Article 1769 To regard the petitioners as having formed a taxable unregistered

partnership would result in oppressive taxation and confirm the dictum

G.R. No. L-68118 October 29, 1985 that the power to tax involves the power to destroy. That eventuality
should be obviated.

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS

and REMEDIOS P. OBILLOS, brothers and sisters, petitioners As testified by Jose Obillos, Jr., they had no such intention. They were
co-owners pure and simple. To consider them as partners would
vs. obliterate the distinction between a co-ownership and a partnership. The
petitioners were not engaged in any joint venture by reason of that
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX isolated transaction.
APPEALS, respondents.

Their original purpose was to divide the lots for residential purposes. If
Demosthenes B. Gadioma for petitioners. later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to
resell the same to dissolve the co-ownership. The division of the profit
was merely incidental to the dissolution of the co-ownership which was
in the nature of things a temporary state. It had to be terminated sooner
or later. Castan Tobeas says:

AQUINO, J.:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
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.
El criterio diferencial-segun la doctrina mas generalizada-esta: por
razon del origen, en que la sociedad presupone necesariamente la
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., convencion, mentras que la comunidad puede existir y existe
Ltd. on two lots with areas of 1,124 and 963 square meters located at ordinariamente sin ela; y por razon del fin objecto, en que el objeto de
Greenhills, San Juan, Rizal. The next day he transferred his rights to his la sociedad es obtener lucro, mientras que el de la indivision es solo
four children, the petitioners, to enable them to build their residences. mantener en su integridad la cosa comun y favorecer su conservacion.
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.
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
In 1974, or after having held the two lots for more than a year, the y contrato de sociedad, la moderna orientacion de la doctrina cientifica
petitioners resold them to the Walled City Securities Corporation and seala como nota fundamental de diferenciacion aparte del origen de
Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They fuente de que surgen, no siempre uniforme, la finalidad perseguida por
derived from the sale a total profit of P134,341.88 or P33,584 for each los interesados: lucro comun partible en la sociedad, y mera
of them. They treated the profit as a capital gain and paid an income tax conservacion y aprovechamiento en la comunidad. (Derecho Civil
on one-half thereof or of P16,792. Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

In April, 1980, or one day before the expiration of the five-year Article 1769(3) of the Civil Code provides that "the sharing of gross
prescriptive period, the Commissioner of Internal Revenue required the returns does not of itself establish a partnership, whether or not the
four petitioners to pay corporate income tax on the total profit of persons sharing them have a joint or common right or interest in any
P134,336 in addition to individual income tax on their shares thereof He property from which the returns are derived". There must be an
assessed P37,018 as corporate income tax, P18,509 as 50% fraud unmistakable intention to form a partnership or joint venture.*
surcharge and P15,547.56 as 42% accumulated interest, or a total of
P71,074.56.
Such intent was present in Gatchalian vs. Collector of Internal Revenue,
67 Phil. 666, where 15 persons contributed small amounts to purchase
Not only that. He considered the share of the profits of each petitioner in a two-peso sweepstakes ticket with the agreement that they would
the sum of P33,584 as a " taxable in full (not a mere capital gain of which divide the prize The ticket won the third prize of P50,000. The 15
is taxable) and required them to pay deficiency income taxes persons were held liable for income tax as an unregistered partnership.
aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Oa vs.
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.
** This view is supported by the following rulings of respondent
Commissioner:

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 Co-owership distinguished from partnership.We find that the case at
Revenue vs. Batangas Trans. Co., 102 Phil. 822). 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
The petitioners contested the assessments. Two Judges of the Tax continued dedicating the property to the use to which it had been put by
Court sustained the same. Judge Roaquin dissented. Hence, the instant their forebears; they individually reported in their tax returns their
appeal. 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
We hold that it is error to consider the petitioners as having formed a Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July
partnership under article 1767 of the Civil Code simply because they 31, 1963).
allegedly contributed P178,708.12 to buy the two lots, resold the same
and divided the profit among themselves.

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 The facts as found by respondent Court of Tax Appeals, which being
otherwise, would be to subject the income of all supported by substantial evidence, must be respected4 follow: "On
October 31, 1950, petitioners, father and son, purchased a lot and
co-ownerships of inherited properties to the tax on corporations, building, known as the Gibbs Building, situated at 671 Dasmarias
inasmuch as if a property does not produce an income at all, it is not Street, Manila, for P835,000.00, of which they paid the sum of
subject to any kind of income tax, whether the income tax on individuals P375,000.00, leaving a balance of P460,000.00, representing the
or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, mortgage obligation of the vendors with the China Banking Corporation,
September 11, 1961, cited in Araas, 1977 Tax Code Annotated, Vol. 1, which mortgage obligations were assumed by the vendees. The initial
1979 Ed., pp. 77-78). payment of P375,000.00 was shared equally by petitioners. At the time
of the purchase, the building was leased to various tenants, whose rights
under the lease contracts with the original owners, the purchasers,
petitioners herein, agreed to respect. The administration of the building
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA was entrusted to an administrator who collected the rents; kept its books
74, where after an extrajudicial settlement the co-heirs used the and records and rendered statements of accounts to the owners;
inheritance or the incomes derived therefrom as a common fund to negotiated leases; made necessary repairs and disbursed payments,
produce profits for themselves, it was held that they were taxable as an whenever necessary, after approval by the owners; and performed such
unregistered partnership. other functions necessary for the conservation and preservation of the
building. Petitioners divided equally the income of operation and
maintenance. The gross income from rentals of the building amounted
It is likewise different from Reyes vs. Commissioner of Internal Revenue, to about P90,000.00 annually."5
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 From the above facts, the respondent Court of Tax Appeals applying the
Internal Revenue, 102 Phil. 140, where the three Evangelista sisters appropriate provisions of the National Internal Revenue Code, the first
bought four pieces of real property which they leased to various tenants of which imposes an income tax on corporations "organized in, or
and derived rentals therefrom. Clearly, the petitioners in these two cases existing under the laws of the Philippines, no matter how created or
had formed an unregistered partnership. organized but not including duly registered general co-partnerships
(companias colectivas), ...,"6 a term, which according to the second
provision cited, includes partnerships "no matter how created or
In the instant case, what the Commissioner should have investigated organized, ...,"7 and applying the leading case of Evangelista v.
was whether the father donated the two lots to the petitioners and Collector of Internal Revenue,8 sustained the action of respondent
whether he paid the donor's tax (See Art. 1448, Civil Code). We are not Commissioner of Internal Revenue, but reduced the tax liability of
prejudging this matter. It might have already prescribed. petitioners, as previously noted.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. Petitioners maintain the view that the Evangelista ruling does not apply;
The assessments are cancelled. No costs. for them, the situation is dissimilar.1wph1.t Consequently they
allege that the reliance by respondent Court of Tax Appeals was
unwarranted and the decision should be set aside. If their interpretation
of the authoritative doctrine therein set forth commands assent, then
SO ORDERED. clearly what respondent Court of Tax Appeals did fails to find shelter in
the law. That is the crux of the matter. A perusal of the Evangelista
G.R. Nos. L-24020-21 July 29, 1968 decision is therefore unavoidable.

FLORENCIO REYES and ANGEL REYES, petitioners, As noted in the opinion of the Court, penned by the present Chief
Justice, the issue was whether petitioners are subject to the tax on
vs. corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, ..."9 After
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF referring to another section of the National Internal Revenue Code,
TAX APPEALS, respondents. which explicitly provides that the term corporation "includes
partnerships" and then to Article 1767 of the Civil Code of the
Philippines, defining what a contract of partnership is, the opinion goes
Jose W. Diokno and Domingo Sandoval for petitioners. on to state that "the essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a common
Office of the Solicitor General for respondents. fund; and (b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to and did, contribute money and
property to a common fund. Hence, the issue narrows down to their
FERNANDO, J.: intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, ..."10
Petitioners in this case were assessed by respondent Commissioner of
Internal Revenue the sum of P46,647.00 as income tax, surcharge and
compromise for the years 1951 to 1954, an assessment subsequently
reduced to P37,528.00. This assessment sought to be reconsidered In support of the above conclusion, reference was made to the following
unsuccessfully was the subject of an appeal to respondent Court of Tax circumstances, namely, the common fund being created purposely not
Appeals. Thereafter, another assessment was made against petitioners, something already found in existence, the investment of the same not
this time for back income taxes plus surcharge and compromise in the merely in one transaction but in a series of transactions; the lots thus
total sum of P25,973.75, covering the years 1955 and 1956. There being acquired not being devoted to residential purposes or to other personal
a failure on their part to have such assessments reconsidered, the uses of petitioners in that case; such properties having been under the
matter was likewise taken to the respondent Court of Tax Appeals. The management of one person with full power to lease, to collect rents, to
two cases1 involving as they did identical issues and ultimately traceable issue receipts, to bring suits, to sign letters and contracts and to endorse
to facts similar in character were heard jointly with only one decision notes and checks; the above conditions having existed for more than 10
being rendered. years since the acquisition of the above properties; and no testimony
having been introduced as to the purpose "in creating the set up already
adverted to, or on the causes for its continued existence."11 The
conclusion that emerged had all the imprint of inevitability. Thus:
In that joint decision of respondent Court of Tax Appeals, the tax liability "Although, taken singly, they might not suffice to establish the intent
for the years 1951 to 1954 was reduced to P37,128.00 and for the years necessary to constitute a partnership, the collective effect of these
1955 and 1956, to P20,619.00 as income tax due "from the partnership circumstances is such as to leave no room for doubt on the existence of
formed" by petitioners.2 The reduction was due to the elimination of said intent in petitioners herein."12
surcharge, the failure to file the income tax return being accepted as due
to petitioners honest belief that no such liability was incurred as well as
the compromise penalties for such failure to file.3 A reconsideration of
the aforesaid decision was sought and denied by respondent Court of It may be said that there could be a differentiation made between the
Tax Appeals. Hence this petition for review. circumstances above detailed and those existing in the present case. It
does not suffice though to preclude the applicability of the Evangelista
decision. Petitioners could harp on these being only one transaction.
They could stress that an affidavit of one of them found in the Bureau of
Internal Revenue records would indicate that their intention was to
house in the building acquired by them the respective enterprises, FRANCISCO BASTIDA, plaintiff-appellee,
coupled with a plan of effecting a division in 10 years. It is a little
surprising then that while the purchase was made on October 31, 1950 vs.
and their brief as petitioners filed on October 20, 1965, almost 15 years
later, there was no allegation that such division as between them was in MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
fact made. Moreover, the facts as found and as submitted in the brief
made clear that the building in question continued to be leased by other MENZI & CO., appellant.
parties with petitioners dividing "equally the income ... after deducting
the expenses of operation and maintenance ..."13 Differences of such
slight significance do not call for a different ruling. Romualdez Brothers and Harvey and O'Brien for appellant.

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

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

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

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

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

V
 expenditures and sale of every kind, together with the true amount
thereof, besides the sums received by the partnership from every source
That by reason of the foregoing facts and especially those set forth in together with their exact nature, and a true and complete account of the
the preceding paragraph, the plaintiff was kept in ignorance of the vouchers for all sums paid by the partnership, and of the salaries paid
defendants' acts relating to the management of the partnership funds, to its employees;
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 3. To declare null and void the yearly balances submitted by the
exact nature and amount of which it is impossible to ascertain, even after defendants to the plaintiff from 1922 to 1926, both inclusive;
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; 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.
VI

EXHIBIT A
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 CONTRATO
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 que se celebra entre los Sres. Menzi y Compaia, de Manila, como
refused to furnish all the books, data, and vouchers necessary for a Primera Parte, y D. Francisco Bastada, tambien de Manila, como
complete and accurate examination of all the partnership's accounts; Segunda Parte, bajo las siguientes
and

CONDICIONES
VII

1. El objeto de este contrato es la explotacion del negocio de Abonos

That as a result of the partial examination of the books of account of the o Fertilizantes Preparados, para diversas aplicaciones agricolas;
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, 2. La duracion de este contrato sera de cinco aos, a contrar desde la
fecha de su firma;

(a) For having included therein undue interest;

3. La Primera Parte se compromete a facilitar la ayuda financiera
necesaria para el negocio;
(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.; 4. La Segunda Parte se compromete a poner su entero tiempo y toda
su experiencia a la disposicion del negocio;

(c) For having collected from the partnership the income tax which
should have been paid for its own account by Menzi & Co., Inc.; 5. La Segunda Parte no podra, directa o indirectamente, dedicarse por
si sola ni en sociedad con otras personas, o de manera alguna que no
sea con la Primera Parte, al negecio de Abonos, simples o preparados,
o de materia alguna que se aplique comunmente a la fertilizacion de
(d) For having collected, to the damage and prejudice of the plaintiff, suelos y plantas, durante la vigencia de este contrato, a menos que
commissions on the purchase of materials for the manufacture of obtenga autorizacion expresa de la Primera Parte para ello;
fertilizers;

6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o

(e) For having appropriated, to the damage and prejudice of the plaintiff, combinacion con otras personas o entidades, ni de otro modo que en
the profits obtained from the sale of fertilizers belonging to the sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes
partnership and bought with its own funds; and 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
(f) For having appropriated to themselves all rebates for freight composicion de fertilizantes o abonos, si ellos son productos de suelo
insurance, taxes, etc., upon materials for fertilizer bought abroad, no de la manufactura filipinos, pudiendo sin embargo vender o negociar en
entries of said rebates having been made on the books to the credit of materim fertilizantes simples importados de los Estados Unidos o del
the partnership. Extranjero;

Upon the strength of the facts set out in this first cause of action, the 7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda
plaintiff prays the court: Parte el 35 por ciento (treinta y cinco por ciento) de las utilidades netas
del negocio de abonos, liquidables el 30 de junio de cada ao;

1. To prohibit the defendants, each and every one of them, from

destroying and concealing the books and papers of the partnership 8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad
constituted between the defendant Menzi & Co., Inc., and the plaintiff; de P300 (trescientos pesos), a cuenta de su parte de beneficios.

2. To summon each and every defendant to appear and give a true 9. Durante el ao 1923 la Parte concedera a la Segunda permiso para
account of all facts relating to the partnership between the plaintiff and que este se ausente de Filipinas por un periodo de tiempo que no
the defendant Menzi & Co., Inc., and of each and every act and exceda de un ao, sin menoscabo para derechos de la Segunda Parte
transaction connected with the business of said partnership from the con arreglo a este contrato.
beginning to April 27, 1927, and a true statement of all merchandise of
whatever description, purchased for said partnership, and of all the
En testimonio de lo cual firmamos el presente en la Ciudad de Manila, and the share of the net profits pertaining to the plaintiff as his
I. F., a veintisiete de abril de 1922. 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
MENZI & CO., INC. were shown to and examined by the plaintiff, and duly accepted, and
approved by him, with full knowledge of their contents, and as evidence
Por (Fdo.) J. MENZI 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
General Manager
sheet for each year up to and including the year 1926, which are
Primera Parte 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
(Fdo.) F. BASTIDA agreement; that at no time during the course of said fertilizer business
and the liquidation thereof has the plaintiff been in any way denied
Segunda Parte 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.
MENZI & CO., INC. Haskins & Sells, of Manila, have been going over and examining said
books and records for months and the defendant, Menzi & Co. Inc.,
(Fdo.) MAX KAEGI
through its officers, have turned over to said plaintiff and his accountant
the books and records of said business and even furnished them
Acting Secretary
suitable accommodations in its own office to examine the same;

Defendants denied all the allegations of the amended complaint, except

4. That prior to the termination of the said agreement, Exhibit A, the
the formal allegations as to the parties, and as a special defense to the
defendant, Menzi & Co., Inc., duly notified the plaintiff that it would not
first cause of action alleged:
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
1. That the defendant corporation, Menzi & Co., Inc., has been engaged public accountants, White, Page & Co., audit the accounts of the
in the general merchandise business in the Philippine Islands since its business of its said fertilizer department for the four months of 1927
organization in October, 1921, including the importation and sale of all covered by plaintiff's agreement and prepare a manufacturing and profit
kinds of goods, wares, and merchandise, and especially simple fertilizer and loss account and balance sheet of said business showing the status
and fertilizer ingredients, and as a part of that business, it has been of said business at the termination of said agreement, a copy of which
engaged since its organization in the manufacture and sale of prepared was shown to and explained to the plaintiff; that at that time there were
fertilizers for agricultural purposes, and has used for that purpose trade- accounts receivable to be collected for business covered by said
marks belonging to it; 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
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., determined; that Menzi & Co., Inc., offered to take the face value of said
made and entered into an employment agreement with the plaintiff, who accounts and the cost value of the other properties for the purpose of
represented that he had had much experience in the mixing of fertilizers, determining the profits of said business for that period, and to pay to the
to superintend the mixing of the ingredients in the manufacture of plaintiff at that time his proportion of such profits on that basis, which the
prepared fertilizers in its fertilizer department and to obtain orders for plaintiff refused to accept, and being disgruntled because the said Menzi
such prepared fertilizers subject to its approval, for a compensation of & Co., Inc., would not continue him in its service, the said plaintiff
50 per cent of the net profits which it might derive from the sale of the commenced this action, including therein not only Menzi & Co. Inc., but
fertilizers prepared by him, and that said Francisco Bastida worked also it managers J.M. Menzi and P.C. Schlobohm, wherein he knowingly
under said agreement until April 27, 1922, and received the make various false and malicious allegations against the defendants;
compensation agreed upon for his services; that on the said 27th of that since that time the said Menzi & Co., Inc., has been collecting the
April, 1922, the said Menzi & Co., Inc., and the said Francisco Bastida accounts receivable and disposing of the stocks on hand, and there is
made and entered into the written agreement, which is marked Exhibit still on hand old stock of approximately P25,000, which it has been
A, and made a part of the amended complaint in this case, whereby they unable to dispose of up to this time; that as soon as possible a final
mutually agreed that the employment of the said Francisco Bastida by liquidation and amounting of the net profits of the business covered by
the said Menzi & Co., Inc., in the capacity stated, should be for a definite said agreement for the last four months thereof will be made and the
period of five years from that date and under the other terms and share thereof appertaining to the plaintiff will be paid to him; that the
conditions stated therein, but with the understanding and agreement that plaintiff has been informed from time to time as to the status of the
the said Francisco Bastida should receive as compensation for his said disposition of such properties, and he and his auditors have fully
services only 35 per cent of the net profits derived from the sale of the examined the books and records of said business in relation thereto.
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 SECOND CAUSE OF ACTION
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
As a second cause of action plaintiff alleged:
assume the full management and direction of said business;

3. That the accounts of the business of the said fertilizer department of I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of
Menzi & Co., Inc., were duly kept in the regular books of its general the first cause of action.
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 II. That the examination made by the plaintiff's auditors of some of the
compensation due to the plaintiff under his agreement, separate books books of the partnership that were furnished by the defendants disclosed
of account for its said fertilizer business were duly, kept in the name of the fact that said defendants had charged to "purchases" of the
'Menzi & Co., Inc., Fertilizer', and used exclusively for that purpose and business, undue interest, the amount of which the plaintiff is unable to
it was mutually agreed between the said Francisco Bastida and the said determine, as he has never had at his disposal the books and vouchers
Menzi & Co., Inc., that the yearly balances for the determination of the necessary for that purpose, and especially, owning to the fact that the
net profits of said business due to the said plaintiff as compensation for partnership constituted between the plaintiff and the defendant Menzi &
his services under said agreement would be made as of December 31st, Co., Inc., never kept its own cash book, but that its funds were
instead of June 30th, of each year, during the period of said agreement; maliciously included in the private funds of the defendant entity, neither
that the accounts of the business of its said fertilizer department, as was there a separate BANK ACCOUNT of the partnership, such account
recorded in its said books, and the vouchers and records supporting the being included in the defendant's bank account.
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 III. That from the examination of the partnership books as aforesaid, the
loss account and balance sheet, showing the status of said business 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. 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;

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 2. That the defendant, Menzi & Co., Inc., through its manager,
defendants to the plaintiff upon this ground, with legal interest from the exclusively managed and conducted its said fertilizer business, in which
filing of the original complaint until payment. 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
Defendants alleged: 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
1. That they repeat and make a part of this special defense paragraphs the time of the manager and certain employees of Menzi & Co., Inc., in
1, 2, 3 and 4, of the special defense to the first cause of action in this carrying it on; that the said Menzi & Co., furnished office space,
amended answer; 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 &
2. That under the contract of employment, Exhibit A, of the amended Co., Inc., charged each year, from and after 1922, as expenses of said
complaint, the defendant, Menzi & Co., Inc., only undertook and agreed business, which pertained to the fertilizer department, as certain amount
to facilitate financial aid in carrying on the said fertilizer business, as it as salaries and wages to cover the proportional part of the overhead
had been doing before the plaintiff was employed under the said expenses of Menzi & Co., Inc.; that the same method is followed in each
agreement; that the said defendant, Menzi & Co., Inc., in the course of of the several departments of the business of Menzi & Co., Inc., that
the said business of its fertilizer department, opened letters of credit each and every year from and after 1922, a just proportion of said
through the banks of Manila, accepted and paid drafts drawn upon it overhead expenses were charged to said fertilizer departments and
under said letters of credit, and obtained loans and advances of moneys entered on the books thereof, with the knowledge and consent of the
for the purchase of materials to be used in mixing and manufacturing its plaintiff, and included in the auditors' reports, which were examined,
fertilizers and in paying the expenses of said business; that such drafts accepted and approved by him, and he is now estopped from saying
and loans naturally provided for interest at the banking rate from the that such expenses were not legitimate and just expenses of said
dates thereof until paid, as is the case in all, such business enterprises, business.
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 FOURTH CAUSE OF ACTION
agreement.

As fourth cause of action, the plaintiff alleged:

THIRD CAUSE OF ACTION

I. That he hereby reproduces paragraph I, II, III, IV, and V of the first
As third cause of action, plaintiff alleged: cause of action.

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first II. That the defendant Menzi & Co., Inc., through the defendant J. M.
cause of action. 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
II. That under the terms of the contract Exhibit A, neither the defendants partnership in the amount of P10,361.72 of which 35 per cent belongs
J.M. Menzi and P.C. Schlobohm, nor the defendant Menzi & Co., Inc., exclusively to the plaintiff, amounting to P3,626.60.
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 III. That the plaintiff has, during the period of the contract, paid with his
compensated with the 65% of the net profits of the business constituting own money the income tax corresponding to his share which consists in
their share. 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
III. That the plaintiff has, on his on account and with his own money, paid partners that each of them would pay his own income tax.
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 Wherefore, the plaintiff prays the court to order the defendants jointly
this sum because it was included in the compensation of 35 per cent and severally to pay the plaintiff the sum of P3,362.60, with legal interest
which he was to receive in accordance with the contract Exhibit A. from the date of the filing of the original complaint until its payment.

IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied Defendants alleged:
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.
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;
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.
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
Wherefore, the plaintiff prays the court to render judgment ordering the business, including its fertilizer department; that the proportional share
defendants to pay jointly and severally to the plaintiff the amount of of such income taxes found to be due on the business of the fertilizer
P15,372, with legal interest from the date of the filing of the original department was charged as a proper and legitimate expense of that
complaint until the date of payment. 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
Defendants alleged: 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 department of Menzi & Co., Inc., but due allowance has now been given
the income taxes paid by the said Menzi & Co., Inc., pertaining to the to the department for such item.
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 SIXTH CAUSE OF ACTION
such taxes are not a legitimate expense of said business.

As sixth cause of action, plaintiff alleged:

FIFTH CAUSE OF ACTION

I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause
As fifth cause of action, plaintiff alleged: of action.

I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause II. That the defendant Menzi Co., Inc., in collusion with and through the
of action. 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
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., warehouses, and then sold by Menzi & Co., Inc., to third persons,
had been receiving, during the period of the contract Exhibit A, from thereby appropriating to itself the profits obtained from such resale.
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 III. That it is impossible to ascertain the amount of the fraud suffered by
entered by the defendants in the books of the business, to the credit and the plaintiff in this respect as the real amount obtained from such sales
benefit of the partnership constituted between the plaintiff and the can only be ascertained from the examination of the private books of the
defendant, but to the credit of the defendant Menzi Co., Inc., which defendant entity, which the latter has refused to permit notwithstanding
appropriated it to itself. 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.
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 Wherefore, the plaintiff prays the court to order the defendants J.M.
of the defendant Menzi & Co., Inc., which the latter has refused to Menzi and P.C. Schlobohm, to make a sworn statement as to all the
furnish, notwithstanding the demands made therefore by the auditors profits received from the sale to third persons of the fertilizers pertaining
and the lawyers of the plaintiff. 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.

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 Defendant alleged:
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.
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:
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
2. That under the express terms of the employment agreement, Exhibit
their evidence upon the point.
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
Defendants alleged: 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.
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;
SEVENTH CAUSE OF ACTION

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 As seventh cause of action, plaintiff alleged:
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
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
bringing about sales of its potash a commission of 5 per cent on all
cause of action.
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 II. That during the existence of the contract Exhibit A, the defendant
per cent commission, amounting in all to P2,222.32 for the propaganda Menzi & Co., Inc., for the account of the partnership constituted between
work which it did for said firm in the Philippine Islands; that said itself and the plaintiff, and with the latter's money, purchased from a
commissioners were not in any sense discounts on the purchase price several foreign firms various simple fertilizing material for the use of the
of said potash, and have no relation to the fertilizer business of which partnership.
the plaintiff was to receive a share of the net profits for his services, and
consequently were not credited to that department;

III. That in the paid invoices for such purchases there are charged,
besides the cost price of the merchandise, other amounts for freight,
3. That in going over the books of Menzi Co., Inc., it has been found that insurance, duty, etc., some of which were not entirely thus spent and
there are only two items of commissions, which were received from the were later credited by the selling firms to the defendant Menzi & Co.,
United Supply Co., of San Francisco, in the total of sum $66.51, which Inc.
through oversight, were not credited on the books of the fertilizer
IV. That said defendant Menzi & Co., Inc., through and in collusion with contract was negotiated during the existence of the partnership, and
the defendants J.M. Menzi and P.C. Schlobohm upon receipt of the while the defendant Menzi & Co., Inc., was the manager thereof.
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 VI. That the defendant entity now contends that the contract entered into
entered or had them entered to the credit on Menzi & Co., Inc., thereby with the Compaia General de Tabacos de Filipinas belongs to it
defrauding the plaintiff of 35 per cent of the value of such reductions. exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.

V. That the total amount, or even the approximate amount of this fraud
cannot be ascertained without an examination of the private books of Wherefore, the plaintiff prays the honorable court to order the
Menzi & Co., Inc., which the latter has refused to permit notwithstanding defendants to render a true and detailed account of the business during
the demand to this effect made upon them by the auditors and the the last four months of the existence of the partnership, i. e., from
lawyers of the plaintiff. January 1, 1927 to April 27, 1927, and to sentence them likewise to pay
the plaintiff 35 per cent of the net profits.

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 Defendants alleged:
amount of such rebates, and to sentence the defendants to pay the
plaintiff jointly and severally 35 per cent of the net amount.
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
Defendants alleged: amended answer;

1. That they repeat and make a part of this special defense paragraphs 2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi
1, 2, 3 and 4, of the special defense to the first cause of action in this & Co., Inc., from the Compaia General de Tabacos Filipinas on April
amended answer: 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
2. That during the period of said employment agreement, Exhibit A, the service of the defendant, Menzi & Co., Inc., since that time, and he
defendant, Menzi & Co., Inc., received from its agent, C. Andre & Co., cannot possibly have any interest in the fertilizers manufactured and
of Hamburg, certain credits pertaining to the fertilizer business in the delivered by the said Menzi & Co., Inc., after the expiration of his
profits of which the plaintiff was interested, by way of refunds of German contract for any service rendered to it.
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 NINTH CAUSE OF ACTION
interested.

As ninth cause of action, plaintiff alleged:

EIGHT CAUSE OF ACTION

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first
A eighth cause of action, plaintiff alleged: cause of action.

I. That he hereby reproduces paragraphs I, II, III, IV and V of the first II. That during the period of the contract Exhibit A, the partnership
cause of action. 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.
II. That on or about April 21, 1927, that is, before the expiration of the
contract Exhibit A of the complaint, the defendant Menzi & Co., Inc.,
acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the Compaia III. That the plaintiff and the defendant, laboring jointly, have succeeded
General de Tabacos de Filipinas for the sale of said entity of three in making the fertilizing business a prosperous concern to such an extent
thousand tons of fertilizers of the trade mark "Corona No. 1", at the rate that the profits obtained from the business during the five years it has
of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they existed, amount to approximately P1,000,000, Philippine currency.
were delivered, according to information received by the plaintiff, during
the months of November and December, 1927, and January, February,
March, and April, 1928.
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.
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
V. That at the time of the expiration of the contract Exhibit A, the
the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff.
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
IV. That notwithstanding the expiration of the partnership contract liquidation, as required by law, thereby causing the plaintiff damages.
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
VI. That the damages sustained by the plaintiff, as well as the amount
incorrect with regard to the inventory of merchandise, transportation
of his share in the remaining property of the plaintiff, and may only be
equipment, and the value of the trade marks, for which reason such
truly and correctly ascertained by compelling the defendants J. M. Menzi
proposed balance did not represent the true status of the business of
and P. C. Schlobohm to declare under oath and explain to the court in
the partnership on April 30, 1927.
detail the sums obtained from the sale of the remaining merchandise,
after the expiration of the partnership contract.

V. That the proposed balance submitted to the plaintiff with reference to

the partnership operations during the last four months of its existence,
VII. That after the contract Exhibit A had expired, the defendant
was likewise incorrect, inasmuch as it did not include the profit realized
continued to use for its own benefit the good-will and trade marks
or to be realized from the contract entered into with the Compaia
belonging to the partnership, as well as its transportation equipment and
General de Tabacos de Filipinas, notwithstanding the fact that this
other machinery, thereby indicating its intention to retain such good-will, (b) Holding the plaintiff, by the mere fact of having signed and approved
trade marks, transportation equipment and machinery, for the the balance sheets, Exhibits C to C-8, is not estopped from questioning
manufacture of fertilizers, by virtue of which the defendant is bound to the statements of the accounts therein contained;
pay the plaintiff 35 per cent of the value of said property.

(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay
VIII. That the true value of the transportation equipment and machinery the plaintiff the sum of P 60,385.67 with legal interest from the date of
employed in the preparation of the fertilizers amounts of P20,000, 35 per the filing of the original complaint until paid;
cent of which amount to P7,000.

(d) Dismissing the third cause of action;

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 (e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay
of the business has been finished, or what the status of it is at present. the plaintiff the sum of P3,821.41, with legal interest from the date of the
filing of the original until paid;

Wherefore, the plaintiff prays the Honorable Court:

(f ) Dismissing the fifth cause of action;

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, (g) Dismissing the sixth cause of action;
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.
(h) Dismissing the seventh cause of action;

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
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of
and the trade marks of the fertilizer business;
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;
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
(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;
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.
(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
Defendants alleged: 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";

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; (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;

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; (m) Dismissing the case with reference to the other defendants, J. M.
that the trade-marks mentioned by the plaintiff in his amended Menzi and P. C. Schlobohm; and
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
(n) Menzi & Co., Inc., shall pay the costs of the trial.
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 The appellant makes the following assignment of error:
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 I. The trial court erred in finding and holding that the contract Exhibit A
amount; that the present machinery used by Menzi & Co., Inc., was constitutes a regular collective commercial copartnership between the
constructed by it, and the costs thereof was not charged to the fertilizer defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco
department, and the plaintiff has no right to have it taken into Bastida, and not a contract of employment.
consideration in arriving at the net profits due to him under his said
employment agreement.
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 dispositive part of the decision of the trial court is as follows: 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,
Wherefore, let judgment be entered: corresponds to the plaintiff.

(a) Holding that the contract entered into by the parties, evidenced by III. The trial court erred finding and holding that the defendant, Menzi &
Exhibit A, as a contract of general regular commercial partnership, Co., Inc., had wrongfully charged to the fertilizer business in question
wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the the sum of P10,918.33 as income taxes for the years 1923, 1924, 1925
industrial partner; 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 In November, 1921, the plaintiff, who had had some experience in
to April 27, 1927. 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
IV. The trial court erred in refusing to find and hold under the evidence one from the Calamba Sugar Estates for 450 tons, but the he did not
in this case that the contract, Exhibit A was daring the whole period have the money to buy the ingredients to fill the order and carry on the
thereof considered by the parties and performed by them as a contract on the business. He offered to assign to Menzi & Co., Inc., his contract
of employment in relation to the fertilizer business of the defendant, and with the Philippine Sugar Centrals Agency and to supervise the mixing
that the accounts of said business were kept by the defendant, Menzi & of the fertilizer and to obtain other orders for fifty per cent of the net
Co., Inc., on that theory with the knowledge and consent of the plaintiff, profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general
and that at the end of each year for five years a balance sheet and profit manager of Menzi & Co., accepted plaintiff's offer. Plaintiff assigned to
and loss statement of said business were prepared from the books of Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the
account of said business on the same theory and submitted to the defendant corporation proceeded to fill the order. Plaintiff supervised the
plaintiff, and that each year said balance sheet and profit and loss mixing of the fertilizer.
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 On January 10, 1922 the defendant corporation at plaintiff's request
now estopped from raising any question as to the nature of said contract gave him the following letter, Exhibit B:
or the propriety of such charges.

MANILA, 10 de enero de 1922

V. The trial court erred in finding and holding that the plaintiff, Francisco
Bastida, is entitled to 35 per cent of the net profits in the sum of
P18,795.38 received by the defendant, Menzi & Co., Inc., from its
contract with the Compaia General de Tabacos de Filipinas, or the sum Sr. FRANCISCO BASTIDA
of P6.578.38, with legal interest thereon from January 1, 1929, the date
upon which the liquidation of said business was terminated. Manila

VI. The trial court erred in finding and holding that the value of the good- MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio,
will of the fertilizer business in question was P562,312, and that the tenemos convenido para la explotacion del negocio de abono y
plaintiff, Francisco Bastida, was entitled to 35 per cent of such valuation, fertilizantes, por la presente venimos en confirmar su derecho de 50 por
or the sum of P196,709.20, with legal interest thereon from the date of ciento de las untilidades que se deriven del contrato obtenido por Vd.
filing his complaint. 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
VII. The trial court erred in rendering judgment in favor of the plaintiff and Vd.
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 MENZI & CO.,
complaint; (c) on the eight cause of action, for the sum of P6,578.38,
Por (Fdo.) W. TOEHL
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, Menzi & Co., Inc., continued to carry on its fertilizer business under this
Exhibits 51 and 51-A and 52 and 52-A, as true and correct, and entering arrangement with the plaintiff. It ordered ingredients from the United
judgment against said defendant only for the amounts admitted therein States and other countries, and the interest on the drafts for the
as due the plaintiff with legal interest, with the costs against the plaintiff. 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.
VIII. The trial court erred in overruling the defendants' motion for a new
The fertilizer business had no separate capital. A fertilizer account was
trial.
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
It appears from the evidence that the defendants corporation was appellant's established practice, to which the plaintiff assented.
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-
On or about April 24, 1922 the net profits of the business carried on
marks, business, and other assets of the old German firm of Behn,
under the oral agreement were determined by Menzi & Co., Inc., after
Meyer & Co., Ltd., including its fertilizer business with its stocks and
deducting interest charges, proportional part of warehouse rent and
trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this
salaries and wages, and the other expenses of said business, and the
fertilizer business from 1910 until that firm was taken over the Alien
plaintiff was paid some twenty thousand pesos in full satisfaction of his
Property Custodian in 1917. Among the trade-marks thus acquired by
share of the profits.
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 Pursuant to the aforementioned verbal agreement, confirmed by the
fertilizers, and the trade mark "CORONA" had been used in its other letter, Exhibit B, the defendant corporation April 27, 1922 entered a
business. The "HOZ" trade-mark was used by John Bordman and the written contract with the plaintiff, marked Exhibit A, which is the basis of
Menzi-Bordman Co. in the continuation of the fertilizer business that had the present action.
belonged to Behn, Meyer & Co., Ltd.

The fertilizer business was carried on by Menzi & Co., Inc., after the
The business of Menzi & Co., Inc., was divided into several different execution of Exhibit A in practically the same manner as it was prior
departments, each of which was in charge of a manager, who received thereto. The intervention of the plaintiff was limited to supervising the
a fixed salary and a percentage of the profits. The corporation had to mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
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 The trade-marks used in the sale of the fertilizer were registered in the
of the corporation was to debit or credit each department with interest at Bureau of Commerce & Industry in the name of Menzi & Co., Inc., and
the bank rate on its daily balance. The fertilizer business of Menzi & Co., the fees were paid by that company. They were not changed to the
Inc., was carried on in accordance with this practice under the "Sundries fertilizer business, in which the plaintiff was interested. Only the fees for
Department" until July, 1923, and after that as a separate department. 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.
 unanimously of the opinion that under the facts of this case the
relationship established between Menzi & Co. and by the plaintiff was to
On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to receive 35 per cent of the net profits of the fertilizer business of Menzi &
furnish it all the stems and scraps to tobacco that it might need for its Co., Inc., in compensation for his services of supervising the mixing of
fertilizer business either in the Philippine Islands or for export to other the fertilizers. Neither the provisions of the contract nor the conduct of
countries. This contract is rendered to in the record as the "Vastago the parties prior or subsequent to its execution justified the finding that
Contract". Menzi & Co., Inc., advanced the plaintiff, paying the salaries it was a contract of copartnership. Exhibit A, as appears from the
of his employees, and other expenses in performing his contract. 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
White, Page & Co., certified public accountants, audited the books of those transactions after Menzi & Co., Inc., had deducted the same items
Menzi & Co., Inc., every month, and at the end of each year they of expense which he now protests. Plaintiff never made any objection to
prepared a balance sheet and a profit and loss statement of the fertilizer defendant's manner of keeping the accounts or to the charges. The
business. These statements were delivered to the plaintiff for business was continued in the same manner under the written
examination, and after he had had an opportunity of verifying them he agreement, Exhibit A, and for four years the plaintiff never made any
approved them without objection and returned them to Menzi & Co., Inc. 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
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the had notified him that it would not renew it that the plaintiff began to make
net profits of the fertilizer business the following amounts: objections.

1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73 The trial court relied on article 116 of the Code of Commerce, which
provides that articles of association by which two or more persons
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62 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
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56 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
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03 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
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98 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
Total . . . . . . . . . . . . . . . . . . . . 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
P196,483.92 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
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 the end of the year. It is now well settled that the old rule that sharing
P231,250.79. profits as profits made one a partner is overthrown. (Mechem, second
edition, p. 89.)

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 It is nowhere stated in Exhibit A that the parties were establishing a
be renewed. 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
When plaintiff's contract expired on April 27, 1927, the fertilizer except in association with the plaintiff (en sociedad con). The fact is that
department of Menzi & Co., Inc., had on hand materials and ingredients en sociedad con as there used merely means en reunion con or in
and two Ford trucks of the book value of approximately P75,000, and association with, and does not carry the meaning of "in partnership with".
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,
The trial judge found that the defendant corporation had not always
collect the outstanding accounts for Menzi & Co., Inc., prepared a
balance sheet and a profit and loss statement for the period from regarded the contract in question as an employment agreement,
January 1 to April 27, 1927 as a basis of settlement, but the plaintiff 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
refused to accept it, and filed the present action.
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
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in copartnership.
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 In the first place, the complaint and answer having been superseded by
the amended complaint and the answer thereto, and the answer to the
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 original complaint not having been presented in evidence as an exhibit,
apparently the court did not act on the petition. 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.
The old stocks were taken over by Menzi & Co., Inc., and the final 273; Lucido vs. Calupitan, 27 Phil., 148.)
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 In the second place, although the word "associated" may be related
reaudited by White, Page & Co.., certain errors of bookkeeping were etymologically to the Spanish word "socio", meaning partner, it does not
in its common acceptation imply any partnership relation.
discovered by them. After making the corrections they found the balance
due the plaintiff to be P21,633.20.

The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant
Plaintiff employed a certified public accountant, Vernon Thompson, to 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
examine the books and vouchers of Menzi & Co. Thompson assumed
the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., account of his share of the profits, and to grant him permission during
Inc., was obliged to furnish free of charge all the capital the partnership 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
should need. He naturally reached very different conclusions from those
of the auditors of Menzi Co., Inc. 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
We come now to a consideration of appellant's assignment of error. After & Co., Inc., as the owners of the fertilizer business in question.
considering the evidence and the arguments of counsel, we are
 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
As to the various items of the expense rejected by the trial judge, they attach. Plaintiff maintains, however, that the trade-marks used in the
were in our opinion proper charges and erroneously disallowed, and this fertilizer business during the time that he was connected with it acquired
would true even if the parties had been partners. Although Menzi & Co., great value, and that they have been appropriated by the appellant to its
Inc., agreed to furnish the necessary financial aid for the fertilizer own use. That seems to be the only basis of the alleged good-will, to
business, it did not obligate itself to contribute any fixed sum as capital which a fabulous valuation was given. As we have seen, the trade-
or to defray at its own expense the cost of securing the necessary credit. marks were not new. They had been used by Behn, Meyer & Co. in its
Some of the contentions of the plaintiff and his expert witness Thompson business for other goods and one of them for fertilizer. They belonged
are so obviously without merit as not to merit serious consideration. For to Menzi & Co., Inc., and were registered in its name; only the expense
instance, they objected to the interest charges on draft for materials of registering the formulas in the Bureau of Science was charged to the
purchased abroad. Their contention is that the corporation should have business in which the plaintiff was interested. These trade-marks
furnished the money to purchase these materials for cash, overlooking remained the exclusive property of Menzi & Co., and the plaintiff had no
the fact that the interest was added to the cost price, and that the plaintiff interest therein on the expiration of his contract.
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 The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20.
enabling the business to reap the interest. In other words, the defendant We are satisfied by the evidence that said balance is correct.
corporation should have enabled the fertilizer department to do business
on a credit instead of a cash basis.
For the foregoing reasons, the decision appealed from is modified and
the defendant corporation is sentenced to pay the plaintiff twenty-one
The charges now complained of, as we have already stated, are the thousand, six hundred and thirty-three pesos and twenty centavos
same as those made under the verbal agreement, upon the termination (P21,633.20), with legal interest thereon from the date of the filing of the
of which the parties made a settlement; the charges in question were complaint on June 17, 1927, without a special finding as to costs.
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: HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and
BENGUET LUMBER COMPANY, represented by its President TAN
ENG LAY, respondents.

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 DECISION
meaning, as being their own contemporaneous interpretation of its
terms.
DE LEON, JR., J.:

2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an

action upon a contract containing a provision a doubtful application it In this petition for review on certiorari, petitioners pray for the reversal of
appeared that under a similar prior contract the parties had, upon the the Decision[1] dated March 13, 1996 of the former Fifth Division[2] of
termination of said contract, adjusted their rights and made a settlement the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion
in which the doubtful clause had been given effect in conformity with the of which states:
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.
THE FOREGOING CONSIDERED, the appealed decision is hereby set
aside, and the complaint dismissed.
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 The facts are:
interpretation.

Following the death of Tan Eng Kee on September 13, 1984, Matilde
4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being Abubo, the common-law spouse of the decedent, joined by their children
aware at the time of the execution thereof that the other placed a certain Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known
interpretation upon a provision of doubtful application, nevertheless as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the
proceeded, without raising any question upon the point, to perform the decedents brother TAN ENG LAY on February 19, 1990. The
services which he was bound to render under the contract. Upon the complaint,[3] docketed as Civil Case No. 1983-R in the Regional Trial
termination of the contract by mutual consent a question was raised as Court of Baguio City was for accounting, liquidation and winding up of
to the proper interpretation of the doubtful provision. Held: That the party the alleged partnership formed after World War II between Tan Eng Kee
raising such question had acquiesced in the interpretation placed upon and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended
the contract by the other party and was bound thereby. complaint[4] impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint
was admitted by the trial court in its Order dated May 3, 1991.[5]
The 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 The amended complaint principally alleged that after the second World
by the evidence. This contract was obtained by Menzi & Co., Inc., shortly War, Tan Eng Kee and Tan Eng Lay, pooling their resources and
before plaintiff's contract with the defendant corporation expired. Plaintiff industry together, entered into a partnership engaged in the business of
tried to get the Tabacalera contract for himself. When this contract was selling lumber and hardware and construction supplies. They named
filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no their enterprise Benguet Lumber which they jointly managed until Tan
right to participate in the profits derived therefrom. Eng Kees death. Petitioners herein averred that the business prospered
due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership Benguet Lumber into a corporation called
Appellant's sixth assignment of error is that the trial court erred in finding Benguet Lumber Company. The incorporation was purportedly a ruse to
the value of the good-will of the fertilizer business in question to be deprive Tan Eng Kee and his heirs of their rightful participation in the
P562,312, and that the plaintiff was entitled to 35 per cent thereof or profits of the business. Petitioners prayed for accounting of the
P196,709.20. In reaching this conclusion the trial court unfortunately partnership assets, and the dissolution, winding up and liquidation
relied on the opinion of the accountant, Vernon Thompson, who thereof, and the equal division of the net assets of Benguet Lumber.
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; After trial, Regional Trial Court of Baguio City, Branch 7 rendered
plaintiff's agreement was for a fixed period, five years, and during that judgment[6]on April 12, 1995, to wit:
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
WHEREFORE, in view of all the foregoing, judgment is hereby rendered: 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).
a) Declaring that Benguet Lumber is a joint adventure which is akin to a
particular partnership;
II

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 THE HONORABLE COURT OF APPEALS ERRED IN RELYING
partnership called Benguet Lumber and as such should share in the SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT
profits and/or losses of the business venture or particular partnership; TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.

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 III
in said assets;

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

d) Declaring that all the rights and obligations of Tan Eng Kee as joint THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY
adventurer and/or as partner in a particular partnership have descended EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE
to the plaintiffs who are his legal heirs. OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES
OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES
AND EXCHANGE COMMISSION:
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 a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE
plaintiffs know their proper share in the business; ALL LIVING AT THE BENGUET LUMBER COMPOUND;

f) Ordering the appointment of a receiver to preserve and/or administer b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
the assets of Benguet Lumber Company, Inc. until such time that said COMMANDING THE EMPLOYEES OF BENGUET LUMBER;
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. c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE
SUPERVISING THE EMPLOYEES THEREIN;

g) Denying the award of damages to the plaintiffs for lack of proof except
the expenses in filing the instant case. d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE
PUBLIC; AND

h) Dismissing the counter-claim of the defendant for lack of merit.

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES
MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
SO ORDERED.

IV
Private respondent sought relief before the Court of Appeals which, on
March 13, 1996, rendered the assailed decision reversing the judgment
of the trial court. Petitioners motion for reconsideration[7] was denied by
the Court of Appeals in a Resolution[8] dated October 11, 1996. 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
Hence, the present petition. THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN
IN BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).

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 V
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- THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG
Willy, all surnamed Tan, for alleged falsification of commercial KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT
documents by a private individual. On March 20, 1999, the Municipal CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE
Trial Court of Baguio City, Branch 1, wherein the charges were filed, THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
rendered judgment[9] dismissing the cases for insufficiency of evidence. INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN
MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE
APPELLEES (PAGE 17, DECISION).

In their assignment of errors, petitioners claim that:

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
I supported by the evidence.[10] Our jurisdiction, it must be emphasized,
does not include review of factual issues. Thus:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG Filing of petition with Supreme Court.-A party desiring to appeal by
KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS certiorari from a judgment or final order or resolution of the Court of
NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS Appeals, the Sandiganbayan, the Regional Trial Court or other courts
SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of together at the Benguet Lumber compound, and (5) all their children
law which must be distinctly set forth.[11] [italics supplied] were employed in the business in different capacities.

Admitted exceptions have been recognized, though, and when present, xxx xxx xxx xxx
may compel us to analyze the evidentiary basis on which the lower court
rendered judgment. Review of factual issues is therefore warranted:
It is obvious that there was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads submitted as
(1) when the factual findings of the Court of Appeals and the trial court evidence, no certificate of partnership, no agreement as to profits and
are contradictory; losses, and no time fixed for the duration of the partnership. There was
even no attempt to submit an accounting corresponding to the period
after the war until Kees death in 1984. It had no business book, no
written account nor any memorandum for that matter and no license
(2) when the findings are grounded entirely on speculation, surmises, or mentioning the existence of a partnership [citation omitted].
conjectures;

Also, the exhibits support the establishment of only a proprietorship. The

(3) when the inference made by the Court of Appeals from its findings of certification dated March 4, 1971, Exhibit 2, mentioned co-defendant
fact is manifestly mistaken, absurd, or impossible; 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
(4) when there is grave abuse of discretion in the appreciation of facts;
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,
(5) when the appellate court, in making its findings, goes beyond the he was on the payroll listing. In the Termination Notice, Exhibit 5, Lay
issues of the case, and such findings are contrary to the admissions of was mentioned also as the proprietor.
both appellant and appellee;

xxx xxx xxx xxx

(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
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,
(7) when the Court of Appeals fails to notice certain relevant facts which, the execution of a public instrument becomes necessary. This is equally
if properly considered, will justify a different conclusion; 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
(8) when the findings of fact are themselves conflicting; 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.
(9) when the findings of fact are conclusions without citation of the
specific evidence on which they are based; and

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
(10) when the findings of fact of the Court of Appeals are premised on that the capital assets of the partnership, assuming them to be in
the absence of evidence but such findings are contradicted by the existence, were maliciously assigned or transferred by Lay, supposedly
evidence on record.[12] to the corporation and since then have been treated as a part of the
latters capital assets, contrary to the allegations in pars. 6, 7 and 8 of
the complaint.
In reversing the trial court, the Court of Appeals ruled, to wit:

These are not evidences supporting the existence of a partnership:

We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn
went beyond that by justifying the existence of a joint adventure. 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
When mention is made of a joint adventure, it would presuppose parity 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
of standing between the parties, equal proprietary interest and the
exercise by the parties equally of the conduct of the business, thus: 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.

xxx xxx xxx xxx

Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or
We have the admission that the father of the plaintiffs was not a partner where the capital is P3,000.00 or more, the execution of a contract is
of the Benguet Lumber before the war. The appellees however argued necessary; 2) the capacity of the parties to execute the contract; 3)
that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire money property or industry contribution; 4) community of funds and
stocks of the pre-war Benguet Lumber were confiscated if not burned by interest, mentioning equality of the partners or one having a
the Japanese. After the war, because of the absence of capital to start proportionate share in the benefits; and 5) intention to divide the profits,
a lumber and hardware business, Lay and Kee pooled the proceeds of being the true test of the partnership. The intention to join in the business
their individual businesses earned from buying and selling military venture for the purpose of obtaining profits thereafter to be divided, must
supplies, so that the common fund would be enough to form a be established. We cannot see these elements from the testimonial
partnership, both in the lumber and hardware business. That Lay and evidence of the appellees.
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
As can be seen, the appellate court disputed and differed from the trial
plaintiffs and Lay were partners, is obvious from the fact that: (1) they
conducted the affairs of the business during Kees lifetime, jointly, (2) court which had adjudged that TAN ENG KEE and TAN ENG LAY had
they were the ones giving orders to the employees, (3) they were the allegedly entered into a joint adventure. In this connection, we have held
that whether a partnership exists is a factual matter; consequently, since
ones preparing orders from the suppliers, (4) their families stayed
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 and Lopez-Campos Comments, Notes and Selected Cases,
court a quo.[13] Inasmuch as the Court of Appeals and the trial court Corporation Code 1981).
had reached conflicting conclusions, perforce we must examine the
record to determine if the reversal was justified.
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay alleged partnership, though, was never formally organized. In addition,
were partners in Benguet Lumber. A contract of partnership is defined petitioners point out that the New Civil Code was not yet in effect when
by law as one where: 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,
xxx two or more persons bind themselves to contribute money, property, is that we are asked to determine whether a partnership existed based
or industry to a common fund, with the intention of dividing the profits purely on circumstantial evidence. A review of the record persuades us
among themselves. 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.
Two or more persons may also form a partnership for the exercise of a
profession.[14]
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,
Thus, in order to constitute a partnership, it must be established that (1)
we cannot accept as an established fact that Tan Eng Kee allegedly
two or more persons bound themselves to contribute money, property,
contributed his resources to a common fund for the purpose of
or industry to a common fund, and (2) they intend to divide the profits
establishing a partnership. The testimonies to that effect of petitioners
among themselves.[15] The agreement need not be formally reduced
witnesses is directly controverted by Tan Eng Lay. It should be noted
into writing, since statute allows the oral constitution of a partnership,
that it is not with the number of witnesses wherein preponderance
save in two instances: (1) when immovable property or real rights are
lies;[24] the quality of their testimonies is to be considered. None of
contributed,[16] and (2) when the partnership has a capital of three
petitioners witnesses could suitably account for the beginnings of
thousand pesos or more.[17] In both cases, a public instrument is
Benguet Lumber Company, except perhaps for Dionisio Peralta whose
required.[18] An inventory to be signed by the parties and attached to
deceased wife was related to Matilde Abubo.[25] He stated that when
the public instrument is also indispensable to the validity of the
he met Tan Eng Kee after the liberation, the latter asked the former to
partnership whenever immovable property is contributed to the
accompany him to get 80 pieces of G.I. sheets supposedly owned by
partnership.[19]
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
The trial court determined that Tan Eng Kee and Tan Eng Lay had had his, that it was only later on that his said brother, Tan Eng Kee,
entered into a joint adventure, which it said is akin to a particular came to work for him. Be that as it may, co-ownership or co-possession
partnership.[20] A particular partnership is distinguished from a joint (specifically here, of the G.I. sheets) is not an indicium of the existence
adventure, to wit: of a partnership.[28]

(a) A joint adventure (an American concept similar to our joint accounts) Besides, it is indeed odd, if not unnatural, that despite the forty years the
is a sort of informal partnership, with no firm name and no legal partnership was allegedly in existence, Tan Eng Kee never asked for an
personality. In a joint account, the participating merchants can transact accounting. The essence of a partnership is that the partners share in
business under their own name, and can be individually liable therefor. 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
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE grow rather than get immediate returns, a deferment of sharing in the
TRANSACTION, although the business of pursuing to a successful profits is perfectly plausible.[31] But in the situation in the case at bar,
termination may continue for a number of years; a partnership generally the deferment, if any, had gone on too long to be plausible. A person is
relates to a continuing business of various transactions of a certain presumed to take ordinary care of his concerns.[32] As we explained in
kind.[21] another case:

A joint adventure presupposes generally a parity of standing between In the first place, plaintiff did not furnish the supposed P20,000.00
the joint co-ventures or partners, in which each party has an equal capital. In the second place, she did not furnish any help or intervention
proprietary interest in the capital or property contributed, and where in the management of the theatre. In the third place, it does not appear
each party exercises equal rights in the conduct of the business.[22] that she has even demanded from defendant any accounting of the
Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing expenses and earnings of the business. Were she really a partner, her
Corporation, et. al.,[23] we expressed the view that a joint adventure first concern should have been to find out how the business was
may be likened to a particular partnership, thus: 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
The legal concept of a joint adventure is of common law origin. It has no any manner than a payment for the use of the premises which she had
precise legal definition, but it has been generally understood to mean an leased from the owners. Clearly, plaintiff had always acted in
organization formed for some temporary purpose. (Gates v. Megargel, accordance with the original letter of defendant of June 17, 1945 (Exh.
266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, A), which shows that both parties considered this offer as the real
since their elements are similar-community of interest in the business, contract between them.[33] [italics supplied]
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 A demand for periodic accounting is evidence of a partnership.[34]
common law jurisdiction is that the partnership contemplates a general During his lifetime, Tan Eng Kee appeared never to have made any such
business with some degree of continuity, while the joint adventure is demand for accounting from his brother, Tang Eng Lay.
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 This brings us to the matter of Exhibits 4 to 4-U for private respondents,
in this jurisdiction, since under the Civil Code, a partnership may be consisting of payrolls purporting to show that Tan Eng Kee was an
particular or universal, and a particular partnership may have for its ordinary employee of Benguet Lumber, as it was then called. The
object a specific undertaking. (Art. 1783, Civil Code). It would seem authenticity of these documents was questioned by petitioners, to the
therefore that under Philippine law, a joint adventure is a form of extent that they filed criminal charges against Tan Eng Lay and his wife
partnership and should thus be governed by the law of partnerships. The and children. As aforesaid, the criminal cases were dismissed for
Supreme Court has however recognized a distinction between these two insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng
business forms, and has held that although a corporation cannot enter Kee received sums as wages of an employee. In connection therewith,
into a partnership contract, it may however engage in a joint adventure Article 1769 of the Civil Code provides:
with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos
In determining whether a partnership exists, these rules shall apply: necessarily have to perform this particular task. It is, thus, not an
indication that Tan Eng Kee was a partner.

(1) Except as provided by Article 1825, persons who are not partners as
to each other are not partners as to third persons; (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
(2) Co-ownership or co-possession does not of itself establish a privileges Tan Eng Lay gave his brother, and which were not given the
partnership, whether such co-owners or co-possessors do or do not other employees, only proves the kindness and generosity of Tan Eng
share any profits made by the use of the property; Lay towards a blood relative.

(3) The sharing of gross returns does not of itself establish a partnership, (iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan
whether or not the persons sharing them have a joint or common right Eng Lay in connection with the pricing of stocks, this does not
or interest in any property which the returns are derived; 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]
(4) The receipt by a person of a share of the profits of a business is prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
In the instant case, we find private respondents arguments to be well-
taken. Where circumstances taken singly may be inadequate to prove
the intent to form a partnership, nevertheless, the collective effect of
(a) As a debt by installment or otherwise;
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
(b) As wages of an employee or rent to a landlord; 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
(b) As an annuity to a widow or representative of a deceased partner; 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
(d) As interest on a loan, though the amount of payment vary with the among his duties is to place orders with suppliers. Again, the
profits of the business; 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
(e) As the consideration for the sale of a goodwill of a business or other as Benguet Lumber Company.
property by installments or otherwise.

There being no partnership, it follows that there is no dissolution, winding

In the light of the aforequoted legal provision, we conclude that Tan Eng up or liquidation to speak of. Hence, the petition must fail.
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 WHEREFORE, the petition is hereby denied, and the appealed decision
show that Tan Eng Kee received amounts of money allegedly of the Court of Appeals is hereby AFFIRMED in toto. No pronouncement
representing his share in the profits of the enterprise. Petitioners failed as to costs.
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 SO ORDERED.
is one of the essential features of a partnership.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF
APPEALS and NENITA A. ANAY, respondents.

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 DECISION
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 YNARES-SANTIAGO, J.:
Lay lived at the Benguet Lumber Company compound, a privilege not
extended to its ordinary employees.
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
However, private respondent counters that: Court of Makati, Branch 140, in Civil Case No. 88-509.[2]

Petitioners seem to have missed the point in asserting that the above Fresh from her stint as marketing adviser of Technolux in Bangkok,
enumerated powers and privileges granted in favor of Tan Eng Kee, Thailand, private respondent Nenita A. Anay met petitioner William T.
were indicative of his being a partner in Benguet Lumber for the following Belo, then the vice-president for operations of Ultra Clean Water Purifier,
reasons: 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
(i) even a mere supervisor in a company, factory or store gives orders to Anay the job of marketing the product considering her experience and
and directions to his subordinates. So long, therefore, that an employees established relationship with West Bend Company, a manufacturer of
position is higher in rank, it is not unusual that he orders around those kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted
lower in rank. 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
(ii) even a messenger or other trusted employee, over whom confidence the employees, and assigned them to different branches. The parties
is reposed by the owner, can order materials from suppliers for and in agreed that Belos name should not appear in any documents relating to
behalf of Benguet Lumber. Furthermore, even a partner does not 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) Petitioners (defendants therein) further alleged that Anay filed the
thirty percent (30%) of the sales she would make; and (4) two percent complaint on account of ill-will and resentment because Marjorie Tocao
(2%) for her demonstration services. The agreement was not reduced did not allow her to lord it over in the Geminesse Enterprise. Anay had
to writing on the strength of Belos assurances that he was sincere, acted like she owned the enterprise because of her experience and
dependable and honest when it came to financial commitments. 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
Anay having secured the distributorship of cookware products from the alleged that, to vindicate their names, they had to hire counsel for a fee
West Bend Company and organized the administrative staff and the of P23,000.00.
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 At the pre-trial conference, the issues were limited to: (a) whether or not
to Anay. Thereafter, Roger Muencheberg of West Bend Company the plaintiff was an employee or partner of Marjorie Tocao and Belo, and
invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, (b) whether or not the parties are entitled to damages.[10]
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 In their defense, Belo denied that Anay was supposed to receive a share
letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. in the profit of the business. He, however, admitted that the two had
A portion of the letter reads: 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
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West and/or presided over business meetings of the venture in his capacity
Bend Co. for twenty (20) years now, acquired the distributorship of Royal as a guarantor but he never participated in decision-making. He claimed
Queen cookware for Geminesse Enterprise, is the Vice President Sales that he wrote the memo granting the plaintiff thirty-seven percent (37%)
Marketing and a business partner of our company, will attend in commission upon her dismissal from the business venture at the request
response to the invitation. (Italics supplied.)[3] of Tocao, because Anay had no other income.

Anay arrived from the U.S.A. in mid-August 1987, and immediately For her part, Marjorie Tocao denied having entered into an oral
undertook the task of saving the business on account of the partnership agreement with Anay. However, she admitted that Anay was
unsatisfactory sales record in the Makati and Cubao offices. On August an expert in the cookware business and hence, they agreed to grant her
31, 1987, she received a plaque of appreciation from the administrative the following commissions: thirty-seven percent (37%) on personal
and sales people through Marjorie Tocao[4] for her excellent job sales; five percent (5%) on gross sales; two percent (2%) on product
performance. On October 7, 1987, in the presence of Anay, Belo signed demonstrations, and two percent (2%) for recruitment of personnel.
a memo[5] entitling her to a thirty-seven percent (37%) commission for Marjorie denied that they agreed on a ten percent (10%) commission on
her personal sales "up Dec 31/87. Belo explained to her that said the net profits. Marjorie claimed that she got the capital for the business
commission was apart from her ten percent (10%) share in the profits. out of the sale of the sewing machines used in her garments business
On October 9, 1987, Anay learned that Marjorie Tocao had signed a and from Peter Lo, a Singaporean friend-financier who loaned her the
letter[6] addressed to the Cubao sales office to the effect that she was funds with interest. Because she treated Anay as her co-equal, Marjorie
no longer the vice-president of Geminesse Enterprise. The following received the same amounts of commissions as her. However, Anay
day, October 10, she received a note from Lina T. Cruz, marketing failed to account for stocks valued at P200,000.00.
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 On April 22, 1993, the trial court rendered a decision the dispositive part
the audit of the company to determine her share in the net profits. When of which is as follows:
her letters were not answered, Anay consulted her lawyer, who, in turn,
wrote Belo a letter. Still, that letter was not answered.
WHEREFORE, in view of the foregoing, judgment is hereby rendered:

Anay still received her five percent (5%) overriding commission up to

December 1987. The following year, 1988, she did not receive the same 1. Ordering defendants to submit to the Court a formal account as to the
commission although the company netted a gross sales of partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of
P13,300,360.00. the Civil Code in order to determine the ten percent (10%) share of
plaintiff in the net profits of the cookware business;

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 2. Ordering defendants to pay five percent (5%) overriding commission
William Belo before the Regional Trial Court of Makati, Branch 140. for the one hundred and fifty (150) cookware sets available for
disposition when plaintiff was wrongfully excluded from the partnership
by defendants;
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 3. Ordering defendants to pay plaintiff overriding commission on the total
as moral damages, and (3) P100,000.00 as exemplary damages. The production which for the period covering January 8, 1988 to February 5,
plaintiff also prayed for an audit of the finances of Geminesse Enterprise 1988 amounted to P32,000.00;
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 4. Ordering defendants to pay P100,000.00 as moral damages and
dismissal. P100,000.00 as exemplary damages, and

In their answer,[9] Marjorie Tocao and Belo asserted that the alleged 5. Ordering defendants to pay P50,000.00 as attorneys fees and
agreement with Anay that was neither reduced in writing, nor ratified, P20,000.00 as costs of suit.
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. SO ORDERED.
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. 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 Art. 1768. The partnership has a juridical personality separate and
(c) there was a joint interest in the profits. The testimony of Elizabeth distinct from that of each of the partners, even in case of failure to comply
Bantilan, Anays cousin and the administrative officer of Geminesse with the requirements of article 1772, first paragraph.
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 Petitioners admit that private respondent had the expertise to engage in
because he was convinced that with Marjories financial contribution and the business of distributorship of cookware. Private respondent
Anays experience, the combination of the two would be invaluable to the contributed such expertise to the partnership and hence, under the law,
partnership, also supported that conclusion. Belos claim that he was she was the industrial or managing partner. It was through her reputation
merely a guarantor has no basis since there was no written evidence with the West Bend Company that the partnership was able to open the
thereof as required by Article 2055 of the Civil Code. Moreover, his acts business of distributorship of that companys cookware products; it was
of attending and/or presiding over meetings of Geminesse Enterprise through the same efforts that the business was propelled to financial
plus his issuance of a memo giving Anay 37% commission on personal success. Petitioner Tocao herself admitted private respondents
sales belied this. On the contrary, it demonstrated his involvement as a indispensable role in putting up the business when, upon being asked if
partner in the business. private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:

The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is A: No, sir at the start she was the marketing manager because there
often resorted to in business circles as an impetus to bigger sales were no one to sell yet, its only me there then her and then two (2)
volume. It did not matter that the agreement was not in writing because people, so about four (4). Now, after that when she recruited already
Article 1771 of the Civil Code provides that a partnership may be Oscar Abella and Lina Torda-Cruz these two (2) people were given the
constituted in any form. The fact that Geminesse Enterprise was designation of marketing managers of which definitely Nita as superior
registered in Marjorie Tocaos name is not determinative of whether or to them would be the Vice President.[18]
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.
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
The trial court finally held that a partner who is excluded wrongfully from Jagler of West Bend Company to Roger Muencheberg of the same
a partnership is an innocent partner. Hence, the guilty partner must give company states:
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
Marge Tocao is president of Geminesse Enterprises. Geminesse will
interest in every existing contract that was incomplete and in the trade
finance the operations. Marge does not have cookware experience. Nita
name of the co-partnership and assets at the time he was wrongfully
Anay has started to gather former managers, Lina Torda and Dory Vista.
expelled.
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
Petitioners appeal to the Court of Appeals[11] was dismissed, but the products to sell.[19]
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
On the other hand, petitioner Belos denial that he financed the
for lack of merit.[12] Petitioners Belo and Marjorie Tocao are now before
partnership rings hollow in the face of the established fact that he
this Court on a petition for review on certiorari, asserting that there was
presided over meetings regarding matters affecting the operation of the
no business partnership between them and herein private respondent
business. Moreover, his having authorized in writing on October 7, 1987,
Nenita A. Anay who is, therefore, not entitled to the damages awarded
on a stationery of his own business firm, Wilcon Builders Supply, that
to her by the Court of Appeals.
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
Petitioners Tocao and Belo contend that the Court of Appeals guarantor is belied by that personal act of proprietorship in the business.
erroneously held that a partnership existed between them and private Moreover, if he was indeed a guarantor of future debts of petitioner
respondent Anay because Geminesse Enterprise came into being Tocao under Article 2053 of the Civil Code,[20] he should have
exactly a year before the alleged partnership was formed, and that it was presented documentary evidence therefor. While Article 2055 of the Civil
very unlikely that petitioner Belo would invest the sum of P2,500,000.00 Code simply provides that guaranty must be express, Article 1403, the
with petitioner Tocao contributing nothing, without any memorandum Statute of Frauds, requires that a special promise to answer for the debt,
whatsoever regarding the alleged partnership.[13] default or miscarriage of another be in writing.[21]

The issue of whether or not a partnership exists is a factual matter which Petitioner Tocao, a former ramp model,[22] was also a capitalist in the
are within the exclusive domain of both the trial and appellate courts. partnership. She claimed that she herself financed the business. Her
This Court cannot set aside factual findings of such courts absent any and petitioner Belos roles as both capitalists to the partnership with
showing that there is no evidence to support the conclusion drawn by private respondent are buttressed by petitioner Tocaos admissions that
the court a quo.[14] In this case, both the trial court and the Court of petitioner Belo was her boyfriend and that the partnership was not their
Appeals are one in ruling that petitioners and private respondent only business venture together. They also established a firm that they
established a business partnership. This Court finds no reason to rule called Wiji, the combination of petitioner Belos first name, William, and
otherwise. 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
To be considered a juridical personality, a partnership must fulfill these banking and trading facilities in Singapore in the matter of importation
requisites: (1) two or more persons bind themselves to contribute and payment of the cookware products.[24] The inevitable conclusion,
money, property or industry to a common fund; and (2) intention on the therefore, was that petitioners merged their respective capital and
part of the partners to divide the profits among themselves.[15] It may infused the amount into the partnership of distributing cookware with
be constituted in any form; a public instrument is necessary only where private respondent as the managing partner.
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 The business venture operated under Geminesse Enterprise did not
complied with the requisites of a partnership. The fact that there appears result in an employer-employee relationship between petitioners and
to be no record in the Securities and Exchange Commission of a public private respondent. While it is true that the receipt of a percentage of net
instrument embodying the partnership agreement pursuant to Article profits constitutes only prima facie evidence that the recipient is a
1772 of the Civil Code[17] did not cause the nullification of the partner in the business,[25] the evidence in the case at bar controverts
partnership. The pertinent provision of the Civil Code on the matter an employer-employee relationship between the parties. In the first
states: 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 Q: Again in concept of commission, representation, promotion, etc.?
transportation and representation allowances[28] and not a fixed
salary.[29] Petitioner Tocao testified:
A: Yes, sir.

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 Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is
go over this and tell the Honorable Court whether you ever came across also an indication that she received the same amount?
this document and know of your own knowledge the amount ---

A: Yes, sir.
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: And, as in your previous statement it is not by coincidence that these
two (2) are the same?

Q: I see. Now, this promotion, advertising, incentive, there is a figure

here and words which I quote: Overrides Marjorie Ann Tocao
A: No, sir.
P21,410.50 this means that you have received this amount?

Q: It is again in concept of you treating Miss Anay as your equal?

A: Oh yes, sir.

A: Yes, sir. (Italics supplied.)[30]

Q: I see. And, by way of amplification this is what you are saying as one
representing commission, representation, advertising and promotion?

If indeed petitioner Tocao was private respondents employer, it is

difficult to believe that they shall receive the same income in the
A: Yes, sir.
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
Q: I see. Below your name is the words and figure and I quote Nita D. right to demand for a formal accounting of the business and to receive
Anay P21,410.50, what is this? her share in the net profit.[32]

A: Thats her overriding commission. 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
Q: Overriding commission, I see. Of course, you are telling this undated application for renewal of registration of that firm name,
Honorable Court that there being the same P21,410.50 is merely by petitioner Tocao indicated that it would be engaged in retail of
coincidence? 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
A: No, sir, I made it a point that we were equal because the way I look Enterprise was used only for practical reasons - it was utilized as the
at her kasi, you know in a sense because of her expertise in the business common name for petitioner Tocaos various business activities, which
she is vital to my business. So, as part of the incentive I offer her the included the distributorship of cookware.
same thing.

Petitioners underscore the fact that the Court of Appeals did not return
Q: So, in short you are saying that this you have shared together, I mean the unaccounted and unremitted stocks of Geminesse Enterprise
having gotten from the company P21,140.50 is your way of indicating amounting to P208,250.00.[36] Obviously a ploy to offset the damages
that you were treating her as an equal? 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:
A: As an equal.

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
Q: As an equal, I see. You were treating her as an equal?
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]
A: Yes, sir.

It is not surprising then that, even after private respondent had been
Q: I am calling again your attention to Exh. Y Overrides Makati the other unceremoniously booted out of the partnership in October 1987, she still
one is --- received her overriding commission until December 1987.

A: That is the same thing, sir. 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
Q: With ending August 21, words and figure Overrides Marjorie Ann business operation, she started to assert herself to the extent that she
Tocao P15,314.25 the amount there you will acknowledge you have would even shout at private respondent in front of other people.[38] Her
received that? 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
A: Yes, sir. 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 4. Petitioners are ordered, jointly and severally, to pay private
mutual desire and consent, it may be dissolved by the will of a partner. respondent moral damages in the amount of P50,000.00, exemplary
Thus: damages in the amount of P50,000.00 and attorneys fees in the amount
of P25,000.00.

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 SO ORDERED.
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partners capability to give it, and the G.R. No. L-12541 August 28, 1959
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 ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-
that it can result in a liability for damages.[41] appellants,

vs.

An unjustified dissolution by a partner can subject him to action for YANG CHIAO SENG, defendant-appellee.
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] Punzalan, Yabut, Eusebio & Tiburcio for appellants.

Augusto Francisco and Julian T. Ocampo for appellee.

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 LABRADOR, J.:
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 Appeal from the judgment of the Court of First Instance of Manila, Hon.
partnership was not terminated thereby; it continues until the winding up Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as
of the business.[44] defendant's counterclaim. The appeal is prosecuted by plaintiff.

The winding up of partnership affairs has not yet been undertaken by The record discloses that on June 17, 1945, defendant Yang Chiao
the partnership. This is manifest in petitioners claim for stocks that had Seng wrote a letter to the palintiff Mrs. Rosario U. Yulo, proposing the
been entrusted to private respondent in the pursuit of the partnership formation of a partnership between them to run and operate a theatre
business. 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
The determination of the amount of damages commensurate with the partnership shall be for a period of two years and six months, starting
factual findings upon which it is based is primarily the task of the trial from July 1, 1945 to December 31, 1947, with the condition that if the
court.[45] The Court of Appeals may modify that amount only when its land is expropriated or rendered impracticable for the business, or if the
factual findings are diametrically opposed to that of the lower court,[46] owner constructs a permanent building thereon, or Mrs. Yulo's right of
or the award is palpably or scandalously and unreasonably lease is terminated by the owner, then the partnership shall be
excessive.[47] However, exemplary damages that are awarded by way terminated even if the period for which the partnership was agreed to be
of example or correction for the public good,[48] should be reduced to established has not yet expired; (3) that Mrs. Yulo is authorized
P50,000.00, the amount correctly awarded by the Court of Appeals. personally to conduct such business in the lobby of the building as is
Concomitantly, the award of moral damages of P100,000.00 was ordinarily carried on in lobbies of theatres in operation, provided the said
excessive and should be likewise reduced to P50,000.00. Similarly, business may not obstruct the free ingress and agrees of patrons of the
attorneys fees that should be granted on account of the award of theatre; (4) that after December 31, 1947, all improvements placed by
exemplary damages and petitioners evident bad faith in refusing to the partnership shall belong to Mrs. Yulo, but if the partnership
satisfy private respondents plainly valid, just and demandable agreement is terminated before the lapse of one and a half years period
claims,[49] appear to have been excessively granted by the trial court under any of the causes mentioned in paragraph (2), then Yang Chiao
and should therefore be reduced to P25,000.00. Seng shall have the right to remove and take away all improvements
that the partnership may place in the premises.

WHEREFORE, the instant petition for review on certiorari is DENIED.

The partnership among petitioners and private respondent is ordered Pursuant to the above offer, which plaintiff evidently accepted, the
dissolved, and the parties are ordered to effect the winding up and parties executed a partnership agreement establishing the "Yang &
liquidation of the partnership pursuant to the pertinent provisions of the Company, Limited," which was to exist from July 1, 1945 to December
Civil Code. This case is remanded to the Regional Trial Court for proper 31, 1947. It states that it will conduct and carry on the business of
proceedings relative to said dissolution. The appealed decisions of the operating a theatre for the exhibition of motion and talking pictures. The
Regional Trial Court and the Court of Appeals are AFFIRMED with capital is fixed at P100,000, P80,000 of which is to be furnished by Yang
MODIFICATIONS, as follows --- 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").
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; 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
2. Petitioners are ordered, jointly and severally, to pay private
shall belong exclusively to the second party, Mrs. Yulo.
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; 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
3. Petitioners are ordered, jointly and severally, to pay private
may be cancelled by either party by written notice to the other party at
respondent overriding commission on the total production which, for the
least 90 days before the date of cancellation. The last contract was
period covering January 8, 1988 to February 5, 1988, amounted to
executed between the owners and Mrs. Yulo on April 5, 1948. But on
P32,000.00;
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 The first assignment of error imputed to the trial court is its order setting
cases were afterwards heard jointly, and judgment was rendered aside its former decision and allowing a new trial. This assignment of
dismissing the complaint of Mrs. Yulo and her husband, and declaring error is without merit. As that parties agreed to postpone the trial
the contract of lease of the premises terminated as of July 31, 1949, and because of a probable amicable settlement, the plaintiff could not take
fixing the reasonable monthly rentals of said premises at P100. Both advantage of defendant's absence at the time fixed for the hearing. The
parties appealed from said decision and the Court of Appeals, on April lower court, therefore, did not err in setting aside its former judgment.
30, 1955, affirmed the 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.

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 In the second assignment of error plaintiff-appellant claims that the lower
upon the advice of his counsel he had to suspend the payment (of the court erred in not striking out the evidence offered by the defendant-
rentals) because of the pendency of the ejectment suit by the owners of appellee to prove that the relation between him and the plaintiff is one
the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as of the sublease and not of partnership. The action of the lower court in
he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors admitting evidence is justified by the express allegation in the
the rentals from August, 1949, he was retaining the rentals to make good defendant's answer that the agreement set forth in the complaint was
to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E"). 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.

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 The most important issue raised in the appeal is that contained in the
refused to pay her share from December, 1949 to December, 1950; that fourth assignment of error, to the effect that the lower court erred in
after December 31, 1950 the partnership between Mrs. Yulo and Yang holding that the written contracts, Exhs. "A", "B", and "C, between
terminated, as a result of which, plaintiff became the absolute owner of plaintiff and defendant, are one of lease and not of partnership. We have
the building occupied by the Cine Astor; that the reasonable rental that gone over the evidence and we fully agree with the conclusion of the
the defendant should pay therefor from January, 1951 is P5,000; that trial court that the agreement was a sublease, not a partnership. The
the defendant has acted maliciously and refuses to pay the participation following are the requisites of partnership: (1) two or more persons who
of the plaintiff in the profits of the business amounting to P35,000 from bind themselves to contribute money, property, or industry to a common
November, 1949 to October, 1950, and that as a result of such bad faith fund; (2) intention on the part of the partners to divide the profits among
and malice on the part of the defendant, Mrs. Yulo has suffered themselves. (Art. 1767, Civil Code.).
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 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
In answer to the complaint, defendant alleges that the real agreement she has ever demanded from defendant any accounting of the expenses
between the plaintiff and the defendant was one of lease and not of and earnings of the business. Were she really a partner, her first concern
partnership; that the partnership was adopted as a subterfuge to get should have been to find out how the business was progressing, whether
around the prohibition contained in the contract of lease between the the expenses were legitimate, whether the earnings were correct, etc.
owners and the plaintiff against the sublease of the said property. As to She was absolutely silent with respect to any of the acts that a partner
the other claims, he denies the same and alleges that the fair rental should have done; all that she did was to receive her share of P3,000 a
value of the land is only P1,100. By way of counterclaim he alleges that month, which can not be interpreted in any manner than a payment for
by reason of an attachment issued against the properties of the the use of the premises which she had leased from the owners. Clearly,
defendant the latter has suffered damages amounting to P100,000. 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.

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 Plaintiff claims the sum of P41,000 as representing her share or
defendant to pay to the plaintiff P41,000 for her participation in the participation in the business from December, 1949. But the original letter
business up to December, 1950; P5,000 as monthly rental for the use of the defendant, Exh. "A", expressly states that the agreement between
and occupation of the building from January 1, 1951 until defendant the plaintiff and the defendant was to end upon the termination of the
vacates the same, and P3,000 for the use and occupation of the lobby right of the plaintiff to the lease. Plaintiff's right having terminated in July,
from July 1, 1945 until defendant vacates the property. This decision, 1949 as found by the Court of Appeals, the partnership agreement or
however, was set aside on a motion for reconsideration. In said motion the agreement for her to receive a participation of P3,000 automatically
it is claimed that defendant failed to appear at the hearing because of ceased as of said date.
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 We find no error in the judgment of the court below and we affirm it in
plaintiff has no right to claim the alleged participation in the profit of the toto, with costs against plaintiff-appellant.
business, etc. The court, finding the above motion, well-founded, set
G.R. No. L-9996 October 15, 1957
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 EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
the Articles of Partnership, or any other amount; that the real agreement FRANCISCA EVANGELISTA, petitioners,
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 vs.
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 THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF
a "guaranteed participation" in the profits also belies the supposed TAX APPEALS, respondents.
existence of a partnership between them. It. therefore, denied plaintiff's
claim for damages or supposed participation in the profits.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.

As to her claim for damages for the refusal of the defendant to allow the Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor
use of the supposed lobby of the theatre, the court after ocular General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for
inspection found that the said lobby was very narrow space leading to Respondents.
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 CONCEPCION, J.:
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.
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and 1945
Francisca Evangelista, for review of a decision of the Court of Tax
Appeals, the dispositive part of which reads:
14.84

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

It appears from the stipulation submitted by the parties:

1947

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

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

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

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

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

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

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

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

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

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

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

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

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

10. That in 1948, they realized a gross rental income of

P17,453.00 out of the which amount was deducted the sum of P4,837.65
as expenses, thereby leaving them a net rental income of P12,615.35. Total including penalty

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

Internal Revenue demanded the payment of income tax on corporations,
real estate dealer's fixed tax and corporation residence tax for the years
1945-1949, computed, according to assessment made by said officer, RESIDENCE TAXES OF CORPORATION
as follows:

1945
INCOME TAXES
P38.75 By the contract of partnership two or more persons bind themselves to
contribute money, properly, or industry to a common fund, with the
intention of dividing the profits among themselves.
1946

Pursuant to the article, the essential elements of a partnership are two,

namely: (a) an agreement to contribute money, property or industry to a
38.75 common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for,
admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their
1947
intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
38.75 then divide the same among themselves, because:

1948 1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.
38.75

2. They invested the same, not merely not merely in one

1949 transaction, but in a series of transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots
for P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later
38.75 (April 28, 1944), they got a fourth lot for P237,234.14. The number of
lots (24) acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is
strongly indicative of a pattern or common design that was not limited to
Total including surcharge
the conservation and preservation of the aforementioned common fund
or even of the property acquired by the petitioners in February, 1943. In
other words, one cannot but perceive a character of habitually peculiar
P193.75 to business transactions engaged in the purpose of gain.

TOTAL TAXES DUE 3. The aforesaid lots were not devoted to residential purposes,
or to other personal uses, of petitioners herein. The properties were
leased separately to several persons, who, from 1945 to 1948 inclusive,
paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots
P6,878.34. are still being so let, for petitioners do not even suggest that there has
been any change in the utilization thereof.

Said letter of demand and corresponding assessments were delivered

to petitioners on December 3, 1954, whereupon they instituted the 4. Since August, 1945, the properties have been under the
present case in the Court of Tax Appeals, with a prayer that "the decision management of one person, namely Simeon Evangelista, with full power
of the respondent contained in his letter of demand dated September to lease, to collect rents, to issue receipts, to bring suits, to sign letters
24, 1954" be reversed, and that they be absolved from the payment of and contracts, and to indorse and deposit notes and checks. Thus, the
the taxes in question, with costs against the respondent. affairs relative to said properties have been handled as if the same
belonged to a corporation or business and enterprise operated for profit.

After appropriate proceedings, the Court of Tax Appeals the above-

mentioned decision for the respondent, and a petition for 5. The foregoing conditions have existed for more than ten (10)
reconsideration and new trial having been subsequently denied, the years, or, to be exact, over fifteen (15) years, since the first property was
case is now before Us for review at the instance of the petitioners. acquired, and over twelve (12) years, since Simeon Evangelista became
the manager.

The issue in this case whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466, 6. Petitioners have not testified or introduced any evidence,
otherwise known as the National Internal Revenue Code, as well as to either on their purpose in creating the set up already adverted to, or on
the residence tax for corporations and the real estate dealers fixed tax. the causes for its continued existence. They did not even try to offer an
With respect to the tax on corporations, the issue hinges on the meaning explanation therefor.
of the terms "corporation" and "partnership," as used in section 24 and
84 of said Code, the pertinent parts of which read:

Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, circumstances is such as to leave no room for doubt on the existence of
collected, and paid annually upon the total net income received in the said intent in petitioners herein. Only one or two of the aforementioned
preceding taxable year from all sources by every corporation organized circumstances were present in the cases cited by petitioners herein,
in, or existing under the laws of the Philippines, no matter how created and, hence, those cases are not in point.
or organized but not including duly registered general co-partnerships
(compaias colectivas), a tax upon such income equal to the sum of the
following: . . .
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
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how come into existence, and some of the characteristics of partnerships are
created or organized, joint-stock companies, joint accounts (cuentas en lacking in the case at bar. This pretense was correctly rejected by the
participacion), associations or insurance companies, but does not Court of Tax Appeals.
include duly registered general copartnerships. (compaias colectivas).

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

Article 1767 of the Civil Code of the Philippines provides: which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in The term 'corporation' as used in this Act includes joint-stock company,
the technical sense of the term. Thus, for instance, section 24 of said partnership, joint account (cuentas en participacion), association or
Code exempts from the aforementioned tax "duly registered general insurance company, no matter how created or organized. (emphasis
partnerships which constitute precisely one of the most typical forms of supplied.)
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of
said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in Considering that the pertinent part of this provision is analogous to that
conformity with the usual requirements of the law on partnerships, in of section 24 and 84 (b) of our National Internal Revenue Code
order that one could be deemed constituted for purposes of the tax on (commonwealth Act No. 466), and that the latter was approved on June
corporations. Again, pursuant to said section 84(b), the term 15, 1939, the day immediately after the approval of said Commonwealth
"corporation" includes, among other, joint accounts, (cuentas en Act No. 465 (June 14, 1939), it is apparent that the terms "corporation"
participation)" and "associations," none of which has a legal personality and "partnership" are used in both statutes with substantially the same
of its own, independent of that of its members. Accordingly, the meaning. Consequently, petitioners are subject, also, to the residence
lawmaker could not have regarded that personality as a condition tax for corporations.
essential to the existence of the partnerships therein referred to. In fact,
as above stated, "duly registered general copartnerships" which are
possessed of the aforementioned personality have been expressly
Lastly, the records show that petitioners have habitually engaged in
excluded by law (sections 24 and 84 [b] from the connotation of the term
leasing the properties above mentioned for a period of over twelve
"corporation" It may not be amiss to add that petitioners' allegation to the
years, and that the yearly gross rentals of said properties from June
effect that their liability in connection with the leasing of the lots above
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to
referred to, under the management of one person even if true, on
the tax provided in section 193 (q) of our National Internal Revenue
which we express no opinion tends to increase the similarity between
Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s)
the nature of their venture and that corporations, and is, therefore, an
thereof:
additional argument in favor of the imposition of said tax on corporations.

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

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

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

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

Similarly, the American Law.

Orlando Velasco for petitioners.

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

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

The term 'partnership' includes a syndicate, group, pool, joint venture or BARREDO, J.:p
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.) .
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
For purposes of the tax on corporations, our National Internal Revenue payment of the deficiency corporate income taxes assessed against
Code, includes these partnerships with the exception only of duly
them by respondent Commissioner of Internal Revenue for the years
registered general copartnerships within the purview of the term 1955 and 1956 in the total sum of P21,891.00, plus 5% surcharge and
"corporation." It is, therefore, clear to our mind that petitioners herein 1% monthly interest from December 15, 1958, subject to the provisions
constitute a partnership, insofar as said Code is concerned and are
of Section 51 (e) (2) of the Internal Revenue Code, as amended by
subject to the income tax for corporations. 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.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:
The facts are stated in the decision of the Tax Court as follows:

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

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

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

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

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

61,258.27
Year

84,925.68
Investment

161,463.83
Land

1954
Building

63,623.37

99,001.20
Account

167,962.04
Account

1955
Account

100,786.00
1949

120,249.78

169,262.52
P87,860.00

1956
P17,590.00

175,028.68
1950

135,714.68
P24,657.65
 Petitioners have assigned the following as alleged errors of the Tax
Court:
169,262.52

I.
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE

From said investments and properties petitioners derived such incomes PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;
as profits from installment sales of subdivided lots, profits from sales of
stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR
rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of
account kept by Lorenzo T. Oa where the corresponding shares of the II.
petitioners in the net income for the year are also known. Every year,
petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from
transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26). THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
However, petitioners did not actually receive their shares in the yearly PETITIONERS WERE CO-OWNERS OF THE PROPERTIES
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS
the hands of Lorenzo T. Oa who, as heretofore pointed out, invested THEREFROM (sic);
them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-
104).
III.

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

Internal Revenue) decided that petitioners formed an unregistered THE COURT OF TAX APPEALS ERRED IN HOLDING THAT
partnership and therefore, subject to the corporate income tax, pursuant PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES
to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
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 IV.
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). 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
The original assessment was as follows: THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED
IN COMMON AND THE LOANS RECEIVED USING THE INHERITED
PROPERTIES AS COLLATERALS;
1955

V.
Net income as per investigation ................ P40,209.89

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED

PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
Income tax due thereon ............................... 8,042.00 DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS
AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF
25% surcharge .............................................. 2,010.50
THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN
Compromise for non-filing .......................... 50.00 COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTERED
PARTNERSHIP.
Total ............................................................... P10,102.50

In other words, petitioners pose for our resolution the following

1956 questions: (1) Under the facts found by the Court of Tax Appeals, should
petitioners be considered as co-owners of the properties inherited by
them from the deceased Julia Buales and the profits derived from
transactions involving the same, or, must they be deemed to have
Net income as per investigation ................ P69,245.23 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
Income tax due thereon ............................... 13,849.00 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
25% surcharge .............................................. 3,462.25 respective shares in the inheritance are concerned, the total income
thereof should be considered as that of co-owners and not of the
Compromise for non-filing .......................... 50.00
unregistered partnership? And (3) assuming again that they are taxable
Total ............................................................... P17,361.25 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
(See Exhibit 13, page 50, BIR records) corporate taxes, herein involved, assessed against such unregistered
partnership by the respondent Commissioner?

Upon further consideration of the case, the 25% surcharge was

eliminated in line with the ruling of the Supreme Court in Collector v. Pondering on these questions, the first thing that has struck the Court is
Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the that whereas petitioners' predecessor in interest died way back on
questioned assessment refers solely to the income tax proper for the March 23, 1944 and the project of partition of her estate was judicially
years 1955 and 1956 and the "Compromise for non-filing," the latter item approved as early as May 16, 1949, and presumably petitioners have
obviously referring to the compromise in lieu of the criminal liability for been holding their respective shares in their inheritance since those
failure of petitioners to file the corporate income tax returns for said dates admittedly under the administration or management of the head
years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to of the family, the widower and father Lorenzo T. Oa, the assessment
Petition) 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 In this connection, petitioners' reliance on Article 1769, paragraph (3), of
We see no reason how it could be otherwise, it is easily understandable the Civil Code, providing that: "The sharing of gross returns does not of
why petitioners' position that they are co-owners and not unregistered itself establish a partnership, whether or not the persons sharing them
co-partners, for the purposes of the impugned assessment, cannot be have a joint or common right or interest in any property from which the
upheld. Truth to tell, petitioners should find comfort in the fact that they returns are derived," and, for that matter, on any other provision of said
were not similarly assessed earlier by the Bureau of Internal Revenue. 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
The Tax Court found that instead of actually distributing the estate of the Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
deceased among themselves pursuant to the project of partition elucidated on this point thus:
approved in 1949, "the properties remained under the management of
Lorenzo T. Oa who used said properties in business by leasing or
selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a To begin with, the tax in question is one imposed upon "corporations",
result of which said properties and investments steadily increased yearly which, strictly speaking, are distinct and different from "partnerships".
from P87,860.00 in "land account" and P17,590.00 in "building account" When our Internal Revenue Code includes "partnerships" among the
in 1949 to P175,028.68 in "investment account," P135.714.68 in "land entities subject to the tax on "corporations", said Code must allude,
account" and P169,262.52 in "building account" in 1956. And all these therefore, to organizations which are not necessarily "partnerships", in
became possible because, admittedly, petitioners never actually the technical sense of the term. Thus, for instance, section 24 of said
received any share of the income or profits from Lorenzo T. Oa and Code exempts from the aforementioned tax "duly registered general
instead, they allowed him to continue using said shares as part of the partnerships," which constitute precisely one of the most typical forms
common fund for their ventures, even as they paid the corresponding of partnerships in this jurisdiction. Likewise, as defined in section 84(b)
income taxes on the basis of their respective shares of the profits of their of said Code, "the term corporation includes partnerships, no matter how
common business as reported by the said Lorenzo T. Oa. 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
It is thus incontrovertible that petitioners did not, contrary to their corporation. Again, pursuant to said section 84(b),the term "corporation"
contention, merely limit themselves to holding the properties inherited includes, among others, "joint accounts,(cuentas en participacion)" and
by them. Indeed, it is admitted that during the material years herein "associations", none of which has a legal personality of its own,
involved, some of the said properties were sold at considerable profit, independent of that of its members. Accordingly, the lawmaker could not
and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in have regarded that personality as a condition essential to the existence
the purchase and sale of corporate securities. It is likewise admitted that of the partnerships therein referred to. In fact, as above stated, "duly
all the profits from these ventures were divided among petitioners registered general co-partnerships" which are possessed of the
proportionately in accordance with their respective shares in the aforementioned personality have been expressly excluded by law
inheritance. In these circumstances, it is Our considered view that from (sections 24 and 84[b]) from the connotation of the term "corporation."
the moment petitioners allowed not only the incomes from their ....
respective shares of the inheritance but even the inherited properties
themselves to be used by Lorenzo T. Oa as a common fund in
undertaking several transactions or in business, with the intention of
deriving profit to be shared by them proportionally, such act was xxx xxx xxx
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.
Similarly, the American Law

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 ... provides its own concept of a partnership. Under the term
co-partners within the contemplation of our corporate tax laws "partnership" it includes not only a partnership as known in common law
aforementioned. Before the partition and distribution of the estate of the but, as well, a syndicate, group, pool, joint venture, or other
deceased, all the income thereof does belong commonly to all the heirs, unincorporated organization which carries on any business, financial
obviously, without them becoming thereby unregistered co-partners, but operation, or venture, and which is not, within the meaning of the Code,
it does not necessarily follow that such status as co-owners continues a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income
until the inheritance is actually and physically distributed among the Taxation, p. 789; emphasis ours.)
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 The term "partnership" includes a syndicate, group, pool, joint venture
anyone chosen by them and engage in business on that basis. Withal, or other unincorporated organization, through or by means of which any
if this were to be allowed, it would be the easiest thing for heirs in any business, financial operation, or venture is carried on. ... . (8 Merten's
inheritance to circumvent and render meaningless Sections 24 and Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.)
84(b) of the National Internal Revenue Code.

For purposes of the tax on corporations, our National Internal Revenue

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, Code includes these partnerships with the exception only of duly
among the reasons for holding the appellants therein to be unregistered registered general copartnerships within the purview of the term
co-partners for tax purposes, that their common fund "was not "corporation." It is, therefore, clear to our mind that petitioners herein
something they found already in existence" and that "it was not a constitute a partnership, insofar as said Code is concerned, and are
property inherited by them pro indiviso," but it is certainly far fetched to subject to the income tax for corporations.
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 We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
unregistered partnership the moment the said common properties Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29,
and/or the incomes derived therefrom are used as a common fund with 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-
intent to produce profits for the heirs in proportion to their respective ownership pursued by appellants therein.
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 As regards the second question raised by petitioners about the
to their respective definite shares of the estate and the incomes thereof, segregation, for the purposes of the corporate taxes in question, of their
for each of them to manage and dispose of as exclusively his own inherited properties from those acquired by them subsequently, We
without the intervention of the other heirs, and, accordingly he becomes consider as justified the following ratiocination of the Tax Court in
liable individually for all taxes in connection therewith. If after such denying their motion for reconsideration:
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 In connection with the second ground, it is alleged that, if there was an
purposes, at least, an unregistered partnership is formed. This is exactly unregistered partnership, the holding should be limited to the business
what happened to petitioners in this case. engaged in apart from the properties inherited by petitioners. In other
words, the taxable income of the partnership should be limited to the
income derived from the acquisition and sale of real properties and
corporate securities and should not include the income derived from the
inherited properties. It is admitted that the inherited properties and the
income derived therefrom were used in the business of buying and
selling other real properties and corporate securities. Accordingly, the
partnership income must include not only the income derived from the
purchase and sale of other properties but also the income of the - versus -
inherited properties.

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

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

G.R. No. 172690

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

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

Chairperson,

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

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

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

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

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

Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his fathers driver in the trucking business. He was
never a partner or an investor in the business and merely supervised the IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
purchase of additional trucks using the income from the trucking SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF
business of the partners. By the time the partnership ceased, it had nine THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
trucks, which were all registered in Elfledo's name. Petitioners FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE
asseverated that it was also through Elfledos management of the OTHER PARTNERS IN THE PARTNERSHIP?[7]
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.
In essence, petitioners argue that according to the testimony of Jimmy,
the sole surviving partner, Elfledo was not a partner; and that he and
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving Norberto entered into a partnership with Jose. Thus, the CA erred in not
heir. Petitioners claimed that respondent took over the administration of giving that testimony greater weight than that of Cresencia, who was
the aforementioned properties, which belonged to the estate of Jose, merely the spouse of Jose and not a party to the partnership.[8]
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 Respondent counters that the issue raised by petitioners is not proper in
to surrender the administration thereof. Respondent refused; thus, the a petition for review on certiorari under Rule 45 of the Rules of Civil
filing of this case. 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
Respondent traversed petitioners' allegations and claimed that Elfledo Cresencia and Edison and the testimony of respondent, the testimony
was himself a partner of Norberto and Jimmy. Respondent also claimed of Jimmy was effectively refuted; accordingly, the CA's reversal of the
that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo RTC's findings was fully justified.[9]
P50,000.00 as the latter's capital in an informal partnership with Jimmy
We resolve first the procedural matter regarding the propriety of the
and Norberto. When Elfledo and respondent got married in 1981, the
instant Petition.
partnership only had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business, Elfledo, together Verily, the evaluation and calibration of the evidence necessarily
with respondent, engaged in other business ventures. Thus, they were involves consideration of factual issues an exercise that is not
able to buy real properties and to put up their own car assembly and appropriate for a petition for review on certiorari under Rule 45. This rule
repair business. When Norberto was ambushed and killed on July 16, provides that the parties may raise only questions of law, because the
1993, the trucking business started to falter. When Elfledo died on May Supreme Court is not a trier of facts. Generally, we are not duty-bound
18, 1995 due to a heart attack, respondent talked to Jimmy and to the to analyze again and weigh the evidence introduced in and considered
heirs of Norberto, as she could no longer run the business. Jimmy by the tribunals below.[10] When supported by substantial evidence, the
suggested that three out of the nine trucks be given to him as his share, findings of fact of the CA are conclusive and binding on the parties and
while the other three trucks be given to the heirs of Norberto. However, are not reviewable by this Court, unless the case falls under any of the
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, following recognized exceptions:
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 (1) When the conclusion is a finding grounded entirely on speculation,
demise. Respondent also stressed that Jose left no properties that surmises and conjectures;
Elfledo could have held in trust. Respondent maintained that all the
properties involved in this case were purchased and acquired through
her and her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent (2) When the inference made is manifestly mistaken, absurd or
submitted that these are conjugal partnership properties; and thus, she impossible;
had the right to refuse to render an accounting for the income or profits
of their own business.
(3) Where there is a grave abuse of discretion;

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

(5) When the findings of fact are conflicting;

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

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

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

On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted, petitioners
filed their Motion for Reconsideration,[5] which the CA, however, denied (10) When the findings of fact of the Court of Appeals are premised on
in its Resolution[6] dated May 8, 2006. the supposed absence of evidence and contradicted by the evidence on
record.[11]
 (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
We note, however, that the findings of fact of the RTC are contrary to inference shall be drawn if such profits were received in payment:
those of the CA. Thus, our review of such findings is warranted.

(a) As a debt by installments or otherwise;

On the merits of the case, we find that the instant Petition is bereft of
merit. (b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

A partnership exists when two or more persons agree to place their (d) As interest on a loan, though the amount of payment vary with the
money, effects, labor, and skill in lawful commerce or business, with the profits of the business;
understanding that there shall be a proportionate sharing of the profits
and losses among them. A contract of partnership is defined by the Civil (e) As the consideration for the sale of a goodwill of a business or other
Code as one where two or more persons bind themselves to contribute property by installments or otherwise.
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 Applying the legal provision to the facts of this case, the following
partnership or the articles of partnership. Unfortunately, there is none in circumstances tend to prove that Elfledo was himself the partner of
this case, because the alleged partnership was never formally Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
organized. Nonetheless, we are asked to determine who between Jose P50,000.00, as share in the partnership, on a date that coincided with
and Elfledo was the partner in the trucking business. 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
A careful review of the records persuades us to affirm the CA decision. of the partnership, were registered in the name of Elfledo; (4) Jimmy
The evidence presented by petitioners falls short of the quantum of proof testified that Elfledo did not receive wages or salaries from the
required to establish that: (1) Jose was the partner and not Elfledo; and partnership, indicating that what he actually received were shares of the
(2) all the properties acquired by Elfledo and respondent form part of the profits of the business;[17] and (5) none of the petitioners, as heirs of
estate of Jose, having been derived from the alleged partnership. Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,[18]
Petitioners heavily rely on Jimmy's testimony. But that testimony is just a demand for periodic accounting is evidence of a partnership.
one piece of evidence against respondent. It must be considered and
weighed along with petitioners' other evidence vis--vis respondent's Furthermore, petitioners failed to adduce any evidence to show that the
contrary evidence. In civil cases, the party having the burden of proof real and personal properties acquired and registered in the names of
must establish his case by a preponderance of evidence. Elfledo and respondent formed part of the estate of Jose, having been
"Preponderance of evidence" is the weight, credit, and value of the derived from Jose's alleged partnership with Jimmy and Norberto. They
aggregate evidence on either side and is usually considered failed to refute respondent's claim that Elfledo and respondent engaged
synonymous with the term "greater weight of the evidence" or "greater in other businesses. Edison even admitted that Elfledo also sold
weight of the credible evidence." "Preponderance of evidence" is a Interwood lumber as a sideline.[19] Petitioners could not offer any
phrase that, in the last analysis, means probability of the truth. It is credible evidence other than their bare assertions. Thus, we apply the
evidence that is more convincing to the court as worthy of belief than basic rule of evidence that between documentary and oral evidence, the
that which is offered in opposition thereto.[13] Rule 133, Section 1 of the former carries more weight.[20]
Rules of Court provides the guidelines in determining preponderance of
evidence, thus:
Finally, we agree with the judicious findings of the CA, to wit:

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 The above testimonies prove that Elfledo was not just a hired help but
superior weight of evidence on the issues involved lies, the court may one of the partners in the trucking business, active and visible in the
consider all the facts and circumstances of the case, the witnesses' running of its affairs from day one until this ceased operations upon his
manner of testifying, their intelligence, their means and opportunity of demise. The extent of his control, administration and management of the
knowing the facts to which they are testifying, the nature of the facts to partnership and its business, the fact that its properties were placed in
which they testify, the probability or improbability of their testimony, their his name, and that he was not paid salary or other compensation by the
interest or want of interest, and also their personal credibility so far as partners, are indicative of the fact that Elfledo was a partner and a
the same may legitimately appear upon the trial. The court may also controlling one at that. It is apparent that the other partners only
consider the number of witnesses, though the preponderance is not contributed in the initial capital but had no say thereafter on how the
necessarily with the greater number. 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.

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 It is notable too that Jose Lim died when the partnership was barely a
Code, which provides: 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

Art. 1769. In determining whether a partnership exists, these rules shall been dissolved and its assets liquidated. On the contrary, these were
apply: not done but instead its operation continued under the helm of Elfledo
and without any participation from the heirs of Jose Lim.

(1) Except as provided by Article 1825, persons who are not partners as
to each other are not partners as to third persons; 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.
(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;

In sum, we find no cogent reason to disturb the findings and the ruling
(3) The sharing of gross returns does not of itself establish a partnership, of the CA as they are amply supported by the law and by the evidence
whether or not the persons sharing them have a joint or common right on record.
or interest in any property from which the returns are derived;
WHEREFORE, the instant Petition is DENIED. The assailed Court of consideration. Mabato alleged and the lower court held that the answer
Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against should be in the affirmative, because "it is really inconceivable how a
petitioners. partnership engaged in the fishpond business could exist without said
fishpond property (being) contributed to the partnership." It should be
SO ORDERED. noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond
G.R. No. L-24193 June 28, 1968 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:
MAURICIO AGAD, plaintiff-appellant,

vs. That the capital of the said partnership is Two Thousand (P2,000.00)
Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos
SEVERINO MABATO and MABATO and AGAD COMPANY,
has been contributed by Severino Mabato and One Thousand
defendants-appellees.
(P1,000.00) Pesos has been contributed by Mauricio Agad.

Angeles, Maskarino and Associates for plaintiff-appellant.

xxx xxx xxx
Victorio S. Advincula for defendants-appellees.

The operation of the fishpond mentioned in Annex "A" was the purpose
CONCEPCION, C.J.: 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.

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 WHEREFORE, we find that said Article 1773 of the Civil Code is not in
contract of partnership on which the complaint herein is based. 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.
Alleging that he and defendant Severino Mabato are pursuant to a
public instrument dated August 29, 1952, copy of which is attached to ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and
the complaint as Annex "A" partners in a fishpond business, to the EMETERIA BARING, petitioners, vs. COURT OF APPEALS and
capital of which Agad contributed P1,000, with the right to receive 50% MANUEL TORRES, respondents.
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,
DECISION
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 PANGANIBAN, J.:
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.
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
In his answer, Mabato admitted the formal allegations of the complaint therein. The lack of an inventory of real property will not ipso facto
and denied the existence of said partnership, upon the ground that the release the contracting partners from their respective obligations to each
contract therefor had not been perfected, despite the execution of Annex other arising from acts executed in accordance with their agreement.
"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 The Case
attorney's fees.

The Petition for Review on Certiorari before us assails the March 5, 1998
Subsequently, Mabato filed a motion to dismiss, upon the ground that Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR
the complaint states no cause of action and that the lower court had no CV No. 42378 and its June 25, 1998 Resolution denying
jurisdiction over the subject matter of the case, because it involves reconsideration. The assailed Decision affirmed the ruling of the
principally the determination of rights over public lands. After due Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208,
hearing, the court issued the order appealed from, granting the motion which disposed as follows:
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 WHEREFORE, for all the foregoing considerations, the Court, finding for
had not been attached thereto. A reconsideration of this order having the defendant and against the plaintiffs, orders the dismissal of the
been denied, Agad brought the matter to us for review by record on plaintiffs complaint. The counterclaims of the defendant are likewise
appeal. ordered dismissed. No pronouncement as to costs.[3]

Articles 1771 and 1773 of said Code provide: The Facts

Art. 1771. A partnership may be constituted in any form, except where Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered
immovable property or real rights are contributed thereto, in which case into a "joint venture agreement" with Respondent Manuel Torres for the
a public instrument shall be necessary. 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
Art. 1773. A contract of partnership is void, whenever immovable loan of P40,000 which, under the Joint Venture Agreement, was to be
property is contributed thereto, if inventory of said property is not made, used for the development of the subdivision.[4] All three of them also
signed by the parties; and attached to the public instrument. agreed to share the proceeds from the sale of the subdivided lots.

The issue before us hinges on whether or not "immovable property or The project did not push through, and the land was subsequently
real rights" have been contributed to the partnership under foreclosed by the bank.
 The Petition is bereft of merit.

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 Main Issue: Existence of a Partnership
company, Universal Umbrella Company.

Petitioners deny having formed a partnership with respondent. They

On the other hand, respondent alleged that he used the loan to contend that the Joint Venture Agreement and the earlier Deed of Sale,
implement the Agreement. With the said amount, he was able to effect both of which were the bases of the appellate courts finding of a
the survey and the subdivision of the lots. He secured the Lapu Lapu partnership, were void.
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 In the same breath, however, they assert that under those very same
model house on one of the subdivision lots. He did all of these for a total contracts, respondent is liable for his failure to implement the project.
expense of P85,000. 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]
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 The pertinent portions of the Joint Venture Agreement read as follows:
refused to cause the clearing of the claims, thereby forcing him to give
up on the project.[5]
KNOW ALL MEN BY THESE PRESENTS:

Subsequently, petitioners filed a criminal case for estafa against

respondent and his wife, who were however acquitted. Thereafter, they This AGREEMENT, is made and entered into at Cebu City, Philippines,
filed the present civil case which, upon respondent's motion, was later this 5th day of March, 1969, by and between MR. MANUEL R. TORRES,
dismissed by the trial court in an Order dated September 6, 1982. On x x x the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and
appeal, however, the appellate court remanded the case for further MISS EMETERIA BARING, x x x the SECOND PARTY:
proceedings. Thereafter, the RTC issued its assailed Decision, which,
as earlier stated, was affirmed by the CA.

W I T N E S S E T H:
Hence, this Petition.[6]

That, whereas, the SECOND PARTY, voluntarily offered the FIRST

PARTY, this property located at Lapu-Lapu City, Island of Mactan, under
Ruling of the Court of Appeals 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;

In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
subdivision. Thus, they must bear the loss suffered by the partnership in of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
the same proportion as their share in the profits stipulated in the upon the execution of this contract for the property entrusted by the
contract. Disagreeing with the trial courts pronouncement that losses as SECOND PARTY, for sub-division projects and development purposes;
well as profits in a joint venture should be distributed equally,[7] the CA
invoked Article 1797 of the Civil Code which provides:

NOW THEREFORE, for and in consideration of the above covenants

and promises herein contained the respective parties hereto do hereby
Article 1797 - The losses and profits shall be distributed in conformity stipulate and agree as follows:
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.
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
The CA elucidated further: 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.
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 SECOND: That the SECOND PARTY, had received from the FIRST
industrial partner shall receive such share as may be just and equitable PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00)
under the circumstances. If besides his services he has contributed pesos, Philippine currency, for their personal obligations and this
capital, he shall also receive a share in the profits in proportion to his particular amount will serve as an advance payment from the FIRST
capital. PARTY for the property mentioned to be sub-divided and to be deducted
from the sales.

The Issue
THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount of
Petitioners impute to the Court of Appeals the following error: 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.
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] 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.
The Courts Ruling
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY formed from such agreement due to their supposed misunderstanding
PERCENTUM 60% for the SECOND PARTY and FORTY of its terms.
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.
Alleged Nullity of the Partnership Agreement

SIXTH: That the intended sub-division project of the property involved

will start the work and all improvements upon the adjacent lots will be Petitioners argue that the Joint Venture Agreement is void under Article
negotiated in both parties['] favor and all sales shall [be] decided by both 1773 of the Civil Code, which provides:
parties.

ART. 1773. A contract of partnership is void, whenever immovable

SEVENTH: That the SECOND PARTIES, should be given an option to property is contributed thereto, if an inventory of said property is not
get back the property mentioned provided the amount of TWENTY made, signed by the parties, and attached to the public instrument.
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
They contend that since the parties did not make, sign or attach to the
PARTY will be given a grace period to turnover the property mentioned
public instrument an inventory of the real property contributed, the
above.
partnership is void.

That this AGREEMENT shall be binding and obligatory to the parties

We clarify. First, Article 1773 was intended primarily to protect third
who executed same freely and voluntarily for the uses and purposes
persons. Thus, the eminent Arturo M. Tolentino states that under the
therein stated.[10]
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
A reading of the terms embodied in the Agreement indubitably shows description, they cannot be subject to inscription in the Registry of
the existence of a partnership pursuant to Article 1767 of the Civil Code, Property, and their contribution cannot prejudice third persons. This will
which provides: 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.
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.
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
Under the above-quoted Agreement, petitioners would contribute and in another recognize it, depending on what momentarily suits their
property to the partnership in the form of land which was to be developed purpose. Parties cannot adopt inconsistent positions in regard to a
into a subdivision; while respondent would give, in addition to his contract and courts will not tolerate, much less approve, such practice.
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] 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.
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 Partnership Agreement Not the Result of an Earlier Illegal Contract
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.
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
Respondents actions clearly belie petitioners contention that he made consideration.
no contribution to the partnership. Under Article 1767 of the Civil Code,
a partner may contribute not only money or property, but also industry.
This argument is puerile. The Joint Venture Agreement clearly states
that the consideration for the sale was the expectation of profits from the
Petitioners Bound by Terms of Contract 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
Under Article 1315 of the Civil Code, contracts bind the parties not only another.[15]
to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:
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
ART. 1315. Contracts are perfected by mere consent, and from that subdivision project, for which the land was intended to be used. As
moment the parties are bound not only to the fulfillment of what has been explained by the trial court, the land was in effect given to the partnership
expressly stipulated but also to all the consequences which, according as [petitioners] participation therein. x x x There was therefore a
to their nature, may be in keeping with good faith, usage and law. 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.
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 Liability of the Parties
objected to it and insisted on the provisions they wanted.

Claiming that respondent was solely responsible for the failure of the
Courts are not authorized to extricate parties from the necessary subdivision project, petitioners maintain that he should be made to pay
consequences of their acts, and the fact that the contractual stipulations damages equivalent to 60 percent of the value of the property, which
may turn out to be financially disadvantageous will not relieve parties was their share in the profits under the Joint Venture Agreement.
thereto of their obligations. They cannot now disavow the relationship
We are not persuaded. True, the Court of Appeals held that petitioners In this petition for review under Rule 45 of the Rules of Court, petitioner
acts were not the cause of the failure of the project.[16] But it also ruled Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the
that neither was respondent responsible therefor.[17] In imputing the Court of Appeals (CA) dated March 31, 2004[1] in consolidated cases
blame solely to him, petitioners failed to give any reason why we should C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution
disregard the factual findings of the appellate court relieving him of fault. dated December 07, 2004,[2] denying petitioners motion for
Verily, factual issues cannot be resolved in a petition for review under reconsideration.
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. The recourse is cast against the following factual backdrop:

WHEREFORE, the Petition is hereby DENIED and the challenged Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent
Decision AFFIRMED. Costs against petitioners. 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
SO ORDERED. 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
AURELIO K. LITONJUA, JR., Odeon Theater business which had expanded thru investment in
Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation
Petitioner, (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
- versus 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

EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. joint venture/partnership for the continuation of their family business and
MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. common family funds .
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
3.01.1 This joint venture/[partnership] agreement was contained in a
SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC.,
memorandum addressed by Eduardo to his siblings, parents and other
BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY
relatives. Copy of this memorandum is attached hereto and made an
TRADING CO., INC., 3D CORP., L DEV. CORP, LCM THEATRICAL
integral part as Annex A and the portion referring to [Aurelio] submarked
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC.,
as Annex A-1.
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), 3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelios] retaining his share in the remaining family
Respondents. businesses (mostly, movie theaters, shipping and land development)
and contributing his industry to the continued operation of these
G.R. NOS. 166299-300
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,
Present: [Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and
[their] respective assets.

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

CORONA,

CARPIO MORALES and xxx xxx xxx

GARCIA, JJ.

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.
Promulgated: xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo

became sour so that [Aurelio] requested for an accounting and
December 13, 2005 liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
x-------------------------------------------------x

xxx xxx xxx

DECISION
5.05 What is worse, [Aurelio] has reasonable cause to believe that
GARCIA, J.:
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 1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved
in the original; underscoring and words in bracket added.) 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

For ease of reference, Annex A-1 of the complaint, which petitioner of April 2, 2003, but his motion was denied in an Order of July 4,
asserts to have been meant for him by his brother Eduardo, pertinently 2003.[14]
reads:

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]: 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.
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 Earlier, Eduardo and the corporate defendants, on the contention that
brothers and I will ask you to stay as I want you to run this office every grave abuse of discretion and injudicious haste attended the issuance
time I am away. I want you to run it the way I am trying to run it because of the trial courts aforementioned Omnibus Orders dated March 5, and
I will be all alone and I will depend entirely to you (sic). My sons will not April 2, 2003, sought relief from the CA via similar recourse. Their
be ready to help me yet until about maybe 15/20 years from now. petition for certiorari was docketed as CA G.R. SP No. 76987.
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 Per its resolution dated October 2, 2003,[16] the CAs 14th Division
I pass away, I want you to take care of all of this. You keep my share for ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP
my two sons are ready take over but give them the chance to run the No. 76987.
company which I have built.

Following the submission by the parties of their respective Memoranda

xxx xxx xxx 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:
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 WHEREFORE, judgment is hereby rendered granting the issuance of
stocks which you can keep. This stock I assure you is good and the writ of certiorari in these consolidated cases annulling, reversing and
saleable. I will also gladly give you the share of Wack-Wack and Valley setting aside the assailed orders of the court a quo dated March 5, 2003,
Golf because you have been good. The rest will be in stocks from all the April 2, 2003 and July 4, 2003 and the complaint filed by private
corporations which I repeat, ten percent (10%) equity. [6] 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.)

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 Explaining its case disposition, the appellate court stated, inter alia, that
particularly that portion thereof depicting petitioner and Eduardo as the alleged partnership, as evidenced by the actionable documents,
having entered into a contract of partnership. As affirmative defenses, Annex A and A-1 attached to the complaint, and upon which petitioner
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the solely predicates his right/s allegedly violated by Eduardo, Yang and the
complaint states no cause of action, since no cause of action may be corporate defendants a quo is void or legally inexistent.
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, In time, petitioner moved for reconsideration but his motion was denied
infra. It is further alleged that whatever undertaking Eduardo agreed to by the CA in its equally assailed Resolution of December 7, 2004.[18] .
do, if any, under Annex A-1, are unenforceable under the provisions of
the Statute of Frauds.[7]
Hence, petitioners present recourse, on the contention that the CA
erred:
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 A. When it ruled that there was no partnership created by the actionable
dismiss. document because this was not a public instrument and immovable
properties were contributed to the partnership.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve

Affirmative Defenses.[9] To this motion, petitioner interposed an B. When it ruled that the actionable document did not create a
Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10] demandable right in favor of petitioner.

Acting on the separate motions immediately adverted to above, the trial C. When it ruled that the complaint stated no cause of action against
court, in an Omnibus Order dated March 5, 2003, denied the affirmative [respondent] Robert Yang; and
defenses and, except for Yang, set the case for pre-trial on April 10,
2003.[11]
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
In another Omnibus Order of April 2, 2003, the same court denied the by another legal perspective/argument.
motion of Eduardo, et al., for reconsideration[12] and Yangs motion to
dismiss. The following then transpired insofar as Yang is concerned:

The petition lacks merit.

 Significantly enough, petitioner matter-of-factly concurred with the
appellate courts observation that, prescinding from what he himself
Petitioners demand, as defined in the petitory portion of his complaint in alleged in his basic complaint, his contribution to the partnership
the trial court, is for delivery or payment to him, as Eduardos and Yangs consisted of his share in the Litonjua family businesses which owned
partner, of his partnership/joint venture share, after an accounting has variable immovable properties. Petitioners assertion in his motion for
been duly conducted of what he deems to be partnership/joint venture reconsideration[24] of the CAs decision, that what was to be contributed
property.[19] 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.
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 Lest it be overlooked, the contract-validating inventory requirement
Civil Code as one where two or more persons bound themselves to under Article 1773 of the Civil Code applies as long real property or real
contribute money, property, or industry to a common fund with the rights are initially brought into the partnership. In short, it is really of no
intention of dividing the profits among themselves.[21] A joint venture, moment which of the partners, or, in this case, who between petitioner
on the other hand, is hardly distinguishable from, and may be likened to, and his brother Eduardo, contributed immovables. In context, the more
a partnership since their elements are similar, i.e., community of important consideration is that real property was contributed, in which
interests in the business and sharing of profits and losses. Being a form case an inventory of the contributed property duly signed by the parties
of partnership, a joint venture is generally governed by the law on should be attached to the public instrument, else there is legally no
partnership.[22] partnership to speak of.

The underlying issue that necessarily comes to mind in this proceedings Petitioner, in an obvious bid to evade the application of Article 1773,
is whether or not petitioner and respondent Eduardo are partners in the argues that the immovables in question were not contributed, but were
theatre, shipping and realty business, as one claims but which the other acquired after the formation of the supposed partnership. Needless to
denies. And the issue bearing on the first assigned error relates to the stress, the Court cannot accord cogency to this specious argument. For,
question of what legal provision is applicable under the premises, as earlier stated, petitioner himself admitted contributing his share in the
petitioner seeking, as it were, to enforce the actionable document - supposed shipping, movie theatres and realty development family
Annex A-1 - which he depicts in his complaint to be the contract of businesses which already owned immovables even before Annex A-1
partnership/joint venture between himself and Eduardo. Clearly, then, a was allegedly executed.
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:
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
Art. 1771. A partnership may be constituted in any form, except where and pleads to be given. Annex A-1, in fine, cannot support the existence
immovable property or real rights are contributed thereto, in which case of the partnership sued upon and sought to be enforced. The legal and
a public instrument shall be necessary. 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]
Art. 1772. Every contract of partnership having a capital of three And if only to stress what has repeatedly been articulated, an inventory
thousand pesos or more, in money or property, shall appear in a public to be signed by the parties and attached to the public instrument is also
instrument, which must be recorded in the Office of the Securities and indispensable to the validity of the partnership whenever immovable
Exchange Commission. property is contributed to it.

Failure to comply with the requirement of the preceding paragraph shall Given the foregoing perspective, what the appellate court wrote in its
not affect the liability of the partnership and the members thereof to third assailed Decision[26] about the probative value and legal effect of
persons. Annex A-1 commends itself for concurrence:

Art. 1773. A contract of partnership is void, whenever immovable Considering that the allegations in the complaint showed that [petitioner]
property is contributed thereto, if an inventory of said property is not contributed immovable properties to the alleged partnership, the
made, signed by the parties, and attached to the public instrument. 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
Annex A-1, on its face, contains typewritten entries, personal in tone, but failure to comply with the essential formalities of a valid contract, the
is unsigned and undated. As an unsigned document, there can be no purported partnership/joint venture is legally inexistent and it produces
quibbling that Annex A-1 does not meet the public instrumentation no effect whatsoever. Necessarily, a void or legally inexistent contract
requirements exacted under Article 1771 of the Civil Code. Moreover, cannot be the source of any contractual or legal right. Accordingly, the
being unsigned and doubtless referring to a partnership involving more allegations in the complaint, including the actionable document attached
than P3,000.00 in money or property, Annex A-1 cannot be presented thereto, clearly demonstrates that [petitioner] has NO valid contractual
for notarization, let alone registered with the Securities and Exchange or legal right which could be violated by the [individual respondents]
Commission (SEC), as called for under the Article 1772 of the Code. herein. As a consequence, [petitioners] complaint does NOT state a
And inasmuch as the inventory requirement under the succeeding valid cause of action because NOT all the essential elements of a cause
Article 1773 goes into the matter of validity when immovable property is of action are present. (Underscoring and words in bracket added.)
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 Likewise well-taken are the following complementary excerpts from the
contribution consisted of immovables and real rights. Wrote that court: CAs equally assailed Resolution of December 7, 2004[27] denying
petitioners motion for reconsideration:

A further examination of the allegations in the complaint would show that

[petitioners] contribution to the so-called partnership/joint venture was Further, We conclude that despite glaring defects in the allegations in
his supposed share in the family business that is consisting of movie the complaint as well as the actionable document attached thereto
theaters, shipping and land development under paragraph 3.02 of the (Rollo, p. 191), the [trial] court did not appreciate and apply the legal
complaint. In other words, his contribution as a partner in the alleged provisions which were brought to its attention by herein [respondents] in
partnership/joint venture consisted of immovable properties and real the their pleadings. In our evaluation of [petitioners] complaint, the latter
rights. .[23] 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 agreement that by its terms is not to be performed within a year from the
which could be violated by [respondents]. (Words in bracket added.) 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

Under the second assigned error, it is petitioners posture that Annex A- Million or 10% equity of the family businesses supposedly promised by
1, assuming its inefficacy or nullity as a partnership document, Eduardo to give in the near future. Any suggestion that the stated
nevertheless created demandable rights in his favor. As petitioner amount or the equity component of the promise was intended to go to a
succinctly puts it in this petition: 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
43. Contrariwise, this actionable document, especially its above-quoted
common fund with the intention of dividing the profits between or among
provisions, established an actionable contract even though it may not be
themselves.[32]
a partnership. This actionable contract is what is known as an
innominate contract (Civil Code, Article 1307). 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
44. It may not be a contract of loan, or a mortgage or whatever, but does not state a cause of action as against respondent Eduardo and the
surely the contract does create rights and obligations of the parties and corporate defendants. And if no of action can successfully be maintained
which rights and obligations may be enforceable and demandable. Just against respondent Eduardo because no valid partnership existed
because the relationship created by the agreement cannot be between him and petitioner, the Court cannot see its way clear on how
specifically labeled or pigeonholed into a category of nominate contract the same action could plausibly prosper against Yang. Surely, Yang
does not mean it is void or unenforceable. could not have become a partner in, or could not have had any form of
business relationship with, an inexistent partnership.
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
As may be noted, petitioner has not, in his complaint, provide the logical
be faulted for not yielding to petitioners dubious stratagem of altering his
nexus that would tie Yang to him as his partner. In fact, attendant
theory of joint venture/partnership to an innominate contract. For, at
circumstances would indicate the contrary. Consider:
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 1. Petitioner asserted in his complaint that his so-called joint
being that the actionable document established a partnership/joint venture/partnership with Eduardo was for the continuation of their family
venture, it is on those positions that the appellate court exercised its business and common family funds which were theretofore being mainly
certiorari jurisdiction. Petitioners act of changing his original theory is an managed by Eduardo. [33] But Yang denies kinship with the Litonjua
impermissible practice and constitutes, as the CA aptly declared, an family and petitioner has not disputed the disclaimer.
admission of the untenability of such theory in the first place.

2. In some detail, petitioner mentioned what he had contributed to the

[Petitioner] is now humming a different tune . . . . In a sudden twist of joint venture/partnership with Eduardo and what his share in the
stance, he has now contended that the actionable instrument may be businesses will be. No allegation is made whatsoever about what Yang
considered an innominate contract. xxx Verily, this now changes contributed, if any, let alone his proportional share in the profits. But such
[petitioners] theory of the case which is not only prohibited by the Rules allegation cannot, however, be made because, as aptly observed by the
but also is an implied admission that the very theory he himself has CA, the actionable document did not contain such provision, let alone
adopted, filed and prosecuted before the respondent court is erroneous. 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.
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 3. Petitioner states in par. 2.01 of the complaint that [he] and Eduardo
of the cause of action on the basis of partnership law xxx.[29] (Emphasis are business partners in the [respondent] corporations, while Bobby is
in the original; Words in bracket added). 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
But even assuming in gratia argumenti that Annex A-1 partakes of a
contradict himself by alleging that his investment and that of Eduardo
perfected innominate contract, petitioners complaint would still be
and Yang in the Odeon theater business has expanded through a
dismissible as against Eduardo and, more so, against Yang. It cannot
reinvestment of profit income and direct investments in several
be over-emphasized that petitioner points to Eduardo as the author of
corporation including but not limited to [six] corporate respondents This
Annex A-1. Withal, even on this consideration alone, petitioners claim
simply means that the Odeon Theatre business came before the
against Yang is doomed from the very start.
corporate respondents. Significantly enough, petitioner refers to the
corporate respondents as progeny of the Odeon Theatre business.[34]

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
Needless to stress, petitioner has not sufficiently established in his
respondent Eduardo the observance of a determinate conduct, reads:
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:
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
[Respondent] Yang, is impleaded because, as alleged in the complaint,
alone and I will depend entirely to you, My sons will not be ready to help
he is a partner of [Eduardo] and the [petitioner] in the Odeon Theater
me yet until about maybe 15/20 years from now. Whatever is left in the
Investment which expanded through reinvestments of profits and direct
corporation, I will make sure that you get ONE MILLION PESOS
investments in several corporations, thus:
(P1,000,000.00) or ten percent (10%) equity, whichever is greater.
(Underscoring added)

xxx xxx xxx

It is at once apparent that what respondent Eduardo imposed upon Clearly, [petitioners] claim against Yang arose from his alleged
himself under the above passage, if he indeed wrote Annex A-1, is a partnership with petitioner and the respondent. However, there was NO
promise which is not to be performed within one year from contract allegation in the complaint which directly alleged how the supposed
execution on June 22, 1973. Accordingly, the agreement embodied in contractual relation was created between [petitioner] and Yang. More
Annex A-1 is covered by the Statute of Frauds and ergo unenforceable importantly, however, the foregoing ruling of this Court that the purported
for non-compliance therewith.[30] By force of the statute of frauds, an partnership between [Eduardo] is void and legally inexistent directly
affects said claim against Yang. Since [petitioner] is trying to establish 14. All told, the Decision takes off from a false premise that the
his claim against Yang by linking him to the legally inexistent partnership actionable document attached to the complaint does not establish a
. . . such attempt had become futile because there was NOTHING that contractual relationship between [petitioner] and Eduardo, Sr. and
would contractually connect [petitioner] and Yang. To establish a valid Roberto T Yang simply because his document does not create a
cause of action, the complaint should have a statement of fact upon partnership or a joint venture. This is a myopic reading of the actionable
which to connect [respondent] Yang to the alleged partnership between document.
[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] 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
Pressing its point, the CA later stated in its resolution denying petitioners against respondents Eduardo and Yang doubtless pivots on the
motion for reconsideration the following: 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
xxx Whatever the complaint calls it, it is the actionable document accounting of partnership property based on such void or legally non-
attached to the complaint that is controlling. Suffice it to state, We have existent actionable document is dismissible for failure to state of action.
not ignored the actionable document As a matter of fact, We So, in gist, said the Court of Appeals. The Court agrees.
emphasized in our decision that insofar as [Yang] is concerned, he is
not even mentioned in the said actionable document. We are therefore WHEREFORE, the instant petition is DENIED and the impugned
puzzled how a person not mentioned in a document purporting to Decision and Resolution of the Court of Appeals AFFIRMED.
establish a partnership could be considered a partner.[36] (Words in
bracket ours).

Cost against the petitioner.

The last issue raised by petitioner, referring to whether or not he SO ORDERED.

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 G.R. No. L-25532 February 28, 1969
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. COMMISSIONER OF INTERNAL REVENUE, petitioner,
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. vs.
# 43 of this petition, as follows:
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

8. Whether or not the actionable document creates a partnership, joint

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor
venture, or whatever, is a legal matter. What is determinative for
General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and
purposes of sufficiency of the complainants allegations, is whether the
T. Temprosa Jr. for petitioner.
actionable document bears out an actionable contract be it a
partnership, a joint venture or whatever or some innominate contract It A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
may be noted that one kind of innominate contract is what is known as
du ut facias (I give that you may do).[37]

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

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 A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was
innominate contract (Civil Code, Article 1307).[38] 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
Springing surprises on the opposing party is offensive to the sporting
importation, marketing, distribution and operation of automatic
idea of fair play, justice and due process; hence, the proscription against
phonographs, radios, television sets and amusement machines, their
a party shifting from one theory at the trial court to a new and different
parts and accessories. It had an office and held itself out as a limited
theory in the appellate court.[39] On the same rationale, an issue which
partnership, handling and carrying merchandise, using invoices, bills
was neither averred in the complaint cannot be raised for the first time
and letterheads bearing its trade-name, maintaining its own books of
on appeal.[40] It is not difficult, therefore, to agree with the CA when it
accounts and bank accounts, and had a quota allocation with the Central
made short shrift of petitioners innominate contract theory on the basis
Bank.
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 In 1948, however, general partner Suter and limited partner Spirig got
supporting his pleaded cause of action that of the existence of a married and, thereafter, on 18 December 1948, limited partner Carlson
partnership - by another legal perspective/argument, strikes the Court sold his share in the partnership to Suter and his wife. The sale was duly
as a strained attempt to rationalize an untenable position. Paragraph 12 recorded with the Securities and Exchange Commission on 20
of his motion for reconsideration of the CAs decision virtually relegates December 1948.
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 The limited partnership had been filing its income tax returns as a
whether or not to pursue the original cause of action or altogether corporation, without objection by the herein petitioner, Commissioner of
abandoning the same, thus: 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
12. Incidentally, assuming that the actionable document created a P2,678.06 for 1954 and P4,567.00 for 1955.
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. xxx

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, William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses
on 11 November 1965, reversing that of the Commissioner of Internal were forbidden to enter by Article 1677 of the Civil Code of 1889.
Revenue.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan,
The present case is a petition for review, filed by the Commissioner of in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1,
Internal Revenue, of the tax court's aforesaid decision. It raises these says with regard to the prohibition contained in the aforesaid Article
issues: 1677:

(a) Whether or not the corporate personality of the William J. Suter Los conyuges, segun esto, no pueden celebrar entre si el contrato de
"Morcoin" Co., Ltd. should be disregarded for income tax purposes, sociedad universal, pero o podran constituir sociedad particular?
considering that respondent William J. Suter and his wife, Julia Spirig Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
Suter actually formed a single taxable unit; and 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
(b) Whether or not the partnership was dissolved after the marriage of Direccion de los Registros fue favorable a esta misma tesis en su
the partners, respondent William J. Suter and Julia Spirig Suter and the resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la
subsequent sale to them by the remaining partner, Gustav Carlson, of de 9 de marzo de 1943.
his participation of P2,000.00 in the partnership for a nominal amount of
P1.00.

Nor could the subsequent marriage of the partners operate to dissolve

it, such marriage not being one of the causes provided for that purpose
The theory of the petitioner, Commissioner of Internal Revenue, is that either by the Spanish Civil Code or the Code of Commerce.
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 The appellant's view, that by the marriage of both partners the company
because the spouses have exclusive ownership and control of the became a single proprietorship, is equally erroneous. The capital
business; consequently the income tax return of respondent Suter for contributions of partners William J. Suter and Julia Spirig were
the years in question should have included his and his wife's individual separately owned and contributed by them before their marriage; and
incomes and that of the limited partnership, in accordance with Section after they were joined in wedlock, such contributions remained their
45 (d) of the National Internal Revenue Code, which provides as follows: respective separate property under the Spanish Civil Code (Article
1396):

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

citizens, residents or non-residents, only one consolidated return for the The following shall be the exclusive property of each spouse:
taxable year shall be filed by either spouse to cover the income of both
spouses; ....

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

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 Thus, the individual interest of each consort in William J. Suter "Morcoin"
ground for dissolution of the partnership, either in the Code of Co., Ltd. did not become common property of both after their marriage
Commerce or in the New Civil Code, and that since its juridical in 1948.
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
It being a basic tenet of the Spanish and Philippine law that the
to include in his individual return the income of the limited partnership.
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
We find the Commissioner's appeal unmeritorious. 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.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., True, section 24 of the Internal Revenue Code merges registered
Ltd., has been dissolved by operation of law because of the marriage of general co-partnerships (compaias colectivas) with the personality of
the only general partner, William J. Suter to the originally limited partner, the individual partners for income tax purposes. But this rule is
Julia Spirig one year after the partnership was organized is rested by the exceptional in its disregard of a cardinal tenet of our partnership laws,
appellant upon the opinion of now Senator Tolentino in Commentaries and can not be extended by mere implication to limited partnerships.
and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows:
The rulings cited by the petitioner (Collector of Internal Revenue vs.
University of the Visayas, L-13554, Resolution of 30 October 1964, and
A husband and a wife may not enter into a contract of general Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding
copartnership, because under the Civil Code, which applies in the the fiction of legal personality of the corporations involved therein are
absence of express provision in the Code of Commerce, persons not applicable to the present case. In the cited cases, the corporations
prohibited from making donations to each other are prohibited from were already subject to tax when the fiction of their corporate personality
entering into universal partnerships. (2 Echaverri 196) It follows that the was pierced; in the present case, to do so would exempt the limited
marriage of partners necessarily brings about the dissolution of a pre- partnership from income taxation but would throw the tax burden upon
existing partnership. (1 Guy de Montella 58) 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 petitioner-appellant has evidently failed to observe the fact that the limited partnership is not a mere business conduit of the partner-
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but spouses; it was organized for legitimate business purposes; it conducted
a particular one. As appears from Articles 1674 and 1675 of the Spanish its own dealings with its customers prior to appellee's marriage, and had
Civil Code, of 1889 (which was the law in force when the subject firm been filing its own income tax returns as such independent entity. The
was organized in 1947), a universal partnership requires either that the change in its membership, brought about by the marriage of the partners
object of the association be all the present property of the partners, as and their subsequent acquisition of all interest therein, is no ground for
contributed by them to the common fund, or else "all that the partners withdrawing the partnership from the coverage of Section 24 of the tax
may acquire by their industry or work during the existence of the code, requiring it to pay income tax. As far as the records show, the
partnership". William J. Suter "Morcoin" Co., Ltd. was not such a partners did not enter into matrimony and thereafter buy the interests of
universal partnership, since the contributions of the partners were fixed the remaining partner with the premeditated scheme or design to use
sums of money, P20,000.00 by William Suter and P18,000.00 by Julia the partnership as a business conduit to dodge the tax laws. Regularity,
Spirig and neither one of them was an industrial partner. It follows that not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income,
to require that income to be included in the individual tax return of
respondent Suter is to overstretch the letter and intent of the law. In fact,
it would even conflict with what it specifically provides in its Section 24:
for the appellant Commissioner's stand results in equal treatment, tax
wise, of a general copartnership (compaia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the
case of compaias colectivas that the members, and not the firm, are
taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership (Section 26,
N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1,
pp. 88-89).lawphi1.nt

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

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

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

FOR THE FOREGOING REASONS, the decision under review is

hereby affirmed. No costs.