Aguila & Sons, Co.
, represented by
[G.R. No. 127347. November 25, 1999]
ALFREDO N. AGUILA, JR, petitioner,
vs. HONORABLE COURT OF
APPEALS and FELICIDAD S.
VDA. DE
ABROGAR, respondents.
DECISION
MENDOZA, J.:
This is a petition for review
on certiorari of the decision[1] of the
Court of Appeals, dated November 29,
1990, which reversed the decision of
the Regional Trial Court, Branch 273,
Marikina, Metro Manila, dated April 11,
1995. The trial court dismissed the
petition for declaration of nullity of a
deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against
petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C.
Aguila & Sons, Co., a partnership
engaged in lending activities. Private
respondent and her late husband,
Ruben M. Abrogar, were the registered
owners of a house and lot, covered by
Transfer Certificate of Title No. 195101,
in Marikina, Metro Manila. On April 18,
1991, private respondent, with the
consent of her late husband, and A.C.
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
petitioner, entered into a Memorandum
of Agreement, which provided:
(1) That the SECOND PARTY [A.C.
Aguila & Sons, Co.] shall buy the
above-described property from the
FIRST PARTY [Felicidad S. Vda. de
Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale
shall be executed by the FIRST PARTY
conveying the property to the SECOND
PARTY for and in consideration of the
sum of Two Hundred Thousand Pesos
(P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given
by the SECOND PARTY the option to
repurchase the said property within a
period of ninety (90) days from the
execution of this memorandum of
agreement effective April 18, 1991, for
the amount of TWO HUNDRED
THIRTY THOUSAND PESOS
(P230,000.00);
(3) In the event that the FIRST PARTY
fail to exercise her option to repurchase
the said property within a period of
ninety (90) days, the FIRST PARTY is
obliged to deliver peacefully the
possession of the property to the
SECOND PARTY within fifteen (15)
days after the expiration of the said 90
day grace period;
(4) During the said grace period, the
FIRST PARTY obliges herself not to file
any lis pendens or whatever claims on
the property nor shall be cause the
Page 1
annotation of say claim at the back of
the title to the said property;
(5) With the execution of the deed of
absolute sale, the FIRST PARTY
warrants her ownership of the property
and shall defend the rights of the
SECOND PARTY against any party
whom may have any interests over the
property;
(6) All expenses for documentation and
other incidental expenses shall be for
the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to
deliver peaceful possession of the
property to the SECOND PARTY after
the expiration of the 15-day grace
period given in paragraph 3 above, the
FIRST PARTY shall pay an amount
equivalent to Five Percent of the
principal amount of TWO HUNDRED
PESOS (P200.00) or P10,000.00 per
month of delay as and for rentals and
liquidated damages;
(8) Should the FIRST PARTY fail to
exercise her option to repurchase the
property within ninety (90) days period
above-mentioned, this memorandum of
agreement shall be deemed cancelled
and the Deed of Absolute Sale,
executed by the parties shall be the
final contract considered as entered
between the parties and the SECOND
PARTY shall proceed to transfer
ownership of the property above
described to its name free from lines
and encumbrances.[2]
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
On the same day, April 18, 1991,
the parties likewise executed a deed of
absolute sale,[3] dated June 11, 1991,
wherein private respondent, with the
consent of her late husband, sold the
subject property to A.C. Aguila & Sons,
Co., represented by petitioner, for
P200,000.00. In a special power of
attorney dated the same day, April 18,
1991, private respondent authorized
petitioner to cause the cancellation of
TCT No. 195101 and the issuance of a
new certificate of title in the name of
A.C. Aguila and Sons, Co., in the event
she failed to redeem the subject
property as provided in the
Memorandum of Agreement.[4]
Private respondent failed to
redeem the property within the 90-day
period as provided in the Memorandum
of Agreement. Hence, pursuant to the
special power of attorney mentioned
above, petitioner caused the
cancellation of TCT No. 195101 and the
issuance of a new certificate of title in
the name of A.C. Aguila and Sons, Co.
[5]
Private respondent then received a
letter dated August 10, 1991 from Atty.
Lamberto C. Nanquil, counsel for A.C.
Aguila & Sons, Co., demanding that
she vacate the premises within 15 days
after receipt of the letter and surrender
its possession peacefully to A.C. Aguila
& Sons, Co. Otherwise, the latter would
bring the appropriate action in court.[6]
Upon the refusal of private
respondent to vacate the subject
Page 2
premises, A.C. Aguila & Sons, Co. filed
an ejectment case against her in the
Metropolitan Trial Court, Branch 76,
Marikina, Metro Manila. In a decision,
dated April 3, 1992, the Metropolitan
Trial Court ruled in favor of A.C. Aguila
& Sons, Co. on the ground that private
respondent did not redeem the subject
property before the expiration of the 90-
day period provided in the
Memorandum of Agreement. Private
respondent appealed first to the
Regional Trial Court, Branch 163,
Pasig, Metro Manila, then to the Court
of Appeals, and later to this Court, but
she lost in all the cases.
Private respondent then filed a
petition for declaration of nullity of a
deed of sale with the Regional Trial
Court, Branch 273, Marikina, Metro
Manila on December 4, 1993. She
alleged that the signature of her
husband on the deed of sale was a
forgery because he was already dead
when the deed was supposed to have
been executed on June 11, 1991.
It appears, however, that private
respondent had filed a criminal
complaint for falsification against
petitioner with the Office of the
Prosecutor of Quezon City which was
dismissed in a resolution, dated
February 14, 1994.
On April 11, 1995, Branch 273 of
RTC-Marikina rendered its decision:
Plaintiffs claim therefore that the Deed
of Absolute Sale is a forgery because
they could not personally appear before
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
Notary Public Lamberto C. Nanquil on
June 11, 1991 because her husband,
Ruben Abrogar, died on May 8, 1991 or
one month and 2 days before the
execution of the Deed of Absolute Sale,
while the plaintiff was still in the Quezon
City Medical Center recuperating from
wounds which she suffered at the same
vehicular accident on May 8, 1991,
cannot be sustained. The Court is
convinced that the three required
documents, to wit: the Memorandum of
Agreement, the Special Power of
Attorney, and the Deed of Absolute
Sale were all signed by the parties on
the same date on April 18, 1991. It is a
common and accepted business
practice of those engaged in money
lending to prepare an undated absolute
deed of sale in loans of money secured
by real estate for various reasons,
foremost of which is the evasion of
taxes and surcharges. The plaintiff
never questioned receiving the sum of
P200,000.00 representing her loan
from the defendant. Common sense
dictates that an established lending and
realty firm like the Aguila & Sons, Co.
would not part with P200,000.00 to the
Abrogar spouses, who are virtual
strangers to it, without the simultaneous
accomplishment and signing of all the
required documents, more particularly
the Deed of Absolute Sale, to protect its
interest.
....
WHEREFORE, foregoing premises
considered, the case in caption is
Page 3
hereby ORDERED DISMISSED, with
costs against the plaintiff.
On appeal, the Court of Appeals
reversed. It held:
The facts and evidence show that the
transaction between plaintiff-appellant
and defendant-appellee is indubitably
an equitable mortgage. Article 1602 of
the New Civil Code finds strong
application in the case at bar in the light
of the following circumstances.
First: The purchase price for the
alleged sale with right to repurchase is
unusually inadequate. The property is a
two hundred forty (240) sq. m. lot. On
said lot, the residential house of
plaintiff-appellant stands. The property
is inside a subdivision/village. The
property is situated in Marikina which is
already part of Metro Manila. The
alleged sale took place in 1991 when
the value of the land had considerably
increased.
For this property, defendant-appellee
pays only a measly P200,000.00 or
P833.33 per square meter for both the
land and for the house.
Second: The disputed Memorandum of
Agreement specifically provides that
plaintiff-appellant is obliged to deliver
peacefully the possession of the
property to the SECOND PARTY within
fifteen (15) days after the expiration of
the said ninety (90) day grace
period. Otherwise stated, plaintiff-
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained
possession of the property sold as if
they were still the absolute
owners. There was no provision for
maintenance or expenses, much less
for payment of rent.
Third: The apparent vendor, plaintiff-
appellant herein, continued to pay
taxes on the property sold. It is well-
known that payment of taxes
accompanied by actual possession of
the land covered by the tax declaration,
constitute evidence of great weight that
a person under whose name the real
taxes were declared has a claim of right
over the land.
It is well-settled that the presence of
even one of the circumstances in Article
1602 of the New Civil Code is sufficient
to declare a contract of sale with right
to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as
vendor, was paid a price which is
unusually inadequate, has retained
possession of the subject property and
has continued paying the realty taxes
over the subject property,
(circumstances mentioned in par. (1)
(2) and (5) of Article 1602 of the New
Civil Code), it must be conclusively
presumed that the transaction the
parties actually entered into is an
equitable mortgage, not a sale with
right to repurchase. The factors cited
Page 4
are in support to the finding that the
Deed of Sale/Memorandum of
Agreement with right to repurchase is in
actuality an equitable mortgage.
Moreover, it is undisputed that the deed
of sale with right of repurchase was
executed by reason of the loan
extended by defendant-appellee to
plaintiff-appellant. The amount of loan
being the same with the amount of the
purchase price.
....
Since the real intention of the party is to
secure the payment of debt, now
deemed to be repurchase price: the
transaction shall then be considered to
be an equitable mortgage.
Being a mortgage, the transaction
entered into by the parties is in the
nature of a pactum commissorium
which is clearly prohibited by Article
2088 of the New Civil Code. Article
2088 of the New Civil Code reads:
ART. 2088. The creditor cannot
appropriate the things given by way of
pledge or mortgage, or dispose of
them. Any stipulation to the contrary is
null and void.
The aforequoted provision furnishes the
two elements for pactum commissorium
to exist: (1) that there should be a
pledge or mortgage wherein a property
is pledged or mortgaged by way of
security for the payment of principal
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
obligation; and (2) that there should be
a stipulation for an automatic
appropriation by the creditor of the
thing pledged and mortgaged in the
event of non-payment of the principal
obligation within the stipulated period.
In this case, defendant-appellee in
reality extended a P200,000.00 loan to
plaintiff-appellant secured by a
mortgage on the property of plaintiff-
appellant. The loan was payable within
ninety (90) days, the period within
which plaintiff-appellant can repurchase
the property. Plaintiff-appellant will pay
P230,000.00 and not P200,000.00, the
P30,000.00 excess is the interest for
the loan extended. Failure of plaintiff-
appellee to pay the P230,000,00 within
the ninety (90) days period, the
property shall automatically belong to
defendant-appellee by virtue of the
deed of sale executed.
Clearly, the agreement entered into
by the parties is in the nature of pactum
commissorium. Therefore, the deed of
sale should be declared void as we
hereby so declare to be invalid, for
being violative of law.
....
WHEREFORE, foregoing considered,
the appealed decision is hereby
REVERSED and SET ASIDE. The
questioned Deed of Sale and the
cancellation of the TCT No. 195101
issued in favor of plaintiff-appellant and
the issuance of TCT No. 267073 issued
Page 5
in favor of defendant-appellee pursuant
to the questioned Deed of Sale is
hereby declared VOID and is hereby
ANNULLED. Transfer Certificate of Title
No. 195101 of the Registry of Marikina
is hereby ordered REINSTATED. The
loan in the amount of P230,000.00 shall
be paid within ninety (90) days from the
finality of this decision. In case of failure
to pay the amount of P230,000.00 from
the period therein stated, the property
shall be sold at public auction to satisfy
the mortgage debt and costs and if
there is an excess, the same is to be
given to the owner.
Petitioner now contends
that: (1) he is not the real party in
interest but A.C. Aguila & Co., against
which this case should have been
brought; (2) the judgment in the
ejectment case is a bar to the filing of
the complaint for declaration of nullity of
a deed of sale in this case; and (3) the
contract between A.C. Aguila & Sons,
Co. and private respondent is a pacto
de retro sale and not an equitable
mortgage as held by the appellate
court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of
1964, under which the complaint in this
case was filed, provided that every
action must be prosecuted and
defended in the name of the real party
in interest. A real party in interest is one
who would be benefited or injured by
the judgment, or who is entitled to the
avails of the suit.[7] This ruling is now
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
embodied in Rule 3, 2 of the 1997
Revised Rules of Civil Procedure. Any
decision rendered against a person
who is not a real party in interest in the
case cannot be executed.[8] Hence, a
complaint filed against such a person
should be dismissed for failure to state
a cause of action.[9]
Under Art. 1768 of the Civil Code,
a partnership has a juridical personality
separate and distinct from that of each
of the partners. The partners cannot be
held liable for the obligations of the
partnership unless it is shown that the
legal fiction of a different juridical
personality is being used for fraudulent,
unfair, or illegal purposes.[10] In this
case, private respondent has not
shown that A.C. Aguila & Sons, Co., as
a separate juridical entity, is being used
for fraudulent, unfair, or illegal
purposes. Moreover, the title to the
subject property is in the name of A.C.
Aguila & Sons, Co. and the
Memorandum of Agreement was
executed between private respondent,
with the consent of her late husband,
and A. C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is
the partnership, not its officers or
agents, which should be impleaded in
any litigation involving property
registered in its name. A violation of this
rule will result in the dismissal of the
complaint.[11] We cannot understand
why both the Regional Trial Court and
the Court of Appeals sidestepped this
issue when it was squarely raised
before them by petitioner.
Page 6
 Our conclusion that petitioner is not
the real party in interest against whom
this action should be prosecuted makes
it unnecessary to discuss the other
issues raised by him in this appeal.
WHEREFORE, the decision of the
Court of Appeals is hereby REVERSED
and the complaint against petitioner is
DISMISSED.
SO ORDERED.
Bellosillo, (Chairman),
Quisumbing, Buena, and De Leon, Jr.,
JJ., concur.

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 7
Facts: In April 1991, the spouses
Ruben and Felicidad Abrogar entered
into a loan agreement with a lending
firm called A.C. Aguila & Sons, Co., a
partnership. The loan was for P200k. To
secure the loan, the spouses
mortgaged their house and lot located
in a subdivision. The terms of the loan
further stipulates that in case of non-
payment, the property shall be
automatically appropriated to the
partnership and a deed of sale be
readily executed in favor of the
partnership. She does have a 90 day
redemption period.
Ruben died, and Felicidad failed to
make payment. She refused to turn
over the property and so the firm filed
an ejectment case against her (wherein
she lost). She also failed to redeem the
property within the period stipulated.
She then filed a civil case against
Alfredo Aguila, manager of the firm,
seeking for the declaration of nullity of
the deed of sale. The RTC retained the
validity of the deed of sale. The Court of
Appeals reversed the RTC. The CA
ruled that the sale is void for it is
a pactum commissorium sale which is
prohibited under Art. 2088 of the Civil
Code (note the disparity of the
purchase price, which is the loan
amount, with the actual value of the
property which is after all located in a
subdivision).
ISSUE: Whether or not the case filed
by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case
was filed not against the real party in
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
interest. As pointed out by Aguila, he is
not the real party in interest but rather it
was the partnership A.C. Aguila &
Sons, Co. The Rules of Court provide
that every action must be prosecuted
and defended in the name of the real
party in interest. A real party in interest
is one who would be benefited or
injured by the judgment, or who is
entitled to the avails of the suit. Any
decision rendered against a person
who is not a real party in interest in the
case cannot be executed. Hence, a
complaint filed against such a person
should be dismissed for failure to state
a cause of action, as in the case at bar.
Under Art. 1768 of the Civil Code, a
partnership has a juridical personality
separate and distinct from that of each
of the partners. The partners cannot be
held liable for the obligations of the
partnership unless it is shown that the
legal fiction of a different juridical
personality is being used for fraudulent,
unfair, or illegal purposes. In this case,
Felicidad has not shown that A.C.
Aguila & Sons, Co., as a separate
juridical entity, is being used for
fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject
property is in the name of A.C. Aguila &
Sons, Co. It is the partnership, not its
officers or agents, which should be
impleaded in any litigation involving
property registered in its name. A
violation of this rule will result in the
dismissal of the complaint.
Page 8

G.R. No. L-49982 April 27, 1988
ELIGIO ESTANISLAO,
JR., petitioner,
vs.
THE HONORABLE COURT OF
APPEALS, REMEDIOS
ESTANISLAO, EMILIO and
LEOCADIO SANTIAGO,respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private
respondents.
GANCAYCO, J.:
By this petition for certiorari the Court is
asked to determine if a partnership
exists between members of the same
family arising from their joint ownership
of certain properties.
Petitioner and private respondents are
brothers and sisters who are co-owners
of certain lots at the corner of Annapolis
and Aurora Blvd., QuezonCity which
were then being leased to the Shell
Company of the Philippines Limited
(SHELL). They agreed to open and
operate a gas station thereat to be
known as Estanislao Shell Service
Station with an initial investment of P
15,000.00 to be taken from the
advance rentals due to them from
SHELL for the occupancy of the said
lots owned in common by them. A joint
affidavit was executed by them on April
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
11, 1966 which was prepared byAtty.
Democrito Angeles 1 They agreed to
help their brother, petitioner herein, by
allowing him to operate and manage
the gasoline service station of the
family. They negotiated with SHELL.
For practical purposes and in order not
to run counter to the company's policy
of appointing only one dealer, it was
agreed that petitioner would apply for
the dealership. Respondent Remedios
helped in managing the bussiness with
petitioner from May 3, 1966 up to
February 16, 1967.
On May 26, 1966, the parties herein
entered into an Additional Cash Pledge
Agreement with SHELL wherein it was
reiterated that the P 15,000.00 advance
rental shall be deposited with SHELL to
cover advances of fuel to petitioner as
dealer with a proviso that said
agreement "cancels and supersedes
the Joint Affidavit dated 11 April 1966
executed by the co-owners." 2
For sometime, the petitioner submitted
financial statements regarding the
operation of the business to private
respondents, but therafter petitioner
failed to render subsequent accounting.
Hence through Atty. Angeles, a demand
was made on petitioner to render an
accounting of the profits.
The financial report of December 31,
1968 shows that the business was able
to make a profit of P 87,293.79 and that
by the year ending 1969, a profit of P
150,000.00 was realized. 3
Page 9
Thus, on August 25, 1970 private
respondents filed a complaint in the
Court of First Instance of Rizal against
petitioner praying among others that
the latter be ordered:
1. to execute a public document
embodying all the provisions of the
partnership agreement entered into
between plaintiffs and defendant as
provided in Article 1771 of the New Civil
Code;
2. to render a formal accounting of the
business operation covering the period
from May 6, 1966 up to December 21,
1968 and from January 1, 1969 up to
the time the order is issued and that the
same be subject to proper audit;
3. to pay the plaintiffs their lawful
shares and participation in the net
profits of the business in an amount of
no less than P l50,000.00 with interest
at the rate of 1% per month from date
of demand until full payment thereof for
the entire duration of the business; and
4. to pay the plaintiffs the amount of P
10,000.00 as attorney's fees and costs
of the suit (pp. 13-14 Record on
Appeal.)
After trial on the merits, on October 15,
1975, Hon. Lino Anover who was then
the temporary presiding judge of
Branch IV of the trial court, rendered
judgment dismissing the complaint and
counterclaim and ordering private
respondents to pay petitioner P
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 10
3,000.00 attorney's fee and costs.
Private respondent filed a motion for
reconsideration of the decision. On
December 10, 1975, Hon. Ricardo
Tensuan who was the newly appointed
presiding judge of the same branch, set
aside the aforesaid derision and
rendered another decision in favor of
said respondents.
The dispositive part thereof reads as
follows:
WHEREFORE, the Decision of this
Court dated October 14, 1975 is hereby
reconsidered and a new judgment is
hereby rendered in favor of the plaintiffs
and as against the defendant:
(1) Ordering the defendant to execute a
public instrument embodying all the
provisions of the partnership agreement
entered into between plaintiffs and
defendant as provided for in Article
1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a
formal accounting of the business
operation from April 1969 up to the time
this order is issued, the same to be
subject to examination and audit by the
plaintiff,
(3) Ordering the defendant to pay
plaintiffs their lawful shares and
participation in the net profits of the
business in the amount of P
150,000.00, with interest thereon at the
rate of One (1%) Per Cent per month
from date of demand until full payment
thereof;
(4) Ordering the defendant to pay the
plaintiffs the sum of P 5,000.00 by way
of attorney's fees of plaintiffs' counsel;
as well as the costs of suit. (pp. 161-
162. Record on Appeal).
Petitioner then interposed an appeal to
the Court of Appeals enumerating
seven (7) errors allegedly committed by
the trial court. In due course, a decision
was rendered by the Court of Appeals
on November 28,1978 affirming in
toto the decision of the lower court with
costs against petitioner. *
A motion for reconsideration of said
decision filed by petitioner was denied
on January 30, 1979. Not satisfied
therewith, the petitioner now comes to
this court by way of this petition for
certiorari alleging that the respondent
court erred:
1. In interpreting the legal import of the
Joint Affidavit (Exh. 'A') vis-a-vis the
Additional Cash Pledge Agreement
(Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was
established by and among the
petitioner and the private respondents
as regards the ownership and or
operation of the gasoline service station
business.
Petitioner relies heavily on the
provisions of the Joint Affidavit of April
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 11
11, 1966 (Exhibit A) and the Additional
Cash Pledge Agreement of May 20,
1966 (Exhibit 6) which are herein
reproduced-
(a) The joint Affidavit of April 11, 1966,
Exhibit A reads:
(1) That we are the Lessors of two
parcels of land fully describe in Transfer
Certificates of Title Nos. 45071 and
71244 of the Register of Deeds of
Quezon City, in favor of the LESSEE -
SHELL COMPANY OF THE
PHILIPPINES LIMITED a corporation
duly licensed to do business in the
Philippines;
(2) That we have requested the said
SHELL COMPANY OF THE
PHILIPPINE LIMITED advanced rentals
in the total amount of FIFTEEN
THOUSAND PESOS (P l5,000.00)
Philippine Currency, so that we can use
the said amount to augment our capital
investment in the operation of that
gasoline station constructed ,by the
said company on our two lots aforesaid
by virtue of an outstanding Lease
Agreement we have entered into with
the said company;
(3) That the and SHELL COMPANY OF
THE PHILIPPINE LIMITED out of its
benevolence and desire to help us in
aumenting our capital investment in the
operation of the said gasoline station,
has agreed to give us the said amount
of P 15,000.00, which amount will
partake the nature of ADVANCED
RENTALS;
(4) That we have freely and voluntarily
agreed that upon receipt of the said
amount of FIFTEEN THOUSAND
PESOS (P l6,000.00) from he SHELL
COMPANY OF THE PHILIPPINES
LIMITED, the said sum as ADVANCED
RENTALS to us be applied as monthly
rentals for the sai two lots under our
Lease Agreement starting on the 25th
of May, 1966 until such time that the
said of P 15,000.00 be applicable,
which time to our estimate and one-half
months from May 25, 1966 or until the
10th of October, 1966 more or less;
(5) That we have likewise agreed
among ourselves that the SHELL
COMPANY OF THE PHILIPPINES
LIMITED execute an instrument for us
to sign embodying our conformity that
the said amount that it will generously
grant us as requested be applied as
ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH
NOT.,
(b) The Additional Cash Pledge
Agreement of May 20,1966, Exhibit 6,
is as follows:
WHEREAS, under the lease Agreement
dated 13th November, 1963 (identified
as doc. Nos. 491 & 1407, Page Nos. 99
& 66, Book Nos. V & III, Series of 1963
in the Notarial Registers of Notaries
Public Rosauro Marquez, and R.D.
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 12
Liwanag, respectively) executed in
favour of SHELL by the herein CO-
OWNERS and another Lease
Agreement dated 19th March 1964 . . .
also executed in favour of SHELL by
CO-OWNERS Remedios and MARIA
ESTANISLAO for the lease of adjoining
portions of two parcels of land at Aurora
Blvd./ Annapolis, Quezon City, the CO
OWNERS RECEIVE a total monthly
rental of PESOS THREE THOUSAND
THREE HUNDRED EIGHTY TWO AND
29/100 (P 3,382.29), Philippine
Currency;
WHEREAS, CO-OWNER Eligio
Estanislao Jr. is the Dealer of the Shell
Station constructed on the leased land,
and as Dealer under the Cash Pledge
Agreement dated llth May 1966, he
deposited to SHELL in cash the amount
of PESOS TEN THOUSAND (P
10,000), Philippine Currency, to secure
his purchase on credit of Shell
petroleum products; . . .
WHEREAS, said DEALER, in his
desire, to be granted an increased the
limit up to P 25,000, has secured the
conformity of his CO-OWNERS to
waive and assign to SHELL the total
monthly rentals due to all of them to
accumulate the equivalent amount of P
15,000, commencing 24th May 1966,
this P 15,000 shall be treated as
additional cash deposit to SHELL under
the same terms and conditions of the
aforementioned Cash Pledge
Agreement dated llth May 1966.
NOW, THEREFORE, for and in
consideration of the foregoing
premises,and the mutual covenants
among the CO-OWNERS herein and
SHELL, said parties have agreed and
hereby agree as follows:
l. The CO-OWNERS dohere by waive
in favor of DEALER the monthly rentals
due to all CO-OWNERS, collectively,
under the above describe two Lease
Agreements, one dated 13th November
1963 and the other dated 19th March
1964 to enable DEALER to increase his
existing cash deposit to SHELL, from P
10,000 to P 25,000, for such purpose,
the SHELL CO-OWNERS and DEALER
hereby irrevocably assign to SHELL the
monthly rental of P 3,382.29 payable to
them respectively as they fall due,
monthly, commencing 24th May 1966,
until such time that the monthly rentals
accumulated, shall be equal to P
l5,000.
2. The above stated monthly rentals
accumulated shall be treated as
additional cash deposit by DEALER to
SHELL, thereby in increasing his credit
limit from P 10,000 to P 25,000. This
agreement, therefore, cancels and
supersedes the Joint affidavit dated 11
April 1966 executed by the CO-
OWNERS.
3. Effective upon the signing of this
agreement, SHELL agrees to allow
DEALER to purchase from SHELL
petroleum products, on credit, up to the
amount of P 25,000.
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 13
4. This increase in the credit shall also
be subject to the same terms and
conditions of the above-mentioned
Cash Pledge Agreement dated llth May
1966. (Exhs. "B-2," "L," and "6";
emphasis supplied)
In the aforesaid Joint Affidavit of April
11, 1966 (Exhibit A), it is clearly
stipulated by the parties that the P
15,000.00 advance rental due to them
from SHELL shall augment their "capital
investment" in the operation of the
gasoline station, which advance rentals
shall be credited as rentals from May
25, 1966 up to four and one-half
months or until 10 October 1966, more
or less covering said P 15,000.00.
In the subsequent document entitled
"Additional Cash Pledge Agreement"
above reproduced (Exhibit 6), the
private respondents and petitioners
assigned to SHELL the monthly rentals
due them commencing the 24th of May
1966 until such time that the monthly
rentals accumulated equal P 15,000.00
which private respondents agree to be
a cash deposit of petitioner in favor of
SHELL to increase his credit limit as
dealer. As above-stated it provided
therein that "This agreement, therefore,
cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed
by the CO-OWNERS."
Petitioner contends that because of the
said stipulation cancelling and
superseding that previous Joint
Affidavit, whatever partnership
agreement there was in said previous
agreement had thereby been
abrogated. We find no merit in this
argument. Said cancelling provision
was necessary for the Joint Affidavit
speaks of P 15,000.00 advance rentals
starting May 25, 1966 while the latter
agreement also refers to advance
rentals of the same amount starting
May 24, 1966. There is, therefore, a
duplication of reference to the P
15,000.00 hence the need to provide in
the subsequent document that it
"cancels and supersedes" the previous
one. True it is that in the latter
document, it is silent as to the
statement in the Joint Affidavit that the
P 15,000.00 represents the "capital
investment" of the parties in the
gasoline station business and it speaks
of petitioner as the sole dealer, but this
is as it should be for in the latter
document SHELL was a signatory and
it would be against its policy if in the
agreement it should be stated that the
business is a partnership with private
respondents and not a sole
proprietorship of petitioner.
Moreover other evidence in the record
shows that there was in fact such
partnership agreement between the
parties. This is attested by the
testimonies of private respondent
Remedies Estanislao and Atty. Angeles.
Petitioner submitted to private
respondents periodic accounting of the
business. 4 Petitioner gave a written
authority to private respondent
Remedies Estanislao, his sister, to
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 14
examine and audit the books of their
"common business' aming
negosyo). 5 Respondent Remedios
assisted in the running of the business.
There is no doubt that the parties
hereto formed a partnership when they
bound themselves to contribute money
to a common fund with the intention of
dividing the profits among
themselves. 6 The sole dealership by
the petitioner and the issuance of all
government permits and licenses in the
name of petitioner was in compliance
with the afore-stated policy of SHELL
and the understanding of the parties of
having only one dealer of the SHELL
products.
Further, the findings of facts of the
respondent court are conclusive in this
proceeding, and its conclusion based
on the said facts are in accordancewith
the applicable law.
WHEREFORE, the judgment appealed
from is AFFIRMED in toto with costs
against petitioner. This decision is
immediately executory and no motion
for extension of time to file a motion for
reconsideration shag beentertained.
SO ORDERED.

ESTANISLAO, JR., V. COURT OF
APPEALS G.R. No. L-49982; April 27,
1988
FACTS: Petitioner and private
respondents are brothers and sisters
who are co-owners of certain lots at the
corner of Annapolis and Aurora Blvd.,
Quezon City which were then being
leased to the Shell Company of the
Philippines Limited (SHELL). They
agreed to open and operate a gas
station thereat to be known as
Estanislao Shell Service Station with an
initial investment of P 15,000.00 to be
taken from the advance rentals due to
them from SHELL for the occupancy of
the said lots owned in common by
them. A joint affidavit was executed by
them on April 11, 1966. The petitione
was allowed to operate and manage
the gasoline service station of the
family. The parties entered into an
Additional Cash Pledge Agreement with
SHELL wherein it was reiterated that
the P 15,000.00 advance rental shall be
deposited with SHELL to cover
advances of fuel to petitioner as dealer
with a proviso that said agreement
"cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed
by the co-owners. Petitioner contends
that because of the said stipulation
cancelling and superseding that
previous Joint Affidavit, whatever
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 15
partnership agreement there was in
said previous agreement had thereby
been abrogated.
ISSUE: Whether or not a partnership
exists between members of the same
family arising from their joint ownership
of certain properties?
Whether or not the proviso "cancels
and supersedes the Joint Affidavit
dated 11 April 1966 executed by the co-
owners dissolved the existing
partnership between the parties?
HELD: There is evidently an existing
partnership between the parties herein
but the contention of the petitioner that
the proviso in the subsequent
document abrogates the existing
partnership agreement between him
and the private respondents, is not
correct. In the subsequent document
entitled "Additional Cash Pledge
Agreement," the private respondents
and petitioner assigned to SHELL the
monthly rentals due them commencing
the 24th of May 1966 until such time
that the monthly rentals accumulated
equal P 15,000.00 which private
respondents agree to be a cash deposit
of petitioner in favor of SHELL to
increase his credit limit as dealer. It
provided therein that "This agreement,
therefore, cancels and supersedes the
Joint Affidavit dated 11 April 1966
executed by the COOWNERS." This
cancelling provision was necessary for
the Joint Affidavit speaks of P
15,000.00 advance rentals starting May
25, 1966 while the latter agreement
also refers to advance rentals of the
same amount starting May 24, 1966.
There is a mere duplication of
reference to the P 15,000.00 hence the
need to provide in the subsequent
document that it "cancels and
supersedes" the previous one. Other
evidence in the record shows that there
was in fact such partnership agreement
between the parties. This is attested by
the testimonies of private respondent
Remedies Estanislao and Atty. Angeles.
Petitioner submitted to private
respondents periodic accounting of the
business. Petitioner gave a written
authority to private respondent
Remedies Estanislao, his sister, to
examine and audit the books of their
"common business'. Respondent
Remedios assisted in the running of the
business. There is no doubt that the
parties hereto formed a partnership
when they bound themselves to
contribute money to a common fund
with the intention of dividing the profits
among themselves. The sole dealership
by the petitioner and the issuance of all
government permits and licenses in the
name of petitioner was in compliance
with the afore-stated policy of SHELL
and the understanding of the parties of
having only one dealer of the SHELL
products.

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 16
 In the Petition for Review
on Certiorari before us, Lim Tong Lim
assails the November 26, 1998
[G.R. No. 136448. November 3, 1999] Decision of the Court of Appeals in CA-
GR CV 41477,[1] which disposed as
follows:

LIM TONG LIM, petitioner, WHEREFORE, [there being] no

Vs. PHILIPPINE FISHING reversible error in the appealed
GEAR INDUSTRIES, decision, the same is hereby affirmed.
INC., respondent. [2]

DECISION The decretal portion of the Quezon

PANGANIBAN, J.:
A partnership may be deemed to
exist among parties who agree to
borrow money to pursue a business
and to divide the profits or losses that
may arise therefrom, even if it is shown
that they have not contributed any
capital of their own to a "common fund."
Their contribution may be in the form of
credit or industry, not necessarily cash
or fixed assets. Being partners, they
are all liable for debts incurred by or on
behalf of the partnership. The liability
for a contract entered into on behalf of
an unincorporated association or
ostensible corporation may lie in a
person who may not have directly
transacted on its behalf, but reaped
benefits from that contract.
The Case
City Regional Trial Court (RTC) ruling,
which was affirmed by the CA, reads as
follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of
preliminary attachment issued by this
Court on September 20, 1990;
2. That defendants are jointly liable to
plaintiff for the following amounts,
subject to the modifications as
hereinafter made by reason of the
special and unique facts and
circumstances and the proceedings
that transpired during the trial of this
case;
a. P532,045.00 representing [the]
unpaid purchase price of the fishing
nets covered by the Agreement
plus P68,000.00 representing the
unpaid price of the floats not covered
by said Agreement;

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 17
b. 12% interest per annum counted
from date of plaintiffs invoices and
computed on their respective amounts
as follows:
i. Accrued interest of P73,221.00 on
Invoice No. 14407 for P385,377.80
dated February 9, 1990;
ii. Accrued interest of P27,904.02 on
Invoice No. 14413 for P146,868.00
dated February 13, 1990;
iii. Accrued interest of P12,920.00 on
Invoice No. 14426 for P68,000.00
dated February 19, 1990;
c. P50,000.00 as and for attorneys
fees, plus P8,500.00
representing P500.00 per appearance
in court;
d. P65,000.00 representing P5,000.00
monthly rental for storage charges on
the nets counted from September 20,
1990 (date of attachment) to
September 12, 1991 (date of auction
sale);
e. Cost of suit.
With respect to the joint liability of
defendants for the principal obligation
or for the unpaid price of nets and floats
in the amount of P532,045.00
andP68,000.00, respectively, or for the
total amount of P600,045.00, this Court
noted that these items were attached to
guarantee any judgment that may be
rendered in favor of the plaintiff but,
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
upon agreement of the parties, and, to
avoid further deterioration of the nets
during the pendency of this case, it was
ordered sold at public auction for not
less than P900,000.00 for which the
plaintiff was the sole and winning
bidder. The proceeds of the sale paid
for by plaintiff was deposited in court. In
effect, the amount of P900,000.00
replaced the attached property as a
guaranty for any judgment that plaintiff
may be able to secure in this case with
the ownership and possession of the
nets and floats awarded and delivered
by the sheriff to plaintiff as the highest
bidder in the public auction sale. It has
also been noted that ownership of the
nets [was] retained by the plaintiff until
full payment [was] made as stipulated
in the invoices; hence, in effect, the
plaintiff attached its own properties. It
[was] for this reason also that this Court
earlier ordered the attachment bond
filed by plaintiff to guaranty damages to
defendants to be cancelled and for
the P900,000.00 cash bidded and paid
for by plaintiff to serve as its bond in
favor of defendants.
From the foregoing, it would appear
therefore that whatever judgment the
plaintiff may be entitled to in this case
will have to be satisfied from the
amount of P900,000.00 as this amount
replaced the attached nets and
floats. Considering, however, that the
total judgment obligation as computed
above would amount to
only P840,216.92, it would be
inequitable, unfair and unjust to award
Page 18
the excess to the defendants who are
not entitled to damages and who did
not put up a single centavo to raise the
amount of P900,000.00 aside from the
fact that they are not the owners of the
nets and floats. For this reason, the
defendants are hereby relieved from
any and all liabilities arising from the
monetary judgment obligation
enumerated above and for plaintiff to
retain possession and ownership of the
nets and floats and for the
reimbursement of the P900,000.00
deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter
Yao entered into a Contract dated
February 7, 1990, for the purchase of
fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that
they were engaged in a business
venture with Petitioner Lim Tong Lim,
who however was not a signatory to the
agreement. The total price of the nets
amounted to P532,045. Four hundred
pieces of floats worth P68,000 were
also sold to the Corporation.[4]
The buyers, however, failed to pay
for the fishing nets and the floats;
hence, private respondent filed a
collection suit against Chua, Yao and
Petitioner Lim Tong Lim with a prayer
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 19
for a writ of preliminary attachment. The
suit was brought against the three in
their capacities as general partners, on
the allegation that Ocean Quest Fishing
Corporation was a nonexistent
corporation as shown by a Certification
from the Securities and Exchange
Commission.[5] On September 20,
1990, the lower court issued a Writ of
Preliminary Attachment, which the
sheriff enforced by attaching the fishing
nets on board F/B Lourdes which was
then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the
Complaint, Chua filed a Manifestation
admitting his liability and requesting a
reasonable time within which to pay. He
also turned over to respondent some of
the nets which were in his
possession. Peter Yao filed an Answer,
after which he was deemed to have
waived his right to cross-examine
witnesses and to present evidence on
his behalf, because of his failure to
appear in subsequent hearings. Lim
Tong Lim, on the other hand, filed an
Answer with Counterclaim and
Crossclaim and moved for the lifting of
the Writ of Attachment.[6] The trial
court maintained the Writ, and upon
motion of private respondent, ordered
the sale of the fishing nets at a public
auction. Philippine Fishing Gear
Industries won the bidding and
deposited with the said court the sales
proceeds of P900,000.[7]
On November 18, 1992, the trial
court rendered its Decision, ruling that
Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and
that Chua, Yao and Lim, as general
partners, were jointly liable to pay
respondent.[8]
The trial court ruled that a
partnership among Lim, Chua and Yao
existed based (1) on the testimonies of
the witnesses presented and (2) on a
Compromise Agreement executed by
the three[9] in Civil Case No. 1492-MN
which Chua and Yao had brought
against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a
reformation of contracts; (c) a
declaration of ownership of fishing
boats; (d) an injunction and (e)
damages.[10] The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim Tong
Lim agree to have the four (4) vessels
sold in the amount of P5,750,000.00
including the fishing
net. ThisP5,750,000.00 shall be applied
as full payment for P3,250,000.00 in
favor of JL Holdings Corporation and/or
Lim Tong Lim;
b) If the four (4) vessel[s] and the
fishing net will be sold at a higher price
than P5,750,000.00 whatever will be
the excess will be divided into 3: 1/3
Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao;
c) If the proceeds of the sale the
vessels will be less than P5,750,000.00
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 20
whatever the deficiency shall be
shouldered and paid to JL Holding
Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the
Compromise Agreement was silent as
to the nature of their obligations, but
that joint liability could be presumed
from the equal distribution of the profit
and loss.[12]
Lim appealed to the Court of
Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA
held that petitioner was a partner of
Chua and Yao in a fishing business and
may thus be held liable as a such for
the fishing nets and floats purchased by
and for the use of the partnership. The
appellate court ruled:
The evidence establishes that all the
defendants including herein appellant
Lim Tong Lim undertook a partnership
for a specific undertaking, that is for
commercial fishing x x x. Obviously, the
ultimate undertaking of the defendants
was to divide the profits among
themselves which is what a partnership
essentially is x x x. By a contract of
partnership, two or more persons bind
themselves to contribute money,
property or industry to a common fund
with the intention of dividing the profits
among themselves (Article 1767, New
Civil Code).[13]
 Hence, petitioner brought this issue: whether by their acts, Lim, Chua
recourse before this Court.[14] and Yao could be deemed to have
entered into a partnership.

The Issues
This Courts Ruling

In his Petition and Memorandum,

Lim asks this Court to reverse the The Petition is devoid of merit.
assailed Decision on the following
grounds:
First and Second Issues: Existence of a Partnership and

I THE COURT OF APPEALS ERRED Petitioner's Liability

IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT
CHUA, YAO AND PETITIONER LIM In arguing that he should not be
ENTERED INTO IN A SEPARATE held liable for the equipment purchased
CASE, THAT A PARTNERSHIP from respondent, petitioner controverts
AGREEMENT EXISTED AMONG the CA finding that a partnership
THEM. existed between him, Peter Yao and
Antonio Chua. He asserts that the CA
II SINCE IT WAS ONLY CHUA WHO based its finding on the Compromise
REPRESENTED THAT HE WAS Agreement alone. Furthermore, he
ACTING FOR OCEAN QUEST disclaims any direct participation in the
FISHING CORPORATION WHEN HE purchase of the nets, alleging that the
BOUGHT THE NETS FROM negotiations were conducted by Chua
PHILIPPINE FISHING, THE COURT and Yao only, and that he has not even
OF APPEALS WAS UNJUSTIFIED IN met the representatives of the
IMPUTING LIABILITY TO PETITIONER respondent company. Petitioner further
LIM AS WELL. argues that he was a lessor, not a
partner, of Chua and Yao, for the
III THE TRIAL COURT IMPROPERLY "Contract of Lease" dated February 1,
ORDERED THE SEIZURE AND 1990, showed that he had merely
ATTACHMENT OF PETITIONER LIMS leased to the two the main asset of the
GOODS. purported partnership -- the fishing
boat F/B Lourdes. The lease was for six
months, with a monthly rental
In determining whether petitioner
of P37,500 plus 25 percent of the gross
may be held liable for the fishing nets
catch of the boat.
and floats purchased from respondent,
the Court must resolve this key

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 21
 We are not persuaded by the
arguments of petitioner. The facts as
found by the two lower courts clearly
showed that there existed a partnership
among Chua, Yao and him, pursuant to
Article 1767 of the Civil Code which
provides:
Article 1767 - By the contract of
partnership, two or more persons bind
themselves to contribute money,
property, or industry to a common fund,
with the intention of dividing the profits
among themselves.
Specifically, both lower courts ruled
that a partnership among the three
existed based on the following factual
findings:[15]
(1) That Petitioner Lim Tong Lim
requested Peter Yao who was engaged
in commercial fishing to join him, while
Antonio Chua was already Yaos
partner;
(2) That after convening for a few
times, Lim Chua, and Yao verbally
agreed to acquire two fishing boats,
the FB Lourdes and the FB Nelson for
the sum of P3.35 million;
(3) That they borrowed P3.25 million
from Jesus Lim, brother of Petitioner
Lim Tong Lim, to finance the venture.
(4) That they bought the boats from
CMF Fishing Corporation, which
executed a Deed of Sale over these
two (2) boats in favor of Petitioner Lim
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 22
Tong Lim only to serve as security for
the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that
the refurbishing , re-equipping,
repairing, dry docking and other
expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the unavailability of
funds, Jesus Lim again extended a loan
to the partnership in the amount of P1
million secured by a check, because of
which, Yao and Chua entrusted the
ownership papers of two other boats,
Chuas FB Lady Anne Mel and Yaos FB
Tracy to Lim Tong Lim.
(7) That in pursuance of the business
agreement, Peter Yao and Antonio
Chua bought nets from Respondent
Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation,"
their purported business name.
(8) That subsequently, Civil Case No.
1492-MN was filed in the Malabon
RTC, Branch 72 by Antonio Chua and
Peter Yao against Lim Tong Lim for (a)
declaration of nullity of commercial
documents; (b) reformation of
contracts; (c) declaration of ownership
of fishing boats; (4) injunction; and (e)
damages.
(9) That the case was amicably settled
through a Compromise Agreement
executed between the parties-litigants
the terms of which are already
enumerated above.
 From the factual findings of both
lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a
fishing business, which they started by
buying boats worth P3.35 million,
financed by a loan secured from Jesus
Lim who was petitioners brother. In
their Compromise Agreement, they
subsequently revealed their intention to
pay the loan with the proceeds of the
sale of the boats, and to divide equally
among them the excess or loss. These
boats, the purchase and the repair of
which were financed with borrowed
money, fell under the term common
fund under Article 1767. The
contribution to such fund need not be
cash or fixed assets; it could be an
intangible like credit or industry. That
the parties agreed that any loss or profit
from the sale and operation of the
boats would be divided equally among
them also shows that they had indeed
formed a partnership.
Moreover, it is clear that the
partnership extended not only to the
purchase of the boat, but also to that of
the nets and the floats. The fishing nets
and the floats, both essential to fishing,
were obviously acquired in furtherance
of their business. It would have been
inconceivable for Lim to involve himself
so much in buying the boat but not in
the acquisition of the aforesaid
equipment, without which the business
could not have proceeded.
Given the preceding facts, it is
clear that there was, among petitioner,
Chua and Yao, a partnership engaged
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 23
in the fishing business. They purchased
the boats, which constituted the main
assets of the partnership, and they
agreed that the proceeds from the
sales and operations thereof would be
divided among them.
We stress that under Rule 45, a
petition for review like the present case
should involve only questions of
law. Thus, the foregoing factual findings
of the RTC and the CA are binding on
this Court, absent any cogent proof that
the present action is embraced by one
of the exceptions to the rule.[16] In
assailing the factual findings of the two
lower courts, petitioner effectively goes
beyond the bounds of a petition for
review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate
courts sole basis for assuming the
existence of a partnership was the
Compromise Agreement. He also
claims that the settlement was entered
into only to end the dispute among
them, but not to adjudicate their
preexisting rights and obligations. His
arguments are baseless. The
Agreement was but an embodiment of
the relationship extant among the
parties prior to its execution.
A proper adjudication of claimants
rights mandates that courts must
review and thoroughly appraise all
relevant facts. Both lower courts have
done so and have found, correctly, a
preexisting partnership among the
parties. In implying that the lower courts
have decided on the basis of one piece
of document alone, petitioner fails to
appreciate that the CA and the RTC
delved into the history of the document
and explored all the possible
consequential combinations in harmony
with law, logic and fairness. Verily, the
two lower courts factual findings
mentioned above nullified petitioners
argument that the existence of a
partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by
petitioners argument that he was
merely the lessor of the boats to Chua
and Yao, not a partner in the fishing
venture. His argument allegedly finds
support in the Contract of Lease and
the registration papers showing that he
was the owner of the boats,
including F/B Lourdes where the nets
were found.
His allegation defies logic. In effect,
he would like this Court to believe that
he consented to the sale of his
own boats to pay a debt of Chua and
Yao, with the excess of the proceeds to
be divided among the three of them. No
lessor would do what petitioner
did. Indeed, his consent to the sale
proved that there was a preexisting
partnership among all three.
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
Verily, as found by the lower
courts, petitioner entered into a
business agreement with Chua and
Yao, in which debts were undertaken in
order to finance the acquisition and the
upgrading of the vessels which would
be used in their fishing business. The
sale of the boats, as well as the division
among the three of the balance
remaining after the payment of their
loans, proves beyond cavil that F/B
Lourdes, though registered in his name,
was not his own property but an asset
of the partnership. It is not uncommon
to register the properties acquired from
a loan in the name of the person the
lender trusts, who in this case is the
petitioner himself. After all, he is the
brother of the creditor, Jesus Lim.
We stress that it is unreasonable
indeed, it is absurd -- for petitioner to
sell his property to pay a debt he did
not incur, if the relationship among the
three of them was merely that of lessor-
lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the
doctrine of corporation by estoppel,
liability can be imputed only to Chua
and Yao, and not to him. Again, we
disagree.
Section 21 of the Corporation Code
of the Philippines provides:
Page 24
Sec. 21. Corporation by estoppel. - All
persons who assume to act as a
corporation knowing it to be without
authority to do so shall be liable as
general partners for all debts, liabilities
and damages incurred or arising as a
result thereof: Provided however, That
when any such ostensible corporation
is sued on any transaction entered by it
as a corporation or on any tort
committed by it as such, it shall not be
allowed to use as a defense its lack of
corporate personality.
One who assumes an obligation to an
ostensible corporation as such, cannot
resist performance thereof on the
ground that there was in fact no
corporation.
Thus, even if the ostensible
corporate entity is proven to be legally
nonexistent, a party may be estopped
from denying its corporate existence.
The reason behind this doctrine is
obvious - an unincorporated
association has no personality and
would be incompetent to act and
appropriate for itself the power and
attributes of a corporation as provided
by law; it cannot create agents or
confer authority on another to act in its
behalf; thus, those who act or purport to
act as its representatives or agents do
so without authority and at their own
risk. And as it is an elementary principle
of law that a person who acts as an
agent without authority or without a
principal is himself regarded as the
principal, possessed of all the right and
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 25
subject to all the liabilities of a principal,
a person acting or purporting to act on
behalf of a corporation which has no
valid existence assumes such
privileges and obligations and becomes
personally liable for contracts entered
into or for other acts performed as such
agent.[17]
The doctrine of corporation by
estoppel may apply to the alleged
corporation and to a third party. In the
first instance, an unincorporated
association, which represented itself to
be a corporation, will be estopped from
denying its corporate capacity in a suit
against it by a third person who relied in
good faith on such representation. It
cannot allege lack of personality to be
sued to evade its responsibility for a
contract it entered into and by virtue of
which it received advantages and
benefits.
On the other hand, a third party
who, knowing an association to be
unincorporated, nonetheless treated it
as a corporation and received benefits
from it, may be barred from denying its
corporate existence in a suit brought
against the alleged corporation. In such
case, all those who benefited from the
transaction made by the ostensible
corporation, despite knowledge of its
legal defects, may be held liable for
contracts they impliedly assented to or
took advantage of.
There is no dispute that the
respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the
nets it sold. The only question here is
whether petitioner should be held
jointly[18] liable with Chua and
Yao. Petitioner contests such liability,
insisting that only those who dealt in
the name of the ostensible corporation
should be held liable. Since his name
does not appear on any of the contracts
and since he never directly transacted
with the respondent corporation, ergo,
he cannot be held liable.
Unquestionably, petitioner
benefited from the use of the nets
found inside F/B Lourdes, the boat
which has earlier been proven to be an
asset of the partnership. He in fact
questions the attachment of the nets,
because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the
RTC and the CA that Lim, Chua and
Yao decided to form
corporation. Although it was never
legally formed for unknown reasons,
this fact alone does not preclude the
liabilities of the three as contracting
doctrine of corporation by estoppel. We
reiterate the ruling of the Court
in Alonso v. Villamor:[19]
A litigation is not a game of
technicalities in which one, more deeply
schooled and skilled in the subtle art of
movement and position , entraps and
destroys the other. It is, rather, a
contest in which each contending party
fully and fairly lays before the court the
facts in issue and then, brushing aside
as wholly trivial and indecisive all
imperfections of form and technicalities
of procedure, asks that justice be done
upon the merits. Lawsuits, unlike duels,
are not to be won by a rapiers
thrust. Technicality, when it deserts its
proper office as an aid to justice and
becomes its great hindrance and chief
enemy, deserves scant consideration
a from courts. There should be no vested
rights in technicalities.
Third Issue: Validity of Attachment

parties in representation of it. Clearly,

under the law on estoppel, those acting
on behalf of a corporation and those
benefited by it, knowing it to be without
valid existence, are held liable as
general partners.
Technically, it is true that petitioner
did not directly act on behalf of the
corporation. However, having reaped
the benefits of the contract entered into
by persons with whom he previously
had an existing relationship, he is
deemed to be part of said association
and is covered by the scope of the
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
Finally, petitioner claims that the
Writ of Attachment was improperly
issued against the nets. We agree with
the Court of Appeals that this issue is
now moot and academic. As previously
discussed, F/B Lourdes was an asset of
the partnership and that it was placed
in the name of petitioner, only to assure
payment of the debt he and his
partners owed. The nets and the floats
were specifically manufactured and
tailor-made according to their own
Page 26
design, and were bought and used in
the fishing venture they agreed
upon. Hence, the issuance of the Writ
to assure the payment of the price
stipulated in the invoices is
proper. Besides, by specific agreement,
ownership of the nets remained with
Respondent Philippine Fishing Gear,
until full payment thereof.
WHEREFORE, the Petition
is DENIED and the assailed
Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.
FACTS: It was established that Lim
Tong Lim requested Peter Yao to
engage in commercial fishing with him
and one Antonio Chua. The three
agreed to purchase two fishing boats
but since they do not have the money
they borrowed from one Jesus Lim
(brother of Lim Tong Lim). They again
borrowed money and they agreed to
purchase fishing nets and other fishing
equipments. Now, Yao and Chua
represented themselves as acting in
behalf of Ocean Quest Fishing
Corporation (OQFC) they contracted
with Philippine Fishing Gear Industries
(PFGI) for the purchase of fishing nets
amounting to more than P500k.
They were however unable to pay PFGI
and so they were sued in their own
names because apparently OQFC is a
non-existent corporation. Chua
admitted liability and asked for some
time to pay. Yao waived his rights. Lim
Tong Lim however argued that hes not
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 27
liable because he was not aware that
Chua and Yao represented themselves
as a corporation; that the two acted
without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is
liable.
HELD: Yes. From the factual findings of
both lower courts, it is clear that Chua,
Yao and Lim had decided to engage in
a fishing business, which they started
by buying boats worth P3.35 million,
financed by a loan secured from Jesus
Lim. In their Compromise Agreement,
they subsequently revealed their
intention to pay the loan with the
proceeds of the sale of the boats, and
to divide equally among them the
excess or loss. These boats, the
purchase and the repair of which were
financed with borrowed money, fell
under the term common fund under
Article 1767. The contribution to such
fund need not be cash or fixed assets;
it could be an intangible like credit or
industry. That the parties agreed that
any loss or profit from the sale and
operation of the boats would be divided
equally among them also shows that
they had indeed formed a partnership.
Lim Tong Lim cannot argue that the
principle of corporation by estoppels
can only be imputed to Yao and Chua.
Unquestionably, Lim Tong Lim
benefited from the use of the nets
found in his boats, the boat which has
earlier been proven to be an asset of
the partnership. Lim, Chua and Yao
decided to form a corporation. Although
it was never legally formed for unknown
reasons, this fact alone does not
preclude the liabilities of the three as
contracting parties in representation of
it. Clearly, under the law on estoppel,
those acting on behalf of a corporation
and those benefited by it, knowing it to
be without valid existence, are held
liable as general partners.

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 28

LIM TONG LIM V PHILIPPINE
FISHING GEAR INDUSTRIES, INC
G.R. No. 136448, November 3, 1999
FACTS: On behalf of "Ocean Quest
Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract with
Philippine Fishing Gear Industries, Inc.
(respondent) for the purchase of fishing
nets (P532,045) and floats (P68,000).
They claimed that they were engaged
in a business venture with Petitioner
Lim Tong Lim, who however was not a
signatory to the agreement.
The buyers, however, failed to pay for
the fishing nets and the floats; hence,
private respondents filed a collection
suit against Chua, Yao and Petitioner
Lim Tong Lim, as general partners, with
a prayer for a writ of preliminary
attachment. Responded alleges that
"Ocean Quest Fishing Corporation" was
a nonexistent corporation as shown by
a Certification from the SEC. The trial
court ruled that the respondent was
entitled to the Writ of Attachment and
that Chua, Yao and Lim, as general
partners, were jointly liable to pay
respondent. Lim appealed to the CA
which affirmed RTCs decision. The CA
held that petitioner was a partner of
Chua and Yao in a fishing business and
may thus be held liable as such for the
fishing nets and floats purchased by
and for the use of the partnership.
Below are some of the factual findings
of the lower courts: (1)That Petitioner
requested Yao who was engaged in
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 29
commercial fishing to join him, while
Chua was already Yao's partner; (2)
That after convening for a few times,
Lim, Chua, and Yao verbally agreed to
acquire two fishing boats (3) That they
borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to
finance the venture; (8)That
subsequently, a civil case was filed by
Chua and Yao against Lim for (a)
declaration of nullity of commercial
documents; (b) reformation of
contracts; (c) declaration of ownership
of fishing boats; (d) injunction; and (e)
damages; and (9)That the case was
amicably settled through a Compromise
Agreement executed between the
parties-litigants the terms of which are
already enumerated above. According
to the CA, the evidence establishes that
all the defendants including herein
appellant Lim Tong Lim undertook a
partnership for a specific undertaking,
that is for commercial fishing.
Obviously, the ultimate undertaking of
the defendants was to divide the profits
among themselves which is what a
partnership essentially is.
ISSUE: Whether the petitioner is liable
as a general partner in a contract
entered into on behalf of an
unincorporated association or
ostensible corporation in which he did
not take direct part of.
RULING: Yes. The liability for a contract
entered into on behalf of an
unincorporated association or
ostensible corporation may lie in a
person who may not have directly said association and is covered by the
transacted on its behalf, but reaped scope of the doctrine of corporation by
benefits from that contract. From the estoppels.
factual findings of both lower courts, it
is clear that Chua, Yao and Lim had
decided to engage in a fishing
business, which they started by buying
boats financed by a loan secured from
Jesus Lim. In their Compromise
Agreement, they subsequently revealed
their intention to pay the loan with the
proceeds of the sale of the boats, and
to divide equally among them the
excess or loss. These boats, the
purchase and the repair of which were
financed with borrowed money, fell
under the term "common fund" under
Article 1767. The contribution to such
fund need not be cash or fixed assets;
it could be an intangible like credit or
industry. That the parties agreed that
any loss or profit from the sale and
operation of the boats would be divided
equally among them also shows that
they had indeed formed a partnership.
It is difficult to disagree with the RTC
and the CA that Lim, Chua and Yao
decided to form a corporation. Although
it was never legally formed for unknown
reasons, this fact alone does not
preclude the liabilities of the three as
contracting parties in representation of
it. Clearly, under the law on estoppel,
those acting on behalf of a corporation
and those benefited by it, knowing it to
be without valid existence, are held
liable as general partners. Technically, it
is true that petitioner did not directly act
on behalf of the corporation. However,
having reaped the benefits of the
contract entered into by persons with
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 30

G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs. COURT OF APPEALS,
NATIONAL LABOR RELATIONS
COMMISSION, PACIFIC FOREST
RESOURCES, PHILS., INC. and/or
CELLMARK AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision 1 and
Resolution2 of the Court of Appeals,
dated January 30, 2003 and July 30,
2003, respectively, in CA-G.R. SP No.
71028, affirming the ruling3 of the
National Labor Relations Commission
(NLRC), which in turn set aside the July
30, 2001 Decision4 of the labor arbiter.
The labor arbiter declared illegal the
dismissal of petitioner from employment
and awarded separation pay, moral and
exemplary damages, and attorney's
fees.
The facts are as follows:
Private respondent Pacific Forest
Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing
under the laws of California, USA. It is
a subsidiary of Cellulose Marketing
International, a corporation duly
organized under the laws of Sweden,
with principal office in Gothenburg,
Sweden.
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
Private respondent Pacfor entered into
a "Side Agreement on Representative
Office known as Pacific Forest
Resources (Phils.), Inc."5 with
petitioner Arsenio T. Mendiola (ATM),
effective May 1, 1995, "assuming that
Pacfor-Phils. is already approved by
the Securities and Exchange
Commission [SEC] on the said
date."6 The Side Agreement outlines
the business relationship of the parties
with regard to the Philippine operations
of Pacfor. Private respondent will
establish a Pacfor representative office
in the Philippines, to be known as
Pacfor Phils, and petitioner ATM will be
its President. Petitioner's base salary
and the overhead expenditures of the
company shall be borne by the
representative office and funded by
Pacfor/ATM, since Pacfor Phils. is
equally owned on a 50-50 equity by
ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the
application of private respondent Pacfor
for a license to transact business in the
Philippines under the name of Pacfor or
Pacfor Phils.7 In its application, private
respondent Pacfor proposed to
establish its representative office in the
Philippines with the purpose of
monitoring and coordinating the market
activities for paper products. It also
designated petitioner as its resident
agent in the Philippines, authorized to
accept summons and processes in all
legal proceedings, and all notices
affecting the corporation.8
Page 31
In March 1997, the Side Agreement
was amended through a "Revised
Operating and Profit Sharing
Agreement for the Representative
Office Known as Pacific Forest
Resources (Philippines),"9 where the
salary of petitioner was increased to
$78,000 per annum. Both agreements
show that the operational expenses will
be borne by the representative office
and funded by all parties "as equal
partners," while the profits and
commissions will be shared among
them.
In July 2000, petitioner wrote Kevin
Daley, Vice President for Asia of Pacfor,
seeking confirmation of his 50% equity
of Pacfor Phils.10 Private respondent
Pacfor, through William Gleason, its
President, replied that petitioner is not a
part-owner of Pacfor Phils. because the
latter is merely Pacfor-USA's
representative office and not an entity
separate and distinct from Pacfor-USA.
"It's simply a 'theoretical company' with
the purpose of dividing the income 50-
50."11 Petitioner presumably knew of
this arrangement from the start, having
been the one to propose to private
respondent Pacfor the setting up of a
representative office, and "not a branch
office" in the Philippines to save on
taxes.12
Petitioner claimed that he was all along
made to believe that he was in a joint
venture with them. He alleged he would
have been better off remaining as an
independent agent or representative of
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
Pacfor-USA as ATM Marketing
Corp.13 Had he known that no joint
venture existed, he would not have
allowed Pacfor to take the profitable
business of his own company, ATM
Marketing Corp.14 Petitioner raised
other issues, such as the rentals of
office furniture, salary of the
employees, company car, as well as
commissions allegedly due him. The
issues were not resolved, hence, in
October 2000, petitioner wrote Pacfor-
USA demanding payment of unpaid
commissions and office furniture and
equipment rentals, amounting to more
than one million dollars.15
On November 27, 2000, private
respondent Pacfor, through counsel,
ordered petitioner to turn over to it all
papers, documents, files, records, and
other materials in his or ATM Marketing
Corporation's possession that belong to
Pacfor or Pacfor Phils.16 On December
18, 2000, private respondent Pacfor
also required petitioner to remit more
than three hundred thousand-peso
Christmas giveaway fund for clients of
Pacfor Phils.17 Lastly, private
respondent Pacfor withdrew all its
offers of settlement and ordered
petitioner to transfer title and turn over
to it possession of the service car.18
Private respondent Pacfor likewise sent
letters to its clients in the Philippines,
advising them not to deal with Pacfor
Phils. In its letter to Intercontinental
Paper Industries, Inc., dated November
Page 32
21, 2000, private respondent Pacfor I received a letter from Pacific Forest
stated: Resources, Inc. demanding the
turnover of all records to them effective
Until further notice, please course all December 19, 2000. The company
inquiries and communications for records were turned over only on
Pacific Forest Resources (Philippines) January 26, 2001. This means our jobs
to: with Pacific Forest were terminated
effective December 19, 2000. I am
Pacific Forest Resources concerned about your welfare. I would
200 Tamal Plaza, Suite 200 like to help you by offering you to work
Corte Madera, CA, USA 94925 with ATM Marketing Corporation.
(415) 927 1700 phone
(415) 381 4358 fax Please let me know if you are
interested.22
Please do not send any communication
to Mr. Arsenio "Boy" T. Mendiola or to On the basis of the "Side Agreement,"
the offices of ATM Marketing petitioner insisted that he and Pacfor
Corporation at Room 504, Concorde equally own Pacfor Phils. Thus, it
Building, Legaspi Village, Makati City, follows that he and Pacfor likewise
Philippines.19 own, on a 50/50 basis, Pacfor Phils.'
office furniture and equipment and the
In another letter addressed to Davao service car. He also reiterated his
Corrugated Carton Corp. (DAVCOR), demand for unpaid commissions, and
dated December 2000, private proposed to offset these with the
respondent directed said client "to remaining Christmas giveaway fund in
please communicate directly with us on his possession.23 Furthermore, he did
any further questions associated with not renew the lease contract with Pulp
these payments or any future business. and Paper, Inc., the lessor of the office
Do not communicate with [Pacfor] premises of Pacfor Phils., wherein he
and/or [ATM]."20 was the signatory to the lease
agreement.24
Petitioner construed these directives as
a severance of the "unregistered On February 2, 2001, private
partnership" between him and Pacfor, respondent Pacfor placed petitioner on
and the termination of his employment preventive suspension and ordered him
as resident manager of Pacfor to show cause why no disciplinary
Phils.21 In a memorandum to the action should be taken against him.
employees of Pacfor Phils., dated Private respondent Pacfor charged
January 29, 2001, he stated: petitioner with willful disobedience and
serious misconduct for his refusal to
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 33
turn over the service car and the
Christmas giveaway fund which he
applied to his alleged unpaid
commissions. Private respondent also
alleged loss of confidence and gross
neglect of duty on the part of petitioner
for allegedly allowing another
corporation owned by petitioner's
relatives, High End Products, Inc.
(HEPI), to use the same telephone and
facsimile numbers of Pacfor, to possibly
steal and divert the sales and business
of private respondent for HEPI's
principal, International Forest Products,
a competitor of private respondent.25
Petitioner denied the charges. He
reiterated that he considered the import
of Pacfor President William Gleason's
letters as a "cessation of his position
and of the existence of Pacfor Phils."
He likewise informed private
respondent Pacfor that ATM Marketing
Corp. now occupies Pacfor Phils.' office
premises,26 and demanded payment of
his separation pay.27 On February 15,
2001, petitioner filed his complaint for
illegal dismissal, recovery of separation
pay, and payment of attorney's fees
with the NLRC.28
In the meantime, private respondent
Pacfor lodged fresh charges against
petitioner. In a memorandum dated
March 5, 2001, private respondent
directed petitioner to explain why he
should not be disciplined for serious
misconduct and conflict of interest.
Private respondent charged petitioner
anew with serious misconduct for the
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 34
latter's alleged act of fraud and
misrepresentation in authorizing the
release of an additional peso salary for
himself, besides the dollar salary
agreed upon by the parties. Private
respondent also accused petitioner of
disloyalty and representation of
conflicting interests for having
continued using the Pacfor Phils.' office
for operations of HEPI. In addition,
petitioner allegedly solicited business
for HEPI from a competitor company of
private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor
of petitioner, finding there was
constructive dismissal. By directing
petitioner to turn over all office records
and materials, regardless of whether he
may have retained copies, private
respondent Pacfor virtually deprived
petitioner of his job by the gradual
diminution of his authority as resident
manager. Petitioner's position as
resident manager whose duty, among
others, was to maintain the security of
its business transactions and
communications was rendered
meaningless. The dispositive portion of
the decision of the Labor Arbiter reads:
WHEREFORE, premises considered,
judgment is hereby rendered ordering
herein respondents Cellmark AB and
Pacific Forest Resources, Inc., jointly
and severally to compensate
complainant Arsenio T. Mendiola
separation pay equivalent to at least
one month for every year of service,
whichever is higher (sic), as
reinstatement is no longer feasible by
reason of the strained relations of the
parties equivalent to five (5) months in
the amount of $32,000.00 plus the sum
of P250,000.00; pay complainant the
sum of P500,000.00 as moral and
exemplary damages and ten percent
(10%) of the amounts awarded as and
for attorney's fees.
All other claims are dismissed for lack
of basis.
SO ORDERED.30
Private respondent Pacfor appealed to
the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set
aside the July 30, 2001 decision of the
labor arbiter, for lack of jurisdiction and
lack of merit.31 It held there was no
employer-employee relationship
between the parties. Based on the two
agreements between the parties, it
concluded that petitioner is not an
employee of private respondent Pacfor,
but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion
for Reconsideration.32
Petitioner was not successful on his
appeal to the Court of Appeals. The
appellate court upheld the ruling of the
NLRC.
Petitioner's Motion for
Reconsideration33 of the decision of
the Court of Appeals was denied.
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 35
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals
committed reversible error and abused
its discretion in rendering judgment
against petitioner since jurisdiction has
been acquired over the subject matter
of the case as there exists employer-
employee relationship between the
parties.
B. The Respondent Court of Appeals
committed reversible error and abused
its discretion in ruling that jurisdiction
over the subject matter cannot be
waived and may be alleged even for
the first time on appeal or considered
by the court motu prop[r]io.35
The first issue is whether an employer-
employee relationship exists between
petitioner and private respondent
Pacfor.
Petitioner argues that he is an industrial
partner of the partnership he formed
with private respondent Pacfor, and
also an employee of the partnership.
Petitioner insists that an industrial
partner may at the same time be an
employee of the partnership, provided
there is such an agreement, which, in
this case, is the "Side Agreement" and
the "Revised Operating and Profit
Sharing Agreement." The Court of
Appeals denied the appeal of petitioner,
holding that "the legal basis of the
complaint is not employment but
perhaps partnership, co-ownership, or
independent contractorship." Hence,
the Labor Code cannot apply.
We hold that petitioner is an employee
of private respondent Pacfor and that
no partnership or co-ownership exists
between the parties.
In a partnership, the members become
co-owners of what is contributed to the
firm capital and of all property that may
be acquired thereby and through the
efforts of the members.36 The property
or stock of the partnership forms a
community of goods, a common fund,
in which each party has a proprietary
interest.37 In fact, the New Civil Code
regards a partner as a co-owner of
specific partnership property.38 Each
partner possesses a joint interest in the
whole of partnership property. If the
relation does not have this feature, it is
not one of partnership.39 This essential
element, the community of interest, or
co-ownership of, or joint interest in
partnership property is absent in the
relations between petitioner and private
respondent Pacfor. Petitioner is not a
part-owner of Pacfor Phils. William
Gleason, private respondent Pacfor's
President established this fact when he
said that Pacfor Phils. is simply a
"theoretical company" for the purpose
of dividing the income 50-50. He
stressed that petitioner knew of this
arrangement from the very start, having
been the one to propose to private
respondent Pacfor the setting up of a
representative office, and "not a branch
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 36
office" in the Philippines to save on
taxes. Thus, the parties in this case,
merely shared profits. This alone does
not make a partnership.40
Besides, a corporation cannot become
a member of a partnership in the
absence of express authorization by
statute or charter.41 This doctrine is
based on the following considerations:
(1) that the mutual agency between the
partners, whereby the corporation
would be bound by the acts of persons
who are not its duly appointed and
authorized agents and officers, would
be inconsistent with the policy of the
law that the corporation shall manage
its own affairs separately and
exclusively; and, (2) that such an
arrangement would improperly allow
corporate property to become subject
to risks not contemplated by the
stockholders when they originally
invested in the corporation.42No such
authorization has been proved in the
case at bar.
Be that as it may, we hold that on the
basis of the evidence, an employer-
employee relationship is present in the
case at bar. The elements to determine
the existence of an employment
relationship are: (a) the selection and
engagement of the employee; (b) the
payment of wages; (c) the power of
dismissal; and (d) the employer's power
to control the employee's conduct. The
most important element is the
employer's control of the employee's
conduct, not only as to the result of the
work to be done, but also as to the
means and methods to accomplish it.43
In the instant case, all the foregoing
elements are present. First, it was
private respondent Pacfor which
selected and engaged the services of
petitioner as its resident agent in the
Philippines. Second, as stipulated in
their Side Agreement, private
respondent Pacfor pays petitioner his
salary amounting to $65,000 per
annum which was later increased to
$78,000. Third, private respondent
Pacfor holds the power of dismissal, as
may be gleaned through the various
memoranda it issued against petitioner,
placing the latter on preventive
suspension while charging him with
various offenses, including willful
disobedience, serious misconduct, and
gross neglect of duty, and ordering him
to show cause why no disciplinary
action should be taken against him.
Lastly and most important, private
respondent Pacfor has the power of
control over the means and method of
petitioner in accomplishing his work.
The power of control refers merely to
the existence of the power, and not to
the actual exercise thereof. The
principal consideration is whether the
employer has the right to control the
manner of doing the work, and it is not
the actual exercise of the right by
interfering with the work, but the right to
control, which constitutes the test of the
existence of an employer-employee
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 37
relationship.44 In the case at bar,
private respondent Pacfor, as employer,
clearly possesses such right of control.
Petitioner, as private respondent
Pacfor's resident agent in the
Philippines, is, exactly so, only an
agent of the corporation, a
representative of Pacfor, who transacts
business, and accepts service on its
behalf.
This right of control was exercised by
private respondent Pacfor during the
period of November to December 2000,
when it directed petitioner to turn over
to it all records of Pacfor Phils.; when it
ordered petitioner to remit the
Christmas giveaway fund intended for
clients of Pacfor Phils.; and, when it
withdrew all its offers of settlement and
ordered petitioner to transfer title and
turn over to it the possession of the
service car. It was also during this
period when private respondent Pacfor
sent letters to its clients in the
Philippines, particularly Intercontinental
Paper Industries, Inc. and DAVCOR,
advising them not to deal with petitioner
and/or Pacfor Phils. In its letter to
DAVCOR, private respondent Pacfor
replied to the client's request for an
invoice payment extension, and
formulated a revised payment program
for DAVCOR. This is one unmistakable
proof that private respondent Pacfor
exercises control over the petitioner.
Next, we shall determine if petitioner
was constructively dismissed from
employment.
The evidence shows that when
petitioner insisted on his 50% equity in
Pacfor Phils., and would not quit
however, private respondent Pacfor
began to systematically deprive
petitioner of his duties and benefits to
make him feel that his presence in the
company was no longer wanted. First,
private respondent Pacfor directed
petitioner to turn over to it all records of
Pacfor Phils. This would certainly make
the work of petitioner very difficult, if not
impossible. Second, private respondent
Pacfor ordered petitioner to remit the
Christmas giveaway fund intended for
clients of Pacfor Phils. Then it ordered
petitioner to transfer title and turn over
to it the possession of the service car. It
also advised its clients in the
Philippines, particularly Intercontinental
Paper Industries, Inc. and DAVCOR,
not to deal with petitioner and/or Pacfor
Phils. Lastly, private respondent Pacfor
appointed a new resident agent for
Pacfor Phils.45
Although there is no reduction of the
salary of petitioner, constructive
dismissal is still present because
continued employment of petitioner is
rendered, at the very least,
unreasonable.46 There is an act of
clear discrimination, insensibility or
disdain by the employer that continued
employment may become so
unbearable on the part of the employee
so as to foreclose any choice on his
part except to resign from such
employment.47
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 38
The harassing acts of the private
respondent are unjustified. They were
undertaken when petitioner sought
clarification from the private respondent
about his supposed 50% equity on
Pacfor Phils. Private respondent Pacfor
invokes its rights as an owner.
Allegedly, its issuance of the foregoing
directives against petitioner was a valid
exercise of management prerogative.
We remind private respondent Pacfor
that the exercise of management
prerogative is not absolute. "By its very
nature, encompassing as it could be,
management prerogative must be
exercised in good faith and with due
regard to the rights of labor verily,
with the principles of fair play at heart
and justice in mind." The exercise of
management prerogative cannot be
utilized as an implement to circumvent
our laws and oppress employees.48
As resident agent of private respondent
corporation, petitioner occupied a
position involving trust and confidence.
In the light of the strained relations
between the parties, the full restoration
of an employment relationship based
on trust and confidence is no longer
possible. He should be awarded
separation pay, in lieu of reinstatement.
IN VIEW WHEREOF, the petition
is GRANTED. The Court of Appeals'
January 30, 2003 Decision in CA-G.R.
SP No. 71028 and July 30, 2003
Resolution, affirming the December 20,
2001 Decision of the National Labor
Relations Commission,
are ANNULED and SET ASIDE. The
July 30, 2001 Decision of the Labor
Arbiter is REINSTATED with
the MODIFICATION that the amount
of P250,000.00 representing an alleged
increase in petitioner's salary shall be
deducted from the grant of separation
pay for lack of evidence.

SO ORDERED.

Sandoval-Gutierrez, Corona, Azcuna,

Garcia, J.J., concur.

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 39

MENDIOLA v. CA 1 A general
professional partnership, in this context,
must be formed for the sole purpose of
exercising a common profession, no
part of the income of which is derived
from its engaging in any trade
business; otherwise, it is subject to tax
as an ordinary business partnership or,
which is to say, as a corporation and
thereby subject to the corporate income
tax. The only other exempt partnership
is a joint venture for undertaking
construction projects or engaging in
petroleum operations pursuant to an
operating agreement under a service
contract with the government (see
Sections 20, 23 and 24, National
Internal Revenue Code).
ARSENIO T. MENDIOLA vs. COURT
OF APPEALS, NATIONAL LABOR
RELATIONS COMMISSION,
PACIFIC FOREST RESOURCES,
PHILS., INC. and/or CELLMARK AB
(July 31, 2006)
DOCTRINE: In a partnership, the
members become co-owners of what is
contributed to the firm capital and of all
property that may be acquired thereby
and through the efforts of the members.
The property or stock of the partnership
forms a community of goods, a
common fund, in which each party has
a proprietary interest. In fact, the New
Civil Code regards a partner as a co-
owner of specific partnership property.
Each partner possesses a joint interest
in the whole of partnership property. If
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 40
the relation does not have this feature,
it is not one of partnership. This
essential element, the community of
interest, or co-ownership of, or joint
interest in partnership property is
absent in the relations between
petitioner and private respondent
Pacfor. xxx the parties in this case,
merely shared profits. This alone does
not make a partnership. Besides, a
corporation cannot become a member
of a partnership in the absence of
express authorization by statute or
charter. This doctrine is based on the
following considerations: (1) that the
mutual agency between the partners,
whereby the corporation would be
bound by the acts of persons who are
not its duly appointed and authorized
agents and officers, would be
inconsistent with the policy of the law
that the corporation shall manage its
own affairs separately and exclusively;
and, (2) that such an arrangement
would improperly allow corporate
property to become subject to risks not
contemplated by the stockholders when
they originally invested in the
corporation.
PONENTE: Puno, J.
FACTS: Private respondent Pacific
Forest Resources, Phils., Inc. (Pacfor)
is a corporation organized and existing
under the laws of California, USA. It is
a subsidiary of Cellulose Marketing
International (organized in Sweden)
Private respondent Pacfor entered into
a "Side Agreement on Representative
Office known as Pacific Forest
Resources (Phils.), Inc." with petitioner
Arsenio T. Mendiola (ATM). The Side
Agreement outlines the business
relationship of the parties with regard to
the Philippine operations of Pacfor.
Private respondent will establish a
Pacfor representative office in the
Philippines, to be known as Pacfor
Phils, and petitioner ATM will be its
President. Petitioner's base salary and
the overhead expenditures of the
company shall be borne by the
representative office and funded by
Pacfor/ATM, since Pacfor Phils. is
equally owned on a 50-50 equity by
ATM and Pacfor-usa. In its application
(to the SEC), private respondent Pacfor
proposed to establish its representative
office in the Philippines. It also
designated petitioner as its resident
agent in the Philippines, authorized to
accept summons and processes in all
legal proceedings, and all notices
affecting the corporation. The Side
Agreement was amended through a
"Revised Operating and Profit Sharing
Agreement for the Representative
Office Known as Pacific Forest
Resources (Philippines)," where the
salary of petitioner was increased to
$78,000 per annum. Both agreements
show that the operational expenses will
be borne by the representative office
and funded by all parties "as equal
partners," while the profits and
commissions will be shared among
them. In July 2000, petitioner wrote the
Vice President for Asia of Pacfor,
seeking confirmation of his 50% equity
of Pacfor Phils. Private respondent
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 41
Pacfor Phils. because the latter is
merely Pacfor-USA's representative
office and not an entity separate and
distinct from Pacfor-USA. "It's simply a
'theoretical company' with the purpose
of dividing the income 50-50."11
Petitioner presumably knew of this
arrangement from the start, having
been the one to propose to private
respondent Pacfor the setting up of a
representative office, and "not a branch
office" in the Philippines to save on
taxes. Petitioner claimed that he was all
along made to believe that he was in a
joint venture with them; that he would
have been better off remaining as an
independent agent or representative of
Pacfor-USA as ATM Marketing Corp.
Petitioner raised other issues, such as
the rentals of office furniture, salary of
the employees, company car, as well
as commissions allegedly due him. The
issues were not resolved, hence, in
October 2000, petitioner wrote Pacfor-
USA demanding payment of unpaid
commissions and office furniture and
equipment rentals. Privatre respondent
Pacfor through counsel ordered
petitioner to turn over to it all papers,
documents, files, records, and other
materials in his or ATM Marketing
Corporation's possession that belong to
Pacfor or Pacfor Phils then to remit
more than 300k xmas giveaway fund
for clients of Pacfor Phil and finally
Pacfor withdraw all its offers of
settlement and ordered petitioner to
transfer title and turn over to it
possession of the service car.18 Private
respondent Pacfor likewise sent letters
to its clients in the Philippines, advising
them not to deal with Pacfor Phils.
Petitioner construed these directives as
a severance of the "unregistered
partnership" between him and Pacfor,
and the termination of his employment
as resident manager of Pacfor Phils.
On the basis of the "Side Agreement,"
petitioner insisted that he and Pacfor
equally own Pacfor Phils. Thus, it
follows that he and Pacfor likewise
own, on a 12 PARTNERSHIP [1st SET]
(DIONNE) || D2014 50/50 basis, Pacfor
Phils.' office furniture and equipment
and the service car. He also reiterated
his demand for unpaid commissions,
and proposed to offset these with the
remaining Christmas giveaway fund in
his possession. Furthermore, he did not
renew the lease contract with Pulp and
Paper, Inc., the lessor of the office
premises of Pacfor Phils., wherein he
was the signatory to the lease
agreement. Private respondent Pacfor
placed petitioner on preventive
suspension and ordered him to show
cause why no disciplinary action should
be taken against him. Private
respondent Pacfor charged petitioner
with willful disobedience and serious
misconduct for his refusal to turn over
the service car and the Christmas
giveaway fund which he applied to his
alleged unpaid commissions. Private
respondent also alleged loss of
confidence and gross neglect of duty
on the part of petitioner for allegedly
allowing another corporation owned by
petitioner's relatives, High End
Products, Inc. (HEPI), to use the same
telephone and facsimile numbers of
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 42
respondent. Petitioner denied the
charges. He reiterated that he
considered the import of Pacfor
Presidents letters as a "cessation of his
position and of the existence of Pacfor
Phils." He likewise informed private
respondent Pacfor that ATM Marketing
Corp. now occupies Pacfor Phils.' office
premises, and demanded payment of
his separation pay. Petitioner filed his
complaint for illegal dismissal, recovery
of separation pay, and payment of
attorney's fees with the NLRC. Private
respondent directed petitioner to
explain why he should not be
disciplined for serious misconduct and
conflict of interest; charged petitioner
anew with serious misconduct for the
latter's alleged act of fraud and
misrepresentation in authorizing the
release of an additional peso salary for
himself, besides the dollar salary
agreed upon by the parties. Private
respondent also accused petitioner of
disloyalty and representation of
conflicting interests for having
continued using the Pacfor Phils.' office
for operations of HEPI LA: ruled in
favor of petitioner, finding there was
constructive dismissal. By directing
petitioner to turn over all office records
and materials, regardless of whether he
may have retained copies, private
respondent Pacfor virtually deprived
petitioner of his job by the gradual
diminution of his authority as resident
manager. Petitioner's position as
resident manager whose duty, among
others, was to maintain the security of
its business transactions and
communications was rendered
meaningless. NLRC: in favor of Private
respondent Pacfor. He set aside the
July 30, 2001 decision of the labor
arbiter, for lack of jurisdiction and lack
of merit. It held there was no employer-
employee relationship between the
parties. Based on the two agreements
between the parties, it concluded that
petitioner is not an employee of private
respondent Pacfor, but a full co-owner
(50/50 equity). MR denied. CA: Affirmed
holding that "the legal basis of the
complaint is not employment but
perhaps partnership, co-ownership, or
independent contractorship." Hence,
the Labor Code cannot apply. MR
denied Issues: Was there an employer-
employee relationship or a partnership?
Can both exist at the same time? There
was an employer employee relationship
but no partnership Was he
constructively dismissed? (Not
important so omitted) YES. Ratio:
Petitioner argues that he is an industrial
partner of the partnership he formed
with private respondent Pacfor, and
also an employee of the partnership.
Petitioner insists that an industrial
partner may at the same time be an
employee of the partnership, provided
there is such an agreement, which, in
this case, is the "Side Agreement" and
the "Revised Operating and Profit
Sharing Agreement." We hold that
petitioner is an employee of private
respondent Pacfor and that no
partnership or co-ownership exists
between the parties. In a partnership,
the members become co-owners of
what is contributed to the firm capital
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 43
members. The property or stock of the
partnership forms a community of
goods, a common fund, in which each
party has a proprietary interest. In fact,
the New Civil Code regards a partner
as a co-owner of specific partnership
property. Each partner possesses a
joint interest in the whole of partnership
property. If the relation does not have
this feature, it is not one of partnership.
This essential element, the community
of interest, or co-ownership of, or joint
interest in partnership property is
absent in the relations between
petitioner and private respondent
Pacfor. Petitioner is not a part-owner of
Pacfor Phils. William Gleason, private
respondent Pacfor's President
established this fact when he said that
Pacfor Phils. is simply a "theoretical
company" for the purpose of dividing
the income 50-50. He stressed that
petitioner knew of this arrangement
from the very start, having been the
one to propose to private respondent
Pacfor the setting up of a
representative office, and "not a branch
office" in the Philippines to save on
taxes. Thus, the parties in this case,
merely shared profits. This alone does
not make a partnership. Besides, a
corporation cannot become a member
of a partnership in the absence of
express authorization by statute or
charter. This doctrine is based on the
following considerations: (1) that the
mutual agency between the partners,
whereby the corporation would be
bound by the acts of persons who are
not its duly appointed 13
PARTNERSHIP [1st SET] (DIONNE) ||
D2014 and authorized agents and
officers, would be inconsistent with the
policy of the law that the corporation
shall manage its own affairs separately
and exclusively; and, (2) that such an
arrangement would improperly allow
corporate property to become subject
to risks not contemplated by the
stockholders when they originally
invested in the corporation. No such
authorization has been proved in the
case at bar. (This part goes into the
employer-employee relationship bit, I
dont think its important but I included it
na din if ever magtanong re: paano
nagging employee) Be that as it may,
we hold that on the basis of the
evidence, an employer-employee
relationship is present in the case at
bar. The elements to determine the
existence of an employment
relationship are: (a) the selection and
engagement of the employee; (b) the
payment of wages; (c) the power of
dismissal; and (d) the employer's power
to control the employee's conduct. The
most important element is the
employer's control of the employee's
conduct, not only as to the result of the
work to be done, but also as to the
means and methods to accomplish it.43
In the instant case, all the foregoing
elements are present. First, it was
private respondent Pacfor which
selected and engaged the services of
petitioner as its resident agent in the
Philippines. Second, as stipulated in
their Side Agreement, private
respondent Pacfor pays petitioner his
salary amounting to $65,000 per
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
Pacfor holds the power of dismissal, as
may be gleaned through the various
memoranda it issued against petitioner,
placing the latter on preventive
suspension while charging him with
various offenses, including willful
disobedience, serious misconduct, and
gross neglect of duty, and ordering him
to show cause why no disciplinary
action should be taken against him.
Lastly and most important, private
respondent Pacfor has the power of
control over the means and method of
petitioner in accomplishing his work.
The power of control refers merely to
the existence of the power, and not to
the actual exercise thereof. The
principal consideration is whether the
employer has the right to control the
manner of doing the work, and it is not
the actual exercise of the right by
interfering with the work, but the right to
control, which constitutes the test of the
existence of an employer-employee
relationship.44 In the case at bar,
private respondent Pacfor, as employer,
clearly possesses such right of control.
Petitioner, as private respondent
Pacfor's resident agent in the
Philippines, is, exactly so, only an
agent of the corporation, a
representative of Pacfor, who transacts
business, and accepts service on its
behalf. This right of control was
exercised by private respondent Pacfor
during the period of November to
December 2000, when it directed
petitioner to turn over to it all records of
Pacfor Phils.; when it ordered petitioner
to remit the Christmas giveaway fund
Page 44
intended for clients of Pacfor Phils.;
and, when it withdrew all its offers of
settlement and ordered petitioner to
transfer title and turn over to it the
possession of the service car. It was
also during this period when private
respondent Pacfor sent letters to its
clients in the Philippines, particularly
Intercontinental Paper Industries, Inc.
and DAVCOR, advising them not to
deal with petitioner and/or Pacfor Phils.
In its letter to DAVCOR, private
respondent Pacfor replied to the client's
request for an invoice payment
extension, and formulated a revised
payment program for DAVCOR. This is
one unmistakable proof that private
respondent Pacfor exercises control
over the petitioner. DISPOSITIVE: IN
VIEW WHEREOF, the petition is
GRANTED. The Court of Appeals'
January 30, 2003 Decision in CA-G.R.
SP No. 71028 and July 30, 2003
Resolution, affirming the December 20,
2001 Decision of the National Labor
Relations Commission, are ANNULED
and SET ASIDE. The July 30, 2001
Decision of the Labor Arbiter
isREINSTATED with the
MODIFICATION that the amount of
P250,000.00 representing an alleged
increase in petitioner's salary shall be
deducted from the grant of separation
pay for lack of evidence. SO
ORDERED.

PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 45

G.R. No. L-12541 August 28,
1959
ROSARIO U. YULO, assisted by her
husband JOSE C. YULO, plaintiffs-
appellants,
vs.
YANG CHIAO SENG, defendant-
appellee.
Punzalan, Yabut, Eusebio & Tiburcio
for appellants.
Augusto Francisco and Julian T.
Ocampo for appellee.
LABRADOR, J.:
Appeal from the judgment of the Court
of First Instance of Manila, Hon.
Bienvenido A. Tan, presiding,
dismissing plaintiff's complaint as well
as defendant's counterclaim. The
appeal is prosecuted by plaintiff.
The record discloses that on June 17,
1945, defendant Yang Chiao Seng
wrote a letter to the palintiff Mrs.
Rosario U. Yulo, proposing the
formation of a partnership between
them to run and operate a theatre on
the premises occupied by former Cine
Oro at Plaza Sta. Cruz, Manila. The
principal conditions of the offer are (1)
that Yang Chiao Seng guarantees Mrs.
Yulo a monthly participation of P3,000
payable quarterly in advance within the
first 15 days of each quarter, (2) that
the partnership shall be for a period of
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD
two years and six months, starting from
July 1, 1945 to December 31, 1947,
with the condition that if the land is
expropriated or rendered impracticable
for the business, or if the owner
constructs a permanent building
thereon, or Mrs. Yulo's right of lease is
terminated by the owner, then the
partnership shall be terminated even if
the period for which the partnership
was agreed to be established has not
yet expired; (3) that Mrs. Yulo is
authorized personally to conduct such
business in the lobby of the building as
is ordinarily carried on in lobbies of
theatres in operation, provided the said
business may not obstruct the free
ingress and agrees of patrons of the
theatre; (4) that after December 31,
1947, all improvements placed by the
partnership shall belong to Mrs. Yulo,
but if the partnership agreement is
terminated before the lapse of one and
a half years period under any of the
causes mentioned in paragraph (2),
then Yang Chiao Seng shall have the
right to remove and take away all
improvements that the partnership may
place in the premises.
Pursuant to the above offer, which
plaintiff evidently accepted, the parties
executed a partnership agreement
establishing the "Yang & Company,
Limited," which was to exist from July 1,
1945 to December 31, 1947. It states
that it will conduct and carry on the
business of operating a theatre for the
exhibition of motion and talking
pictures. The capital is fixed at
Page 46
P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and
P20,000, by Mrs. Yulo. All gains and
profits are to be distributed among the
partners in the same proportion as their
capital contribution and the liability of
Mrs. Yulo, in case of loss, shall be
limited to her capital contribution (Exh.
"B").
In June , 1946, they executed a
supplementary agreement, extending
the partnership for a period of three
years beginning January 1, 1948 to
December 31, 1950. The benefits are to
be divided between them at the rate of
50-50 and after December 31, 1950,
the showhouse building shall belong
exclusively to the second party, Mrs.
Yulo.
The land on which the theatre was
constructed was leased by plaintiff Mrs.
Yulo from Emilia Carrion Santa Marina
and Maria Carrion Santa Marina. In the
contract of lease it was stipulated that
the lease shall continue for an indefinite
period of time, but that after one year
the lease may be cancelled by either
party by written notice to the other party
at least 90 days before the date of
cancellation. The last contract was
executed between the owners and Mrs.
Yulo on April 5, 1948. But on April 12,
1949, the attorney for the owners
notified Mrs. Yulo of the owner's desire
to cancel the contract of lease on July
31, 1949. In view of the above notice,
Mrs. Yulo and her husband brought a
civil action to the Court of First Instance
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 47
of Manila on July 3, 1949 to declare the
lease of the premises. On February 9,
1950, the Municipal Court of Manila
rendered judgment ordering the
ejectment of Mrs. Yulo and Mr. Yang.
The judgment was appealed. In the
Court of First Instance, the two cases
were afterwards heard jointly, and
judgment was rendered dismissing the
complaint of Mrs. Yulo and her
husband, and declaring the contract of
lease of the premises terminated as of
July 31, 1949, and fixing the
reasonable monthly rentals of said
premises at P100. Both parties
appealed from said decision and the
Court of Appeals, on April 30, 1955,
affirmed the judgment.
On October 27, 1950, Mrs. Yulo
demanded from Yang Chiao Seng her
share in the profits of the business.
Yang answered the letter saying that
upon the advice of his counsel he had
to suspend the payment (of the rentals)
because of the pendency of the
ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang
alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo
has not paid to the lessors the rentals
from August, 1949, he was retaining the
rentals to make good to the landowners
the rentals due from Mrs. Yulo in
arrears (Exh. "E").
In view of the refusal of Yang to pay her
the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954,
alleging the existence of a partnership
between them and that the defendant
Yang Chiao Seng has refused to pay
her share from December, 1949 to
December, 1950; that after December
31, 1950 the partnership between Mrs.
Yulo and Yang terminated, as a result
of which, plaintiff became the absolute
owner of the building occupied by the
Cine Astor; that the reasonable rental
that the defendant should pay therefor
from January, 1951 is P5,000; that the
defendant has acted maliciously and
refuses to pay the participation of the
plaintiff in the profits of the business
amounting to P35,000 from November,
1949 to October, 1950, and that as a
result of such bad faith and malice on
the part of the defendant, Mrs. Yulo has
suffered damages in the amount of
P160,000 and exemplary damages to
the extent of P5,000. The prayer
includes a demand for the payment of
the above sums plus the sum of
P10,000 for the attorney's fees.
In answer to the complaint, defendant
alleges that the real agreement
between the plaintiff and the defendant
was one of lease and not of
partnership; that the partnership was
adopted as a subterfuge to get around
the prohibition contained in the contract
of lease between the owners and the
plaintiff against the sublease of the said
property. As to the other claims, he
denies the same and alleges that the
fair rental value of the land is only
P1,100. By way of counterclaim he
alleges that by reason of an attachment
issued against the properties of the
PARTNERSHIP
Anna L. Ilagan-Malipol, AB, MD Page 48
defendant the latter has suffered
damages amounting to P100,000.
The first hearing was had on April 19,
1955, at which time only the plaintiff
appeared. The court heard evidence of
the plaintiff in the absence of the
defendant and thereafter rendered
judgment ordering the defendant to pay
to the plaintiff P41,000 for her
participation in the business up to
December, 1950; P5,000 as monthly
rental for the use and occupation of the
building from January 1, 1951 until
defendant vacates the same, and
P3,000 for the use and occupation of
the lobby from July 1, 1945 until
defendant vacates the property. This
decision, however, was set aside on a
motion for reconsideration. In said
motion it is claimed that defendant
failed to appear at the hearing because
of his honest belief that a joint petition
for postponement filed by both parties,
in view of a possible amicable
settlement, would be granted; that in
view of the decision of the Court of
Appeals in two previous cases between
the owners of the land and the plaintiff
Rosario Yulo, the plaintiff has no right to
claim the alleged participation in the
profit of the business, etc. The court,
finding the above motion, well-founded,
set aside its decision and a new trial
was held. After trial the court rendered
the decision making the following
findings: that it is not true that a
partnership was created between the
plaintiff and the defendant because
defendant has not actually contributed
the sum mentioned in the Articles of
Partnership, or any other amount; that
the real agreement between the plaintiff
and the defendant is not of the
partnership but one of the lease for the
reason that under the agreement the
plaintiff did not share either in the
profits or in the losses of the business
as required by Article 1769 of the Civil
Code; and that the fact that plaintiff was
granted a "guaranteed participation" in
the profits also belies the supposed
existence of a partnership between
them. It. therefore, denied plaintiff's
claim for damages or supposed
participation in the profits.
As to her claim for damages for the
refusal of the defendant to allow the
use of the supposed lobby of the
theatre, the court after ocular inspection
found that the said lobby was very
narrow space leading to the balcony of
the theatre which could not be used for
business purposes under existing
ordinances of the City of Manila
because it would constitute a hazard
and danger to the patrons of the
theatre. The court, therefore, dismissed
the complaint; so did it dismiss the
defendant's counterclaim, on the
ground that the defendant failed to
present sufficient evidence to sustain
the same. It is against this decision that
the appeal has been prosecuted by
plaintiff to this Court.
The first assignment of error imputed to
the trial court is its order setting aside
its former decision and allowing a new
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Anna L. Ilagan-Malipol, AB, MD Page 49
trial. This assignment of error is without
merit. As that parties agreed to
postpone the trial because of a
probable amicable settlement, the
plaintiff could not take advantage of
defendant's absence at the time fixed
for the hearing. The lower court,
therefore, did not err in setting aside its
former judgment. The final result of the
hearing shown by the decision
indicates that the setting aside of the
previous decision was in the interest of
justice.
In the second assignment of error
plaintiff-appellant claims that the lower
court erred in not striking out the
evidence offered by the defendant-
appellee to prove that the relation
between him and the plaintiff is one of
the sublease and not of partnership.
The action of the lower court in
admitting evidence is justified by the
express allegation in the defendant's
answer that the agreement set forth in
the complaint was one of lease and not
of partnership, and that the partnership
formed was adopted in view of a
prohibition contained in plaintiff's lease
against a sublease of the property.
The most important issue raised in the
appeal is that contained in the fourth
assignment of error, to the effect that
the lower court erred in holding that the
written contracts, Exhs. "A", "B", and
"C, between plaintiff and defendant, are
one of lease and not of partnership. We
have gone over the evidence and we
fully agree with the conclusion of the
trial court that the agreement was a Plaintiff claims the sum of P41,000 as
sublease, not a partnership. The representing her share or participation
following are the requisites of in the business from December, 1949.
partnership: (1) two or more persons But the original letter of the defendant,
who bind themselves to contribute Exh. "A", expressly states that the
money, property, or industry to a agreement between the plaintiff and the
common fund; (2) intention on the part defendant was to end upon the
of the partners to divide the profits termination of the right of the plaintiff to
among themselves. (Art. 1767, Civil the lease. Plaintiff's right having
Code.). terminated in July, 1949 as found by the
Court of Appeals, the partnership
In the first place, plaintiff did not furnish agreement or the agreement for her to
the supposed P20,000 capital. In the receive a participation of P3,000
second place, she did not furnish any automatically ceased as of said date.
help or intervention in the management
of the theatre. In the third place, it does We find no error in the judgment of the
not appear that she has ever court below and we affirm it in toto, with
demanded from defendant any costs against plaintiff-appellant.
accounting of the expenses and
earnings of the business. Were she Paras C.J., Padilla, Bautista Angelo,
really a partner, her first concern should Endencia, and Barrera, JJ., concur.
have been to find out how the business
was progressing, whether the expenses
were legitimate, whether the earnings
were correct, etc. She was absolutely
silent with respect to any of the acts
that a partner should have done; all that
she did was to receive her share of
P3,000 a month, which can not be
interpreted in any manner than a
payment for the use of the premises
which she had leased from the owners.
Clearly, plaintiff had always acted in
accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"),
which shows that both parties
considered this offer as the real
contract between them.

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Anna L. Ilagan-Malipol, AB, MD Page 50

Yulo vs. Yang Chiaco Seng
FACTS: Yang Chiao Seng proposed to
form a partnership with Rosario Yulo to
run and operate a theatre on the
premises occupied by Cine Oro, Plaza
Sta. Cruz, Manila, the principal
conditions of the offer being (1) Yang
guarantees Yulo a monthly participation
of P3,000 (2) partnership shall be for a
period of 2 years and 6 months with the
condition that if the land is
expropriated, rendered impracticable
for business, owner constructs a
permanent building, then Yulos
right to lease and partnership even if
period agreed upon has not yet
expired; (3) Yulo is authorized to
personally conduct business in the
lobby of the building; and (4) after Dec
31, 1947, all improvements placed by
partnership shall belong to Yulo but if
partnership is terminated before lapse
of 1 and years, Yang shall have
right to remove improvements. Parties
established, Yang and Co. Ltd.,
to exist from July 1,1945 Dec 31,
1947.In June 1946, they executed a
supplementary agreement extending
the partnership for 3 years beginning
Jan 1, 1948 to Dec 31, 1950. The land
on which the theater was constructed
was leased by Yulo from owners, Emilia
Carrion and Maria Carrion Santa
Marina for an indefinite period but that
after 1 year, such lease may be
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Anna L. Ilagan-Malipol, AB, MD Page 51
cancelled by either party upon 90-day
notice. In Apr 1949, the owners notified
Yulo of their desire to cancel the lease
contract come July. Yulo and husband
brought a civil action to declare the
lease for a indefinite period. Owners
brought their own civil action for
ejectment upon Yulo and Yang. CFI:
Two cases were heard jointly;
Complaint of Yulo and Yang dismissed
declaring contract of lease terminated.
CA: Affirmed the judgment. In 1950,
Yulo demanded from Yang her share in
the profits of the business. Yang
answered saying he had to suspend
payment because of pending ejectment
suit. Yulo filed present action in 1954,
alleging the existence of a partnership
between them and that Yang has
refused to pay her shares.
Defendants Position: The real
agreement between plaintiff and
defendant was one of lease and not of
partnership; that the partnership was
adopted as a subterfuge to get around
the prohibition contained in the contract
of lease between the owners and the
plaintiff against the sublease of the
property. Trial Court: Dismissal. It is not
true that a partnership was created
between them because defendant has
not actually contributed the sum
mentioned in the Articles of Partnership
or any other amount. The agreement is
a lease because plaintiff didnt
share either in the profits or in the
losses of the business as required by
Art 1769 (CC) and because plaintiff was
granted a guaranteed
participation in the profits belies the
supposed existence of a partnership.

Issue: Was the agreement a contract a

lease or a partnership?

Ruling: Dismissal. The agreement was

a sublease nota partnership. The
following are the requisites of
partnership: (1) two or more persons
who bind themselves to contribute
money, property or industry to a
common fund; (2) the intention on the
part of the partners to divide the profits
among themselves (Article 1761,
CC)Plaintiff did not furnish the
supposed P20,000 capital nor did she
furnish any help or intervention in the
management of the theatre. Neither
has she demanded from defendant any
accounting of the expenses and
earnings of the business. She was
absolutely silent with respect to any of
the acts that a partner should have
done; all she did was to receive her
share of P3,000 a month which cannot
be interpreted in any manner than a
payment for the use of premises which
she had leased from the owners.

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