can construe, Comelec is claiming that this second type of software
is also to be developed and delivered by the supplier in connection with
the testing and acceptance phase of the acquisition process. The
previous pleadings, though -- including the DOST reports submitted to
this Court -- have not heretofore mentioned any statement, allegation
or representation to the effect that a particular set of software was to
be developed and/or delivered by the supplier in connection with the
testing and acceptance of delivered ACMs.
What the records do show is that the imported ACMs were
subjected to the testing and acceptance process conducted by the
DOST. Since the initial batch delivered included a high percentage of
machines that had failed the tests, Comelec asked the DOST to conduct
a 100 percent testing; that is, to test every single one of the ACMs
delivered. Among the machines tested on October 8 to 18, 2003, were
some units that had failed previous tests but had subsequently been re-
tested and had passed. To repeat, however, until now, there has never
been any mention of a second set or type of software pertaining to the
testing and acceptance process.
In any event, apart from making that misplaced and
uncorroborated claim, Comelec in the same submission also professes
(in response to the concerns expressed by this Court) thatthe
reprogrammed software has been tested and found to have complied
with the requirements of RA 8436. It reasoned thus: Since the software
program is an inherent element in the automated counting system, the
certification issued by the MIRDC-DOST that one thousand nine hundred
seventy-three (1,973) units passed the acceptance test procedures is an
official recognition by the MIRDC-DOST that the software component of
the automated election system, which has been reprogrammed to
comply with the provisions of Republic Act No. 8436 as prescribed in the
Ad Hoc Technical Evaluation Committees ACM Testing and Acceptance
Manual, has passed the MIRDC-DOST tests.
The facts do not support this sweeping statement of Comelec. A
scrutiny of the MIRDC-DOST letter dated December 15, 2003,[52] which
it relied upon, does not justify its grand conclusion. For claritys sake, we
quote in full the letter-certification, as follows:
15 December 2003
HON. RESURRECCION Z. BORRA
Commissioner-in-Charge
Phase II, Modernization Project
Commission on Elections
Intramuros, Manila
Attention: Atty. Jose M. Tolentino, Jr.
Project Director
Dear Commissioner Borra:
We are pleased to submit 11 DOST Test Certifications representing 11
lots and covering 158 units of automated counting machines (ACMs)
that we have tested from 02-12 December 2003.
To date, we have tested all the 1,991 units of ACMs, broken down as
follow: (sic)
1st batch - 30 units 4th batch - 438 units
2nd batch - 288 units 5th batch - 438 units
3rd batch - 414 units 6th batch - 383 units
It should be noted that a total of 18 units have failed the test. Out of
these 18 units, only one (1) unit has failed the retest.
Thank you and we hope you will find everything in order.
Very truly yours,
ROLANDO T. VILORIA, CESO III
Executive Director cum
Chairman, DOST-Technical Evaluation Committee
Even a cursory glance at the foregoing letter shows that it is
completely bereft of anything that would remotely support Comelecs
contention that the software component of the automated election
system x x x has been reprogrammed to comply with RA 8436, and has
passed the MIRDC-DOST tests. There is no mention at all of any software
reprogramming. If the MIRDC-DOST had indeed undertaken the
supposed reprogramming and the process turned out to be successful,
that agency would have proudly trumpeted its singular achievement.
How Comelec came to believe that such reprogramming had been
undertaken is unclear. In any event, the Commission is not forthright
and candid with the factual details. If reprogramming has been done,
who performed it and when? What exactly did the process involve? How
can we be assured that it was properly performed? Since the facts
attendant to the alleged reprogramming are still shrouded in mystery,
the Court cannot give any weight to Comelecs bare allegations.
The fact that a total of 1,973 of the machines has ultimately
passed the MIRDC-DOST tests does not by itself serve as an
endorsement of the soundness of the software program, much less as a
proof that it has been reprogrammed. In the first place, nothing on
record shows that the tests and re-tests conducted on the machines
were intended to address the serious deficiencies noted earlier. As a
matter of fact, the MIRDC-DOST letter does not even indicate what kinds
of tests or re-tests were conducted, their exact nature and scope, and
the specific objectives thereof.[53] The absence of relevant supporting
documents, combined with the utter vagueness of the letter, certainly
fails to inspire belief or to justify the expansive confidence displayed by
Comelec. In any event, it goes without saying that remedial measures
such as the alleged reprogramming cannot in any way mitigate the grave
abuse of discretion already committed as early as April 15, 2003.
Rationale of Public Bidding Negated
by the Third Type of Software
Respondent Comelec tries to assuage this Courts anxiety in these
words: The reprogrammed software that has already passed the
requirements of Republic Act No. 8436 during the MIRDC-DOST testing
and acceptance procedures will require further customization since the
following additional elements, among other things, will have to be
considered before the final software can be used on election day: 1.
Final Certified List of Candidates x x x 2. Project of Precincts x x x 3.
Official Ballot Design and Security Features x x x 4. Encryption, digital
certificates and digital signatures x x x. The certified list of candidates for
national elective positions will be finalized on or before 23 January 2004
while the final list of projects of precincts will be prepared also on the
same date. Once all the above elements are incorporated in the software
program, the Test Certification Group created by the Ad Hoc Technical
Evaluation Committee will conduct meticulous testing of the final
software before the same can be used on election day. In addition to the
testing to be conducted by said Test Certification Group, the Comelec will
conduct mock elections in selected areas nationwide not only for
purposes of public information but also to further test the final election
day program. Public respondent Comelec, therefore, requests that it be
given up to 16 February 2004 to comply with this requirement.
The foregoing passage shows the imprudent approach adopted by
Comelec in the bidding and acquisition process. The Commission says
that before the software can be utilized on election day, it will require
customization through addition of data -- like the list of candidates,
project of precincts, and so on. And inasmuch as such data will become
available only in January 2004 anyway, there is therefore no perceived
need on Comelecs part to rush the supplier into producing the final (or
near-final) version of the software before that time. In any case,
Comelec argues that the software needed for the electoral exercise can
be continuously developed, tested, adjusted and perfected, practically
all the way up to election day, at the same time that the Commission is
undertaking all the other distinct and diverse activities pertinent to the
elections.
Given such a frame of mind, it is no wonder that Comelec paid
little attention to the counting and canvassing software during the entire
bidding process, which took place in February-March 2003. Granted
that the software was defective, could not detect and prevent the re-
use of previously downloaded data or produce the audit trail -- aside
from its other shortcomings -- nevertheless, all those deficiencies could
still be corrected down the road. At any rate, the software used for
bidding purposes would not be the same one that will be used on
election day, so why pay any attention to its defects? Or to the Comelecs
own bidding rules for that matter?
Clearly, such jumbled ratiocinations completely negate the
rationale underlying the bidding process mandated by law.
At the very outset, the Court has explained that Comelec flagrantly
violated the public policy on public biddings (1) by allowing MPC/MPEI
to participate in the bidding even though it was not qualified to do so;
and (2) by eventually awarding the Contract to MPC/MPEI. Now, with
the latest explanation given by Comelec, it is clear that the Commission
further desecrated the law on public bidding by permitting the winning
bidder to change and alter the subject of the Contract (the software), in
effect allowing a substantive amendment without public bidding.
This stance is contrary to settled jurisprudence requiring the strict
application of pertinent rules, regulations and guidelines for public
bidding for the purpose of placing each bidder, actual or potential, on
the same footing. The essence of public bidding is, after all, an
opportunity for fair competition, and a fair basis for the precise
comparison of bids. In common parlance, public bidding aims to level
the playing field. That means each bidder must bid under the same
conditions; and be subject to the same guidelines, requirements and
limitations, so that the best offer or lowest bid may be determined, all
other things being equal.
Thus, it is contrary to the very concept of public bidding to permit
a variance between the conditions under which bids are invited and
those under which proposals are submitted and approved; or, as in this
case, the conditions under which the bid is won and those under which
the awarded Contract will be complied with. The substantive
amendment of the contract bidded out, without any public bidding -
- after the bidding process had been concluded -- is violative of the
public policy on public biddings, as well as the spirit and intent of RA
8436. The whole point in going through the public bidding exercise was
completely lost. The very rationale of public bidding was totally
subverted by the Commission.
From another perspective, the Comelec approach also fails to
make sense. Granted that, before election day, the software would still
have to be customized to each precinct, municipality, city, district, and
so on, there still was nothing at all to prevent Comelec from requiring
prospective suppliers/bidders to produce, at the very start of the bidding
process, the next-to-final versions of the software (the best software the
suppliers had) -- pre-tested and ready to be customized to the final list
of candidates and project of precincts, among others, and ready to be
deployed thereafter. The satisfaction of such requirement would
probably have provided far better bases for evaluation and selection, as
between suppliers, than the so-called demo software.
Respondents contend that the bidding suppliers counting
machines were previously used in at least one political exercise with no
less than 20 million voters. If so, it stands to reason that the software
used in that past electoral exercise would probably still be available and,
in all likelihood, could have been adopted for use in this instance. Paying
for machines and software of that category (already tried and proven in
actual elections and ready to be adopted for use) would definitely make
more sense than paying the same hundreds of millions of pesos for
demo software and empty promises of usable programs in the future.
But there is still another gut-level reason why the approach taken
by Comelec is reprehensible. It rides on the perilous assumption that
nothing would go wrong; and that, come election day, the Commission
and the supplier would have developed, adjusted and re-programmed
the software to the point where the automated system could function
as envisioned. But what if such optimistic projection does not
materialize? What if, despite all their herculean efforts, the software
now being hurriedly developed and tested for the automated system
performs dismally and inaccurately or, worse, is hacked and/or
manipulated?[54] What then will we do with all the machines and
defective software already paid for in the amount of P849 million of our
tax money? Even more important, what will happen to our country in
case of failure of the automation?
The Court cannot grant the plea of Comelec that it be given until
February 16, 2004 to be able to submit a certification relative to the
additional elements of the software that will be customized, because for
us to do so would unnecessarily delay the resolution of this case and
would just give the poll body an unwarranted excuse to postpone the
2004 elections. On the other hand, because such certification will not
cure the gravely abusive actions complained of by petitioners, it will be
utterly useless.
Is this Court being overly pessimistic and perhaps even engaging
in speculation? Hardly. Rather, the Court holds that Comelec should not
have gambled on the unrealistic optimism that the suppliers software
development efforts would turn out well. The Commission should have
adopted a much more prudent and judicious approach to ensure the
delivery of tried and tested software, and readied alternative courses of
action in case of failure. Considering that the nations future is at stake
here, it should have done no less.
Epilogue
Once again, the Court finds itself at the crossroads of our nations
history. At stake in this controversy is not just the business of a
computer supplier, or a questionable proclamation by Comelec of one
or more public officials. Neither is it about whether this country should also take measures to protect the government and vindicate public
switch from the manual to the automated system of counting and interest from the ill effects of the illegal disbursements of public funds
canvassing votes. At its core is the ability and capacity of the made by reason of the void Resolution and Contract.
Commission on Elections to perform properly, legally and prudently its
SO ORDERED.
legal mandate to implement the transition from manual to automated
elections.
Unfortunately, Comelec has failed to measure up to this historic
task. As stated at the start of this Decision, Comelec has not merely
gravely abused its discretion in awarding the Contract for the
automation of the counting and canvassing of the ballots. It has also put
at grave risk the holding of credible and peaceful elections by shoddily
accepting electronic hardware and software that admittedly failed to
pass legally mandated technical requirements. Inadequate as they are,
the remedies it proffers post facto do not cure the grave abuse of
discretion it already committed (1) on April 15, 2003, when it illegally
made the award; and (2) sometime in May 2003 when it executed the
Contract for the purchase of defective machines and non-existent
software from a non-eligible bidder.
For these reasons, the Court finds it totally unacceptable and
unconscionable to place its imprimatur on this void and illegal
transaction that seriously endangers the breakdown of our electoral
system. For this Court to cop-out and to close its eyes to these illegal
transactions, while convenient, would be to abandon its constitutional
duty of safeguarding public interest.
As a necessary consequence of such nullity and illegality, the
purchase of the machines and all appurtenances thereto including the
still-to-be-produced (or in Comelecs words, to be reprogrammed)
software, as well as all the payments made therefor, have no basis
whatsoever in law. The public funds expended pursuant to the void
Resolution and Contract must therefore be recovered from the payees
and/or from the persons who made possible the illegal disbursements,
without prejudice to possible criminal prosecutions against them.
Furthermore, Comelec and its officials concerned must bear full
responsibility for the failed bidding and award, and held accountable for
the electoral mess wrought by their grave abuse of discretion in the
performance of their functions. The State, of course, is not bound by the
mistakes and illegalities of its agents and servants.
True, our country needs to transcend our slow, manual and
archaic electoral process. But before it can do so, it must first have a
diligent and competent electoral agency that can properly and
prudently implement a well-conceived automated election system.
At bottom, before the country can hope to have a speedy and
fraud-free automated election, it must first be able to procure the
proper computerized hardware and software legally, based on a
transparent and valid system of public bidding. As in any democratic
system, the ultimate goal of automating elections must be achieved by
a legal, valid and above-boardprocess of acquiring the necessary tools
and skills therefor. Though the Philippines needs an automated electoral
process, it cannot accept just any system shoved into its bosom through
improper and illegal methods. As the saying goes, the end never justifies
the means. Penumbral contracting will not produce enlightened results.
WHEREFORE, the Petition is GRANTED. The Court hereby
declares NULL and VOID Comelec Resolution No. 6074 awarding the
contract for Phase II of the CAES to Mega Pacific Consortium (MPC). Also
declared null and void is the subject Contract executed between
Comelec and Mega Pacific eSolutions (MPEI).[55] Comelec is
further ORDERED to refrain from implementing any other contract or
agreement entered into with regard to this project.
Let a copy of this Decision be furnished the Office of the
Ombudsman which shall determine the criminal liability, if any, of the
public officials (and conspiring private individuals, if any) involved in the
subject Resolution and Contract. Let the Office of the Solicitor General
ARTICLE 1830
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA,respondents.
The instant petition seeks a review of the decision rendered by the Court
of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No.
24648 affirming in toto that of the Securities and Exchange Commission
("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate court in its decision,
are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and
reconstituted with the Securities and Exchange Commission on 4
August 1948. The SEC records show that there were several
subsequent amendments to the articles of partnership on 18
September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO,
BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on
19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and
Mariano M. Lozada associated themselves together, as senior
partners with respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-
appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees
another letter stating:
"Further to my letter to you today, I would like to have a meeting with
all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-
appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result
of such policies is the formation of the union, including the assistant
attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution
and liquidation of partnership, docketed as SEC Case No. 3384 praying
that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation
of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in
the partnership assets plus the profits, rent or interest attributable to
the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and to
pay petitioners damages for the use thereof despite the dissolution of
the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's
fees and expense of litigation in such amounts as maybe proven during
the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the
value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the
petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer
and held that the withdrawal of Attorney Joaquin L. Misa had dissolved
the partnership of "Bito, Misa & Lozada." The Commission ruled that,
being a partnership at will, the law firm could be dissolved by any
partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January 1990, the
SEC held:
WHEREFORE, premises considered the appealed order of 31
March 1989 is hereby REVERSED insofar as it concludes that
the partnership of Bito, Misa & Lozada has not been dissolved.
The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the
parties. 2
The parties sought a reconsideration of the above decision. Attorney
Misa, in addition, asked for an appointment of a receiver to take over
the assets of the dissolved partnership and to take charge of the winding
up of its affairs. On 4 April 1991, respondent SEC issued an order denying
reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed
CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney
Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05
September 1991 and 21 December 1991. The death of the two partners,
as well as the admission of new partners, in the law firm prompted
Attorney Misa to renew his application for receivership (in CA G.R. SP
No. 24648). He expressed concern over the need to preserve and care
for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of
respondent Commission, AFFIRMED in toto the SEC decision and order
appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from the partnership
had changed the relation of the parties and inevitably caused the
dissolution of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed
and paid in the manner stipulated in the partnership agreement; (d) that
the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in
the partnership assets; and (e) that the appointment of a receiver was
unnecessary as no sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being lost, removed or
materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners
confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega &
Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership
regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that
private respondent's demand for the dissolution of the partnership
so that he can get a physical partition of partnership was not made
in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That
the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega
and Castillo," is indeed such a partnership need not be unduly
belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948)
does not provide for a specified period or undertaking. The
"DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for
a specific undertaking and hence not a partnership at will, citing
paragraph 2 of the Amended Articles of Partnership (19 August
1948):
"2. Purpose. The purpose for which the partnership is formed, is to
act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and to appear
for and represent their principals and client in all courts of justice
and government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide
for articles on partnership at will as none would so exist. Apparently
what the law contemplates, is a specific undertaking or "project"
which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual
desire and consent of the partners. The right to choose with whom a
person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good
faith, not that the attendance of bad faith can prevent the dissolution of
the partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific
duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a
partner. 6 Among partners, 7 mutual agency arises and the doctrine
of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for
damages.
The dissolution of a partnership is the change in the relation of the
parties caused by any partner ceasing to be associated in the carrying
on, as might be distinguished from the winding up of, the
business. 8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business
culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution
is governed by various provisions of the Civil Code; 10 however, an
agreement of the partners, like any other contract, is binding among
them and normally takes precedence to the extent applicable over the
Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest
in the partnership shall be liquidated and paid in accordance with the
existing agreements and his partnership participation shall revert to
the Senior Partners for allocation as the Senior Partners may
determine; provided, however, that with respect to the two (2) floors
of office condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value
at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and
the other by the) retiring partner or the heirs of a deceased partner,
as the case may be. In the event of any disagreement between the
said appraisers a third appraiser will be appointed by them whose
decision shall be final. The share of the retiring or deceased partner in
the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which
shall be paid monthly within the first ten (10) days of every month in
installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so
hold, in a generic sense to mean the dissociation by a partner, inclusive
of resignation or withdrawal, from the partnership that thereby
dissolves it.
On the third and final issue, we accord due respect to the appellate court
and respondent Commission on their common factual finding, i.e., that
Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12Indeed, for as long as the reason for
withdrawal of a partner is not contrary to the dictates of justice and
fairness, nor for the purpose of unduly visiting harm and damage upon
the partnership, bad faith cannot be said to characterize the act. Bad
faith, in the context here used, is no different from its normal concept
of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No
pronouncement on costs.
SO ORDERED.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners,
vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.
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.
DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua
Bearneza formed a partnership for the purpose of exploiting a fish pond
situated in the barrio of Talisay, municipality of Barotac Nuevo, Province
of Iloilo, Perpetua obligating herself to contribute to the payment of the
expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed
Domingo Bearnez, the herein plaintiff, as her heir to succeed to all her
rights and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza
for the delivery of the part of the fish pond belonging to his decedent,
Perpetua, and delivery having been refused, Domingo Bearneza brought
this action to recover said part of the fish pond belonging to his
decedent, Perpetua, and delivery having been refused, Domingo
Bearneza brought this action recover said part of the fish pond and one-
half of the profits received by the defendant from the fish pond from
the year 1913 to 1919, as damages (the amended complaint was filed
on April 12, 1920), amounting, according to plaintiff, to the sum of
thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the
allegations of the complaint, and alleges, as special defense, that "the
formation of the supposed partnership between the plaintiff and the
defendant for the exploitation of the aforesaid fish pond was not carried
into effect, on account of the plaintiff having refused to defray the
expenses of reconstruction and exploitation of said fish pond." As
another special defense, the defendant alleges "that in the event that
the court should hold the plaintiff to be entitled to the undivided one-
half of the fish pond, claimed in the complaint, the plaintiff's action has
prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered
judgment, declaring the plaintiff owner of one-half of the fish pond,
which was composed of the portions known as "Alimango" and
"Dalusan," but without awarding him any of the damages claimed by
him, the same not having been proven, in the opinion of the court, and
ordering the defendant to pay the costs.
From this judgment the defendant appeals, making various assignments
of error. The plaintiff did not appeal from that part of the judgment
denying his claim for damages; hence the only question we are called
upon to decide is whether or not the plaintiff has any right to maintain
an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as
to the existence of which the proof contained in the record is conclusive
and there is no dispute, was of a civil nature. It was a particular
partnership, as defined in article 1678 of the Civil Code, it having had for
its subject-matter a specified thing, to with, the exploitation of the
aforementioned fish pond. Although, as the trial court says in its
decision, the defendant, in his letters to Perpetua or her husband,
makes reference to the fish pond, calling it "our," or "your fish pond,"
this reference cannot be held to include the land on which the said fish
pond was built. It has not been proven that Perpetua Bearneza
participated in the ownership of said land, and Exhibits 2 and 3 of the
defendant show that he has been paying, as exclusive owner of the fish
pond, the land tax thereon, although in Exhibit X he says that the said
land belongs to the State. The conclusion, therefore, from the evidence
is that the land on which the fish pond was constructed did not
constitute a part of the subject- matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a
mercantile partnership, and, therefore, the provisions of the Code of
Commerce not being applicable thereto (article 1670 of the Civil Code),
it was dissolved by the death of Perpetua Bearneza, and falls under the
provisions of article 1700, subsection 3, of the same Code, and not
under the exception established in the last paragraph of said article
1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist
after the death of Perpetua, inasmuch as it does not appear that any
stipulation to that effect has ever been made by her and the defendant,
pursuant to the provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua
Bearneza, its subsequent legal status was that of a partnership in
liquidation, and the only rights inherited by her testamentary heir, the
herein plaintiff, were those resulting from the said liquidation in favor of
the deceased partner, and nothing more. Before this liquidation is made,
which up to the present has not been effected, it is impossible to
determine what rights or interests, if any, the deceased had, the
partnership bond having been dissolved.
There is no sufficient ground for holding that a community of property
existed between the plaintiff and the defendant, it not being known
whether the deceased still had any interest in the partnership property
which could have been transmitted by will to the plaintiff. There being
no community of property, article 395 of the Civil Code cited by the
plaintiff in support of his contention can have no application to the case
at bar.
Neither can it be said that the partnership continued between the
plaintiff and the defendant. It is true that the latter's act in requiring the
heirs of Perpetua to contribute to the payment of the expenses of
exploitation of the aforesaid fishing industry was an attempt to continue
the partnership, but it is also true that neither the said heirs collectively,
nor the plaintiff individually, took any action in response to that
requirement, nor made any promise to that effect, and therefore no
new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed
insofar as it denies the plaintiff's claim for damages, and reversed insofar
as it declares the said plaintiff owner of one-half of the fish pond,
"Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.
MAGLANA,Defendant-Appellee.
This is a direct appeal to this Court from a decision ** of the then Court
of First Instance of Davao, Seventh Judicial District, Branch III, in Civil
Case No. 3518, dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as
follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-
Partnership (Exhibit "A") called Eastcoast Development Enterprises
(EDE) with only the two of them as partners. The partnership EDE with
an indefinite term of existence was duly registered on January 21, 1955
with the Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or
secure timber and/or minor forests products licenses and concessions
over public and/or private forest lands and to operate, develop and
promote such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an
application for a timber concession covering the area located at Cateel
and Baganga, Davao with the Bureau of Forestry which was approved
and Timber License No. 35-56 was duly issued and became the basis of
subsequent renewals made for and in behalf of the duly registered
partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall
manage the business affairs of the partnership, including marketing and
handling of cash and is authorized to sign all papers and instruments
relating to the partnership, while appellant Rojas shall be the logging
superintendent and shall manage the logging operations of the
partnership. It is also provided in the said articles of co-partnership that
all profits and losses of the partnership shall be divided share and share
alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no
operation of said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to
avail of the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed
their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the
firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from
the slight difference in the purpose of the second partnership which is
to hold and secure renewal of timber license instead of to secure the
license as in the first partnership and the term of the second partnership
is fixed to thirty (30) years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started
operation on May 1, 1956, and was able to ship logs and realize profits.
An income was derived from the proceeds of the logs in the sum of
P643,633.07 (Decision, R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a
document entitled "CONDITIONAL SALE OF INTEREST IN THE
PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C"
and "D") agreeing among themselves that Maglana and Rojas shall
purchase the interest, share and participation in the Partnership of
Pahamotang assessed in the amount of P31,501.12. It was also agreed
in the said instrument that after payment of the sum of P31,501.12 to
Pahamotang including the amount of loan secured by Pahamotang in
favor of the partnership, the two (Maglana and Rojas) shall become the
owners of all equipment contributed by Pahamotang and the
EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the
second partnership, be dissolved. Pahamotang was paid in fun on
August 31, 1957. No other rights and obligations accrued in the name of
the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by
Maglana and Rojas without the benefit of any written agreement or
reconstitution of their written Articles of Partnership (Decision, R.A.
948).
On January 28, 1957, Rojas entered into a management contract with
another logging enterprise, the CMS Estate, Inc. He left and abandoned
the partnership (Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the
partnership for use in the newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first
partnership and was transferred to CMS Estate, Inc. by way of chattel
mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the latter of his
obligation to contribute, either in cash or in equipment, to the capital
investments of the partnership as well as his obligation to perform his
duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be
able to comply with the promised contributions and he will not work as
logging superintendent. Maglana then told Rojas that the latter's share
will just be 20% of the net profits. Such was the sharing from 1957 to
1959 without complaint or dispute (Decision, R.A. 949).: nad
Meanwhile, Rojas took funds from the partnership more than his
contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10")
Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance
of Davao against Maglana for the recovery of properties, accounting,
receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed
commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961
(Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid.,
p. 125). Judge Romero also required the inclusion of the entire year
1961 in the report to be submitted by the commissioners (Ibid., pp. 138-
143). Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as the information
furnished them by the parties, which were compiled in three (3)
volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend
his answer with counterclaim, attaching thereto the amended answer
(Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted
Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order
dated May 27, 1964 approving the report of the commissioners which
was opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was
denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and
the following issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and
Rojas after the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or
share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana
dissolving the partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968,
the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment
is hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana
and Rojas after Pahamotang retired from the second partnership, that
is, after August 31, 1957, when Pahamotang was finally paid his share
— the partnership of the defendant and the plaintiff is one of a de
facto and at will;
 "2. Whether the sharing of partnership profits should be on the basis
of computation, that is the ratio and proportion of their respective
contributions, or on the basis of share and share alike — this covered
by actual contributions of the plaintiff and the defendant and by their
verbal agreement; that the sharing of profits and losses is on the basis
of actual contributions; that from 1957 to 1959, the sharing is on the
basis of 80% for the defendant and 20% for the plaintiff of the profits,
but from 1960 to the date of dissolution, February 23, 1961, the
plaintiff's share will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the plaintiff is not
entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant
and placed in his or in his wife's name were acquired with partnership
funds or with funds of the defendant and — the Court declares that
there is no evidence that these properties were acquired by the
partnership funds, and therefore the same should not belong to the
partnership;
"4. As to whether damages were suffered and, if so, how much, and
who caused them and who should be liable for them — the Court
declares that neither parties is entitled to damages, for as already
stated above it is not a wise policy to place a price on the right of a
person to litigate and/or to come to Court for the assertion of the
rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the
plaintiff dated February 23, 1961; did it dissolve the partnership or not
— the Court declares that the letter of the defendant to the plaintiff
dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs,
supplies, and other merchandise to the laborers and employees of the
Eastcoast Development Enterprises, — the COURT DECLARES THE
SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by
Pablo Angeles David — is VALID AND BINDING UPON THE PARTIES AND
SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO
THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn
over to the partnership the amount of P69,000.00 the profits he
received from the CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further
sum of P85,000.00 which according to him he is still entitled to receive
from the CMS Estate, Inc. is hereby denied considering that it has not
yet been actually received, and further the receipt is merely based
upon an expectancy and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of
P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00
the amount he should have received as logging superintendent, and
which was not paid to him, and this should be considered as part of
Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.:
rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the
second partnership.
The lower court is of the view that the second partnership superseded
the first, so that when the second partnership was dissolved there was
no written contract of co-partnership; there was no reconstitution as
provided for in the Maglana, Rojas and Pahamotang partnership
contract. Hence, the partnership which was carried on by Rojas and
Maglana after the dissolution of the second partnership was a de facto
partnership and at will. It was considered as a partnership at will because
there was no term, express or implied; no period was fixed, expressly or
impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under
the firm name of Eastcoast Development Enterprises (EDE) evidenced
by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A")
has not been novated, superseded and/or dissolved by the unregistered
articles of co-partnership among appellant Rojas, appellee Maglana and
Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly,
the terms and stipulations of said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations between him and Maglana.
Upon withdrawal of Agustin Pahamotang from the unregistered
partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit
"A") continues to govern the relations between them and it was legal
error to consider a de facto partnership between said two partners or a
partnership at will. Hence, the letter of appellee Maglana dated
February 23, 1961, did not legally dissolve the registered partnership
between them, being in contravention of the partnership agreement
agreed upon and stipulated in their Articles of Co-Partnership (Exhibit
"A"). Rather, appellant is entitled to the rights enumerated in Article
1837 of the Civil Code and to the sharing profits between them of "share
and share alike" as stipulated in the registered Articles of Co-Partnership
(Exhibit "A").
After a careful study of the records as against the conflicting claims of
Rojas and Maglana, it appears evident that it was not the intention of
the partners to dissolve the first partnership, upon the constitution of
the second one, which they unmistakably called an "Additional
Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25).
Except for the fact that they took in one industrial partner; gave him an
equal share in the profits and fixed the term of the second partnership
to thirty (30) years, everything else was the same. Thus, they adopted
the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of Rojas and
Maglana as stipulated in both partnerships call for the same amounts.
Just as important is the fact that all subsequent renewals of Timber
License No. 35-36 were secured in favor of the First Partnership, the
original licensee. To all intents and purposes therefore, the First Articles
of Partnership were only amended, in the form of Supplementary
Articles of Co-Partnership (Exhibit "C") which was never registered (Brief
for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence
of the second partnership, all business transactions were carried out
under the duly registered articles. As found by the trial court, it is an
admitted fact that even up to now, there are still subsisting obligations
and contracts of the latter (Decision, R.A. pp. 950-957). No rights and
obligations accrued in the name of the second partnership except in
favor of Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was
dissolved by common consent. Said dissolution did not affect the first
partnership which continued to exist. Significantly, Maglana and Rojas
agreed to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two (Maglana and
Rojas) became the owners of equipment contributed by Pahamotang.
Even more convincing, is the fact that Maglana on March 17, 1957,
wrote Rojas, reminding the latter of his obligation to contribute either
in cash or in equipment, to the capital investment of the partnership as
well as his obligation to perform his duties as logging superintendent.
This reminder cannot refer to any other but to the provisions of the duly
registered Articles of Co-Partnership. As earlier stated, Rojas replied that
he will not be able to comply with the promised contributions and he
will not work as logging superintendent. By such statements, it is
obvious that Roxas understood what Maglana was referring to and left In the given situation Maglana cannot be said to be in bad faith nor can
no room for doubt that both considered themselves governed by the he be liable for damages.
articles of the duly registered partnership.
PREMISES CONSIDERED, the assailed decision of the Court of First
Under the circumstances, the relationship of Rojas and Maglana after Instance of Davao, Branch III, is hereby MODIFIED in the sense that the
the withdrawal of Pahamotang can neither be considered as a De Facto duly registered partnership of Eastcoast Development Enterprises
Partnership, nor a Partnership at Will, for as stressed, there is an existing continued to exist until liquidated and that the sharing basis of the
partnership, duly registered. partners should be on share and share alike as provided for in its Articles
of Partnership, in accordance with the computation of the
As to the question of whether or not Maglana can unilaterally dissolve
commissioners. We also hereby AFFIRM the decision of the trial court in
the partnership in the case at bar, the answer is in the affirmative.
all other respects.: nad
Hence, as there are only two parties when Maglana notified Rojas that
SO ORDERED.
he dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified
term, one partner can cause its dissolution by expressly withdrawing
even before the expiration of the period, with or without justifiable
cause. Of course, if the cause is not justified or no cause was given, the
withdrawing partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the number of
members is decreased, hence, the dissolution. And in whatever way he
may view the situation, the conclusion is inevitable that Rojas and
Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share and share
alike" between the partners.
But an accounting must first be made and which in fact was ordered by
the trial court and accomplished by the commissioners appointed for
the purpose.
On the basis of the Commissioners' Report, the corresponding
contribution of the partners from 1956-1961 are as follows: Eufracio
Rojas who should have contributed P158,158.00, contributed only
P18,750.00 while Maglana who should have contributed P160,984.00,
contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that
when a partner who has undertaken to contribute a sum of money fails
to do so, he becomes a debtor of the partnership for whatever he may
have promised to contribute (Article 1786, Civil Code) and for interests
and damages from the time he should have complied with his obligation
(Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94
[1984]). Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a partnership
(Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to
any profits. In their voluminous reports which was approved by the trial
court, they showed that on 50-50% basis, Rojas will be liable in the
amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and
finally on the basis of actual capital contribution, he will be liable for
P52,040.31.
Consequently, except as to the legal relationship of the partners after
the withdrawal of Pahamotang which is unquestionably a continuation
of the duly registered partnership and the sharing of profits and losses
which should be on the basis of share and share alike as provided for in
the duly registered Articles of Co-Partnership, no plausible reason could
be found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such
withdrawal, it will be recalled that after the withdrawal of Pahamotang,
Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc., a company engaged in the same
business as the partnership. He withdrew his equipment, refused to
contribute either in cash or in equipment to the capital investment and
to perform his duties as logging superintendent, as stipulated in their
partnership agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount more than
his contribution (Decision, R.A., p. 949).