G.R. No.

136448 November 3, 1999

LIM TONG LIM, petitioner,

vs.

PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

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 partner, 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
In the Petition for Review on Certiorari before us, Lim Tong Lim assails
the November 26, 1998 Decision of the Court of Appeals in CA-GR CV

41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision,

the same is hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC)
ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment

issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following

amounts, subject to the modifications as hereinafter made by reason of
the special and unique facts and circumstances and the proceedings
that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the
fishing nets covered by the Agreement plus P68,000.00 representing
the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's 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 for 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 attorney's fees, plus P8,500.00 representing

P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage

charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.

With respect to the joint liability of defendants for the principal

obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at
public auction for not less than P900,000.00 for which the plaintiff was
the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00
replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff
to plaintiff as the highest bidder in the public auction sale. It has also
been noted that ownership of the nets [was] retained by the plaintiff
until full payment [was] made as stipulated in the invoices; hence, in
effect, the plaintiff attached its own properties. It [was] for this reason
also that this Court earlier ordered the attachment bond filed by
plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in
favor of defendants.

From the foregoing, it would appear therefore that whatever judgment

the plaintiff may be entitled to in this case will have to be satisfied from
the amount of P900,000.00 as this amount replaced the attached nets
and floats. Considering, however, that the total judgment obligation as
computed above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the defendants
who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that
they are not the owners of the nets and floats. For this reason, the
defendants are hereby relieved from any and all liabilities arising from
the monetary judgment obligation enumerated above and for plaintiff
to retain possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of
Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and

Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission. 5 On September 20,
1990, the lower court issued a Writ of Preliminary Attachment, which
the sheriff enforced by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation

admitting his liability and requesting a reasonable time within which to
pay. He also turned over to respondent some of the nets which were in
his possession. Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. 6 The trial court maintained the Writ, and upon motion of
private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and
(2) on a Compromise Agreement executed by the three 9 in Civil Case
No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial
documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four
(4) vessels sold in the amount of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than

P5,750,000.00 whatever the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to
the nature of their obligations, but that joint liability could be
presumed from the equal distribution of the profit and loss. 21

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 . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is . . . . By a
contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund with the
intention of dividing the profits among themselves (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A

COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS

ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT
THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND

ATTACHMENT OF PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing

nets and floats from respondent, the Court must resolve this key issue:
whether by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment

purchased from respondent, petitioner controverts the CA finding that
a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the
purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives of
the respondent company. Petitioner further argues that he was a lessor,
not a partner, of Chua and Yao, for the "Contract of Lease " dated
February 1, 1990, showed that he had merely leased to the two the
main asset of the purported partnership — the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of P37,500
plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as

found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the
Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind

themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.

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 Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally
agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson
for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-
equipping, repairing, dry docking and other expenses for the boats
would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again

extended a loan to the partnership in the amount of P1 million secured
by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chua's FB Lady Anne Mel and Yao's 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 petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan
with the proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term
"common fund" under Article 1767. The contribution to such fund need
not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the

purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but
not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the
exceptions to the rule. 16 In assailing the factual findings of the two
lower courts, petitioner effectively goes beyond the bounds of a
petition for review under Rule 45.

Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's 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 petitioner's 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 petitioner's argument that he was merely the

lessor of the boats to Chua and Yao, not a partner in the fishing venture.
His argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe
that he consented to the sale of his own boats to pay a debt of Chua
and Yao, with the excess of the proceeds to be divided among the three
of them. No lessor would do what petitioner did. Indeed, his consent to
the sale proved that there was a preexisting partnership among all
three.

Verily, as found by the lower courts, petitioner entered into a business

agreement with Chua and Yao, in which debts were undertaken in order
to finance the acquisition and the upgrading of the vessels which would
be used in their fishing business. The sale of the boats, as well as the
division among the three of the balance remaining after the payment of
their loans, proves beyond cavil that F/B Lourdes, though registered in
his name, was not his own property but an asset of the partnership. It is
not uncommon to register the properties acquired from a loan in the
name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner

to sell his property to pay a debt he did not incur, if the relationship
among the three of them was merely that of lessor-lessee, instead of
partners.
Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel,

liability can be imputed only to Chua and Yao, and not to him. Again, we
disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act

as a corporation knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities and damages incurred
or arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such,

cannot resist performance thereof on the ground that there was in fact
no corporation.

Thus, even if the ostensible corporate entity is proven to be legally

nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes
of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person
who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all
the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged

corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages
and benefits.

On the other hand, a third party who, knowing an association to be

unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in
a suit brought against the alleged corporation. In such case, all those
who benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear

Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly 18 liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who
dealt in the name of the ostensible corporation should be held liable.
Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he
cannot be held liable.

Unquestionably, petitioner benefited from the use of the nets found

inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao
decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the
three as contracting parties in representation of it. Clearly, under the
law on estoppel, those acting on behalf of a corporation and those
benefited by it, knowing it to be without valid existence, are held liable
as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel. We reiterate
the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply

schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue
and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice
be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid to
justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in
technicalities.

Third Issue:

Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly
issued against the nets. We agree with the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B Lourdes
was an asset of the partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his partners
owed. The nets and the floats were specifically manufactured and
tailor-made according to their own design, and were bought and used
in the fishing venture they agreed upon. Hence, the issuance of the Writ
to assure the payment of the price stipulated in the invoices is proper.
Besides, by specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED. Costs against petitioner.

SO ORDERED.

------------------

G.R. No. L-9996 October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA

EVANGELISTA, petitioners,

vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX
APPEALS, respondents.

CONCEPCION, J.:

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

Francisca Evangelista, for review of a decision of the Court of Tax
Appeals, the dispositive part of which reads:

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

It appears from the stipulation submitted by the parties:

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

P59,1400.00 which amount together with their personal monies was
used by them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina
Florentino a lot with an area of 3,713.40 sq. m. including improvements
thereon from the sum of P100,000.00; this property has an assessed
value of P57,517.00 as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21

parcels of land with an aggregate area of 3,718.40 sq. m. including
improvements thereon for P130,000.00; this property has an assessed
value of P82,255.00 as of 1948;

4. That on April 28, 1944 they purchased from the Insular

Investments Inc., a lot of 4,353 sq. m. including improvements thereon
for P108,825.00. This property has an assessed value of P4,983.00 as of
1948;

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

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

brother Simeon Evangelista to 'manage their properties with full power
to lease; to collect and receive rents; to issue receipts therefor; in
default of such payment, to bring suits against the defaulting tenants; to
sign all letters, contracts, etc., for and in their behalf, and to endorse
and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the
petitioners had the same rented or leases to various tenants;

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

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

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

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

10. That in 1948, they realized a gross rental income of P17,453.00

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

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

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

1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949
1,575.90

Total including surcharge and compromise

P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

1947

150.00

1948

150.00
1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

1947
38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and corresponding assessments were delivered to

petitioners on December 3, 1954, whereupon they instituted the
present case in the Court of Tax Appeals, with a prayer that "the
decision of the respondent contained in his letter of demand dated
September 24, 1954" be reversed, and that they be absolved from the
payment of the taxes in question, with costs against the respondent.

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

mentioned decision for the respondent, and a petition for
reconsideration and new trial having been subsequently denied, the
case is now before Us for review at the instance of the petitioners.

The issue in this case whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act. No. 466,
otherwise known as the National Internal Revenue Code, as well as to
the residence tax for corporations and the real estate dealers fixed tax.
With respect to the tax on corporations, the issue hinges on the
meaning of the terms "corporation" and "partnership," as used in
section 24 and 84 of said Code, the pertinent parts of which read:

SEC. 24. Rate of tax on corporations.—There shall be levied, assessed,

collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized
in, or existing under the laws of the Philippines, no matter how created
or organized but not including duly registered general co-partnerships
(compañias colectivas), a tax upon such income equal to the sum of the
following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations or insurance companies, but
does not include duly registered general copartnerships. (compañias
colectivas).

Article 1767 of the Civil Code of the Philippines provides:

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

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

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

namely: (a) an agreement to contribute money, property or industry to
a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case
at bar, for, admittedly, petitioners have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows down
to their intent in acting as they did. Upon consideration of all the facts
and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves, because:
1. Said common fund was not something they found already in
existence. It was not property inherited by them pro indiviso. They
created it purposely. What is more they jointly borrowed a substantial
portion thereof in order to establish said common fund.

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

3. The aforesaid lots were not devoted to residential purposes, or to

other personal uses, of petitioners herein. The properties were leased
separately to several persons, who, from 1945 to 1948 inclusive, paid
the total sum of P70,068.30 by way of rentals. Seemingly, the lots are
still being so let, for petitioners do not even suggest that there has been
any change in the utilization thereof.
4. Since August, 1945, the properties have been under the
management of one person, namely Simeon Evangelista, with full
power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks.
Thus, the affairs relative to said properties have been handled as if the
same belonged to a corporation or business and enterprise operated for
profit.

5. The foregoing conditions have existed for more than ten (10)
years, or, to be exact, over fifteen (15) years, since the first property was
acquired, and over twelve (12) years, since Simeon Evangelista became
the manager.

6. Petitioners have not testified or introduced any evidence, either

on their purpose in creating the set up already adverted to, or on the
causes for its continued existence. They did not even try to offer an
explanation therefor.

Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of
said intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein,
and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not
copartners, for, in consequence of the acts performed by them, a legal
entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are
lacking in the case at bar. This pretense was correctly rejected by the
Court of Tax Appeals.

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

which, strictly speaking, are distinct and different from "partnerships".
When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in
the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general
partnerships which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of
said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in
order that one could be deemed constituted for purposes of the tax on
corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality
of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition
essential to the existence of the partnerships therein referred to. In fact,
as above stated, "duly registered general copartnerships" — which are
possessed of the aforementioned personality — have been expressly
excluded by law (sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that petitioners'
allegation to the effect that their liability in connection with the leasing
of the lots above referred to, under the management of one person —
even if true, on which we express no opinion — tends to increase the
similarity between the nature of their venture and that corporations,
and is, therefore, an additional argument in favor of the imposition of
said tax on corporations.

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

are taxed differently from "partnerships". By specific provisions of said
laws, such "corporations" include "associations, joint-stock companies
and insurance companies." However, the term "association" is not used
in the aforementioned laws.

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

created for the transaction of designed affairs, or the attainment of
some object, which like a corporation, continues notwithstanding that
its members or participants change, and the affairs of which, like
corporate affairs, are conducted by a single individual, a committee, a
board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a
declaration of trust, a statute, or otherwise. It includes a voluntary
association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust
(whether of the fixed or the management type), an interinsuarance
exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name
known) which is not, within the meaning of the Code, a trust or an
estate, or a partnership. (7A Mertens Law of Federal Income Taxation, p.
788; emphasis supplied.).

Similarly, the American Law.

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

'partnership 'it includes not only a partnership as known at common
law but, as well, a syndicate, group, pool, joint venture or other
unincorporated organizations which carries on any business financial
operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal
Income taxation, p. 789; emphasis supplied.)

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

or other unincorporated organization, through or by means of which
any business, financial operation, or venture is carried on, . . .. ( 8
Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis
supplied.) .

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

Code, includes these partnerships — with the exception only of duly
registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.

As regards the residence of tax for corporations, section 2 of

Commonwealth Act No. 465 provides in part:

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

created or organized, whether domestic or resident foreign, engaged in
or doing business in the Philippines shall pay an annual residence tax of
five pesos and an annual additional tax which in no case, shall exceed
one thousand pesos, in accordance with the following schedule: . . .

The term 'corporation' as used in this Act includes joint-stock company,

partnership, joint account (cuentas en participacion), association or
insurance company, no matter how created or organized. (emphasis
supplied.)

Considering that the pertinent part of this provision is analogous to that

of section 24 and 84 (b) of our National Internal Revenue Code
(commonwealth Act No. 466), and that the latter was approved on June
15, 1939, the day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with
substantially the same meaning. Consequently, petitioners are subject,
also, to the residence tax for corporations.

Lastly, the records show that petitioners have habitually engaged in

leasing the properties above mentioned for a period of over twelve
years, and that the yearly gross rentals of said properties from June
1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to
the tax provided in section 193 (q) of our National Internal Revenue
Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s)
thereof:

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

buying, selling, exchanging, leasing, or renting property or his own
account as principal and holding himself out as a full or part time dealer
in real estate or as an owner of rental property or properties rented or
offered to rent for an aggregate amount of three thousand pesos or
more a year. . . (emphasis supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby

affirmed with costs against the petitioners herein. It is so ordered.

-----------------------

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.

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 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

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 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
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. 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.

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 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.

-------------------

G.R. No. 172690 March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,

vs.

JULIET VILLA LIM, Respondent.

.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of

the Rules of Civil Procedure, assailing the Court of Appeals (CA)
Decision2 dated June 29, 2005, which reversed and set aside the
decision3 of the Regional Trial Court (RTC) of Lucena City, dated April
12, 2004.
The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's
widow Cresencia Palad (Cresencia); and their children Elenito, Evelia,
Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented
by Elenito Lim (Elenito). They filed a Complaint4 for Partition,
Accounting and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who was the
eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood

Sawmill in Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together
with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed
a partnership to engage in the trucking business. Initially, with a
contribution of ₱50,000.00 each, they purchased a truck to be used in
the hauling and transport of lumber of the sawmill. Jose managed the
operations of this trucking business until his death on August 15, 1981.
Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in
the partnership profits and income that formed part of the estate of
Jose were held in trust by Elfledo, with petitioners' authority for Elfledo
to use, purchase or acquire properties using said funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his father’s driver in the trucking business. He was
never a partner or an investor in the business and merely supervised
the purchase of additional trucks using the income from the trucking
business of the partners. By the time the partnership ceased, it had
nine trucks, which were all registered in Elfledo's name. Petitioners
asseverated that it was also through Elfledo’s management of the
partnership that he was able to purchase numerous real properties by
using the profits derived therefrom, all of which were registered in his
name and that of respondent. In addition to the nine trucks, Elfledo also
acquired five other motor vehicles.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving
heir. Petitioners claimed that respondent took over the administration
of the aforementioned properties, which belonged to the estate of Jose,
without their consent and approval. Claiming that they are co-owners
of the properties, petitioners required respondent to submit an
accounting of all income, profits and rentals received from the estate of
Elfledo, and to surrender the administration thereof. Respondent
refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo

was himself a partner of Norberto and Jimmy. Respondent also claimed
that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo
₱50,000.00 as the latter's capital in an informal partnership with Jimmy
and Norberto. When Elfledo and respondent got married in 1981, the
partnership only had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business, Elfledo, together
with respondent, engaged in other business ventures. Thus, they were
able to buy real properties and to put up their own car assembly and
repair business. When Norberto was ambushed and killed on July 16,
1993, the trucking business started to falter. When Elfledo died on May
18, 1995 due to a heart attack, respondent talked to Jimmy and to the
heirs of Norberto, as she could no longer run the business. Jimmy
suggested that three out of the nine trucks be given to him as his share,
while the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus,
she sold the same to respondent, who paid for them in installments.

Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his
demise. Respondent also stressed that Jose left no properties that
Elfledo could have held in trust. Respondent maintained that all the
properties involved in this case were purchased and acquired through
her and her husband’s joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent
submitted that these are conjugal partnership properties; and thus, she
had the right to refuse to render an accounting for the income or profits
of their own business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its
decision in favor of petitioners, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally
between the plaintiffs and heirs of Jose Lim and the defendant Juliet
Villa-Lim; and

2) Ordering the defendant to submit an accounting of all incomes,

profits and rentals received by her from said properties.

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted,
petitioners filed their Motion for Reconsideration,5 which the CA,
however, denied in its Resolution6 dated May 8, 2006.

Hence, this Petition, raising the sole question, viz.:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY

THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE
GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE
ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?
7
In essence, petitioners argue that according to the testimony of Jimmy,
the sole surviving partner, Elfledo was not a partner; and that he and
Norberto entered into a partnership with Jose. Thus, the CA erred in not
giving that testimony greater weight than that of Cresencia, who was
merely the spouse of Jose and not a party to the partnership.8

Respondent counters that the issue raised by petitioners is not proper

in a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review, evaluation, calibration, and re-
weighing of the factual findings of the CA. Moreover, respondent
invokes the rationale of the CA decision that, in light of the admissions
of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's
reversal of the RTC's findings was fully justified.9

We resolve first the procedural matter regarding the propriety of the

instant Petition.

Verily, the evaluation and calibration of the evidence necessarily

involves consideration of factual issues — an exercise that is not
appropriate for a petition for review on certiorari under Rule 45. This
rule provides that the parties may raise only questions of law, because
the Supreme Court is not a trier of facts. Generally, we are not duty-
bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.10 When supported by substantial
evidence, the findings of fact of the CA are conclusive and binding on
the parties and are not reviewable by this Court, unless the case falls
under any of the following recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation,

surmises and conjectures;

(2) When the inference made is manifestly mistaken, absurd or

impossible;

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee;

(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific
evidence on which they are based;

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

(10) When the findings of fact of the Court of Appeals are premised on
the supposed absence of evidence and contradicted by the evidence on
record.11

We note, however, that the findings of fact of the RTC are contrary to
those of the CA. Thus, our review of such findings is warranted.

On the merits of the case, we find that the instant Petition is bereft of
merit.

A partnership exists when two or more persons agree to place their

money, effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits
and losses among them. A contract of partnership is defined by the Civil
Code as one where two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.12
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is none
in this case, because the alleged partnership was never formally
organized. Nonetheless, we are asked to determine who between Jose
and Elfledo was the "partner" in the trucking business.

A careful review of the records persuades us to affirm the CA decision.

The evidence presented by petitioners falls short of the quantum of
proof required to establish that: (1) Jose was the partner and not
Elfledo; and (2) all the properties acquired by Elfledo and respondent
form part of the estate of Jose, having been derived from the alleged
partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just

one piece of evidence against respondent. It must be considered and
weighed along with petitioners' other evidence vis-à-vis respondent's
contrary evidence. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value of the
aggregate evidence on either side and is usually considered
synonymous with the term "greater weight of the evidence" or "greater
weight of the credible evidence." "Preponderance of evidence" is a
phrase that, in the last analysis, means probability of the truth. It is
evidence that is more convincing to the court as worthy of belief than
that which is offered in opposition thereto.13 Rule 133, Section 1 of the
Rules of Court provides the guidelines in determining preponderance of
evidence, thus:

SECTION I. Preponderance of evidence, how determined. In civil cases,

the party having burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance
or superior weight of evidence on the issues involved lies, the court
may consider all the facts and circumstances of the case, the witnesses'
manner of testifying, their intelligence, their means and opportunity of
knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility so
far as the same may legitimately appear upon the trial. The court may
also consider the number of witnesses, though the preponderance is
not necessarily with the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14
is enlightening. Therein, we cited Article 1769 of the Civil Code, which
provides:

Art. 1769. In determining whether a partnership exists, these rules shall

apply:

(1) Except as provided by Article 1825, persons who are not partners as
to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a

partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived;

(4) The receipt by a person of a share of the profits of a business is a

prima facie evidence that he is a partner in the business, but no such
inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;

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

(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.

Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of
Jimmy and Norberto: 1) Cresencia testified that Jose gave Elfledo
₱50,000.00, as share in the partnership, on a date that coincided with
the payment of the initial capital in the partnership;15 (2) Elfledo ran
the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any
of petitioners herein;16 (3) all of the properties, particularly the nine
trucks of the partnership, were registered in the name of Elfledo; (4)
Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of
the profits of the business;17 and (5) none of the petitioners, as heirs of
Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,18 a
demand for periodic accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that

the real and personal properties acquired and registered in the names
of Elfledo and respondent formed part of the estate of Jose, having
been derived from Jose's alleged partnership with Jimmy and Norberto.
They failed to refute respondent's claim that Elfledo and respondent
engaged in other businesses. Edison even admitted that Elfledo also
sold Interwood lumber as a sideline.19 Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the
basic rule of evidence that between documentary and oral evidence,
the former carries more weight.20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but
one of the partners in the trucking business, active and visible in the
running of its affairs from day one until this ceased operations upon his
demise. The extent of his control, administration and management of
the partnership and its business, the fact that its properties were placed
in his name, and that he was not paid salary or other compensation by
the partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only
contributed in the initial capital but had no say thereafter on how the
business was ran. Evidently it was through Elfredo’s efforts and hard
work that the partnership was able to acquire more trucks and
otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.1avvphi1

It is notable too that Jose Lim died when the partnership was barely a
year old, and the partnership and its business not only continued but
also flourished. If it were true that it was Jose Lim and not Elfledo who
was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were
not done but instead its operation continued under the helm of Elfledo
and without any participation from the heirs of Jose Lim.

Whatever properties appellant and her husband had acquired, this was
through their own concerted efforts and hard work. Elfledo did not limit
himself to the business of their partnership but engaged in other lines
of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling
of the CA as they are amply supported by the law and by the evidence
on record.

WHEREFORE, the instant Petition is DENIED. The assailed Court of

Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against
petitioners.

SO ORDERED.

----------------------

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.

THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO

S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil

Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for

the appellees) entered into on Oct. 19, 1960 by and between Mrs.
Segundina Noguera, party of the first part; the Tourist World Service,
Inc., represented by Mr. Eliseo Canilao as party of the second part, and
hereinafter referred to as appellants, the Tourist World Service, Inc.
leased the premises belonging to the party of the first part at Mabini
St., Manila for the former-s use as a branch office. In the said contract
the party of the third part held herself solidarily liable with the party of
the part for the prompt payment of the monthly rental agreed on.
When the branch office was opened, the same was run by the herein
appellant Una 0. Sevilla payable to Tourist World Service Inc. by any
airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was
to go to Lina Sevilla and 3% was to be withheld by the Tourist World
Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service,
Inc. appears to have been informed that Lina Sevilla was connected
with a rival firm, the Philippine Travel Bureau, and, since the branch
office was anyhow losing, the Tourist World Service considered closing
down its office. This was firmed up by two resolutions of the board of
directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12
and 13), the first abolishing the office of the manager and vice-
president of the Tourist World Service, Inc., Ermita Branch, and the
second,authorizing the corporate secretary to receive the properties of
the Tourist World Service then located at the said branch office. It
further appears that on Jan. 3, 1962, the contract with the appellees for
the use of the Branch Office premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As
a matter of fact appellants used it since Nov. 1961. Because of this, and
to comply with the mandate of the Tourist World Service, the corporate
secretary Gabino Canilao went over to the branch office, and, finding
the premises locked, and, being unable to contact Lina Sevilla, he
padlocked the premises on June 4, 1962 to protect the interests of the
Tourist World Service. When neither the appellant Lina Sevilla nor any
of her employees could enter the locked premises, a complaint wall
filed by the herein appellants against the appellees with a prayer for the
issuance of mandatory preliminary injunction. Both appellees answered
with counterclaims. For apparent lack of interest of the parties therein,
the trial court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order
dismissing her counterclaim which the court a quo, in an order dated
June 8, 1963, granted permitting her to present evidence in support of
her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the
herein appellees and after the issues were joined, the reinstated
counterclaim of Segundina Noguera and the new complaint of appellant
Lina Sevilla were jointly heard following which the court a quo ordered
both cases dismiss for lack of merit, on the basis of which was elevated
the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE

OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.

LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD
SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION
AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF
JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT

MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A
MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE,
INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD
NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A.
MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL

APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O.
SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT

APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR
RENTALS.

On the foregoing facts and in the light of the errors asigned the issues
to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the

telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World

Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the
appellee Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness

venture was entered into by and between her and appellee TWS with
offices at the Ermita branch office and that she was not an employee of
the TWS to the end that her relationship with TWS was one of a joint
business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an

eminent eye, ear and nose specialist as well as a imediately columnist
had been in the travel business prior to the establishment of the joint
business venture with appellee Tourist World Service, Inc. and appellee
Eliseo Canilao, her compadre, she being the godmother of one of his
children, with her own clientele, coming mostly from her own social
circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated

19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she
expressly warranting and holding [sic] herself 'solidarily' liable with
appellee Tourist World Service, Inc. for the prompt payment of the
monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn.
Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located at
the Trade & Commerce Building; nor was she an employee thereof,
having no participation in nor connection with said business at the
Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own

passengers, her own bookings her own business (and not for any of the
business of appellee Tourist World Service, Inc.) obtained from the
airline companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid
retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of

maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from desicion
the office furniture and supplying some of fice furnishings (pp. 15,18
tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the
rental and other expenses in consideration for the 3% split in the co
procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs.

Sevilla would be given the title of branch manager for appearance's
sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a
title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo
Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary
Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an
employee of the appellee Tourist World Service, Inc. and as such was
designated manager.1

xxx xxx xxx

The trial court2 held for the private respondent on the premise that the
private respondent, Tourist World Service, Inc., being the true lessee, it
was within its prerogative to terminate the lease and padlock the
premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere
employee of said Tourist World Service, Inc. and as such, she was bound
by the acts of her employer. 4 The respondent Court of Appeal 5
rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the
lower court, erred. Specifically, they state:

I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE
PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE
KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ...
WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER
EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT
(SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,
WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST
WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID
OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY
BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD
SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST
DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY

ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF
BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED
THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES
WERE WITHDRAWN." (ANNEX "A" P. 8)

III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY
ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND
RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY

ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA
RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT
VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT
COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC.6

As a preliminary inquiry, the Court is asked to declare the true nature of

the relation between Lina Sevilla and Tourist World Service, Inc. The
respondent Court of see fit to rule on the question, the crucial issue, in
its opinion being "whether or not the padlocking of the premises by the
Tourist World Service, Inc. without the knowledge and consent of the
appellant Lina Sevilla entitled the latter to the relief of damages prayed
for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and
without the consent of the appellant disconnected the telephone lines
of the Ermita branch office of the appellee Tourist World Service, Inc.7
Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA
was a mere employee, being "branch manager" of its Ermita "branch"
office and that inferentially, she had no say on the lease executed with
the private respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of joint
venture, but concede that "whatever might have been the true
relationship between Sevilla and Tourist World Service," the Rule of Law
enjoined Tourist World Service and Canilao from taking the law into
their own hands, 8 in reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private
respondent, Tourist World Service, Inc., maintains, that the relation
between the parties was in the character of employer and employee,
the courts would have been without jurisdiction to try the case, labor
disputes being the exclusive domain of the Court of Industrial Relations,
later, the Bureau Of Labor Relations, pursuant to statutes then in force.
9

In this jurisdiction, there has been no uniform test to determine the

evidence of an employer-employee relation. In general, we have relied
on the so-called right of control test, "where the person for whom the
services are performed reserves a right to control not only the end to
be achieved but also the means to be used in reaching such end." 10
Subsequently, however, we have considered, in addition to the standard
of right-of control, the existing economic conditions prevailing between
the parties, like the inclusion of the employee in the payrolls, in
determining the existence of an employer-employee relationship.11
The records will show that the petitioner, Lina Sevilla, was not subject
to control by the private respondent Tourist World Service, Inc., either
as to the result of the enterprise or as to the means used in connection
therewith. In the first place, under the contract of lease covering the
Tourist Worlds Ermita office, she had bound herself in solidum as and
for rental payments, an arrangement that would be like claims of a
master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 12 that
does not make her an employee of Tourist World, since in any case, a
true employee cannot be made to part with his own money in
pursuance of his employer's business, or otherwise, assume any liability
thereof. In that event, the parties must be bound by some other
relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the
branch office was opened, the same was run by the herein appellant
Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for
any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these
circumstances, it cannot be said that Sevilla was under the control of
Tourist World Service, Inc. "as to the means used." Sevilla in pursuing
the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For
her efforts, she retained 4% in commissions from airline bookings, the
remaining 3% going to Tourist World. Unlike an employee then, who
earns a fixed salary usually, she earned compensation in fluctuating
amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not
make her, ergo, Tourist World's employee. As we said, employment is
determined by the right-of-control test and certain economic
parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not,

as a consequence, accepting Lina Sevilla's own, that is, that the parties
had embarked on a joint venture or otherwise, a partnership. And
apparently, Sevilla herself did not recognize the existence of such a
relation. In her letter of November 28, 1961, she expressly 'concedes
your [Tourist World Service, Inc.'s] right to stop the operation of your
branch office 14 in effect, accepting Tourist World Service, Inc.'s control
over the manner in which the business was run. A joint venture,
including a partnership, presupposes generally a of standing between
the joint co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property contributed 15 and where
each party exercises equal rights in the conduct of the business.16
furthermore, the parties did not hold themselves out as partners, and
the building itself was embellished with the electric sign "Tourist World
Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina

Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another.18 In the
case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation, she
received 4% of the proceeds in the concept of commissions. And as we
said, Sevilla herself based on her letter of November 28, 1961, pre-
assumed her principal's authority as owner of the business undertaking.
We are convinced, considering the circumstances and from the
respondent Court's recital of facts, that the ties had contemplated a
principal agent relationship, rather than a joint managament or a
partnership..

But unlike simple grants of a power of attorney, the agency that we

hereby declare to be compatible with the intent of the parties, cannot
be revoked at will. The reason is that it is one coupled with an interest,
the agency having been created for mutual interest, of the agent and
the principal. 19 It appears that Lina Sevilla is a bona fide travel agent
herself, and as such, she had acquired an interest in the business
entrusted to her. Moreover, she had assumed a personal obligation for
the operation thereof, holding herself solidarily liable for the payment
of rentals. She continued the business, using her own name, after
Tourist World had stopped further operations. Her interest, obviously, is
not to the commissions she earned as a result of her business
transactions, but one that extends to the very subject matter of the
power of management delegated to her. It is an agency that, as we said,
cannot be revoked at the pleasure of the principal. Accordingly, the
revocation complained of should entitle the petitioner, Lina Sevilla, to
damages.
As we have stated, the respondent Court avoided this issue, confining
itself to the telephone disconnection and padlocking incidents. Anent
the disconnection issue, it is the holding of the Court of Appeals that
there is 'no evidence showing that the Tourist World Service, Inc.
disconnected the telephone lines at the branch office. 20 Yet, what
cannot be denied is the fact that Tourist World Service, Inc. did not take
pains to have them reconnected. Assuming, therefore, that it had no
hand in the disconnection now complained of, it had clearly condoned
it, and as owner of the telephone lines, it must shoulder responsibility
therefor.

The Court of Appeals must likewise be held to be in error with respect

to the padlocking incident. For the fact that Tourist World Service, Inc.
was the lessee named in the lease con-tract did not accord it any
authority to terminate that contract without notice to its actual
occupant, and to padlock the premises in such fashion. As this Court has
ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the
business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been
explicitly named therein as a third party in charge of rental payments
(solidarily with Tourist World, Inc.). She could not be ousted from
possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was
indeed some malevolent design to put the petitioner, Lina Sevilla, in a
bad light following disclosures that she had worked for a rival firm. To
be sure, the respondent court speaks of alleged business losses to
justify the closure '21 but there is no clear showing that Tourist World
Ermita Branch had in fact sustained such reverses, let alone, the fact
that Sevilla had moonlit for another company. What the evidence
discloses, on the other hand, is that following such an information (that
Sevilla was working for another company), Tourist World's board of
directors adopted two resolutions abolishing the office of 'manager"
and authorizing the corporate secretary, the respondent Eliseo Canilao,
to effect the takeover of its branch office properties. On January 3,
1962, the private respondents ended the lease over the branch office
premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the
Ermita office was padlocked, personally by the respondent Canilao, on
the pretext that it was necessary to Protect the interests of the Tourist
World Service. " 22 It is strange indeed that Tourist World Service, Inc.
did not find such a need when it cancelled the lease five months earlier.
While Tourist World Service, Inc. would not pretend that it sought to
locate Sevilla to inform her of the closure, but surely, it was aware that
after office hours, she could not have been anywhere near the
premises. Capping these series of "offensives," it cut the office's
telephone lines, paralyzing completely its business operations, and in
the process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister
effort to punish Sevillsa it had perceived to be disloyalty on her part. It
is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of

agency, the private respondent, Tourist World Service, Inc., should be
sentenced to pay damages. Under the Civil Code, moral damages may
be awarded for "breaches of contract where the defendant acted ... in
bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further

damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney
granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for the damage.24

ART. 2219. Moral damages25 may be recovered in the following and

analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34,
and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby

ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is

concerned, no evidence has been shown that she had connived with
Tourist World Service, Inc. in the disconnection and padlocking
incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral

damages,24 P10,000.00 as exemplary damages, 25 and P5,000.00 as
nominal 26 and/or temperate27 damages, to be just, fair, and
reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as

the Resolution issued on July 31, 1975, by the respondent Court of
Appeals is hereby REVERSED and SET ASIDE. The private respondent,
Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and
severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00
as and for moral damages, the sum of P10,000.00, as and for exemplary
damages, and the sum of P5,000.00, as and for nominal and/or
temperate damages.

Costs against said private respondents.

SO ORDERED.

------------------------

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and

EMETERIA BARING, petitioners,

vs.

COURT OF APPEALS and MANUEL TORRES, respondents.

Courts may not extricate parties from the necessary consequences of

their acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto
release the contracting partners from their respective obligations to
each other arising from acts executed in accordance with their
agreement.
The Case

The Petition for Review on Certiorari before us assails the March 5,

1998 Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378
and its June 25, 1998 Resolution denying reconsideration. The assailed
Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu
City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for
the defendant and against the plaintiffs, orders the dismissal of the
plaintiffs complaint. The counterclaims of the defendant are likewise
ordered dismissed. No pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered

into a "joint venture agreement" with Respondent Manuel Torres for
the development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land
in favor of respondent, who then had it registered in his name. By
mortgaging the property, respondent obtained from Equitable Bank a
loan of P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision. 4 All three of them also
agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently
foreclosed by the bank.

According to petitioners, the project failed because of "respondent's

lack of funds or means and skills." They add that respondent used the
loan not for the development of the subdivision, but in furtherance of
his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to

implement the Agreement. With the said amount, he was able to effect
the survey and the subdivision of the lots. He secured the Lapu Lapu
City Council's approval of the subdivision project which he advertised in
a local newspaper. He also caused the construction of roads, curbs and
gutters. Likewise, he entered into a contract with an engineering firm
for the building of sixty low-cost housing units and actually even set up
a model house on one of the subdivision lots. He did all of these for a
total expense of P85,000.

Respondent claimed that the subdivision project failed, however,

because petitioners and their relatives had separately caused the
annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests, petitioners
refused to cause the clearing of the claims, thereby forcing him to give
up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against

respondent and his wife, who were however acquitted. Thereafter, they
filed the present civil case which, upon respondent's motion, was later
dismissed by the trial court in an Order dated September 6, 1982. On
appeal, however, the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed Decision, which, as
earlier stated, was affirmed by the CA.

Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners
and respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in
the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial court's pronouncement that losses
as well as profits in a joint venture should be distributed equally, 7 the
CA invoked Article 1797 of the Civil Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the same
proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits

and losses shall be in proportion to what he may have contributed, but
the industrial partner shall not be liable for the losses. As for the profits,
the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in
proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint

venture/partnership, ignoring outright the provision of Article 1769,
and other related provisions of the Civil Code of the Philippines. 8
The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They

contend that the Joint Venture Agreement and the earlier Deed of Sale,
both of which were the bases of the appellate court's finding of a
partnership, were void.

In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that
respondent pay them damages equivalent to 60 percent of the value of
the property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines,

this 5th day of March, 1969, by and between MR. MANUEL R.
TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and
MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY,
this property located at Lapu-Lapu City, Island of Mactan, under Lot No.
1368 covering TCT No. T-0184 with a total area of 17,009 square
meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the
execution of this contract for the property entrusted by the SECOND
PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and

promises herein contained the respective parties hereto do hereby
stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency,
for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY,
the necessary amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, for their personal obligations and this particular
amount will serve as an advance payment from the FIRST PARTY for the
property mentioned to be sub-divided and to be deducted from the
sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY,
the interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-
division project is terminated and ready for sale to any interested
parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all
the expenses will not be deducted from the sales after the development
of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40%
for the FIRST PARTY, and additional profits or whatever income deriving
from the sales will be divided equally according to the . . . percentage
[agreed upon] by both parties.

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

will start the work and all improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales shall [be] decided by
both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get

back the property mentioned provided the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and-the FIRST
PARTY will be given a grace period to turnover the property mentioned
above.

That this AGREEMENT shall be binding and obligatory to the parties

who executed same freely and voluntarily for the uses and purposes
therein stated. 10
A reading of the terms embodied in the Agreement indubitably shows
the existence of a partnership pursuant to Article 1767 of the Civil Code,
which provides:

Art. 1767. By the contract of partnership two or more persons bind

themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute

property to the partnership in the form of land which was to be
developed into a subdivision; while respondent would give, in addition
to his industry, the amount needed for general expenses and other
costs. Furthermore, the income from the said project would be divided
according to the stipulated percentage. Clearly, the contract manifested
the intention of the parties to form a partnership. 11

It should be stressed that the parties implemented the contract. Thus,

petitioners transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for the
survey and the subdivision of the land. As noted earlier, he developed
the roads, the curbs and the gutters of the subdivision and entered into
a contract to construct low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made
no contribution to the partnership. Under Article 1767 of the Civil Code,
a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only
to what has been expressly stipulated, but also to all necessary
consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has
been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and
law.

It is undisputed that petitioners are educated and are thus presumed to

have understood the terms of the contract they voluntarily signed. If it
was not in consonance with their expectations, they should have
objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow
the relationship formed from such agreement due to their supposed
misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:

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

property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the
aforecited provision which is a complement of Article 1771, 12 "The
execution of a public instrument would be useless if there is no
inventory of the property contributed, because without its designation
and description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This
will result in fraud to those who contract with the partnership in the
belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such
inventory is made." The case at bar does not involve third parties who
may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as

basis for their claim that respondent should pay them 60 percent of the
value of the property. 13 They cannot in one breath deny the contract
and in another recognize it, depending on what momentarily suits their
purpose. Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts
from considering the Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to each other may be
inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under
Article 1422 14 of the Civil Code, because it is the direct result of an
earlier illegal contract, which was for the sale of the land without valid
consideration.

This argument is puerile. The Joint Venture Agreement clearly states

that the consideration for the sale was the expectation of profits from
the subdivision project. Its first stipulation states that petitioners did
not actually receive payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can take different
forms, such as the prestation or promise of a thing or service by
another. 15

In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the
subdivision project, for which the land was intended to be used. As
explained by the trial court, "the land was in effect given to the
partnership as [petitioner's] participation therein. . . . There was
therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would]
get sixty percent of the net profits."
Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which
was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners'
acts were not the cause of the failure of the project. 16 But it also ruled
that neither was respondent responsible therefor. 17 In imputing the
blame solely to him, petitioners failed to give any reason why we should
disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review
under Rule 45, as in this case. Petitioners have not alleged, not to say
shown, that their Petition constitutes one of the exceptions to this
doctrine. 18 Accordingly, we find no reversible error in the CA's ruling
that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged

Decision AFFIRMED. Costs against petitioners.

SO ORDERED

----------------------------
G.R. No. 142293 February 27, 2003

VICENTE SY, TRINIDAD PAULINO, 6B’S TRUCKING CORPORATION, and

SBT1 TRUCKING CORPORATION, petitioners,

vs.

HON. COURT OF APPEALS and JAIME SAHOT, respondents.

This petition for review seeks the reversal of the decision2 of the Court
of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming
with modification the decision3 of the National Labor Relations
Commission promulgated on June 20, 1996 in NLRC NCR CA No.
010526-96. Petitioners also pray for the reinstatement of the decision4
of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.

Culled from the records are the following facts of this case:

Sometime in 1958, private respondent Jaime Sahot5 started working as

a truck helper for petitioners’ family-owned trucking business named
Vicente Sy Trucking. In 1965, he became a truck driver of the same
family business, renamed T. Paulino Trucking Service, later 6B’s Trucking
Corporation in 1985, and thereafter known as SBT Trucking Corporation
since 1994. Throughout all these changes in names and for 36 years,
private respondent continuously served the trucking business of
petitioners.

In April 1994, Sahot was already 59 years old. He had been incurring
absences as he was suffering from various ailments. Particularly causing
him pain was his left thigh, which greatly affected the performance of
his task as a driver. He inquired about his medical and retirement
benefits with the Social Security System (SSS) on April 25, 1994, but
discovered that his premium payments had not been remitted by his
employer.

Sahot had filed a week-long leave sometime in May 1994. On May 27th,
he was medically examined and treated for EOR, presleyopia,
hypertensive retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104,
respectively),6 HPM, UTI, Osteoarthritis (Annex "G-4", p. 105),7 and
heart enlargement (Annex G, p. 107).8 On said grounds, Belen Paulino
of the SBT Trucking Service management told him to file a formal
request for extension of his leave. At the end of his week-long absence,
Sahot applied for extension of his leave for the whole month of June,
1994. It was at this time when petitioners allegedly threatened to
terminate his employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing dismissal

if he refused to work, But he could not retire on pension because
petitioners never paid his correct SSS premiums. The fact remained he
could no longer work as his left thigh hurt abominably. Petitioners
ended his dilemma. They carried out their threat and dismissed him
from work, effective June 30, 1994. He ended up sick, jobless and
penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration
Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case
No. 00-09-06717-94. He prayed for the recovery of separation pay and
attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino,
Vicente Sy Trucking, T. Paulino Trucking Service, 6B’s Trucking and SBT
Trucking, herein petitioners.

For their part, petitioners admitted they had a trucking business in the
1950s but denied employing helpers and drivers. They contend that
private respondent was not illegally dismissed as a driver because he
was in fact petitioner’s industrial partner. They add that it was not until
the year 1994, when SBT Trucking Corporation was established, and
only then did respondent Sahot become an employee of the company,
with a monthly salary that reached P4,160.00 at the time of his
separation.

Petitioners further claimed that sometime prior to June 1, 1994, Sahot

went on leave and was not able to report for work for almost seven
days. On June 1, 1994, Sahot asked permission to extend his leave of
absence until June 30, 1994. It appeared that from the expiration of his
leave, private respondent never reported back to work nor did he file an
extension of his leave. Instead, he filed the complaint for illegal
dismissal against the trucking company and its owners.

Petitioners add that due to Sahot’s refusal to work after the expiration
of his authorized leave of absence, he should be deemed to have
voluntarily resigned from his work. They contended that Sahot had all
the time to extend his leave or at least inform petitioners of his health
condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled
"Manuelito Jimenez et al. vs. T. Paulino Trucking Service," as a defense
in view of the alleged similarity in the factual milieu and issues of said
case to that of Sahot’s, hence they are in pari material and Sahot’s
complaint ought also to be dismissed.

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente
Santos, ruled that there was no illegal dismissal in Sahot’s case. Private
respondent had failed to report to work. Moreover, said the Labor
Arbiter, petitioners and private respondent were industrial partners
before January 1994. The Labor Arbiter concluded by ordering
petitioners to pay "financial assistance" of P15,000 to Sahot for having
served the company as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the

judgment of the Labor Arbiter. It declared that private respondent was
an employee, not an industrial partner, since the start. Private
respondent Sahot did not abandon his job but his employment was
terminated on account of his illness, pursuant to Article 2849 of the
Labor Code. Accordingly, the NLRC ordered petitioners to pay private
respondent separation pay in the amount of P60,320.00, at the rate of
P2,080.00 per year for 29 years of service.

Petitioners assailed the decision of the NLRC before the Court of

Appeals. In its decision dated February 29, 2000, the appellate court
affirmed with modification the judgment of the NLRC. It held that
private respondent was indeed an employee of petitioners since 1958.
It also increased the amount of separation pay awarded to private
respondent to P74,880, computed at the rate of P2,080 per year for 36
years of service from 1958 to 1994. It decreed:

WHEREFORE, the assailed decision is hereby AFFIRMED with

MODIFICATION. SB Trucking Corporation is hereby directed to pay
complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT
HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.10

Hence, the instant petition anchored on the following contentions:

RESPONDENT COURT OF APPEALS IN PROMULGATING THE

QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE
DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT
IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL
CODE.11

II

RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING

THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE
FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A
BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF
THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT
UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305
SCRA 233).12

III

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT

TRUCKING CORPORATION.13

Three issues are to be resolved: (1) Whether or not an employer-

employee relationship existed between petitioners and respondent
Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or
not respondent Sahot is entitled to separation pay.
Crucial to the resolution of this case is the determination of the first
issue. Before a case for illegal dismissal can prosper, an employer-
employee relationship must first be established.14

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente

Santos which found that respondent Sahot was not an employee but
was in fact, petitioners’ industrial partner.15 It is contended that it was
the Labor Arbiter who heard the case and had the opportunity to
observe the demeanor and deportment of the parties. The same
conclusion, aver petitioners, is supported by substantial evidence.16
Moreover, it is argued that the findings of fact of the Labor Arbiter was
wrongly overturned by the NLRC when the latter made the following
pronouncement:

We agree with complainant that there was error committed by the

Labor Arbiter when he concluded that complainant was an industrial
partner prior to 1994. A computation of the age of complainant shows
that he was only twenty-three (23) years when he started working with
respondent as truck helper. How can we entertain in our mind that a
twenty-three (23) year old man, working as a truck helper, be
considered an industrial partner. Hence we rule that complainant was
only an employee, not a partner of respondents from the time
complainant started working for respondent.17

Because the Court of Appeals also found that an employer-employee

relationship existed, petitioners aver that the appellate court’s decision
gives an "imprimatur" to the "illegal" finding and conclusion of the
NLRC.

Private respondent, for his part, denies that he was ever an industrial
partner of petitioners. There was no written agreement, no proof that
he received a share in petitioners’ profits, nor was there anything to
show he had any participation with respect to the running of the
business.18

The elements to determine the existence of an employment

relationship are: (a) the selection and engagement of the employee; (b)
the payment of wages; (c) the power of dismissal; and (d) the
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.19

As found by the appellate court, petitioners owned and operated a

trucking business since the 1950s and by their own allegations, they
determined private respondent’s wages and rest day.20 Records of the
case show that private respondent actually engaged in work as an
employee. During the entire course of his employment he did not have
the freedom to determine where he would go, what he would do, and
how he would do it. He merely followed instructions of petitioners and
was content to do so, as long as he was paid his wages. Indeed, said the
CA, private respondent had worked as a truck helper and driver of
petitioners not for his own pleasure but under the latter’s control.

Article 176721 of the Civil Code states that in a contract of partnership

two or more persons bind themselves to contribute money, property or
industry to a common fund, with the intention of dividing the profits
among themselves.22 Not one of these circumstances is present in this
case. No written agreement exists to prove the partnership between
the parties. Private respondent did not contribute money, property or
industry for the purpose of engaging in the supposed business. There is
no proof that he was receiving a share in the profits as a matter of
course, during the period when the trucking business was under
operation. Neither is there any proof that he had actively participated in
the management, administration and adoption of policies of the
business. Thus, the NLRC and the CA did not err in reversing the finding
of the Labor Arbiter that private respondent was an industrial partner
from 1958 to 1994.

On this point, we affirm the findings of the appellate court and the
NLRC. Private respondent Jaime Sahot was not an industrial partner but
an employee of petitioners from 1958 to 1994. The existence of an
employer-employee relationship is ultimately a question of fact23 and
the findings thereon by the NLRC, as affirmed by the Court of Appeals,
deserve not only respect but finality when supported by substantial
evidence. Substantial evidence is such amount of relevant evidence
which a reasonable mind might accept as adequate to justify a
conclusion.24
Time and again this Court has said that "if doubt exists between the
evidence presented by the employer and the employee, the scales of
justice must be tilted in favor of the latter."25 Here, we entertain no
doubt. Private respondent since the beginning was an employee of, not
an industrial partner in, the trucking business.

Coming now to the second issue, was private respondent validly

dismissed by petitioners?

Petitioners contend that it was private respondent who refused to go

back to work. The decision of the Labor Arbiter pointed out that during
the conciliation proceedings, petitioners requested respondent Sahot to
report back for work. However, in the same proceedings, Sahot stated
that he was no longer fit to continue working, and instead he
demanded separation pay. Petitioners then retorted that if Sahot did
not like to work as a driver anymore, then he could be given a job that
was less strenuous, such as working as a checker. However, Sahot
declined that suggestion. Based on the foregoing recitals, petitioners
assert that it is clear that Sahot was not dismissed but it was of his own
volition that he did not report for work anymore.

In his decision, the Labor Arbiter concluded that:

While it may be true that respondents insisted that complainant
continue working with respondents despite his alleged illness, there is
no direct evidence that will prove that complainant’s illness prevents or
incapacitates him from performing the function of a driver. The fact
remains that complainant suddenly stopped working due to boredom
or otherwise when he refused to work as a checker which certainly is a
much less strenuous job than a driver.26

But dealing the Labor Arbiter a reversal on this score the NLRC,
concurred in by the Court of Appeals, held that:

While it was very obvious that complainant did not have any intention
to report back to work due to his illness which incapacitated him to
perform his job, such intention cannot be construed to be an
abandonment. Instead, the same should have been considered as one
of those falling under the just causes of terminating an employment.
The insistence of respondent in making complainant work did not
change the scenario.

It is worthy to note that respondent is engaged in the trucking business

where physical strength is of utmost requirement (sic). Complainant
started working with respondent as truck helper at age twenty-three
(23), then as truck driver since 1965. Complainant was already fifty-nine
(59) when the complaint was filed and suffering from various illness
triggered by his work and age.
x x x27

In termination cases, the burden is upon the employer to show by

substantial evidence that the termination was for lawful cause and
validly made.28 Article 277(b) of the Labor Code puts the burden of
proving that the dismissal of an employee was for a valid or authorized
cause on the employer, without distinction whether the employer
admits or does not admit the dismissal.29 For an employee’s dismissal
to be valid, (a) the dismissal must be for a valid cause and (b) the
employee must be afforded due process.30

Article 284 of the Labor Code authorizes an employer to terminate an

employee on the ground of disease, viz:

Art. 284. Disease as a ground for termination- An employer may

terminate the services of an employee who has been found to be
suffering from any disease and whose continued employment is
prohibited by law or prejudicial to his health as well as the health of his
co-employees: xxx

However, in order to validly terminate employment on this ground,

Book VI, Rule I, Section 8 of the Omnibus Implementing Rules of the
Labor Code requires:
Sec. 8. Disease as a ground for dismissal- Where the employee suffers
from a disease and his continued employment is prohibited by law or
prejudicial to his health or to the health of his co-employees, the
employer shall not terminate his employment unless there is a
certification by competent public health authority that the disease is of
such nature or at such a stage that it cannot be cured within a period of
six (6) months even with proper medical treatment. If the disease or
ailment can be cured within the period, the employer shall not
terminate the employee but shall ask the employee to take a leave. The
employer shall reinstate such employee to his former position
immediately upon the restoration of his normal health. (Italics
supplied).

As this Court stated in Triple Eight integrated Services, Inc. vs. NLRC,31
the requirement for a medical certificate under Article 284 of the Labor
Code cannot be dispensed with; otherwise, it would sanction the
unilateral and arbitrary determination by the employer of the gravity or
extent of the employee’s illness and thus defeat the public policy in the
protection of labor.

In the case at bar, the employer clearly did not comply with the medical
certificate requirement before Sahot’s dismissal was effected. In the
same case of Sevillana vs. I.T. (International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the
employee rests on the employer, the latter should likewise bear the
burden of showing that the requisites for a valid dismissal due to a
disease have been complied with. In the absence of the required
certification by a competent public health authority, this Court has
ruled against the validity of the employee’s dismissal. It is therefore
incumbent upon the private respondents to prove by the quantum of
evidence required by law that petitioner was not dismissed, or if
dismissed, that the dismissal was not illegal; otherwise, the dismissal
would be unjustified. This Court will not sanction a dismissal premised
on mere conjectures and suspicions, the evidence must be substantial
and not arbitrary and must be founded on clearly established facts
sufficient to warrant his separation from work.32

In addition, we must likewise determine if the procedural aspect of due

process had been complied with by the employer.

From the records, it clearly appears that procedural due process was
not observed in the separation of private respondent by the
management of the trucking company. The employer is required to
furnish an employee with two written notices before the latter is
dismissed: (1) the notice to apprise the employee of the particular acts
or omissions for which his dismissal is sought, which is the equivalent of
a charge; and (2) the notice informing the employee of his dismissal, to
be issued after the employee has been given reasonable opportunity to
answer and to be heard on his defense.33 These, the petitioners failed
to do, even only for record purposes. What management did was to
threaten the employee with dismissal, then actually implement the
threat when the occasion presented itself because of private
respondent’s painful left thigh.

All told, both the substantive and procedural aspects of due process
were violated. Clearly, therefore, Sahot’s dismissal is tainted with
invalidity.

On the last issue, as held by the Court of Appeals, respondent Jaime

Sahot is entitled to separation pay. The law is clear on the matter. An
employee who is terminated because of disease is entitled to
"separation pay equivalent to at least one month salary or to one-half
month salary for every year of service, whichever is greater xxx."34
Following the formula set in Art. 284 of the Labor Code, his separation
pay was computed by the appellate court at P2,080 times 36 years
(1958 to 1994) or P74,880. We agree with the computation, after noting
that his last monthly salary was P4,160.00 so that one-half thereof is
P2,080.00. Finding no reversible error nor grave abuse of discretion on
the part of appellate court, we are constrained to sustain its decision. To
avoid further delay in the payment due the separated worker, whose
claim was filed way back in 1994, this decision is immediately executory.
Otherwise, six percent (6%) interest per annum should be charged
thereon, for any delay, pursuant to provisions of the Civil Code.

WHEREFORE, the petition is DENIED and the decision of the Court of

Appeals dated February 29, 2000 is AFFIRMED. Petitioners must pay
private respondent Jaime Sahot his separation pay for 36 years of
service at the rate of one-half monthly pay for every year of service,
amounting to P74,880.00, with interest of six per centum (6%) per
annum from finality of this decision until fully paid.

Costs against petitioners.

SO ORDERED.

---------------------------

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and

CHARLES CHAMSAY, petitioners,

vs.

SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.

LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.

These consolidated petitions seek the review of the amended decision

of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set
aside the earlier decision dated June 5, 1986, of the then Intermediate
Appellate Court and directed that in all subsequent elections for
directors of Sanitary Wares Manufacturing Corporation (Saniwares),
American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's
choice of its three (3) nominees; that, on the other hand, the Filipino
stockholders can nominate only six (6) candidates and in the event they
cannot agree on the six (6) nominees, they shall vote only among
themselves to determine who the six (6) nominees will be, with
cumulative voting to be allowed but without interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the

primary purpose of manufacturing and marketing sanitary wares. One
of the incorporators, Mr. Baldwin Young went abroad to look for foreign
partners, European or American who could help in its expansion plans.
On August 15, 1962, ASI, a foreign corporation domiciled in Delaware,
United States entered into an Agreement with Saniwares and some
Filipino investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would engage
primarily in the business of manufacturing in the Philippines and selling
here and abroad vitreous china and sanitary wares. The parties agreed
that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in

these cases on the nomination and election of the directors of the
corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be

substantially in the form annexed hereto as Exhibit A and, insofar as
permitted under Philippine law, shall specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management
(a) The management of the Corporation shall be vested in a Board of
Directors, which shall consist of nine individuals. As long as American-
Standard shall own at least 30% of the outstanding stock of the
Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to

protect it as a minority group, including the grant of veto powers over a
number of corporate acts and the right to designate certain officers,
such as a member of the Executive Committee whose vote was required
for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the
capital stock of the corporation shall be owned by Philippine nationals.

The joint enterprise thus entered into by the Filipino investors and the
American corporation prospered. Unfortunately, with the business
successes, there came a deterioration of the initially harmonious
relations between the two groups. According to the Filipino group, a
basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had
other subsidiaries of joint joint venture groups in the countries where
Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino Cruz. After
disposing of the preliminary items in the agenda, the stockholders then
proceeded to the election of the members of the board of directors.
The ASI group nominated three persons namely; Wolfgang Aurbach,
John Griffin and David P. Whittingham. The Philippine investors
nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto
R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R,
Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated
Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a) of the Agreement,
the consistent practice of the parties during the past annual
stockholders' meetings to nominate only nine persons as nominees for
the nine-member board of directors, and the legal advice of Saniwares'
legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated
arguments ensued. An appeal was made by the ASI representative to
the body of stockholders present that a vote be taken on the ruling of
the Chairman. The Chairman, Baldwin Young, declared the appeal out
of order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine
Investors and the 3 nominees of ASI, thus effectively excluding the 2
additional persons nominated, namely, Luciano E. Salazar and Charles
Chamsay. The ASI representative, Mr. Jaqua protested the decision of
the Chairman and announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay,
and instructed the Secretary to so vote. Luciano E. Salazar and other
proxy holders announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No.
05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast
all votes equally in favor of the three ASI nominees, namely, Wolfgang
Aurbach, John Griffin and David Whittingham and the six originally
nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul
Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee,
Raul A. Boncan, Baldwin Young. The representative of ASI then moved
to recess the meeting which was duly seconded. There was also a
motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting
adjourned. Protests against the adjournment were registered and
having been ignored, Mr. Jaqua the ASI representative, stated that the
meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened
to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group,
Luciano E. Salazar and other stockholders, allegedly representing 53 or
54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued
meeting was presided by Luciano E. Salazar, while Andres Gatmaitan
acted as Secretary. On the basis of the cumulative votes cast earlier in
the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano
E. Salazar voted for himself, thus the said five directors were certified as
elected directors by the Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other six (6) nominees for
the four (4) remaining positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the

parties with the Securities and Exchange Commission (SEC). The first
petition filed was for preliminary injunction by Saniwares, Emesto V.
Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo and George F. Lee against Luciano Salazar and
Charles Chamsay. The case was denominated as SEC Case No. 2417. The
second petition was for quo warranto and application for receivership
by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E.
Salazar and Charles Chamsay against the group of Young and Lagdameo
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was
docketed as SEC Case No. 2718. Both sets of parties except for Avelino
Cruz claimed to be the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing

officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar
and Chamsay. The ASI Group and Salazar appealed the decision to the
SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the
Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604)
and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The
petitions were consolidated and the appellate court in its decision
ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of
Saniwares be ordered convoked as soon as possible, under the
supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo

Group) the appellate court (Court of Appeals) rendered the questioned
amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P.
Whittingham and Charles Chamsay in G.R. No. 75875 assign the
following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED

ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF
DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT
ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER
OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS

PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT
THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended

decision on the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding

contractual agreements entered into by stockholders and the
replacement of the conditions of such agreements with terms never
contemplated by the stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of

the property rights of stockholders without due process of law in order
that a favored group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a corporation. (pp.
14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE

RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT

PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS
DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are
discussed jointly.

The main issue hinges on who were the duly elected directors of
Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following factors
should be determined: (1) the nature of the business established by the
parties whether it was a joint venture or a corporation and (2) whether
or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have

thereby established among themselves a joint venture or some other
relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R.
Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press
Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that
the actual intention of the parties should be viewed strictly on the
"Agreement" dated August 15,1962 wherein it is clearly stated that the
parties' intention was to form a corporation and not a joint venture.

They specifically mention number 16 under Miscellaneous Provisions

which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of
the parties hereto partners or joint venturers in respect of any
transaction hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show

that the parties' agreement was to establish a joint venture presented
by the Lagdameo and Young Group on the ground that it contravenes
the parol evidence rule under section 7, Rule 130 of the Revised Rules
of Court. According to them, the Lagdameo and Young Group never
pleaded in their pleading that the "Agreement" failed to express the
true intent of the parties.

The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have

been reduced to writing, it is to be considered as containing all such
terms, and therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other
than the contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to

express the true intent and agreement of the parties or the validity of
the agreement is put in issue by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded
in their Reply and Answer to Counterclaim in SEC Case No. 2417 that
the Agreement failed to express the true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear

that the parties thereto disclaim being partners or joint venturers such
disclaimer is directed at third parties and is not inconsistent with, and
does not preclude, the existence of two distinct groups of stockholders
in Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In
any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise,
and if some words in the Agreement appear to be contrary to the
evident intention of the parties, the latter shall prevail over the former
(Art. 1370, New Civil Code). The various stipulations of a contract shall
be interpreted together attributing to the doubtful ones that sense
which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC
Case No. 2417)
It has been ruled:

In an action at law, where there is evidence tending to prove that the

parties joined their efforts in furtherance of an enterprise for their joint
profit, the question whether they intended by their agreement to
create a joint adventure, or to assume some other relation is a question
of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653;
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo,
423, 200 P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the

Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish
a joint venture and not a corporation. The history of the organization of
Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he

negotiated the Agreement with ASI in behalf of the Philippine nationals.
He testified that ASI agreed to accept the role of minority vis-a-vis the
Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were
included to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate
acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to
designate a member of the Executive Committee and the vote of this
member is required for certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the

amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and
(b) (iii)]. ASI is also given the right to designate the president and plant
manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI [Sec.
13 (a)] and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how
to Saniwares and the latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7

out of 9 votes of the board of directors for certain actions, in effect gave
ASI (which designates 3 directors under the Agreement) an effective
veto power. Furthermore, the grant to ASI of the right to designate
certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision that ASI shall
designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups
in Saniwares, namely ASI, which owns 40% of the capital stock and the
Philippine National stockholders who own the balance of 60%, and that
2) ASI is given certain protections as the minority stockholder.

Premises considered, we believe that under the Agreement there are

two groups of stockholders who established a corporation with
provisions for a special contractual relationship between the parties,
i.e., ASI and the other stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not
"nominated" or "elected" in the selection of the nine directors on a six
to three ratio. Each group is assured of a fixed number of directors in
the board.

Moreover, ASI in its communications referred to the enterprise as joint

venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the
industrial and manufacturing capacities of a local firm are constrained
to seek the technology and marketing assistance of huge multinational
corporations of the developed world. Arrangements are formalized
where a foreign group becomes a minority owner of a firm in exchange
for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such arrangements.
The foreign group may, from the start, intend to establish its own sole
or monopolistic operations and merely uses the joint venture
arrangement to gain a foothold or test the Philippine waters, so to
speak. Or the covetousness may come later. As the Philippine firm
enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to
completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say
the least. To the extent that such subversive actions can be lawfully
prevented, the courts should extend protection especially in industries
where constitutional and legal requirements reserve controlling
ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of

Appeal

In fact, the Philippine Corporation Code itself recognizes the right of

stockholders to enter into agreements regarding the exercise of their
voting rights.
Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing

and signed by the parties thereto, may provide that in exercising any
voting rights, the shares held by them shall be voted as therein
provided, or as they may agree, or as determined in accordance with a
procedure agreed upon by them.

Appellants contend that the above provision is included in the

Corporation Code's chapter on close corporations and Saniwares cannot
be a close corporation because it has 95 stockholders. Firstly, although
Saniwares had 95 stockholders at the time of the disputed stockholders
meeting, these 95 stockholders are not separate from each other but
are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95
stockholders. The YoungYutivo family count for another 13
stockholders, the Chamsay family for 8 stockholders, the Santos family
for 9 stockholders, the Dy family for 7 stockholders, etc. If the members
of one family and/or business or interest group are considered as one
(which, it is respectfully submitted, they should be for purposes of
determining how closely held Saniwares is there were as of 8 March
1983, practically only 17 stockholders of Saniwares. (Please refer to
discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close

corporation because it has more than 20 stockholders, the undeniable
fact is that it is a close-held corporation. Surely, appellants cannot
honestly claim that Saniwares is a public issue or a widely held
corporation.

In the United States, many courts have taken a realistic approach to

joint venture corporations and have not rigidly applied principles of
corporation law designed primarily for public issue corporations. These
courts have indicated that express arrangements between corporate
joint ventures should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with more
consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7
F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247
US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82
S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v.
Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v.
Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases
dealt with legal questions as to the extent to which the requirements
arising from the corporate form of joint venture corporations should
control, and the courts ruled that substantial justice lay with those
litigants who relied on the joint venture agreement rather than the
litigants who relied on the orthodox principles of corporation law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint

venture deviate from the traditional pattern of corporation
management. A noted authority has pointed out that just as in close
corporations, shareholders' agreements in joint venture corporations
often contain provisions which do one or more of the following: (1)
require greater than majority vote for shareholder and director action;
(2) give certain shareholders or groups of shareholders power to select
a specified number of directors; (3) give to the shareholders control
over the selection and retention of employees; and (4) set up a
procedure for the settlement of disputes by arbitration (See I O' Neal,
Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC
Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not

necessarily imply that agreements regarding the exercise of voting
rights are allowed only in close corporations. As Campos and Lopez-
Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does

this provision necessarily imply that these agreements can be valid only
in close corporations as defined by the Code? Suppose that a
corporation has twenty five stockholders, and therefore cannot qualify
as a close corporation under section 96, can some of them enter into an
agreement to vote as a unit in the election of directors? It is submitted
that there is no reason for denying stockholders of corporations other
than close ones the right to enter into not voting or pooling agreements
to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement.
Of course, voting or pooling agreements are perhaps more useful and
more often resorted to in close corporations. But they may also be
found necessary even in widely held corporations. Moreover, since the
Code limits the legal meaning of close corporations to those which
comply with the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close corporation will not
come within the definition. In such case, its stockholders should not be
precluded from entering into contracts like voting agreements if these
are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the
designation or nomination of directors restricts the right of the
Agreement's signatories to vote for directors, such contractual
provision, as correctly held by the SEC, is valid and binding upon the
signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-
94)
In regard to the question as to whether or not the ASI group may vote
their additional equity during elections of Saniwares' board of directors,
the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in

the management of the corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine directors shall be
designated by ASI and the remaining six by the other stockholders, i.e.,
the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is

imperative that the parties should honor and adhere to their respective
rights and obligations thereunder. Appellants seem to contend that any
allocation of board seats, even in joint venture corporations, are null
and void to the extent that such may interfere with the stockholder's
rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down,
even if such agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties thereto. It
may well be that it would be more cogent to hold, as the Securities and
Exchange Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders who
enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between
foreign and local stockholders, so long as such agreements do not
adversely affect third parties.

In any event, it is believed that we are not here called upon to make a
general rule on this question. Rather, all that needs to be done is to give
life and effect to the particular contractual rights and obligations which
the parties have assumed for themselves.

On the one hand, the clearly established minority position of ASI and
the contractual allocation of board seats Cannot be disregarded. On the
other hand, the rights of the stockholders to cumulative voting should
also be protected.

In our decision sought to be reconsidered, we opted to uphold the

second over the first. Upon further reflection, we feel that the proper
and just solution to give due consideration to both factors suggests
itself quite clearly. This Court should recognize and uphold the division
of the stockholders into two groups, and at the same time uphold the
right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In
practical terms, as suggested by appellant Luciano E. Salazar himself,
this means that if the Filipino stockholders cannot agree who their six
nominees will be, a vote would have to be taken among the Filipino
stockholders only. During this voting, each Filipino stockholder can
cumulate his votes. ASI, however, should not be allowed to interfere in
the voting within the Filipino group. Otherwise, ASI would be able to
designate more than the three directors it is allowed to designate under
the Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of the
parties.

Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law (Com. Act
No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three
directors. (Rollo-75875, pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that
the ASI Group has the right to vote their additional equity pursuant to
Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors.
Petitioner Salazar adds that this right if granted to the ASI Group would
not necessarily mean a violation of the Anti-Dummy Act
(Commonwealth Act 108, as amended). He cites section 2-a thereof
which provides:

And provided finally that the election of aliens as members of the board
of directors or governing body of corporations or associations engaging
in partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities.
(amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of

the Corporation Code. The point of query, however, is whether or not
that provision is applicable to a joint venture with clearly defined
agreements:

The legal concept of ajoint venture is of common law origin. It has no

precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel,
266 Fed. 811 [1920]) It is in fact hardly distinguishable from the
partnership, since their elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson,
95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d.
12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture
is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel
266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular
or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore
that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code
1981)

Moreover, the usual rules as regards the construction and operations of

contracts generally apply to a contract of joint venture. (O' Hara v.
Harman 14 App. Dev. (167) 43 NYS 556).

Bearing these principles in mind, the correct view would be that the
resolution of the question of whether or not the ASI Group may vote
their additional equity lies in the agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement

of the parties as regards the allocation of director seats under Section 5
(a) of the "Agreement," and the right of each group of stockholders to
cumulative voting in the process of determining who the group's
nominees would be under Section 3 (a) (1) of the "Agreement." As
pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while
Section 3 (a) (1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as
regards the election of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even
a Filipino director who would be beholden to them would obliterate
their minority status as agreed upon by the parties. As aptly stated by
the appellate court:

... ASI, however, should not be allowed to interfere in the voting within
the Filipino group. Otherwise, ASI would be able to designate more
than the three directors it is allowed to designate under the Agreement,
and may even be able to get a majority of the board seats, a result
which is clearly contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats
and the stockholder's right to cumulative voting. Moreover, this ruling
will also give due consideration to the issue raised by the appellees on
possible violation or circumvention of the Anti-Dummy Law (Com. Act
No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three
directors. (At p. 39, Rollo, 75875)

Equally important as the consideration of the contractual intent of the

parties is the consideration as regards the possible domination by the
foreign investors of the enterprise in violation of the nationalization
requirements enshrined in the Constitution and circumvention of the
Anti-Dummy Act. In this regard, petitioner Salazar's position is that the
Anti-Dummy Act allows the ASI group to elect board directors in
proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as
members of the board of directors in proportion to their allowance
participation of said entity. In the instant case, the foreign Group ASI
was limited to designate three directors. This is the allowable
participation of the ASI Group. Hence, in future dealings, this limitation
of six to three board seats should always be maintained as long as the
joint venture agreement exists considering that in limiting 3 board seats
in the 9-man board of directors there are provisions already agreed
upon and embodied in the parties' Agreement to protect the interests
arising from the minority status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and
SEC which were impliedly affirmed by the appellate court declaring
Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto
V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R.
No. 75951) object to a cumulative voting during the election of the
board of directors of the enterprise as ruled by the appellate court and
submits that the six (6) directors allotted the Filipino stockholders
should be selected by consensus pursuant to section 5 (a) of the
Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."

They also stress the possibility that the ASI Group might take control of
the enterprise if the Filipino stockholders are allowed to select their
nominees separately and not as a common slot determined by the
majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the
allocation of board directors should not be interpreted in isolation. This
should be construed in relation to section 3 (a) (1) of the Agreement. As
we stated earlier, section 3(a) (1) relates to the manner of voting for
these nominees which is cumulative voting while section 5(a) relates to
the manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.

The insinuation that the ASI Group may be able to control the
enterprise under the cumulative voting procedure cannot, however, be
ignored. The validity of the cumulative voting procedure is dependent
on the directors thus elected being genuine members of the Filipino
group, not voters whose interest is to increase the ASI share in the
management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company
exists under its original agreement. Cumulative voting may not be used
as a device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in the
Agreement which are intended to preserve the majority status of the
Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875
are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED.
The amended decision of the Court of Appeals is MODIFIED in that
Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V.
Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders'
meeting. In all other respects, the questioned decision is AFFIRMED.
Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

-------------------

G.R. No. 127405 October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.

COURT OF APPEALS and NENITA A. ANAY, respondents.

This is a petition for review of the Decision of the Court of Appeals in
CA-G.R. CV No. 41616,1 affirming the Decision of the Regional Trial
Court of Makati, Branch 140, in Civil Case No. 88-509.2

Fresh from her stint as marketing adviser of Technolux in Bangkok,

Thailand, private respondent Nenita A. Anay met petitioner William T.
Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok. Belo introduced Anay
to petitioner Marjorie Tocao, who conveyed her desire to enter into a
joint venture with her for the importation and local distribution of
kitchen cookwares. Belo volunteered to finance the joint venture and
assigned to Anay the job of marketing the product considering her
experience and established relationship with West Bend Company, a
manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint
venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later,
vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined
commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belo’s name should not
appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in securing
distributorship of cookware from that company. The parties agreed
further that Anay would be entitled to: (1) ten percent (10%) of the
annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%)
of the sales she would make; and (4) two percent (2%) for her
demonstration services. The agreement was not reduced to writing on
the strength of Belo’s assurances that he was sincere, dependable and
honest when it came to financial commitments.

Anay having secured the distributorship of cookware products from the

West Bend Company and organized the administrative staff and the
sales force, the cookware business took off successfully. They operated
under the name of Geminesse Enterprise, a sole proprietorship
registered in Marjorie Tocao’s name, with office at 712 Rufino Building,
Ayala Avenue, Makati City. Belo made good his monetary commitments
to Anay. Thereafter, Roger Muencheberg of West Bend Company invited
Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A.,
from July 19 to 21, 1987 and to the southwestern regional convention in
Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted
the invitation with the consent of Marjorie Tocao who, as president and
general manager of Geminesse Enterprise, even wrote a letter to the
Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of
the letter reads:

"Ms. Nenita D. Anay (sic), who has been patronizing and supporting
West Bend Co. for twenty (20) years now, acquired the distributorship
of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will
attend in response to the invitation." (Italics supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and immediately
undertook the task of saving the business on account of the
unsatisfactory sales record in the Makati and Cubao offices. On August
31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao4 for her excellent job
performance. On October 7, 1987, in the presence of Anay, Belo signed
a memo5 entitling her to a thirty-seven percent (37%) commission for
her personal sales "up Dec 31/87." Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter6 addressed to the Cubao sales office to the effect that she was no
longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager,
that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.7 Anay attempted to
contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and
the audit of the company to determine her share in the net profits.
When her letters were not answered, Anay consulted her lawyer, who,
in turn, wrote Belo a letter. Still, that letter was not answered.

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

December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of
P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint
for sum of money with damages8 against Marjorie D. Tocao and William
Belo before the Regional Trial Court of Makati, Branch 140.

In her complaint, Anay prayed that defendants be ordered to pay her,

jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00
as moral damages, and (3) P100,000.00 as exemplary damages. The
plaintiff also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation until she was
"illegally dismissed" to determine her ten percent (10%) share in the
net profits. She further prayed that she be paid the five percent (5%)
"overriding commission" on the remaining 150 West Bend cookware
sets before her "dismissal."

In their answer,9 Marjorie Tocao and Belo asserted that the "alleged
agreement" with Anay that was "neither reduced in writing, nor
ratified," was "either unenforceable or void or inexistent." As far as Belo
was concerned, his only role was to introduce Anay to Marjorie Tocao.
There could not have been a partnership because, as Anay herself
admitted, Geminesse Enterprise was the sole proprietorship of Marjorie
Tocao. Because Anay merely acted as marketing demonstrator of
Geminesse Enterprise for an agreed remuneration, and her complaint
referred to either her compensation or dismissal, such complaint should
have been lodged with the Department of Labor and not with the
regular court.
Petitioners (defendants therein) further alleged that Anay filed the
complaint on account of "ill-will and resentment" because Marjorie
Tocao did not allow her to "lord it over in the Geminesse Enterprise."
Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who
suffered actual damages "including unreturned and unaccounted stocks
of Geminesse Enterprise," and "serious anxiety, besmirched reputation
in the business world, and various damages not less than P500,000.00."
They also alleged that, to "vindicate their names," they had to hire
counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or
not the plaintiff was an employee or partner of Marjorie Tocao and
Belo, and (b) whether or not the parties are entitled to damages.10

In their defense, Belo denied that Anay was supposed to receive a share
in the profit of the business. He, however, admitted that the two had
agreed that Anay would receive a three to four percent (3-4%) share in
the gross sales of the cookware. He denied contributing capital to the
business or receiving a share in its profits as he merely served as a
guarantor of Marjorie Tocao, who was new in the business. He attended
and/or presided over business meetings of the venture in his capacity
as a guarantor but he never participated in decision-making. He claimed
that he wrote the memo granting the plaintiff thirty-seven percent
(37%) commission upon her dismissal from the business venture at the
request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral
partnership agreement with Anay. However, she admitted that Anay
was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on
product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%)
commission on the net profits. Marjorie claimed that she got the capital
for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier
who loaned her the funds with interest. Because she treated Anay as
her "co-equal," Marjorie received the same amounts of commissions as
her. However, Anay failed to account for stocks valued at P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive
part of which is as follows:

"WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to

the partnership affairs for the years 1987 and 1988 pursuant to Art.
1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission

for the one hundred and fifty (150) cookware sets available for
disposition when plaintiff was wrongfully excluded from the partnership
by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the

total production which for the period covering January 8, 1988 to
February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and

P100,000.00 as exemplary damages, and

5. Ordering defendants to pay P50,000.00 as attorney’s fees and

P20,000.00 as costs of suit.

SO ORDERED."

The trial court held that there was indeed an "oral partnership
agreement between the plaintiff and the defendants," based on the
following: (a) there was an intention to create a partnership; (b) a
common fund was established through contributions consisting of
money and industry, and (c) there was a joint interest in the profits. The
testimony of Elizabeth Bantilan, Anay’s cousin and the administrative
officer of Geminesse Enterprise from August 21, 1986 until it was
absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was convinced
that with Marjorie’s financial contribution and Anay’s experience, the
combination of the two would be invaluable to the partnership, also
supported that conclusion. Belo’s claim that he was merely a
"guarantor" has no basis since there was no written evidence thereof as
required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus
his issuance of a memo giving Anay 37% commission on personal sales
belied this. On the contrary, it demonstrated his involvement as a
partner in the business.

The trial court further held that the payment of commissions did not
preclude the existence of the partnership inasmuch as such practice is
often resorted to in business circles as an impetus to bigger sales
volume. It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a partnership may
be "constituted in any form." The fact that Geminesse Enterprise was
registered in Marjorie Tocao’s name is not determinative of whether or
not the business was managed and operated by a sole proprietor or a
partnership. What was registered with the Bureau of Domestic Trade
was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully
from a partnership is an innocent partner. Hence, the guilty partner
must give him his due upon the dissolution of the partnership as well as
damages or share in the profits "realized from the appropriation of the
partnership business and goodwill." An innocent partner thus possesses
"pecuniary interest in every existing contract that was incomplete and
in the trade name of the co-partnership and assets at the time he was
wrongfully expelled."

Petitioners’ appeal to the Court of Appeals11 was dismissed, but the

amount of damages awarded by the trial court were reduced to
P50,000.00 for moral damages and P50,000.00 as exemplary damages.
Their Motion for Reconsideration was denied by the Court of Appeals
for lack of merit.12 Petitioners Belo and Marjorie Tocao are now before
this Court on a petition for review on certiorari, asserting that there was
no business partnership between them and herein private respondent
Nenita A. Anay who is, therefore, not entitled to the damages awarded
to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals

erroneously held that a partnership existed between them and private
respondent Anay because Geminesse Enterprise "came into being"
exactly a year before the "alleged partnership" was formed, and that it
was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without any
"memorandum whatsoever regarding the alleged partnership."13

The issue of whether or not a partnership exists is a factual matter

which are within the exclusive domain of both the trial and appellate
courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the conclusion
drawn by the court a quo.14 In this case, both the trial court and the
Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no
reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these

requisites: (1) two or more persons bind themselves to contribute
money, property or industry to a common fund; and (2) intention on
the part of the partners to divide the profits among themselves.15 It
may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto.16
This implies that since a contract of partnership is consensual, an oral
contract of partnership is as good as a written one. Where no
immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that
there appears to be no record in the Securities and Exchange
Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code17 did not cause
the nullification of the partnership. The pertinent provision of the Civil
Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and
distinct from that of each of the partners, even in case of failure to
comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage

in the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the law,
she was the industrial or managing partner. It was through her
reputation with the West Bend Company that the partnership was able
to open the business of distributorship of that company’s cookware
products; it was through the same efforts that the business was
propelled to financial success. Petitioner Tocao herself admitted private
respondent’s indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing
manager and vice-president for sales, she testified thus:

"A: No, sir at the start she was the marketing manager because there
were no one to sell yet, it’s only me there then her and then two (2)
people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the
designation of marketing managers of which definitely Nita as superior
to them would be the Vice President."18
By the set-up of the business, third persons were made to believe that a
partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy
Jagler of West Bend Company to Roger Muencheberg of the same
company states:

"Marge Tocao is president of Geminesse Enterprises. Geminesse will

finance the operations. Marge does not have cookware experience. Nita
Anay has started to gather former managers, Lina Torda and Dory Vista.
She has also gathered former demonstrators, Betty Bantilan, Eloisa
Lamela, Menchu Javier. They will continue to gather other key people
and build up the organization. All they need is the finance and the
products to sell."19

On the other hand, petitioner Belo’s denial that he financed the

partnership rings hollow in the face of the established fact that he
presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7,
1987, on a stationery of his own business firm, Wilcon Builders Supply,
that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than
that he had a proprietary interest in the business. His claim that he was
merely a guarantor is belied by that personal act of proprietorship in
the business. Moreover, if he was indeed a guarantor of future debts of
petitioner Tocao under Article 2053 of the Civil Code,20 he should have
presented documentary evidence therefor. While Article 2055 of the
Civil Code simply provides that guaranty must be "express," Article
1403, the Statute of Frauds, requires that "a special promise to answer
for the debt, default or miscarriage of another" be in writing.21

Petitioner Tocao, a former ramp model,22 was also a capitalist in the

partnership. She claimed that she herself financed the business. Her
and petitioner Belo’s roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocao’s admissions that
petitioner Belo was her boyfriend and that the partnership was not
their only business venture together. They also established a firm that
they called "Wiji," the combination of petitioner Belo’s first name,
William, and her nickname, Jiji.23 The special relationship between
them dovetails with petitioner Belo’s claim that he was acting in behalf
of petitioner Tocao. Significantly, in the early stage of the business
operation, petitioners requested West Bend Company to allow them to
"utilize their banking and trading facilities in Singapore" in the matter of
importation and payment of the cookware products.24 The inevitable
conclusion, therefore, was that petitioners merged their respective
capital and infused the amount into the partnership of distributing
cookware with private respondent as the managing partner.

The business venture operated under Geminesse Enterprise did not

result in an employer-employee relationship between petitioners and
private respondent. While it is true that the receipt of a percentage of
net profits constitutes only prima facie evidence that the recipient is a
partner in the business,25 the evidence in the case at bar controverts
an employer-employee relationship between the parties. In the first
place, private respondent had a voice in the management of the affairs
of the cookware distributorship,26 including selection of people who
would constitute the administrative staff and the sales force. Secondly,
petitioner Tocao’s admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse
Enterprise,27 private respondent received only commissions and
transportation and representation allowances28 and not a fixed
salary.29 Petitioner Tocao testified:

"Q: Of course. Now, I am showing to you certain documents already

marked as Exhs. ‘X’ and ‘Y.’ Please go over this. Exh. ‘Y’ is denominated
`Cubao overrides’ 8-21-87 with ending August 21, 1987, will you please
go over this and tell the Honorable Court whether you ever came across
this document and know of your own knowledge the amount ---

A: Yes, sir this is what I am talking about earlier. That’s the one I am
telling you earlier a certain percentage for promotions, advertising,
incentive.

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

here and words which I quote: ‘Overrides Marjorie Ann Tocao
P21,410.50’ this means that you have received this amount?

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

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote ‘Nita D.
Anay P21,410.50’, what is this?

A: That’s her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this

Honorable Court that there being the same P21,410.50 is merely by
coincidence?

A: No, sir, I made it a point that we were equal because the way I look at
her kasi, you know in a sense because of her expertise in the business
she is vital to my business. So, as part of the incentive I offer her the
same thing.

Q: So, in short you are saying that this you have shared together, I mean
having gotten from the company P21,140.50 is your way of indicating
that you were treating her as an equal?
A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.

Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the

other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure ‘Overrides Marjorie Ann
Tocao P15,314.25’ the amount there you will acknowledge you have
received that?

A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is
also an indication that she received the same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these

two (2) are the same?

A: No, sir.

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

A: Yes, sir." (Italics supplied.)30

If indeed petitioner Tocao was private respondent’s employer, it is

difficult to believe that they shall receive the same income in the
business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be
liable for the losses.31 As an industrial partner, private respondent had
the right to demand for a formal accounting of the business and to
receive her share in the net profit.32
The fact that the cookware distributorship was operated under the
name of Geminesse Enterprise, a sole proprietorship, is of no moment.
What was registered with the Bureau of Domestic Trade on August 19,
1987 was merely the name of that enterprise.33 While it is true that in
her undated application for renewal of registration of that firm name,
petitioner Tocao indicated that it would be engaged in retail of
"kitchenwares, cookwares, utensils, skillet,"34 she also admitted that
the enterprise was only "60% to 70% for the cookware business," while
20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.35 Indubitably then, the business name Geminesse
Enterprise was used only for practical reasons - it was utilized as the
common name for petitioner Tocao’s various business activities, which
included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return
the "unaccounted and unremitted stocks of Geminesse Enterprise
amounting to P208,250.00."36 Obviously a ploy to offset the damages
awarded to private respondent, that claim, more than anything else,
proves the existence of a partnership between them. In Idos v. Court of
Appeals, this Court said:

"The best evidence of the existence of the partnership, which was not
yet terminated (though in the winding up stage), were the unsold goods
and uncollected receivables, which were presented to the trial court.
Since the partnership has not been terminated, the petitioner and
private complainant remained as co-partners. x x x."37
It is not surprising then that, even after private respondent had been
unceremoniously booted out of the partnership in October 1987, she
still received her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent

from the partnership to reap for herself and/or for petitioner Belo
financial gains resulting from private respondent’s efforts to make the
business venture a success. Thus, as petitioner Tocao became adept in
the business operation, she started to assert herself to the extent that
she would even shout at private respondent in front of other people.38
Her instruction to Lina Torda Cruz, marketing manager, not to allow
private respondent to hold office in both the Makati and Cubao sales
offices concretely spoke of her perception that private respondent was
no longer necessary in the business operation,39 and resulted in a
falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership
into a sham organization.40 The partnership exists until dissolved under
the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will
predicated on their mutual desire and consent, it may be dissolved by
the will of a partner. Thus:

"x x x. The right to choose with whom a person wishes to associate

himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and the
absence of cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership
but that it can result in a liability for damages."41

An unjustified dissolution by a partner can subject him to action for

damages because by the mutual agency that arises in a partnership, the
doctrine of delectus personae allows the partners to have the power,
although not necessarily the right to dissolve the partnership.42

In this case, petitioner Tocao’s unilateral exclusion of private respondent

from the partnership is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9, 1987, no longer
the vice-president for sales of Geminesse Enterprise.43 By that memo,
petitioner Tocao effected her own withdrawal from the partnership and
considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding
up of the business.44

The winding up of partnership affairs has not yet been undertaken by

the partnership.1âwphi1 This is manifest in petitioners’ claim for stocks
that had been entrusted to private respondent in the pursuit of the
partnership business.
The determination of the amount of damages commensurate with the
factual findings upon which it is based is primarily the task of the trial
court.45 The Court of Appeals may modify that amount only when its
factual findings are diametrically opposed to that of the lower court,46
or the award is palpably or scandalously and unreasonably excessive.47
However, exemplary damages that are awarded "by way of example or
correction for the public good,"48 should be reduced to P50,000.00, the
amount correctly awarded by the Court of Appeals. Concomitantly, the
award of moral damages of P100,000.00 was excessive and should be
likewise reduced to P50,000.00. Similarly, attorney’s fees that should be
granted on account of the award of exemplary damages and
petitioners’ evident bad faith in refusing to satisfy private respondent’s
plainly valid, just and demandable claims,49 appear to have been
excessively granted by the trial court and should therefore be reduced
to P25,000.00.

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

partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of
the Civil Code. This case is remanded to the Regional Trial Court for
proper proceedings relative to said dissolution. The appealed decisions
of the Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows ---
1. Petitioners are ordered to submit to the Regional Trial Court a formal
account of the partnership affairs for the years 1987 and 1988, pursuant
to Article 1809 of the Civil Code, in order to determine private
respondent’s ten percent (10%) share in the net profits of the
partnership;

2. Petitioners are ordered, jointly and severally, to pay private

respondent five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition since the
time private respondent was wrongfully excluded from the partnership
by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private

respondent overriding commission on the total production which, for
the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private

respondent moral damages in the amount of P50,000.00, exemplary
damages in the amount of P50,000.00 and attorney’s fees in the
amount of P25,000.00.

SO ORDERED.

--------------------------
G.R. No. 135813 October 25, 2001

FERNANDO SANTOS, petitioner,

vs.

SPOUSES ARSENIO and NIEVES REYES, respondents.

As a general rule, the factual findings of the Court of Appeals affirming

those of the trial court are binding on the Supreme Court. However,
there are several exceptions to this principle. In the present case, we
find occasion to apply both the rule and one of the exceptions.

The Case

Before us is a Petition for Review on Certiorari assailing the November

28, 1997 Decision,1 as well as the August 17, 1998 and the October 9,
1998 Resolutions,2 issued by the Court of Appeals (CA) in CA-GR CV No.
34742. The Assailed Decision disposed as follows:
"WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner]."3

Resolving respondent's Motion for Reconsideration, the August 17,

1998 Resolution ruled as follows:

"WHEREFORE, [respondents'] motion for reconsideration is GRANTED.

Accordingly, the court's decision dated November 28, 1997 is hereby
MODIFIED in that the decision appealed from is AFFIRMED in toto, with
costs against [petitioner]."4

The October 9, 1998 Resolution denied "for lack of merit" petitioner's

Motion for Reconsideration of the August 17, 1998 Resolution.5

The Facts

The events that led to this case are summarized by the CA as follows:

"Sometime in June, 1986, [Petitioner] Fernando Santos and

[Respondent] Nieves Reyes were introduced to each other by one
Meliton Zabat regarding a lending business venture proposed by Nieves.
It was verbally agreed that [petitioner would] act as financier while
[Nieves] and Zabat [would] take charge of solicitation of members and
collection of loan payments. The venture was launched on June 13,
1986, with the understanding that [petitioner] would receive 70% of the
profits while x x x Nieves and Zabat would earn 15% each.

"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner].

Gragera, as chairman of the Monte Maria Development Corporation6
(Monte Maria, for brevity), sought short-term loans for members of the
corporation. [Petitioner] and Gragera executed an agreement providing
funds for Monte Maria's members. Under the agreement, Monte Maria,
represented by Gragera, was entitled to P1.31 commission per
thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books
as representative of [petitioner] while [Respondent] Arsenio, husband
of Nieves, acted as credit investigator.

"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the

'Article of Agreement' which formalized their earlier verbal
arrangement.

"[Petitioner] and [Nieves] later discovered that their partner Zabat

engaged in the same lending business in competition with their
partnership[.] Zabat was thereby expelled from the partnership. The
operations with Monte Maria continued.

"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of

money and damages. [Petitioner] charged [respondents], allegedly in
their capacities as employees of [petitioner], with having
misappropriated funds intended for Gragera for the period July 8, 1986
up to March 31, 1987. Upon Gragera's complaint that his commissions
were inadequately remitted, [petitioner] entrusted P200,000.00 to x x x
Nieves to be given to Gragerax x x . Nieves allegedly failed to account
for the amount. [Petitioner] asserted that after examination of the
records, he found that of the total amount of P4,623,201.90 entrusted
to [respondents], only P3,068,133.20 was remitted to Gragera, thereby
leaving the balance of P1,555,065.70 unaccounted for.

"In their answer, [respondents] asserted that they were partners and
not mere employees of [petitioner]. The complaint, they alleged, was
filed to preempt and prevent them from claiming their rightful share to
the profits of the partnership.

"x x x Arsenio alleged that he was enticed by [petitioner] to take the

place of Zabat after [petitioner] learned of Zabat's activities. Arsenio
resigned from his job at the Asian Development Bank to join the
partnership.

"For her part, x x x Nieves claimed that she participated in the business
as a partner, as the lending activity with Monte Maria originated from
her initiative. Except for the limited period of July 8, 1986 through
August 20, 1986, she did not handle sums intended for Gragera.
Collections were turned over to Gragera because he guaranteed 100%
payment of all sums loaned by Monte Maria. Entries she made on
worksheets were based on this assumptive 100% collection of all loans.
The loan releases were made less Gragera's agreed commission.
Because of this arrangement, she neither received payments from
borrowers nor remitted any amount to Gragera. Her job was merely to
make worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey to
[petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.

"[Petitioner] on the other hand insisted that [respondents] were his

mere employees and not partners with respect to the agreement with
Gragera. He claimed that after he discovered Zabat's activities, he
ceased infusing funds, thereby causing the extinguishment of the
partnership. The agreement with Gragera was a distinct partnership
[from] that of [respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with respect to the
partnership between [petitioner] and Gragera.

"[Petitioner] further asserted that in Nieves' capacity as bookkeeper,

she received all payments from which Nieves deducted Gragera's
commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.

"During the pre-trial, the parties narrowed the issues to the following
points: whether [respondents] were employees or partners of
[petitioner], whether [petitioner] entrusted money to [respondents] for
delivery to Gragera, whether the P1,555,068.70 claimed under the
complaint was actually remitted to Gragera and whether [respondents]
were entitled to their counterclaim for share in the profits."7

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents
were partners, not mere employees, of petitioner. It further ruled that
Gragera was only a commission agent of petitioner, not his partner.
Petitioner moreover failed to prove that he had entrusted any money to
Nieves. Thus, respondents' counterclaim for their share in the
partnership and for damages was granted. The trial court disposed as
follows:

"39.

WHEREFORE, the Court hereby renders judgment as follows:

39.1.

THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.

39.2.
The [Petitioner] FERNANDO J. SANTOS is ordered to pay the
[Respondent] NIEVES S. REYES, the following:

39.2.1.

P3,064,428.00

- The 15 percent share of the [respondent] NIEVES S. REYES in the

profits of her joint venture with the [petitioner].

39.2.2.

Six(6) percent of P3,064,428.00

- As damages from August 3, 1987 until the P3,064,428.00 is fully paid.

39.2.3.

P50,000.00
- As moral damages

39.2.4.

P10,000.00

- As exemplary damages

39.3.

The [petitioner] FERNANDO J. SANTOS is ordered to pay the

[respondent] ARSENIO REYES, the following:

39.3.1.

P2,899,739.50

- The balance of the 15 percent share of the [respondent] ARSENIO

REYES in the profits of his joint venture with the [petitioner].
39.3.2.

Six(6) percent of P2,899,739.50

- As damages from August 3, 1987 until the P2,899,739.50 is fully paid.

39.3.3.

P25,000.00

- As moral damages

39.3.4.

P10,000.00

- As exemplary damages

39.4.
The [petitioner] FERNANDO J. SANTOS is ordered to pay the
[respondents]:

39.4.1.

P50,000.00

- As attorney's fees; and

39.4.2.

The cost of the suit."8

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the
counterclaim of respondents was dismissed. Upon the latter's Motion
for Reconsideration, however, the trial court's Decision was reinstated
in toto. Subsequently, petitioner's own Motion for Reconsideration was
denied in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of
a partnership among the parties: (1) it was Nieves who broached to
petitioner the idea of starting a money-lending business and introduced
him to Gragera; (2) Arsenio received "dividends" or "profit-shares"
covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the
partnership contract was executed after the Agreement with Gragera
and petitioner and thus showed the parties' intention to consider it as a
transaction of the partnership. In their common venture, petitioner
invested capital while respondents contributed industry or services,
with the intention of sharing in the profits of the business.

The CA disbelieved petitioner's claim that Nieves had misappropriated a

total of P200,000 which was supposed to be delivered to Gragera to
cover unpaid commissions. It was his task to collect the amounts due,
while hers was merely to prepare the daily cash flow reports (Exhs. "15-
15DDDDDDDDDD") to keep track of his collections.

Hence, this Petition.9

Issue

Petitioner asks this Court to rule on the following issues:10

"Whether or not Respondent Court of Appeals acted with grave abuse
of discretion tantamount to excess or lack of jurisdiction in:

1. Holding that private respondents were partners/joint venturers

and not employees of Santos in connection with the agreement
between Santos and Monte Maria/Gragera;

2. Affirming the findings of the trial court that the phrase 'Received
by' on documents signed by Nieves Reyes signified receipt of copies of
the documents and not of the sums shown thereon;

3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a

forgery;

4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes
of P200,000.00 for delivery to Gragera;

5 Affirming the dismissal of Santos' [Second] Amended Complaint;

6. Affirming the decision of the trial court, upholding private

respondents' counterclaim;
7. Denying Santos' motion for reconsideration dated September 11,
1998."

Succinctly put, the following were the issues raised by petitioner: (1)
whether the parties' relationship was one of partnership or of employer
employee; (2) whether Nieves misappropriated the sums of money
allegedly entrusted to her for delivery to Gragera as his commissions;
and (3) whether respondents were entitled to the partnership profits as
determined by the trial court.

The Court's Ruling

The Petition is partly meritorious.

First Issue:

Business Relationship

Petitioner maintains that he employed the services of respondent

spouses in the money-lending venture with Gragera, with Nieves as
bookkeeper and Arsenio as credit investigator. That Nieves introduced
Gragera to Santos did not make her a partner. She was only a witness to
the Agreement between the two. Separate from the partnership
between petitioner and Gragera was that which existed among
petitioner, Nieves and Zabat, a partnership that was dissolved when
Zabat was expelled.

On the other hand, both the CA and the trial court rejected petitioner's
contentions and ruled that the business relationship was one of
partnership. We quote from the CA Decision, as follows:

"[Respondents] were industrial partners of [petitioner]x x x . Nieves

herself provided the initiative in the lending activities with Monte
Maria. In consonance with the agreement between appellant, Nieves
and Zabat (later replaced by Arsenio), [respondents] contributed
industry to the common fund with the intention of sharing in the profits
of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the
purpose for which it was organized and as such [were] considered
industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).

"While concededly, the partnership between [petitioner,] Nieves and

Zabat was technically dissolved by the expulsion of Zabat therefrom,
the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution.
Instead, they invited Arsenio to participate as a partner in their
operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio
simply took over and continued the business of the former partnership
with Zabat, one of the incidents of which was the lending operations
with Monte Maria.

xxx xxx xxx

"Gragera and [petitioner] were not partners. The money-lending

activities undertaken with Monte Maria was done in pursuit of the
business for which the partnership between [petitioner], Nieves and
Zabat (later Arsenio) was organized. Gragera who represented Monte
Maria was merely paid commissions in exchange for the collection of
loans. The commissions were fixed on gross returns, regardless of the
expenses incurred in the operation of the business. The sharing of gross
returns does not in itself establish a partnership."11

We agree with both courts on this point. 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.12 The "Articles of Agreement" stipulated that the
signatories shall share the profits of the business in a 70-15-15 manner,
with petitioner getting the lion's share.13 This stipulation clearly proved
the establishment of a partnership.

We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte
Maria Community Development Group, Inc., which later on changed its
business name to Private Association for Community Development, Inc.
(PACDI). Nieves was not merely petitioner's employee. She discharged
her bookkeeping duties in accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:

"2. That the SECOND PARTY and THIRD PARTY shall handle the
solicitation and screening of prospective borrowers, and shall x x x each
be responsible in handling the collection of the loan payments of the
borrowers that they each solicited.

"3. That the bookkeeping and daily balancing of account of the

business operation shall be handled by the SECOND PARTY."14

The "Second Party" named in the Agreement was none other than
Nieves Reyes. On the other hand, Arsenio's duties as credit investigator
are subsumed under the phrase "screening of prospective borrowers."
Because of this Agreement and the disbursement of monthly
"allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio,
we uphold the factual finding of both courts that he replaced Zabat in
the partnership.

Indeed, the partnership was established to engage in a money-lending

business, despite the fact that it was formalized only after the
Memorandum of Agreement had been signed by petitioner and
Gragera. Contrary to petitioner's contention, there is no evidence to
show that a different business venture is referred to in this Agreement,
which was executed on August 6, 1986, or about a month after the
Memorandum had been signed by petitioner and Gragera on July 14,
1986. The Agreement itself attests to this fact:

"WHEREAS, the parties have decided to formalize the terms of their

business relationship in order that their respective interests may be
properly defined and established for their mutual benefit and
understanding."15

Second Issue:

No Proof of Misappropriation of Gragera's Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate

money intended for Gragera's commission. According to him, Gragera
remitted his daily collection to Nieves. This is shown by Exhibit "B." (the
"Schedule of Daily Payments"), which bears her signature under the
words "received by." For the period July 1986 to March 1987, Gragera
should have earned a total commission of P4,282,429.30. However, only
P3,068,133.20 was received by him. Thus, petitioner infers that she
misappropriated the difference of P1,214,296.10, which represented
the unpaid commissions. Exhibit "H." is an untitled tabulation which,
according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not
show that Nieves received for delivery to Gragera any amount from
which the P1,214,296.10 unpaid commission was supposed to come,
and that such exhibits were insufficient proof that she had embezzled
P200,000. Said the CA:

"The presentation of Exhibit "D" vaguely denominated as 'members

ledger' does not clearly establish that Nieves received amounts from
Monte Maria's members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves made
the entries for the limited period of January 11, 1987 to February 17,
1987 only while the rest were made by Gragera's own staff.

"Neither can we give probative value to Exhibit 'E' which allegedly

shows acknowledgment of the remittance of commissions to Verona
Gonzales. The document is a private one and its due execution and
authenticity have not been duly proved as required in [S]ection 20, Rule
132 of the Rules of Court which states:

'SECTION 20. Proof of Private Document — Before any private

document offered as authentic is received in evidence, its due execution
and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of
the maker.

'Any other private document need only be identified as that which it is

claimed to be.'

"The court a quo even ruled that the signature thereon was a forgery, as
it found that:

'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that
it is a forgery. The initial stroke of Exh. E-1 starts from up and goes
downward. The initial stroke of the genuine signatures of NIEVES (Exhs.
A-3, B-1, F-1, among others) starts from below and goes upward. This
difference in the start of the initial stroke of the signatures Exhs. E-1 and
of the genuine signatures lends credence to Nieves' claim that the
signature Exh. E-1 is a forgery.'

xxx xxx xxx

"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and
'F') were based on the predetermined 100% collection as guaranteed by
Gragera is credible and clearly in accord with the evidence. A perusal of
Exhs. "B" and "F" as well as Exhs. '15' to 15-DDDDDDDDDD' reveal that
the entries were indeed based on the 100% assumptive collection
guaranteed by Gragera. Thus, the total amount recorded on Exh. 'B' is
exactly the number of borrowers multiplied by the projected collection
of P150.00 per borrower. This holds true for Exh. 'F.'

"Corollarily, Nieves' explanation that the documents were pro forma

and that she signed them not to signify that she collected the amounts
but that she received the documents themselves is more believable
than [petitioner's] assertion that she actually handled the amounts.

"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally

establish that x x x Nieves received P200,000.00 as commission for
Gragera. As correctly stated by the court a quo, the document showed a
liquidation of P240.000 00 and not P200,000.00.

"Accordingly, we find Nieves' testimony that after August 20, 1986, all
collections were made by Gragera believable and worthy of credence.
Since Gragera guaranteed a daily 100% payment of the loans, he took
charge of the collections. As [petitioner's] representative,

Nieves merely prepared the daily cash flow reports (Exh. '15' to '15
DDDDDDDDDD') to enable [petitioner] to keep track of Gragera's
operations. Gragera on the other hand devised the schedule of daily
payment (Exhs. 'B' and 'F') to record the projected gross daily
collections.
"As aptly observed by the court a quo:

'26.1.As between the versions of SANTOS and NIEVES on how the

commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS' version
would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES
would get GRAGERA's commissions from the amortizations and then
give such commission to GRAGERA."'17

These findings are in harmony with the trial court's ruling, which we
quote below:

"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter
received P200,000.00 for delivery to GRAGERA. Exh. H shows under its
sixth column 'ADDITIONAL CASH' that the additional cash was
P240,000.00. If Exh. H were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not true. This is so because it is a
liquidation of the sum of P240,000.00.

"21.1. SANTOS claimed that he learned of NIEVES' failure to give

the P200,000.00 to GRAGERA when he received the latter's letter
complaining of its delayed release. Assuming as true SANTOS' claim that
he gave P200,000.00 to GRAGERA, there is no competent evidence that
NIEVES did not give it to GRAGERA. The only proof that NIEVES did not
give it is the letter. But SANTOS did not even present the letter in
evidence. He did not explain why he did not.

"21.2. The evidence shows that all money transactions of the

money-lending business of SANTOS were covered by petty cash
vouchers. It is therefore strange why SANTOS did not present any
voucher or receipt covering the P200,000.00."18

In sum, the lower courts found it unbelievable that Nieves had

embezzled P1,555,068.70 from the partnership. She did not remit
P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits "B" and "F" are merely
computations of what Gragera should collect for the day; they do not
show that Nieves received the amounts stated therein. Neither is there
sufficient proof that she misappropriated P200,000, because Exhibit
"H." does not indicate that such amount was received by her; in fact, it
shows a different figure.

Petitioner has utterly failed to demonstrate why a review of these

factual findings is warranted. Well-entrenched is the basic rule that
factual findings of the Court of Appeals affirming those of the trial court
are binding and conclusive on the Supreme Court.19 Although there are
exceptions to this rule, petitioner has not satisfactorily shown that any
of them is applicable to this issue.
Third Issue:

Accounting of Partnership

Petitioner refuses any liability for respondents' claims on the profits of

the partnership. He maintains that "both business propositions were
flops," as his investments were "consumed and eaten up by the
commissions orchestrated to be due Gragera" — a situation that "could
not have been rendered possible without complicity between Nieves
and Gragera."

Respondent spouses, on the other hand, postulate that petitioner

instituted the action below to avoid payment of the demands of Nieves,
because sometime in March 1987, she "signified to petitioner that it
was about time to get her share of the profits which had already
accumulated to some P3 million." Respondents add that while the
partnership has not declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the counterclaim of
Nieves, the spouses show that from June 13, 1986 up to April 19, 1987,
the profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et seq.).
Based on that income, her 15 percent share under the joint venture
amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus
the P30,000 which was already advanced to him (Petty Cash Vouchers,
Exhs. "6, 6-A to 6-B").
The CA originally held that respondents' counterclaim was premature,
pending an accounting of the partnership. However, in its assailed
Resolution of August 17, 1998, it turned volte face. Affirming the trial
court's ruling on the counterclaim, it held as follows:

"We earlier ruled that there is still need for an accounting of the profits
and losses of the partnership before we can rule with certainty as to the
respective shares of the partners. Upon a further review of the records
of this case, however, there appears to be sufficient basis to determine
the amount of shares of the parties and damages incurred by
[respondents]. The fact is that the court a quo already made such a
determination [in its] decision dated August 13, 1991 on the basis of
the facts on record."20

The trial court's ruling alluded to above is quoted below:

"27. The defendants' counterclaim for the payment of their share in

the profits of their joint venture with SANTOS is supported by the
evidence.

"27.1. NIEVES testified that: Her claim to a share in the profits is

based on the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in
the working papers (Exhs. 10 to 10-I, inclusive) which she prepared.
Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of
which Exh. 3 is a sample. The originals of the daily cash flow reports
(Exhs. 3 and 15 to 15-D(10) were given to SANTOS. The joint venture
had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations
from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of
P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the
profits.

"27.1.1 SANTOS never denied NIEVES' testimony that the money-

lending business he was engaged in netted a profit and that the
originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint venture
with NIEVES and ZABAT resulted in a loss of about half a million pesos
to him. But such loss, even if true, does not negate NIEVES' claim that
overall, the joint venture among them — SANTOS, NIEVES and ARSENIO
— netted a profit. There is no reason for the Court to doubt the veracity
of [the testimony of] NIEVES.

"27.2The P26,260.50 which ARSENIO received as part of his share in the

profits (Exhs. 6, 6-A and 6-B) should be deducted from his total
share."21

After a close examination of respondents' exhibits, we find reason to

disagree with the CA. Exhibit "10-I"22 shows that the partnership
earned a "total income" of P20,429,520 for the period June 13, 1986
until April 19, 1987. This entry is derived from the sum of the amounts
under the following column headings: "2-Day Advance Collection,"
"Service Fee," "Notarial Fee," "Application Fee," "Net Interest Income"
and "Interest Income on Investment." Such entries represent the
collections of the money-lending business or its gross income.

The "total income" shown on Exhibit "10-I" did not consider the
expenses sustained by the partnership. For instance, it did not factor in
the "gross loan releases" representing the money loaned to clients.
Since the business is money-lending, such releases are comparable with
the inventory or supplies in other business enterprises.

Noticeably missing from the computation of the "total income" is the

deduction of the weekly allowance disbursed to respondents. Exhibits
"I" et seq. and "J" et seq.23 show that Arsenio received allowances from
July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;
and Nieves, from July 12, 1986 to March 27, 1987, in the total amount
of P25,600. These allowances are different from the profit already
received by Arsenio. They represent expenses that should have been
deducted from the business profits. The point is that all expenses
incurred by the money-lending enterprise of the parties must first be
deducted from the "total income" in order to arrive at the "net profit"
of the partnership. The share of each one of them should be based on
this "net profit" and not from the "gross income" or "total income"
reflected in Exhibit "10-I," which the two courts invariably referred to as
"cash flow" sheets.

Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow

Reports," do not reflect the business expenses incurred by the parties,
because they show only the daily cash collections. Contrary to the
rulings of both the trial and the appellate courts, respondents' exhibits
do not reflect the complete financial condition of the money-lending
business. The lower courts obviously labored over a mistaken notion
that Exhibit " 10-I-1" represented the "net profits" earned by the
partnership.

For the purpose of determining the profit that should go to an industrial

partner (who shares in the profits but is not liable for the losses), the
gross income from all the transactions carried on by the firm must be
added together, and from this sum must be subtracted the expenses or
the losses sustained in the business. Only in the difference representing
the net profits does the industrial partner share. But if, on the contrary,
the losses exceed the income, the industrial partner does not share in
the losses.25

When the judgment of the CA is premised on a misapprehension of

facts or a failure to notice certain relevant facts that would otherwise
justify a different conclusion, as in this particular issue, a review of its
factual findings may be conducted, as an exception to the general rule
applied to the first two issues.26

The trial court has the advantage of observing the witnesses while they
are testifying, an opportunity not available to appellate courts. Thus, its
assessment of the credibility of witnesses and their testimonies are
accorded great weight, even finality, when supported by substantial
evidence; more so when such assessment is affirmed by the CA. But
when the issue involves the evaluation of exhibits or documents that
are attached to the case records, as in the third issue, the rule may be
relaxed. Under that situation, this Court has a similar opportunity to
inspect, examine and evaluate those records, independently of the
lower courts. Hence, we deem the award of the partnership share, as
computed by the trial court and adopted by the CA, to be incomplete
and not binding on this Court.

WHEREFORE, the Petition is partly GRANTED. The assailed November

28, 1997 Decision is AFFIRMED, but the challenged Resolutions dated
August 17, 1998 and October 9, 1998 are REVERSED and SET ASIDE. No
costs.

--------------

G.R. No. 193138, August 20, 2018

ANICETO G. SALUDO, JR., Petitioner, v. PHILIPPINE NATIONAL BANK,

Respondent.

In this petition, we emphasize that a partnership for the practice of law,

constituted in accordance with the Civil Code provisions on partnership,
acquires juridical personality by operation of law. Having a juridical
personality distinct and separate from its partners, such partnership is
the real party-in-interest in a suit brought in connection with a contract
entered into in its name and by a person authorized to act on its behalf.

Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for review on
certiorari1 assailing the February 8, 2010 Decision2 and August 2, 2010
Resolution3 issued by the Court of Appeals (CA) in CA-G.R. SP No.
98898. The CA affirmed with modification the January 11, 2007
Omnibus Order4 issued by Branch 58 of the Regional Trial Court (RTC) of
Makati City in Civil Case No. 06-678, and ruled that respondent
Philippine National Bank's (PNB) counterclaims against Saludo and the
Saludo Agpalo Fernandez and Aquino Law Office (SAFA Law Office)
should be reinstated in its answer.

Records show that on June 11, 1998, SAFA Law Office entered into a
Contract of Lease5 with PNB, whereby the latter agreed to lease 632
square meters of the second floor of the PNB Financial Center Building
in Quezon City for a period of three years and for a monthly rental fee
of P189,600.00. The rental fee is subject to a yearly escalation rate of
10%.6 SAFA Law Office then occupied the leased premises and paid
advance rental fees and security deposit in the total amount of
P1,137,600.00.7

On August 1, 2001, the Contract of Lease expired.8 According to PNB,

SAFA Law Office continued to occupy the leased premises until February
2005, but discontinued paying its monthly rental obligations after
December 2002.9 Consequently, PNB sent a demand letter10 dated July
17, 2003 for SAFA Law Office to pay its outstanding unpaid rents in the
amount of P4,648,086.34. PNB sent another letter11 demanding the
payment of unpaid rents in the amount of P5,856,803.53 which was
received by SAFA Law Office on November 10, 2003.

In a letter12 to PNB dated June 9, 2004, SAFA Law Office expressed its
intention to negotiate. It claimed that it was enticed by the former
management of PNB into renting the leased premises by promising to:
(1) give it a special rate due to the large area of the place; (2) endorse
PNB's cases to the firm with rents to be paid out of attorney's fees; and
(3) retain the firm as one of PNB's external counsels. When new
management took over, it allegedly agreed to uphold this agreement to
facilitate rental payments. However, not a single case of significance
was referred to the firm. SAFA Law Office then asked PNB to review and
discuss its billings, evaluate the improvements in the area and agree on
a compensatory sum to be applied to the unpaid rents, make good its
commitment to endorse or refer cases to SAFA Law Office under the
intended terms and conditions, and book the rental payments due as
receivables payable every time attorney's fees are due from the bank on
the cases it referred. The firm also asked PNB to give a 50% discount on
its unpaid rents, noting that while it was waiting for case referrals, it
had paid a total amount of P13,457,622.56 from January 1999 to
December 2002, which included the accelerated rates of 10% per
annum beginning August 1999 until July 2003.

In February 2005, SAFA Law Office vacated the leased premises.13 PNB
sent a demand letter14 dated July 7, 2005 requiring the firm to pay its
rental arrears in the total amount of P10,951,948.32. In response, SAFA
Law Office sent a letter dated June 8, 2006, proposing a settlement by
providing a range of suggested computations of its outstanding rental
obligations, with deductions for the value of improvements it
introduced in the premises, professional fees due from Macroasia
Corporation, and the 50% discount allegedly promised by Dr. Lucio
Tan.15 PNB, however, declined the settlement proposal in a letter16
dated July 17, 2006, stating that it was not amenable to the
settlement's terms. Besides, PNB also claimed that it cannot assume the
liabilities of Macroasia Corporation to SAFA Law Office as Macroasia
Corporation has a personality distinct and separate from the bank. PNB
then made a final demand for SAFA Law Office to pay its outstanding
rental obligations in the amount of P25,587,838.09.

On September 1, 2006, Saludo, in his capacity as managing partner of

SAFA Law Office, filed an amended complaint17 for accounting and/or
recomputation of unpaid rentals and damages against PNB in relation to
the Contract of Lease.

On October 4, 2006, PNB filed a motion to include an indispensable

party as plaintiff,18 praying that Saludo be ordered to amend anew his
complaint to include SAFA Law Office as principal plaintiff. PNB argued
that the lessee in the Contract of Lease is not Saludo but SAFA Law
Office, and that Saludo merely signed the Contract of Lease as the
managing partner of the law firm. Thus, SAFA Law Office must be joined
as a plaintiff in the complaint because it is considered an indispensable
party under Section 7, Rule 3 of the Rules of Court.19
On October 13, 2006, PNB filed its answer.20 By way of compulsory
counterclaim, it sought payment from SAFA Law Office in the sum of
P25,587,838.09, representing overdue rentals.21 PNB argued that as a
matter of right and equity, it can claim that amount from SAFA Law
Office in solidum with Saludo.22

On October 23, 2006, Saludo filed his motion to dismiss

counterclaims,23 mainly arguing that SAFA Law Office is neither a legal
entity nor party litigant. As it is only a relationship or association of
lawyers in the practice of law and a single proprietorship which may
only be sued through its owner or proprietor, no valid counterclaims
may be asserted against it.24

On January 11, 2007, the RTC issued an Omnibus Order denying PNB's
motion to include an indispensable party as plaintiff and granting
Saludo's motion to dismiss counterclaims in this wise:

The Court DENIES the motion of PNB to include the SAFA Law Offices.
Plaintiff has shown by documents attached to his pleadings that indeed
SAFA Law Offices is a mere single proprietorship and not a commercial
and business partnership. More importantly, plaintiff has admitted and
shown sole responsibility in the affairs entered into by the SAFA Law
Office. PNB has even admitted that the SAFA Law Office, being a
partnership in the practice of law, is a non-legal entity. Being a non-legal
entity, it cannot be a proper party, and therefore, it cannot sue or be
sued.

Consequently, plaintiff's Motion to Dismiss Counterclaims (claimed by

defendant PNB) should be GRANTED. The counterclaims prayed for to
the effect that the SAFA Law Offices be made to pay in solidum with
plaintiff the amounts stated in defendant's Answer is disallowed since
no counterclaims can be raised against a non-legal entity.25

PNB filed its motion for reconsideration26 dated February 5, 2007,

alleging that SAFA Law Office should be included as a co-plaintiff
because it is the principal party to the contract of lease, the one that
occupied the leased premises, and paid the monthly rentals and
security deposit. In other words, it was the main actor and direct
beneficiary of the contract. Hence, it is the real party-in-interest.27 The
RTC, however, denied the motion for reconsideration in an Order28
dated March 8, 2007.

Consequently, PNB filed a petition for certiorari29 with the CA. On

February 8, 2010, the CA rendered its assailed Decision,30 the
dispositive portion of which reads:

WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Omnibus

Order dated 11 January 2007 and Order dated 8 March 2007, issued by
respondent Court in Civil Case No. 06-678, respectively, are AFFIRMED
with MODIFICATION in that petitioner's counterclaims should be
reinstated in its Answer.
SO ORDERED.31

The CA ruled that an order granting Saludo's motion to dismiss

counterclaim, being interlocutory in nature, is not appealable until after
judgment shall have been rendered on Saludo's complaint. Since the
Omnibus Order is interlocutory, and there was an allegation of grave
abuse of discretion, a petition for certiorari is the proper remedy.32

On the merits, the CA held that Saludo is estopped from claiming that
SAFA Law Office is his single proprietorship. Under the doctrine of
estoppel, an admission or representation is rendered conclusive upon
the person making it, and cannot be denied or disproved as against the
person relying thereon. Here, SAFA Law Office was the one that entered
into the lease contract and not Saludo. In fact, the latter signed the
contract as the firm's managing partner. The alleged Memorandum of
Understanding33 (MOU) executed by the partners of SAFA Law
Office, .which states, among others, that Saludo alone would be liable
for the firm's losses and liabilities, and the letter of Saludo to PNB
confirming that SAFA Law Office is his single proprietorship did not
convert the firm to a single proprietorship. Moreover, SAFA Law Office
sent a letter to PNB regarding its unpaid rentals which Saludo signed as
a managing partner. The firm is also registered as a partnership with the
Securities and Exchange Commission (SEC).34

On the question of whether SAFA Law Office is an indispensable party,

the CA held that it is not. As a partnership, it may sue or be sued in its
name or by its duly authorized representative. Saludo, as managing
partner, may execute all acts of administration, including the right to
sue. Furthermore, the CA found that SAFA Law Office is not a legal
entity. A partnership for the practice of law is not a legal entity but a
mere relationship or association for a particular purpose. Thus, SAFA
Law Office cannot file an action in court. Based on these premises, the
CA held that the RTC did not gravely abuse its discretion in denying
PNB's motion to include an indispensable party as plaintiff.35

Nonetheless, the CA ruled that PNB's counterclaims against SAFA Law

Office should not be dismissed. While SAFA Law Office is not a legal
entity, it can still be sued under Section 15,36 Rule 3 of the Rules of
Court considering that it entered into the Contract of Lease with PNB.37

The CA further ruled that while it is true that SAFA Law Office's liability
is not in solidum with Saludo as PNB asserts, it does not necessarily
follow that both of them cannot be made parties to PNB's
counterclaims. Neither should the counterclaims be dismissed on the
ground that the nature of the alleged liability is solidary. According to
the CA, the presence ofSAFA Law Office is required for the granting of
complete relief in the determination of PNB's counterclaim. The court
must, therefore, order it to be brought in as defendant since jurisdiction
over it can be obtained pursuant to Section 12,38 Rule 6 of the Rules of
Court.39
Finally, the CA emphasized that PNB's counterclaims are compulsory, as
they arose from the filing of Saludo's complaint. It cannot be made
subject of a separate action but should be asserted in the same suit
involving the same transaction. Thus, the Presiding Judge of the RTC
gravely abused his discretion in dismissing PNB's counterclaims as the
latter may forever be barred from collecting overdue rental fees if its
counterclaims were not allowed.40

Saludo and PNB filed their respective motions for partial

reconsideration dated February 25, 201041 and February 26, 2010.42 In
a Resolution dated August 2, 2010, the CA denied both motions on the
ground that no new or substantial matters had been raised therein.
Nonetheless, the CA addressed the issue on the joining of SAFA Law
Office as a defendant in PNB's compulsory counterclaim. Pertinent
portions of the CA Resolution read:

The Private Respondent claims that a compulsory counterclaim is one

directed against an opposing party. The SAFA Law Office is not a party to
the case below and to require it to be brought in as a defendant to the
compulsory counterclaim would entail making it a co-plaintiff.
Otherwise, the compulsory counterclaim would be changed into a third-
party complaint. The Private Respondent also argues that Section 15,
Rule 3 of the Rules of Court (on entities without juridical personality) is
only applicable to initiatory pleadings and not to compulsory
counterclaims. Lastly, it is claimed that since the alleged obligations of
the SAFA Law Office is solidary with the Private Respondent, there is no
need to make the former a defendant to the counterclaim.
We disagree with the reasoning of the Private Respondent. That a
compulsory counterclaim can only be brought against an opposing party
is belied by considering one of the requisites of a compulsory
counterclaim it does not require for its adjudication the presence of
third parties of whom the court cannot acquire jurisdiction. This shows
that non-parties to a suit may be brought in as defendants to such a
counterclaim. x x x

xxxx

In the case at bench, the trial court below can acquire jurisdiction over
the SAFA Law Office considering the amount and the nature of the
counterclaim. Furthermore, the inclusion of the SAFA Law Office as a
defendant to the counterclaim will enable the granting of complete
relief in view [of] the liability of a partner to the partnership's creditors
under the law.43

Hence, this petition, where Saludo raises the following issues for our
resolution:

(1)

Whether the CA erred in including SAFA Law Office as defendant to

PNB's counterclaim despite its holding that SAFA Law Office is neither
an indispensable party nor a legal entity;

(2)
Whether the CA went beyond the issues in the petition for certiorari
and prematurely dealt with the merits of PNB's counterclaim; and

(3)

Whether the CA erred when it gave due course to PNB's petition for
certiorari to annul and set aside the RTC's Omnibus Order dated January
11, 2007.44

The petition is bereft of merit.

We hold that SAFA Law Office is a juridical entity and the real party-in-
interest in the suit filed with the RTC by Saludo against PNB. Hence, it
should be joined as plaintiff in that case.

I.

Contrary to Saludo's submission, SAFA Law Office is a partnership and

not a single proprietorship.

Article 1767 of the Civil Code provides that 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. Two or more persons may also form a partnership
for the exercise of a profession. Under Article 1771, a partnership may
be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall
be necessary. Article 1784, on the other hand, provides that a
partnership begins from the moment of the execution of the contract,
unless it is otherwise stipulated.

Here, absent evidence of an earlier agreement, SAFA Law Office was

constituted as a partnership at the time its partners signed the Articles
of Partnership45 wherein they bound themselves to establish a
partnership for the practice of law, contribute capital and industry for
the purpose, and receive compensation and benefits in the course of its
operation. The opening paragraph of the Articles of Partnership reveals
the unequivocal intention of its signatories to form a partnership, to
wit:

WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E. AGPALO,

FILEMON L. FERNANDEZ, AND AMADO D. AQUINO, all of legal age,
Filipino citizens and members of the Philippine Bar, have this day
voluntarily associated ourselves for the purpose of forming a
partnership engaged in the practice of law, effective this date, under the
terms and conditions hereafter set forth, and subject to the provisions
of existing laws[.]46

The subsequent registration of the Articles of Partnership with the SEC,

on the other hand, was made in compliance with Article 1772 of the
Civil Code, since the initial capital of the partnership was
P500,000.00.47 Said provision states:

Art. 1772. Every contract of partnership having a capital ofThree

thousand pesos or more, in money or property, shall appear in a public
instrument, which must be recorded in the Office of the Securities and
Exchange Commission.

xxxx

The other provisions of the Articles of Partnership also positively

identify SAFA Law Office as a partnership. It constantly used the words
"partners" and "partnership." It designated petitioner Saludo as
managing partner,48 and Attys. Ruben E. Agpalo, Filemon L. Fernandez,
and Amado D. Aquino as industrial partners.49 It also provided for the
term of the partnership,50 distribution of net profits and losses, and
management of the firm in which "the partners shall have equal
interest in the conduct of [its] affairs."51 Moreover, it provided for the
cause and manner of dissolution of the partnership.52 These provisions
would not have been necessary if what had been established was a sole
proprietorship. Indeed, it may only be concluded from the
circumstances that, for all intents and purposes, SAFA Law Office is a
partnership created and organized in accordance with the Civil Code
provisions on partnership.

Saludo asserts that SAFA Law Office is a sole proprietorship on the basis
of the MOU executed by the partners of the firm. The MOU states in
full:53

MEMORANDUM OF UNDERSTANDING
WHEREAS, the undersigned executed and filed with the SEC the Articles
of Incorporation of SALUDO, AGPALO, FERNANDEZ and AQUINO on
March 13, 1997;

WHEREAS, among the provisions of said Articles of Incorporation are

the following:

1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall be

industrial partners, and they shall not contribute capital to the
partnership and shall not in any way be liable for any loss or liability
that may be incurred by the law firm in the course of its operation.

2. That the partnership shall be dissolved by agreement of the partners

or for any cause as and in accordance with the manner provided by law,
in which event the Articles of Dissolution of said partnership shall be
filed with the Securities and Exchange Commission. All remaining assets
upon dissolution shall accrue exclusively to A. G. Saludo, Jr. and all
liabilities shall be solely for his account.

WHEREAS, the SEC has not approved the registration of the Articles of
Incorporation and its Examiner required that the phrase "shall not in
any way be liable for any loss or liability that may be incurred by the law
firm in the course of its operation" in Article VII be deleted;
WHEREAS, the SEC Examiner likewise required that the sentence "All
remaining assets upon dissolution shall accrue exclusively to A. G.
Saludo, Jr. and all liabilities shall be solely for his account" in Article X be
likewise deleted;

WHEREAS, in order to meet the objections of said Examiner, the

objectionable provisions have been deleted and new Articles of
Incorporation deleting said objectionable provisions have been
executed by the parties and filed with the SEC.

NOW, THEREFORE, for and in consideration of the premises and the

mutual covenant of the parties, the parties hereby agree as follows:

1. Notwithstanding the deletion of the portions objected to by the said

Examiner, by reason of which entirely new Articles of Incorporation
have been executed by the parties removing the objected portions, the
actual and real intent of the parties is still as originally envisioned,
namely:

a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall not

in any way be liable for any loss or liability that may be incurred by the
law firm in the course of its operation;
b) That all remaining assets upon dissolution shall accrue exclusively to
A. G. Saludo, Jr. and all liabilities shall be solely for his account.

2. That the parties hereof hereby bind and obligate themselves to

adhere and observe the real intent of the parties as above-stated, any
provisions in the Articles of Incorporation as filed to meet the
objections of the SEC Examiner to the contrary notwithstanding.

IN WITNESS WHEREOF, we have set our hands this _____ day of May,
1997 at Makati City, Philippines.

[Sgd.]

A.G. SALUDO, JR.

[Sgd.]

[Sgd.]

[Sgd.]

RUBEN E. AGPALO

FILEMON L. FERNANDEZ

AMADO D. AQUINO

The foregoing evinces the parties' intention to entirely shift any liability
that may be incurred by SAFA Law Office in the course of its operation
to Saludo, who shall also receive all the remaining assets of the firm
upon its dissolution. This MOU, however, does not serve to convert
SAFA Law Office into a sole proprietorship. As discussed, SAFA Law
Office was manifestly established as a partnership based on the Articles
of Partnership. The MOU, from its tenor, reinforces this fact. It did not
change the nature of the organization of SAFA Law Office but only
excused the industrial partners from liability.

The law, in its wisdom, recognized the possibility that partners in a

partnership may decide to place a limit on their individual
accountability. Consequently, to protect third persons dealing with the
partnership, the law provides a rule, embodied in Article 1816 of the
Civil Code, which states:

Art. 1816. All partners, including industrial ones, shall be liable pro rata
with all their property and after all the partnership assets have been
exhausted, for the contract which may be entered into in the name and
for the account of the partnership, under its signature and by a person
authorized to act for the partnership. However, any partner may enter
into a separate obligation to perform a partnership contract.

The foregoing provision does not prevent partners from agreeing to

limit their liability, but such agreement may only be valid as among
them. Thus, Article 1817 of the Civil Code provides:

Art. 1817. Any stipulation against the liability laid down in the preceding
article shall be void, except as among the partners.

The MOU is an agreement forged under the foregoing provision.

Consequently, the sole liability being undertaken by Saludo serves to
bind only the parties to the MOU, but never third persons like PNB.
Considering that the MOU is sanctioned by the law on partnership, it
cannot change the nature of a duly-constituted partnership. Hence, we
cannot sustain Saludo's position that SAFA Law Office is a sole
proprietorship.

II.

Having settled that SAFA Law Office is a partnership, we hold that it

acquired juridical personality by operation of law. The perfection and
validity of a contract of partnership brings about the creation of a
juridical person separate and distinct from the individuals comprising
the partnership. Thus, Article 1768 of the Civil Code provides:

Art. 1768. The partnership has a juridical personality separate and

distinct from that of each of the partners, even in case of failure to
comply with the requirements of Article 1772, first paragraph.

Article 44 of the Civil Code likewise provides that partnerships are

juridical persons, to wit:

Art. 44. The following are juridical persons:

(1)

The State and its political subdivisions;

(2)
Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they have
been constituted according to law;

(3)

Corporations, partnerships and associations for private interest or

purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.54

It is this juridical personality that allows a partnership to enter into

business transactions to fulfill its purposes. Article 46 of the Civil Code
provides that "[j]uridical persons may acquire and possess property of
all kinds, as well as incur obligations and bring civil or criminal actions,
in conformity with the laws and regulations of their organization."

SAFA Law Office entered into a contract of lease with PNB as a juridical
person to pursue the objectives of the partnership. The terms of the
contract and the manner in which the parties implemented it are a
glaring recognition of SAFA Law Office's juridical personality. Thus, the
contract stated that it is being executed by PNB as the lessor and
"SALUDO AGPALO FERNANDEZ & AQUINO, a partnership organized and
existing under the laws of the Republic of the Philippines," as the
lessee.55 It also provided that the lessee, i.e., SAFA Law Office, shall be
liable in case of default.56
Furthermore, subsequent communications between the parties have
always been made for or on behalf ofPNB and SAFA Law Office,
respectively.57

In view of the above, we see nothing to support the position of the RTC
and the CA, as well as Saludo, that SAFA Law Office is not a partnership
and a legal entity. Saludo's claims that SAFA Law Office is his sole
proprietorship and not a legal entity fail in light of the clear provisions
of the law on partnership. To reiterate, SAFA Law Office was created as a
partnership, and as such, acquired juridical personality by operation of
law. Hence, its rights and obligations, as well as those of its partners,
are determined by law and not by what the partners purport them to
be.

III.

In holding that SAFA Law Office, a partnership for the practice of law, is
not a legal entity, the CA cited58 the case of Petition for Authority to
Continue Use of the Firm Name "Sycip, Salazar, Feliciano, Hernandez &
Castillo"59 (Sycip case) wherein the Court held that "[a] partnership for
the practice of law is not a legal entity. It is a mere relationship or
association for a particular purpose. x x x It is not a partnership formed
for the purpose of carrying on trade or business or of holding
property."60 These are direct quotes from the US case of In re
Crawford's Estate.61 We hold, however, that our reference to this US
case is an obiter dictum which cannot serve as a binding precedent.62
An obiter dictum is an opinion of the court upon a question which was
not necessary to the decision of the case before it. It is an opinion
uttered by the way, not upon the point or question pending, as if
turning aside from the main topic of the case to collateral subjects, or
an opinion that does not embody the court's determination and is
made without argument or full consideration of the point. It is not a
professed deliberate determination of the judge himself.63

The main issue raised for the court's determination in the Sycip case is
whether the two petitioner law firms may continue using the names of
their deceased partners in their respective firm names. The court
decided the issue in the negative on the basis of "legal and ethical
impediments."64 To be sure, the pronouncement that a partnership for
the practice of law is not a legal entity does not bear on either the legal
or ethical obstacle for the continued use of a deceased partner's name,
inasmuch as it merely describes the nature of a law firm. The
pronouncement is not determinative of the main issue. As a matter of
fact, if deleted from the judgment, the rationale of the decision is
neither affected nor altered.

Moreover, reference of the Sycip case to the In re Crawford's Estate case

was made without a full consideration of the nature of a law firm as a
partnership possessed with legal personality under our Civil Code. First,
we note that while the Court mentioned that a partnership for the
practice of law is not a legal entity, it also identified petitioner law firms
as partnerships over whom Civil Code provisions on partnership
apply.65 The Court thus cannot hold that a partnership for the practice
of law is not a legal entity without running into conflict with Articles 44
and 1768 of the Civil Code which provide that a partnership has a
juridical personality separate and distinct from that of each of the
partners.

Second, our law on partnership does not exclude partnerships for the
practice of law from its coverage. Article 1767 of the Civil Code provides
that "[t]wo or more persons may also form a partnership for the
exercise of a profession." Article 1783, on the other hand, states that
"[a] particular partnership has for its object determinate things, their
use or fruits, or a specific undertaking, or the exercise of a profession or
vocation." Since the law uses the word "profession" in the general
sense, and does not distinguish which professional partnerships are
covered by its provisions and which are not, then no valid distinction
may be made.

Finally, we stress that unlike Philippine law, American law does not treat
of partnerships as forming a separate juridical personality for all
purposes. In the case of Bellis v. United States,66 the US Supreme Court
stated that law firms, as a form of partnership, are generally regarded
as distinct entities for specific purposes, such as employment, capacity
to be sued, capacity to hold title to property, and more.67 State and
federal laws, however, do not treat partnerships as distinct entities for
all purposes.68
Our jurisprudence has long recognized that American common law does
not treat of partnerships as a separate juridical entity unlike Philippine
law. Hence, in the case of Campos Rueda & Co. v. Pacific Commercial
Co.,69 which was decided under the old Civil Code, we held:

Unlike the common law, the Philippine statutes consider a limited

partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code of
Commerce). This being so and the juridical personality of a limited
partnership being different from that of its members, it must, on
general principle, answer for, and suffer, the consequence of its acts as
such an entity capable of being the subject of rights and obligations.70
xxx

On the other hand, in the case of Commissioner of Internal Revenue v.

Suter.71 which was decided under the new Civil Code, we held:

It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the
existence of the limited partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory mandates and basic principles
of our law.72 x x x

Indeed, under the old and new Civil Codes, Philippine law has
consistently treated partnerships as having a juridical personality
separate from its partners. In view of the clear provisions of the law on
partnership, as enriched by jurisprudence, we hold that our reference
to In re Crawford's Estate in the Sycip case is an obiter dictum.

IV.

Having settled that SAFA Law Office is a juridical person, we hold that it
is also the real party-in-interest in the case filed by Saludo against PNB.

Section 2, Rule 3 of the Rules of Court defines a real party-in-interest as

the one "who stands to be benefited or injured by the judgment in the
suit, or the party entitled to the avails of the suit." In Lee v. Romillo,
Jr.,73 we held that the "real [party-in-interest]-plaintiffis one who has a
legal right[,] while a real [party-in-interest]-defendant is one who has a
correlative legal obligation whose act or omission violates the legal
rights of the former."74

SAFA Law Office is the party that would be benefited or injured by the
judgment in the suit before the RTC. Particularly, it is the party
interested in the accounting and/or recomputation of unpaid rentals
and damages in relation to the contract of lease. It is also the party that
would be liable for payment to PNB of overdue rentals, if that claim
would be proven. This is because it is the one that entered into the
contract of lease with PNB. As an entity possessed of a juridical
personality, it has concomitant rights and obligations with respect to
the transactions it enters into. Equally important, the general rule under
Article 1816 of the Civil Code is that partnership assets are primarily
liable for the contracts entered into in the name of the partnership and
by a person authorized to act on its behalf. All partners, including
industrial ones, are only liable pro rata with all their property after all
the partnership assets have been exhausted.

In Guy v. Gacott,75 we held that under Article 1816 of the Civil Code,
the partners' obligation with respect to the partnership liabilities is
subsidiary in nature. It is merely secondary and only arises if the one
primarily liable fails to sufficiently satisfy the obligation. Resort to the
properties of a partner may be made only after efforts in exhausting
partnership assets have failed or if such partnership assets are
insufficient to cover the entire obligation.76 Consequently, considering
that SAFA Law Office is primarily liable under the contract of lease, it is
the real party-in-interest that should be joined as plaintiff in the RTC
case.

Section 2, Rule 3 of the Rules of Court requires that every action must
be prosecuted or defended in the name of the real party-in-interest. As
the one primarily affected by the outcome of the suit, SAFA Law Office
should have filed the complaint with the RTC and should be made to
respond to any counterclaims that may be brought in the course of the
proceeding.

In Aguila, Jr. v. Court of Appeals,77 a case for declaration of nullity of a

deed of sale was filed against a partner of A.C. Aguila & Sons, Co. We
dismissed the complaint and held that it was the partnership, not its
partners, which should be impleaded for a cause of action against the
partnership itself. Moreover, the partners could not be held liable for
the obligations of the partnership unless it was shown that the legal
fiction of a different juridical personality was being used for fraudulent,
unfair, or illegal purposes. We held:

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. This ruling is now embodied in
Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. Any decision
rendered against a person who is not a real party in interest in the case
cannot be executed. Hence, a complaint filed against such a person
should be dismissed for failure to state a cause of action.

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,
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.78

In this case, there is likewise no showing that SAFA Law Office, as a

separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Hence, its partners cannot be held primarily liable for the
obligations of the partnership. As it was SAFA Law Office that entered
into a contract of lease with respondent PNB, it should also be
impleaded in any litigation concerning that contract.

Accordingly, the complaint filed by Saludo should be amended to

include SAFA Law Office as plaintiff. Section 11,79 Rule 3 of the Rules of
Court gives power to the court to add a party to the case on its own
initiative at any stage of the action and on such tenns as are just. We
have also held in several cases80 that the court has full powers, apart
from that power and authority which are inherent, to amend processes,
pleadings, proceedings, and decisions by substituting as party-plaintiff
the real party-in-interest.

In view of the above discussion, we find it unnecessary to discuss the

other issues raised in the petition. It is unfortunate that the case has
dragged on for more than 10 years even if it involves an issue that may
be resolved by a simple application of Civil Code provisions on
partnership. It is time for trial to proceed so that the parties' substantial
rights may be adjudicated without further unnecessary delay.
WHEREFORE, the petition is DENIED. Petitioner is hereby ordered to
amend his complaint to include SAFA Law Office as plaintiff in Civil Case
No. 06-678 pending before Branch 58 of the Regional Trial Court of
Makati City, it being the real party-in-interest.

SO ORDERED.