I.

In General This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise. (1305)
A. Definition; essential features – Art. 1767

Article 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the profits C. Separate juridical personality – Arts. 1768, 1775; National Internal Revenue Code
among themselves. Sec. 22(b), NIRC Sec. 26; Art. 1811 par. (2)

Two or more persons may also form a partnership for the exercise of a profession. (1665a) Article 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
B. Creation – Arts. 1770, 1771, 1772, 1784, 1815, Code of Professional Responsibility Rule 3.02, paragraph. (n)
Art. 1411
Article 1775. Associations and societies, whose articles are kept secret among the members,
Article 1770. A partnership must have a lawful object or purpose, and must be established and wherein any one of the members may contract in his own name with third persons, shall have no
for the common benefit or interest of the partners. juridical personality, and shall be governed by the provisions relating to co-ownership. (1669)
When an unlawful partnership is dissolved by a judicial decree, the profits shall be National Internal Revenue Code Sec. 22(b)
confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the
confiscation of the instruments and effects of a crime. (1666a) (B) The term 'corporation' shall include one person corporations , partnerships, no matter
how created or organized, joint-stock companies, joint accounts (cuentas en participacion),
Article 1771. A partnership may be constituted in any form, except where immovable associations, or insurance companies, but does not include general professional partnerships and a
property or real rights are contributed thereto, in which case a public instrument shall be necessary. joint venture or consortium formed for the purpose of undertaking construction projects or engaging in
(1667a) petroleum, coal, geothermal and other energy operations pursuant to an operating consortium
agreement under a service contract with the Government. 'General professional partnerships’ are
Article 1772. Every contract of partnership having a capital of three thousand pesos or
partnerships formed by persons for the sole purpose of exercising their common profession, no part of
more, in money or property, shall appear in a public instrument, which must be recorded in the Office
the income of which is derived from engaging in any trade or business.
of the Securities and Exchange Commission.
SEC. 26. Tax Liability of Members of General Professional Partnerships. - A general
Failure to comply with the requirements of the preceding paragraph shall not affect the
professional partnership as such shall not be subject to the income tax imposed under this Chapter.
liability of the partnership and the members thereof to third persons. (n)
Persons engaging in business as partners in a general professional partnership shall be liable for
Article 1784. A partnership begins from the moment of the execution of the contract, unless income tax only in their separate and individual capacities
it is otherwise stipulated. (1679)
For purposes of computing the distributive share of the partners, the net income of the
Article 1815. Every partnership shall operate under a firm name, which may or may not partnership shall be computed in the same manner as a corporation.
include the name of one or more of the partners.
Each partner shall report as gross income his distributive share, actually or constructively
Those who, not being members of the partnership, include their names in the firm name, received, in the net income of the partnership.
shall be subject to the liability of a partner. (n)
Article 1811. A partner is co-owner with his partners of specific partnership property.
Rule 3.02 - In the choice of a firm name, no false, misleading or assumed name shall be
used. The continued use of the name of a deceased partner is permissible provided that the firm The incidents of this co-ownership are such that:
indicates in all its communications that said partner is deceased. (1) A partner, subject to the provisions of this Title and to any agreement between the
Article 1411. When the nullity proceeds from the illegality of the cause or object of the partners, has an equal right with his partners to possess specific partnership property for partnership
contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have purposes; but he has no right to possess such property for any other purpose without the consent of his
no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code partners;
relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price (2) A partner's right in specific partnership property is not assignable except in connection
of the contract. with the assignment of rights of all the partners in the same property;
 (3) A partner's right in specific partnership property is not subject to attachment or (7) Renounce a claim of the partnership.
execution, except on a claim against the partnership. When partnership property is attached for a
partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim No act of a partner in contravention of a restriction on authority shall bind the partnership to
any right under the homestead or exemption laws; persons having knowledge of the restriction. (n)

(4) A partner's right in specific partnership property is not subject to legal support under Article 1819. Where title to real property is in the partnership name, any partner may
article 291. (n) convey title to such property by a conveyance executed in the partnership name; but the partnership
may recover such property unless the partner's act binds the partnership under the provisions of the
first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person
claiming through such grantee to a holder for value without knowledge that the partner, in making the
D. Mutual agency – Arts. 1803, 1818, 1819, 1820, 1821, 1822, 1825; Revised Rules of conveyance, has exceeded his authority.
Court, Rule 130, Sec. 29; 1997 Revised Rules of Civil Procedure Rule 14, Section 11; Arts. 1800,
1801, 1802, 1832, 1833, 1834 Where title to real property is in the name of the partnership, a conveyance executed by a
partner, in his own name, passes the equitable interest of the partnership, provided the act is one
Article 1803. When the manner of management has not been agreed upon, the following within the authority of the partner under the provisions of the first paragraph of article 1818.
rules shall be observed:
Where title to real property is in the name of one or more but not all the partners, and the
(1) All the partners shall be considered agents and whatever any one of them may do alone record does not disclose the right of the partnership, the partners in whose name the title stands may
shall bind the partnership, without prejudice to the provisions of article 1801. convey title to such property, but the partnership may recover such property if the partners' act does
not bind the partnership under the provisions of the first paragraph of article 1818, unless the
(2) None of the partners may, without the consent of the others, make any important
purchaser or his assignee, is a holder for value, without knowledge.
alteration in the immovable property of the partnership, even if it may be useful to the partnership. But
if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, Where the title to real property is in the name of one or more or all the partners, or in a third
the court's intervention may be sought. (1695a) person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in
his own name, passes the equitable interest of the partnership, provided the act is one within the
Article 1818. Every partner is an agent of the partnership for the purpose of its business, and
authority of the partner under the provisions of the first paragraph of article 1818.
the act of every partner, including the execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the partnership of which he is a member binds Where the title to real property is in the name of all the partners a conveyance executed by
the partnership, unless the partner so acting has in fact no authority to act for the partnership in the all the partners passes all their rights in such property. (n)
particular matter, and the person with whom he is dealing has knowledge of the fact that he has no
such authority. Article 1820. An admission or representation made by any partner concerning partnership
affairs within the scope of his authority in accordance with this Title is evidence against the
An act of a partner which is not apparently for the carrying on of business of the partnership partnership. (n)
in the usual way does not bind the partnership unless authorized by the other partners.
Article 1821. Notice to any partner of any matter relating to partnership affairs, and the
Except when authorized by the other partners or unless they have abandoned the business, knowledge of the partner acting in the particular matter, acquired while a partner or then present to his
one or more but less than all the partners have no authority to: mind, and the knowledge of any other partner who reasonably could and should have communicated it
to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud
(1) Assign the partnership property in trust for creditors or on the assignee's promise to pay
on the partnership, committed by or with the consent of that partner. (n)
the debts of the partnership;
Article 1822. Where, by any wrongful act or omission of any partner acting in the ordinary
(2) Dispose of the good-will of the business;
course of the business of the partnership or with the authority of his co-partners, loss or injury is
(3) Do any other act which would make it impossible to carry on the ordinary business of a caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership
partnership; is liable therefor to the same extent as the partner so acting or omitting to act. (n)

(4) Confess a judgment; Article 1825. When a person, by words spoken or written or by conduct, represents himself,
or consents to another representing him to anyone, as a partner in an existing partnership or with one
(5) Enter into a compromise concerning a partnership claim or liability; or more persons not actual partners, he is liable to any such persons to whom such representation has
been made, who has, on the faith of such representation, given credit to the actual or apparent
(6) Submit a partnership claim or liability to arbitration;
partnership, and if he has made such representation or consented to its being made in a public manner
he is liable to such person, whether the representation has or has not been made or communicated to Article 1834. After dissolution, a partner can bind the partnership, except as provided in the
such person so giving credit by or with the knowledge of the apparent partner making the third paragraph of this article:
representation or consenting to its being made:
(1) By any act appropriate for winding up partnership affairs or completing transactions
(1) When a partnership liability results, he is liable as though he were an actual member of unfinished at dissolution;
the partnership;
(2) By any transaction which would bind the partnership if dissolution had not taken place,
(2) When no partnership liability results, he is liable pro rata with the other persons, if any, provided the other party to the transaction:
so consenting to the contract or representation as to incur liability, otherwise separately.
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or
Article 1800. The partner who has been appointed manager in the articles of partnership notice of the dissolution; or
may execute all acts of administration despite the opposition of his partners, unless he should act in
bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners (b) Though he had not so extended credit, had nevertheless known of the partnership prior to
representing the controlling interest shall be necessary for such revocation of power. dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been
advertised in a newspaper of general circulation in the place (or in each place if more than one) at
A power granted after the partnership has been constituted may be revoked at any time. which the partnership business was regularly carried on.
(1692a)
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership
Article 1801. If two or more partners have been intrusted with the management of the assets alone when such partner had been prior to dissolution:
partnership without specification of their respective duties, or without a stipulation that one of them
shall not act without the consent of all the others, each one may separately execute all acts of (1) Unknown as a partner to the person with whom the contract is made; and
administration, but if any of them should oppose the acts of the others, the decision of the majority
(2) So far unknown and inactive in partnership affairs that the business reputation of the
shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling
partnership could not be said to have been in any degree due to his connection with it.
interest. (1693a)
The partnership is in no case bound by any act of a partner after dissolution:
Article 1802. In case it should have been stipulated that none of the managing partners shall
act without the consent of the others, the concurrence of all shall be necessary for the validity of the (1) Where the partnership is dissolved because it is unlawful to carry on the business, unless
acts, and the absence or disability of any one the act is appropriate for winding up partnership affairs; or
Article 1832. Except so far as may be necessary to wind up partnership affairs or to (2) Where the partner has become insolvent; or
complete transactions begun but not then finished, dissolution terminates all authority of any partner to
act for the partnership: (3) Where the partner has no authority to wind up partnership affairs; except by a transaction
with one who -
(1) With respect to the partners,
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or
(a) When the dissolution is not by the act, insolvency or death of a partner; or notice of his want of authority; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where (b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge
article 1833 so requires; or notice of his want of authority, the fact of his want of authority has not been advertised in the
manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b).
(2) With respect to persons not partners, as declared in article 1834. (n)
Nothing in this article shall affect the liability under article 1825 of any person who after
Article 1833. Where the dissolution is caused by the act, death or insolvency of a partner,
dissolution represents himself or consents to another representing him as a partner in a partnership
each partner is liable to his co-partners for his share of any liability created by any partner acting for
engaged in carrying on business. (n)
the partnership as if the partnership had not been dissolved unless:
E. Distinguish from:
(1) The dissolution being by act of any partner, the partner acting for the partnership had
knowledge of the dissolution; or 1. Co-ownership; co-possession
(2) The dissolution being by the death or insolvency of a partner, the partner acting for the 2. Tenancy in common; joint tenancy
partnership had knowledge or notice of the death or insolvency.
3. Joint ventures When a person has been thus represented to be a partner in an existing partnership, or with
one or more persons not actual partners, he is an agent of the persons consenting to such
4. Joint adventures representation to bind them to the same extent and in the same manner as though he were a partner in
fact, with respect to persons who rely upon the representation. When all the members of the existing
5. Joint accounts partnership consent to the representation, a partnership act or obligation results; but in all other cases it
is the joint act or obligation of the person acting and the persons consenting to the representation. (n)
6. Cuentas en participación

7. Agency, Arts. 1769, 1825, Arts. 239-243, Code of Commerce Article 239

Article 1769. In determining whether a partnership exists, these rules shall apply:
Merchants may have an interest in the transactions of other merchants, contributing thereto
(1) Except as provided by article 1825, persons who are not partners as to each other are not the amount of capital they may agree upon, and participating in the favorable or unfavorable results of
partners as to third persons; said transactions in the proportion which they may fix.

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-
Article 240
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 Joint accounts shall not be subject, with regard to their formation, to any formality, and may
persons sharing them have a joint or common right or interest in any property from which the returns be privately contracted orally or in writing, and their existence may be proved by any of the means
are derived; accepted in law, in accordance with the provisions of Article 51.
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that
he is a partner in the business, but no such inference shall be drawn if such profits were received in Article 241
payment:
In the transactions treated of in the two foregoing articles, no commercial name common to
(a) As a debt by installments or otherwise; all participants can be adopted, nor can any further direct credit be made use of except that of the
(b) As wages of an employee or rent to a landlord; merchant who transacts and manages the business in his own name and under his individual liability.

(c) As an annuity to a widow or representative of a deceased partner; Article 242

(d) As interest on a loan, though the amount of payment vary with the profits of the
business; Persons transacting business with the merchant carrying on the joint business shall only have
a right of action against the latter and not against the other persons interested, and the latter, on the
(e) As the consideration for the sale of a goodwill of a business or other property by other hand, shall have no right of action against the third person who made the transaction with the
installments or otherwise. (n) manager unless said manager formally cedes his rights to them.

Article 243
Article 1825. When a person, by words spoken or written or by conduct, represents himself,
or consents to another representing him to anyone, as a partner in an existing partnership or with one The liquidation shall be effected by the manager, and after the transactions have been
or more persons not actual partners, he is liable to any such persons to whom such representation has concluded he shall render a proper account of its results.
been made, who has, on the faith of such representation, given credit to the actual or apparent
partnership, and if he has made such representation or consented to its being made in a public manner
he is liable to such person, whether the representation has or has not been made or communicated to
such person so giving credit by or with the knowledge of the apparent partner making the
representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an actual member of
the partnership;
(2) When no partnership liability results, he is liable pro rata with the other persons, if any,
so consenting to the contract or representation as to incur liability, otherwise separately.
 [G.R. No. 136448. November 3, 1999.] 2. ID.; ID.; COMPROMISE AGREEMENT OF THE PARTIES 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
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR entered into only to end the dispute among them, but not to adjudicate their preexisting rights and
INDUSTRIES, INC., respondent. 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
SYNOPSIS have found, correctly, a preexisting partnership among the parties. In implying that the lower courts
Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA
Corporation for the purchase of fishing nets from respondent Philippine Fishing Gear Industries, Inc. and the RTC delved into the history of the document and explored all the possible consequential
Chua and Yao claimed that they were engaged in business venture with petitioner Lim Tong Lim, combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings
who, however, was not a signatory to the contract. The buyers failed to pay the fishing nets. mentioned above nullified petitioner's argument that the existence of a partnership was based only on
Respondent filed a collection against Chua, Yao and petitioner Lim in their capacities as general the Compromise Agreement.
partners because it turned out that Ocean Quest Fishing Corporation is a non-existent corporation. The
trial court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing 3. ID.; ID.; PETITIONER WAS A PARTNER, NOT A LESSOR. — Verily, as found by the
nets. The trial court rendered its decision ruling that respondent was entitled to the Writ of Attachment lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were
and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. Lim appealed undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in
to the Court of Appeals, but the appellate court affirmed the decision of the trial court that petitioner their fishing business. The sale of the boats, as well as the division among the three of the balance
Lim is a partner and may thus be held liable as such. Hence, the present petition. Petitioner claimed remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in
that since his name did not appear on any of the contracts and since he never directly transacted with his name, was not his own property but an asset of the partnership. It is not uncommon to register the
the respondent corporation, ergo, he cannot be held liable. cIaCTS 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
The Supreme Court denied the petition. The Court ruled that having reaped the benefits of unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not incur,
the contract entered into by Chua and Yao, with whom he had an existing relationship, petitioner Lim if the relationship among the three of them was merely that of lessor-lessee, instead of partners.
is deemed a part of said association and is covered by the doctrine of corporation by estoppel. The
Court also ruled that under the principle of estoppel, those acting on behalf of a corporation and those 4. MERCANTILE LAW; PRIVATE CORPORATIONS; HAVING REAPED THE
benefited by it, knowing it to be without valid existence, are held liable as general partners. BENEFITS OF THE CONTRACT ENTERED INTO BY PERSONS WITH WHOM HE
PREVIOUSLY HAD AN EXISTING RELATIONSHIP, PETITIONER IS DEEMED TO BE PART
OF SAID ASSOCIATION AND IS COVERED BY THE DOCTRINE OF CORPORATION BY
ESTOPPEL. — There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled
SYLLABUS
to be paid for the nets it sold. The only question here is whether petitioner should be held jointly liable
with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name
1. CIVIL LAW; PARTNERSHIP; AGREEMENT THAT ANY LOSS OR PROFIT FROM of the ostensible corporation should be held liable. Since his name does not appear on any of the
THE SALE AND OPERATION OF THE BOATS WOULD BE DIVIDED EQUALLY AMONG contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be
THEM SHOWS THAT THE PARTIES HAD INDEED FORMED A PARTNERSHIP. — From the held liable. Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes,
factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a the boat which has earlier been proven to be an asset of the partnership. He in fact questions the
fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel. It is
from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they subsequently difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation.
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to divide equally Although it was never legally formed for unknown reasons, this fact alone does not preclude the
among them the excess or loss. These boats, the purchase and the repair of which were financed with liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel,
borrowed money, fell under the term "common fund" under Article 1767. The contribution to such those acting on behalf of a corporation and those benefited by it, knowing it to be without valid
fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties existence, are held liable as general partners. Technically, it is true that petitioner did not directly
agreed that any loss or profit from the sale and operation of the boats would be divided equally among act on behalf of the corporation. However, having reaped the benefits of the contract entered into by
them also shows that they had indeed formed a partnership. Moreover, it is clear that the partnership persons with whom he previously had an existing relationship, he is deemed to be part of said
extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing association and is covered by the scope of the doctrine of corporation by estoppel.
nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business.
5. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; ISSUE OF
It would have been inconceivable for Lim to involve himself so much in buying the boat but not in the
VALIDITY THEREOF, MOOT AND ACADEMIC. — Petitioner claims that the Writ of Attachment
acquisition of the aforesaid equipment, without which the business could not have proceeded. Given
was improperly issued against the nets. We agree with the Court of Appeals that this issue is now
the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged
moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it
in the fishing business. They purchased the boats, which constituted the main assets of the partnership,
was placed in the name of petitioner, only to assure payment of the debt he and his partners owed. The
and they agreed that the proceeds from the sales and operations thereof would be divided among them.
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 1. That plaintiff is entitled to the writ of preliminary attachment
assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, issued by this Court on September 20, 1990; dphil
ownership of the nets remained with Respondent Philippine Fishing Gear, until full payment thereof. 2. That defendants are jointly liable to plaintiff for the following
amounts, subject to the modifications as hereinafter made by reason of the
VITUG, J., concurring: special and unique facts and circumstances and the proceedings that transpired
1. CIVIL LAW; PARTNERSHIP; EXTENT OF LIABILITY OF PARTNERS IN A during the trial of this case;
GENERAL PARTNERSHIP. — When a person by his act or deed represents himself. as a partner in a. P532,045.00 representing [the] unpaid purchase price of the fishing
an existing partnership or with one or more persons not actual partners, he is deemed an agent of such nets covered by the Agreement plus P68,000.00 representing the unpaid price of
persons consenting to such representation and in the same manner, if he were a partner, with respect to the floats not covered by said Agreement;
persons who rely upon the representation. The association formed by Chua, Yao and Lim, should be, b. 12% interest per annum counted from date of plaintiff's invoices
as it has been deemed, a de facto partnership with all the consequent obligations for the purpose of and computed on their respective amounts as follows:
enforcing the rights of third persons. The liability of general partners (in a general partnership as so i. Accrued interest of P73,221.00 on Invoice No. 14407 for
opposed to a limited partnership) is laid down in Article 1816 which posits that all partners shall be P385,377.80 dated February 9, 1990;
liable pro rata beyond the partnership assets for all the contracts which may have been entered into in ii. Accrued interest of P27,904.02 on Invoice No. 14413 for
its name, under its signature, and by a person authorized to act for the partnership. P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
2. ID.; ID.; ID.; INSTANCES WHEN THE PARTNERS CAN BE HELD SOLIDARILY P68,000.00 dated February 19, 1990;
LIABLE WITH THE PARTNERSHIP. — This rule is to be construed along with other provisions of c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing
the Civil Code which postulate that the partners can be held solidarily liable with the partnership P500.00 per appearance in court;
specifically in these instances. — (1) where, by any wrongful act or omission of any partner acting in d. P65,000.00 representing P5,000.00 monthly rental for storage
the ordinary course of the business of the partnership or with the authority of his co-partners, loss or charges on the nets counted from September 20, 1990 (date of attachment) to
injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the September 12, 1991 (date of auction sale); cdasia
partnership is liable therefor to the same extent as the partner so acting or omitting to act; (2) where e. Cost of suit.
one partner acting within the scope of his apparent authority receives money or property of a third "With respect to the joint liability of defendants for the principal
person and misapplies it; and (3) where the partnership in the course of its business receives money or obligation or for the unpaid price of nets and floats in the amount of
property of a third person and the money or property so received is misapplied by any partner while it P532,045.00 and P68,000.00, respectively, or for the total amount of
is in the custody of the partnership — consistently with the rules on the nature of civil liability in P600,045.00, this Court noted that these items were attached to guarantee any
delicts and quasi-delicts. 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
DECISION this case, it was ordered sold at public auction for not less than P900,000.00 for
PANGANIBAN, J p: 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
A partnership may be deemed to exist among parties who agree to borrow money to pursue P900,000.00 replaced the attached property as a guaranty for any judgment that
a business and to divide the profits or losses that may arise therefrom, even if it is shown that they plaintiff may be able to secure in this case with the ownership and possession of
have not contributed any capital of their own to a "common fund." Their contribution may be in the the nets and floats awarded and delivered by the sheriff to plaintiff as the
form of credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for highest bidder in the public auction sale. It has also been noted that ownership
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of of the nets [was] retained by the plaintiff until full payment [was] made as
an unincorporated association or ostensible corporation may lie in a person who may not have directly stipulated in the invoices; hence, in effect, the plaintiff attached its own
transacted on its behalf, but reaped benefits from that contract. cda 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
The Case
cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, as its bond in favor of defendants.
1998 Decision of the Court of Appeals in CA-GR CV 41477, which disposed as follows:
"From the foregoing, it would appear therefore that whatever
"WHEREFORE, [there being] no reversible error in the appealed judgment the plaintiff may be entitled to in this case will have to be satisfied
decision, the same is hereby affirmed." 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
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was above would amount to only P840,216.92, it would be inequitable, unfair and
affirmed by the CA, reads as follows: 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
"WHEREFORE, the Court rules:
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 "b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
from the monetary judgment obligation enumerated above and for plaintiff to P5,750,000.00 whatever will be the excess will be divided into 3: 1/3
retain possession and ownership of the nets and floats and for the Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
reimbursement of the P900,000.00 deposited by it with the Clerk of Court.
"c) If the proceeds of the sale the vessels will be less than P5,750,000.00
SO ORDERED." ia 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
The Facts Yao."
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into
The trial court noted that the Compromise Agreement was silent as to the nature of their
a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
obligations, but that joint liability could be presumed from the equal distribution of the profit and loss.
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 Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also sold to
the Corporation. Ruling of the Court of Appeals

The buyers, however, failed to pay for the fishing nets and the floats; hence, private In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a fishing business and may thus be held liable as such for the fishing nets and floats purchased by and
writ of preliminary attachment. The suit was brought against the three in their capacities as general for the use of the partnership. The appellate court ruled:
partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as
"The evidence establishes that all the defendants including herein
shown by a Certification from the Securities and Exchange Commission. On September 20, 1990, the
appellant Lim Tong Lim undertook a partnership for a specific undertaking, that
lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
is for commercial fishing . . . . Obviously, the ultimate undertaking of the
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro
defendants was to divide the profits among themselves which is what a
Manila. LLpr
partnership essentially is . . . . By a contract of partnership, two or more persons
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and bind themselves to contribute money, property or industry to a common fund
requesting a reasonable time within which to pay. He also turned over to respondent some of the nets with the intention of dividing the profits among themselves (Article 1767, New
which were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived Civil Code)."
his right to cross-examine witnesses and to present evidence on his behalf, because of his failure to
Hence, petitioner brought this recourse before this Court.
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. The trial court maintained the The Issues
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 In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
proceeds of P900,000. following grounds:

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing "I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general COMPROMISE AGREEMENT THAT CHUA, YAO AND
partners, were jointly liable to pay respondent. PETITIONER LIM ENTERED INTO IN A SEPARATE CASE,
THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the THEM.
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the three in
Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of Malabon, "II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN
a declaration of ownership of fishing boats; (d) an injunction and (e) damages. The Compromise HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE
Agreement provided: cdll COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
"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 "III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
P5,750,000.00 shall be applied as full payment for P3,250,000.00 in ATTACHMENT OF PETITIONER LIM'S GOODS."
favor of JL Holdings Corporation and/or Lim Tong Lim; In determining whether petitioner may be held liable for the fishing nets and floats
purchased from respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua
and Yao could be deemed to have entered into a partnership. cdasia
 This Court's Ruling Lim for (a) declaration of nullity of commercial documents; (b) reformation of
contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e)
The Petition is devoid of merit.
damages.
First and Second Issues: (9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of which are already
Existence of a Partnership enumerated above.
and Petitioner's Liability From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
In arguing that he should not be held liable for the equipment purchased from respondent, decided to engage in a fishing business, which they started by buying boats worth P3.35 million,
petitioner controverts the CA finding that a partnership existed between him, Peter Yao and Antonio financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Chua. He asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the sale of
disclaims any direct participation in the purchase of the nets, alleging that the negotiations were the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
conducted by Chua and Yao only, and that he has not even met the representatives of the respondent repair of which were financed with borrowed money, fell under the term "common fund" under Article
company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangible like
"Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main credit or industry. That the parties agreed that any loss or profit from the sale and operation of the
asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six months, with boats would be divided equally among them also shows that they had indeed formed a partnership.
a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
We are not persuaded by the arguments of petitioner. The facts as found by the two lower also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
1767 of the Civil Code which provides: 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. cdtai
"ARTICLE 1767. By the contract of partnership, two or more persons
bind themselves to contribute money, property, or industry to a common fund, Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
with the intention of dividing the profits among themselves." llcd 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
Specifically, both lower courts ruled that a partnership among the three existed based on the would be divided among them.
following factual findings:
We stress that under Rule 45, a petition for review like the present case should involve only
(1) That Petitioner Lim Tong Lim requested Peter Yao who was questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this
engaged in commercial fishing to join him, while Antonio Chua was already Court, absent any cogent proof that the present action is embraced by one of the exceptions to the
Yao's partner; rule. In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the
(2) That after convening for a few times, Lim Chua, and Yao verbally bounds of a petition for review under Rule 45.
agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for the
sum of P3.35 million; Compromise Agreement
(3) That they borrowed P3.25 million from Jesus Lim, brother of Not the Sole Basis of Partnership
Petitioner Lim Tong Lim, to finance the venture. Petitioner argues that the appellate court's sole basis for assuming the existence of a
(4) That they bought the boats from CMF Fishing Corporation, which partnership was the Compromise Agreement. He also claims that the settlement was entered into only
executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim to end the dispute among them, but not to adjudicate their preexisting rights and obligations. His
Tong Lim only to serve as security for the loan extended by Jesus Lim; arguments are baseless. The Agreement was but an embodiment of the relationship extant among the
(5) That Lim, Chua and Yao agreed that the refurbishing, re- parties prior to its execution.
equipping, repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao; A proper adjudication of claimants' rights mandates that courts must review and thoroughly
(6) That because of the "unavailability of funds," Jesus Lim again appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
extended a loan to the partnership in the amount of P1 million secured by a partnership among the parties. In implying that the lower courts have decided on the basis of one piece
check, because of which, Yao and Chua entrusted the ownership papers of two of document alone, petitioner fails to appreciate that the CA and the RTC delved into the history of the
other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong document and explored all the possible consequential combinations in harmony with law, logic and
Lim. cdtai fairness. Verily, the two lower courts' factual findings mentioned above nullified petitioner's argument
(7) That in pursuance of the business agreement, Peter Yao and that the existence of a partnership was based only on the Compromise Agreement. LLphil
Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf
of "Ocean Quest Fishing Corporation," their purported business name. Petitioner Was a Partner,
(8) That subsequently, Civil Case No. 1492-MN was filed in the Not a Lessor
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong
 We are not convinced by petitioner's argument that he was merely the lessor of the boats to The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the party. In the first instance, an unincorporated association, which represented itself to be a corporation,
Contract of Lease and the registration papers showing that he was the owner of the boats, will be estopped from denying its corporate capacity in a suit against it by a third person who relied in
including F/B Lourdes where the nets were found. 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.
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 On the other hand, a third party who, knowing an association to be unincorporated,
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale nonetheless treated it as a corporation and received benefits from it, may be barred from denying its
proved that there was a preexisting partnership among all three. 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
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua defects, may be held liable for contracts they impliedly assented to or took advantage of. cdrep
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 There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be
among the three of the balance remaining after the payment of their loans, proves beyond cavil paid for the nets it sold. The only question here is whether petitioner should be held jointly liable with
that F/B Lourdes, though registered in his name, was not his own property but an asset of the Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the ostensible corporation should be held liable. Since his name does not appear on any of the contracts
person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
creditor, Jesus Lim. prLL
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the
We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property boat which has earlier been proven to be an asset of the partnership. He in fact questions the
to pay a debt he did not incur, if the relationship among the three of them was merely that of lessor- attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.
lessee, instead of partners.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form
Corporation by Estoppel 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
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed
on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without
only to Chua and Yao, and not to him. Again, we disagree.
valid existence, are held liable as general partners.
Section 21 of the Corporation Code of the Philippines provides:
Technically, it is true that petitioner did not directly act on behalf of the
"Sec. 21. Corporation by estoppel. — All persons who assume to act corporation. However, having reaped the benefits of the contract entered into by persons with whom
as a corporation knowing it to be without authority to do so shall be liable as he previously had an existing relationship, he is deemed to be part of said association and is covered
general partners for all debts, liabilities and damages incurred or arising as a by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso
result thereof: Provided however, That when any such ostensible corporation is [Link]:
sued on any transaction entered by it as a corporation or on any tort committed
"A litigation is not a game of technicalities in which one, more deeply
by it as such, it shall not be allowed to use as a defense its lack of corporate
schooled and skilled in the subtle art of movement and position, entraps and
personality.
destroys the other. It is, rather, a contest in which each contending party fully
"One who assumes an obligation to an ostensible corporation as such, and fairly lays before the court the facts in issue and then, brushing aside as
cannot resist performance thereof on the ground that there was in fact no wholly trivial and indecisive all imperfections of form and technicalities of
corporation." 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
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may as an aid to justice and becomes its great hindrance and chief enemy, deserves
be estopped from denying its corporate existence. "The reason behind this doctrine is obvious — an scant consideration from courts. There should be no vested rights in
unincorporated association has no personality and would be incompetent to act and appropriate for technicalities."
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 Third Issue:
agents do so without authority and at their own risk. And as it is an elementary principle of law that a Validity of Attachment
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 Finally, petitioner claims that the Writ of Attachment was improperly issued against the
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and nets. We agree with the Court of Appeals that this issue is now moot and academic. As previously
obligations and becomes personally liable for contracts entered into or for other acts performed as discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner,
such agent." 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 terms and conditions, and book the rental payments due as receivables payable every time
in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with attorney's fees are due from the bank on the cases it referred. The firm also asked PNB to give a
Respondent Philippine Fishing Gear, until full payment thereof. 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
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs accelerated rates of 10% per annum beginning August 1999 until July 2003.
against petitioner. Cdpr
In February 2005, SAFA Law Office vacated the leased premises. PNB sent a demand
[G.R. No. 193138. August 20, 2018.] letter 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,
ANICETO G. SALUDO, JR., petitioner, vs. PHILIPPINE NATIONAL with deductions for the value of improvements it introduced in the premises, professional fees
BANK, respondent. due from Macroasia Corporation, and the 50% discount allegedly promised by Dr. Lucio
Tan. PNB, however, declined the settlement proposal in a letter dated July 17, 2006, stating that
it was not amenable to the settlement's terms. Besides, PNB also claimed that it cannot assume
JARDELEZA, J p: 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
In this petition, we emphasize that a partnership for the practice of law, constituted in Office to pay its outstanding rental obligations in the amount of P25,587,838.09.
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 On September 1, 2006, Saludo, in his capacity as managing partner of SAFA Law
partnership is the real party-in-interest in a suit brought in connection with a contract entered into Office, filed an amended complaint for accounting and/or recomputation of unpaid rentals and
in its name and by a person authorized to act on its behalf. damages against PNB in relation to the Contract of Lease.

Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for review On October 4, 2006, PNB filed a motion to include an indispensable party as
on certiorari assailing the February 8, 2010 Decision and August 2, 2010 Resolution issued by plaintiff, praying that Saludo be ordered to amend anew his complaint to include SAFA Law
the Court of Appeals (CA) in CA-G.R. SP No. 98898. The CA affirmed with modification the Office as principal plaintiff. PNB argued that the lessee in the Contract of Lease is not Saludo but
January 11, 2007 Omnibus Order issued by Branch 58 of the Regional Trial Court (RTC) of SAFA Law Office, and that Saludo merely signed the Contract of Lease as the managing partner
Makati City in Civil Case No. 06-678, and ruled that respondent Philippine National Bank's of the law firm. Thus, SAFA Law Office must be joined as a plaintiff in the complaint because it
(PNB) counterclaims against Saludo and the Saludo Agpalo Fernandez and Aquino Law Office is considered an indispensable party under Section 7, Rule 3 of the Rules of Court.
(SAFA Law Office) should be reinstated in its answer. On October 13, 2006, PNB filed its answer. By way of compulsory counterclaim, it
Records show that on June 11, 1998, SAFA Law Office entered into a Contract of sought payment from SAFA Law Office in the sum of P25,587,838.09, representing overdue
Lease with PNB, whereby the latter agreed to lease 632 square meters of the second floor of the rentals. PNB argued that as a matter of right and equity, it can claim that amount from SAFA
PNB Financial Center Building in Quezon City for a period of three years and for a monthly Law Office in solidum with Saludo.
rental fee of P189,600.00. The rental fee is subject to a yearly escalation rate of 10%. SAFA Law On October 23, 2006, Saludo filed his motion to dismiss counterclaims, mainly
Office then occupied the leased premises and paid advance rental fees and security deposit in the arguing that SAFA Law Office is neither a legal entity nor party litigant. As it is only a
total amount of P1,137,600.00. relationship or association of lawyers in the practice of law and a single proprietorship which
On August 1, 2001, the Contract of Lease expired. According to PNB, SAFA Law may only be sued through its owner or proprietor, no valid counterclaims may be asserted against
Office continued to occupy the leased premises until February 2005, but discontinued paying its it.
monthly rental obligations after December 2002. Consequently, PNB sent a demand letter dated On January 11, 2007, the RTC issued an Omnibus Order denying PNB's motion to
July 17, 2003 for SAFA Law Office to pay its outstanding unpaid rents in the amount of include an indispensable party as plaintiff and granting Saludo's motion to dismiss counterclaims
P4,648,086.34. PNB sent another letter demanding the payment of unpaid rents in the amount of in this wise:
P5,856,803.53 which was received by SAFA Law Office on November 10, 2003.
The Court DENIES the motion of PNB to include the SAFA
In a letter to PNB dated June 9, 2004, SAFA Law Office expressed its intention to Law Offices. Plaintiff has shown by documents attached to his pleadings that
negotiate. It claimed that it was enticed by the former management of PNB into renting the leased indeed SAFA Law Offices is a mere single proprietorship and not a
premises by promising to: (1) give it a special rate due to the large area of the place; (2) endorse commercial and business partnership. More importantly, plaintiff has
PNB's cases to the firm with rents to be paid out of attorney's fees; and (3) retain the firm as one admitted and shown sole responsibility in the affairs entered into by the
of PNB's external counsels. When new management took over, it allegedly agreed to uphold this SAFA Law Office. PNB has even admitted that the SAFA Law Office, being
agreement to facilitate rental payments. However, not a single case of significance was referred to a partnership in the practice of law, is a non-legal entity. Being a non-legal
the firm. SAFA Law Office then asked PNB to review and discuss its billings, evaluate the entity, it cannot be a proper party, and therefore, it cannot sue or be sued.
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
 Consequently, plaintiff's Motion to Dismiss Counterclaims The CA further ruled that while it is true that SAFA Law Office's liability is not in
(claimed by defendant PNB) should be GRANTED. The counterclaims solidum with Saludo as PNB asserts, it does not necessarily follow that both of them cannot be
prayed for to the effect that the SAFA Law Offices be made to pay in made parties to PNB's counterclaims. Neither should the counterclaims be dismissed on the
solidum with plaintiff the amounts stated in defendant's Answer is disallowed ground that the nature of the alleged liability is solidary. According to the CA, the presence of
since no counterclaims can be raised against a non-legal entity. SAFA 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
PNB filed its motion for reconsideration dated February 5, 2007, alleging that SAFA over it can be obtained pursuant to Section 12, Rule 6 of the Rules of Court.
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 Finally, the CA emphasized that PNB's counterclaims are compulsory, as they arose
deposit. In other words, it was the main actor and direct beneficiary of the contract. Hence, it is from the filing of Saludo's complaint. It cannot be made subject of a separate action but should be
the real party-in-interest. The RTC, however, denied the motion for reconsideration in an asserted in the same suit involving the same transaction. Thus, the Presiding Judge of the RTC
Order dated March 8, 2007. 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.
Consequently, PNB filed a petition for certiorari with the CA. On February 8, 2010,
the CA rendered its assailed Decision, the dispositive portion of which reads: Saludo and PNB filed their respective motions for partial reconsideration dated
February 25, 2010 and February 26, 2010. In a Resolution dated August 2, 2010, the CA denied
WHEREFORE, the petition is PARTIALLY GRANTED. The both motions on the ground that no new or substantial matters had been raised therein.
assailed Omnibus Order dated 11 January 2007 and Order dated 8 March Nonetheless, the CA addressed the issue on the joining of SAFA Law Office as a defendant in
2007, issued by respondent Court in Civil Case No. 06-678, respectively, PNB's compulsory counterclaim. Pertinent portions of the CA Resolution read:
are AFFIRMED with MODIFICATION in that petitioner's counterclaims
should be reinstated in its Answer. The Private Respondent claims that a compulsory counterclaim is
one directed against an opposing party. The SAFA Law Office is not a party
SO ORDERED. to the case below and to require it to be brought in as a defendant to the
The CA ruled that an order granting Saludo's motion to dismiss counterclaim, being compulsory counterclaim would entail making it a co-plaintiff. Otherwise,
interlocutory in nature, is not appealable until after judgment shall have been rendered on the compulsory counterclaim would be changed into a third-party complaint.
Saludo's complaint. Since the Omnibus Order is interlocutory, and there was an allegation of The Private Respondent also argues that Section 15, Rule 3 of the Rules of
grave abuse of discretion, a petition for certiorari is the proper remedy. Court (on entities without juridical personality) is only applicable to initiatory
pleadings and not to compulsory counterclaims. Lastly, it is claimed that
On the merits, the CA held that Saludo is estopped from claiming that SAFA Law since the alleged obligations of the SAFA Law Office is solidary with the
Office is his single proprietorship. Under the doctrine of estoppel, an admission or representation Private Respondent, there is no need to make the former a defendant to the
is rendered conclusive upon the person making it, and cannot be denied or disproved as against counterclaim.
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 We disagree with the reasoning of the Private Respondent. That a
alleged Memorandum of Understanding (MOU) executed by the partners of SAFA Law Office, compulsory counterclaim can only be brought against an opposing party is
which states, among others, that Saludo alone would be liable for the firm's losses and liabilities, belied by considering one of the requisites of a compulsory counterclaim —
and the letter of Saludo to PNB confirming that SAFA Law Office is his single proprietorship did it does not require for its adjudication the presence of third parties of whom
not convert the firm to a single proprietorship. Moreover, SAFA Law Office sent a letter to PNB the court cannot acquire jurisdiction. This shows that non-parties to a suit
regarding its unpaid rentals which Saludo signed as a managing partner. The firm is also may be brought in as defendants to such a counterclaim. x x x
registered as a partnership with the Securities and Exchange Commission (SEC). xxx xxx xxx
On the question of whether SAFA Law Office is an indispensable party, the CA held In the case at bench, the trial court below can acquire jurisdiction
that it is not. As a partnership, it may sue or be sued in its name or by its duly authorized over the SAFA Law Office considering the amount and the nature of the
representative. Saludo, as managing partner, may execute all acts of administration, including the counterclaim. Furthermore, the inclusion of the SAFA Law Office as a
right to sue. Furthermore, the CA found that SAFA Law Office is not a legal entity. A partnership defendant to the counterclaim will enable the granting of complete relief in
for the practice of law is not a legal entity but a mere relationship or association for a particular view [of] the liability of a partner to the partnership's creditors under the law.
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 Hence, this petition, where Saludo raises the following issues for our resolution:
indispensable party as plaintiff.
(1) Whether the CA erred in including SAFA Law Office as defendant to PNB's
Nonetheless, the CA ruled that PNB's counterclaims against SAFA Law Office should counterclaim despite its holding that SAFA Law Office is neither an
not be dismissed. While SAFA Law Office is not a legal entity, it can still be sued under Section indispensable party nor a legal entity;
15, Rule 3 of the Rules of Court considering that it entered into the Contract of Lease with PNB.
(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 manner of dissolution of the partnership. These provisions would not have been necessary if
for certiorari to annul and set aside the RTC's Omnibus Order dated what had been established was a sole proprietorship. Indeed, it may only be concluded from the
January 11, 2007. 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.
The petition is bereft of merit.
Saludo asserts that SAFA Law Office is a sole proprietorship on the basis of the MOU
We hold that SAFA Law Office is a juridical entity and the real party-in-interest in the executed by the partners of the firm. The MOU states in full:
suit filed with the RTC by Saludo against PNB. Hence, it should be joined as plaintiff in that
case. MEMORANDUM OF UNDERSTANDING
I. WHEREAS, the undersigned executed and filed with the SEC the
Articles of Incorporation of SALUDO, AGPALO, FERNANDEZ and
Contrary to Saludo's submission, SAFA Law Office is a partnership and not a single AQUINO on March 13, 1997;
proprietorship.
WHEREAS, among the provisions of said Articles of Incorporation
Article 1767 of the Civil Code provides that by a contract of partnership, two or more are the following:
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 1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino
partnership for the exercise of a profession. Under Article 1771, a partnership may be constituted shall be industrial partners, and they shall not contribute capital to the
in any form, except where immovable property or real rights are contributed thereto, in which partnership and shall not in any way be liable for any loss or liability that
case a public instrument shall be necessary. Article 1784, on the other hand, provides that a may be incurred by the law firm in the course of its operation.
partnership begins from the moment of the execution of the contract, unless it is otherwise
stipulated. 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
Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as a law, in which event the Articles of Dissolution of said partnership shall be
partnership at the time its partners signed the Articles of Partnership wherein they bound filed with the Securities and Exchange Commission. All remaining assets
themselves to establish a partnership for the practice of law, contribute capital and industry for upon dissolution shall accrue exclusively to A. G. Saludo, Jr. and all
the purpose, and receive compensation and benefits in the course of its operation. The opening liabilities shall be solely for his account.
paragraph of the Articles of Partnership reveals the unequivocal intention of its signatories to
form a partnership, to wit: WHEREAS, the SEC has not approved the registration of the
Articles of Incorporation and its Examiner required that the phrase "shall not
WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E. AGPALO, in any way be liable for any loss or liability that may be incurred by the law
FILEMON L. FERNANDEZ, AND AMADO D. AQUINO, all of legal age, firm in the course of its operation" in Article VII be deleted;
Filipino citizens and members of the Philippine Bar, have this day voluntarily
associated ourselves for the purpose of forming a partnership engaged in the WHEREAS, the SEC Examiner likewise required that the sentence
practice of law, effective this date, under the terms and conditions hereafter "All remaining assets upon dissolution shall accrue exclusively to A. G.
set forth, and subject to the provisions of existing laws[.] Saludo, Jr. and all liabilities shall be solely for his account" in Article X be
likewise deleted;
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 WHEREAS, in order to meet the objections of said Examiner, the
partnership was P500,000.00. Said provision states: objectionable provisions have been deleted and new Articles of Incorporation
deleting said objectionable provisions have been executed by the parties and
Art. 1772. Every contract of partnership having a capital of Three filed with the SEC.
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 NOW, THEREFORE, for and in consideration of the premises and
Exchange Commission. the mutual covenant of the parties, the parties hereby agree as follows:

xxx xxx xxx 1. Notwithstanding the deletion of the portions objected to by the
said Examiner, by reason of which entirely new Articles of Incorporation
The other provisions of the Articles of Partnership also positively identify SAFA Law have been executed by the parties removing the objected portions, the actual
Office as a partnership. It constantly used the words "partners" and "partnership." It designated and real intent of the parties is still as originally envisioned, namely:
petitioner Saludo as managing partner, and Attys. Ruben E. Agpalo, Filemon L. Fernandez, and
Amado D. Aquino as industrial partners. It also provided for the term of the partnership a) That partners R. E. Agpalo, F. L. Fernandez
distribution of net profits and losses, and management of the firm in which "the partners shall and A. D. Aquino shall not in any way be liable for any
have equal interest in the conduct of [its] affairs." Moreover, it provided for the cause and loss or liability that may be incurred by the law firm in
the course of its operation;
 b) That all remaining assets upon dissolution II.
shall accrue exclusively to A. G. Saludo, Jr. and all
liabilities shall be solely for his account. 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
2. That the parties hereof hereby bind and obligate themselves to about the creation of a juridical person separate and distinct from the individuals comprising the
adhere and observe the real intent of the parties as above-stated, any partnership. Thus, Article 1768 of the Civil Code provides:
provisions in the Articles of Incorporation as filed to meet the objections of
the SEC Examiner to the contrary notwithstanding. 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
IN WITNESS WHEREOF, we have set our hands this _____ day of with the requirements of Article 1772, first paragraph.
May, 1997 at Makati City, Philippines.
Article 44 of the Civil Code likewise provides that partnerships are juridical persons, to
wit:
[Sgd.] Art. 44. The following are juridical persons:
A.G. SALUDO, JR.
(1) The State and its political subdivisions;
[Sgd.] [Sgd.] [Sgd.]
RUBEN E. AGPALO FILEMON L. FERNANDEZ AMADO D. AQUINO (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
The foregoing evinces the parties' intention to entirely shift any liability that may be purpose to which the law grants a juridical personality,
incurred by SAFA Law Office in the course of its operation to Saludo, who shall also receive all separate and distinct from that of each shareholder, partner
the remaining assets of the firm upon its dissolution. This MOU, however, does not serve to or member.
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 It is this juridical personality that allows a partnership to enter into business
tenor, reinforces this fact. It did not change the nature of the organization of SAFA Law Office transactions to fulfill its purposes. Article 46 of the Civil Code provides that "[j]uridical persons
but only excused the industrial partners from liability. 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."
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 SAFA Law Office entered into a contract of lease with PNB as a juridical person to
dealing with the partnership, the law provides a rule, embodied in Article 1816 of the Civil Code, pursue the objectives of the partnership. The terms of the contract and the manner in which the
which states: 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
Art. 1816. All partners, including industrial ones, shall be liable pro FERNANDEZ & AQUINO, a partnership organized and existing under the laws of the Republic
rata with all their property and after all the partnership assets have been of the Philippines," as the lessee. It also provided that the lessee, i.e., SAFA Law Office, shall be
exhausted, for the contracts which may be entered into in the name and for liable in case of default. Furthermore, subsequent communications between the parties have
the account of the partnership, under its signature and by a person authorized always been made for or on behalf of PNB and SAFA Law Office, respectively.
to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract. 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
The foregoing provision does not prevent partners from agreeing to limit their liability, SAFA Law Office is his sole proprietorship and not a legal entity fail in light of the clear
but such agreement may only be valid as among them. Thus, Article 1817 of the Civil provisions of the law on partnership. To reiterate, SAFA Law Office was created as a partnership,
Code provides: and as such, acquired juridical personality by operation of law. Hence, its rights and obligations,
Art. 1817. Any stipulation against the liability laid down in the as well as those of its partners, are determined by law and not by what the partners purport them
preceding article shall be void, except as among the partners. to be.

The MOU is an agreement forged under the foregoing provision. Consequently, the III.
sole liability being undertaken by Saludo serves to bind only the parties to the MOU, but never In holding that SAFA Law Office, a partnership for the practice of law, is not a legal
third persons like PNB. entity, the CA cited the case of Petition for Authority to Continue Use of the Firm Name "Sycip,
Considering that the MOU is sanctioned by the law on partnership, it cannot change the Salazar, Feliciano, Hernandez & Castillo" (Sycip case) wherein the Court held that "[a]
nature of a duly-constituted partnership. Hence, we cannot sustain Saludo's position that SAFA partnership for the practice of law is not a legal entity. It is a mere relationship or association for
Law Office is a sole proprietorship. 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." These are direct quotes from the US case of In re Crawford's On the other hand, in the case of Commissioner of Internal Revenue v. Suter, which
Estate. We hold, however, that our reference to this US case is an obiter dictum which cannot was decided under the new Civil Code, we held:
serve as a binding precedent.
It being a basic tenet of the Spanish and Philippine law that the
An obiter dictum is an opinion of the court upon a question which was not necessary to partnership has a juridical personality of its own, distinct and separate from
the decision of the case before it. It is an opinion uttered by the way, not upon the point or that of its partners (unlike American and English law that does not recognize
question pending, as if turning aside from the main topic of the case to collateral subjects, or an such separate juridical personality), the bypassing of the existence of the
opinion that does not embody the court's determination and is made without argument or full limited partnership as a taxpayer can only be done by ignoring or
consideration of the point. It is not a professed deliberate determination of the judge himself. disregarding clear statutory mandates and basic principles of our law. x x x
The main issue raised for the court's determination in the Sycip case is whether the two Indeed, under the old and new Civil Codes, Philippine law has consistently treated
petitioner law firms may continue using the names of their deceased partners in their respective partnerships as having a juridical personality separate from its partners. In view of the clear
firm names. The court decided the issue in the negative on the basis of "legal and ethical provisions of the law on partnership, as enriched by jurisprudence, we hold that our reference
impediments." To be sure, the pronouncement that a partnership for the practice of law is not a to In re Crawford's Estate in the Sycip case is an obiter dictum.
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 IV.
pronouncement is not determinative of the main issue. As a matter of fact, if deleted from the Having settled that SAFA Law Office is a juridical person, we hold that it is also the
judgment, the rationale of the decision is neither affected nor altered. real party-in-interest in the case filed by Saludo against PNB.
Moreover, reference of the Sycip case to the In re Crawford's Estate case was made Section 2, Rule 3 of the Rules of Court defines a real party-in-interest as the one "who
without a full consideration of the nature of a law firm as a partnership possessed with legal stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of
personality under our Civil Code. First, we note that while the Court mentioned that a partnership the suit." In Lee v. Romillo, Jr., we held that the "real [party-in-interest]-plaintiff is one who has
for the practice of law is not a legal entity, it also identified petitioner law firms as partnerships a legal right[,] while a real [party-in-interest]-defendant is one who has a correlative legal
over whom Civil Code provisions on partnership apply. The Court thus cannot hold that a obligation whose act or omission violates the legal rights of the former."
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 SAFA Law Office is the party that would be benefited or injured by the judgment in the
separate and distinct from that of each of the partners. 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
Second, our law on partnership does not exclude partnerships for the practice of law liable for payment to PNB of overdue rentals, if that claim would be proven. This is because it is
from its coverage. Article 1767 of the Civil Code provides that "[t]wo or more persons may also the one that entered into the contract of lease with PNB. As an entity possessed of a juridical
form a partnership for the exercise of a profession." Article 1783, on the other hand, states that personality, it has concomitant rights and obligations with respect to the transactions it enters
"[a] particular partnership has for its object determinate things, their use or fruits, or a specific into. Equally important, the general rule under Article 1816 of the Civil Code is that partnership
undertaking, or the exercise of a profession or vocation." Since the law uses the word assets are primarily liable for the contracts entered into in the name of the partnership and by a
"profession" in the general sense, and does not distinguish which professional partnerships are person authorized to act on its behalf. All partners, including industrial ones, are only liable pro
covered by its provisions and which are not, then no valid distinction may be made. rata with all their property after all the partnership assets have been exhausted.
Finally, we stress that unlike Philippine law, American law does not treat of In Guy v. Gacott, we held that under Article 1816 of the Civil Code, the partners'
partnerships as forming a separate juridical personality for all purposes. In the case of Bellis v. obligation with respect to the partnership liabilities is subsidiary in nature. It is merely secondary
United States, the US Supreme Court stated that law firms, as a form of partnership, are and only arises if the one primarily liable fails to sufficiently satisfy the obligation. Resort to the
generally regarded as distinct entities for specific purposes, such as employment, capacity to be properties of a partner may be made only after efforts in exhausting partnership assets have failed
sued, capacity to hold title to property, and more. State and federal laws, however, do not treat or if such partnership assets are insufficient to cover the entire obligation. Consequently,
partnerships as distinct entities for all purposes. considering that SAFA Law Office is primarily liable under the contract of lease, it is the real
Our jurisprudence has long recognized that American common law does not treat of party-in-interest that should be joined as plaintiff in the RTC case.
partnerships as a separate juridical entity unlike Philippine law. Hence, in the case of Campos Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted or
Rueda & Co. v. Pacific Commercial Co., which was decided under the old Civil Code, we held: defended in the name of the real party-in-interest. As the one primarily affected by the outcome
Unlike the common law, the Philippine statutes consider a limited of the suit, SAFA Law Office should have filed the complaint with the RTC and should be made
partnership as a juridical entity for all intents and purposes, which personality to respond to any counterclaims that may be brought in the course of the proceeding.
is recognized in all its acts and contracts (art. 116, Code of Commerce). This In Aguila, Jr. v. Court of Appeals, a case for declaration of nullity of a deed of sale was
being so and the juridical personality of a limited partnership being different filed against a partner of A.C. Aguila & Sons, Co. We dismissed the complaint and held that it
from that of its members, it must, on general principle, answer for, and suffer, was the partnership, not its partners, which should be impleaded for a cause of action against the
the consequence of its acts as such an entity capable of being the subject of partnership itself. Moreover, the partners could not be held liable for the obligations of the
rights and obligations. x x x
 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.
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, 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 terms as are just. We
have also held in several cases 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.
||| (Saludo, Jr. v. Philippine National Bank, G.R. No. 193138, [August 20, 2018])
 was entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh.
'A'). . . . Nieves kept the books as representative of [petitioner] while
[Respondent] Arsenio, husband of Nieves, acted as credit investigator.
"On August 6, 1986, [petitioner], . . . [Nieves] and Zabat executed the
'Article of Agreement' which formalized their earlier verbal arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat
[G.R. No. 135813. October 25, 2001.]
engaged in the same lending business in competition with their partnership[.]
FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents. Zabat was thereby expelled from the partnership. The operations with Monte
Maria continued.
PANGANIBAN, J p:
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum
of money and damages. [Petitioner] charged [respondents], allegedly in their
As a general rule, the factual findings of the Court of Appeals affirming those of the
capacities as employees of [petitioner], with having misappropriated funds
trial court are binding on the Supreme Court. However, there are several exceptions to this
intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
principle. In the present case, we find occasion to apply both the rule and one of the exceptions.
Gragera's complaint that his commissions were inadequately remitted,
The Case [petitioner] entrusted P200,000.00 to . . . Nieves to be given to Gragera. . . .
Nieves allegedly failed to account for the amount. [Petitioner] asserted that after
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 examination of the records, he found that of the total amount of P4,623,201.90
Decision, as well as the August 17, 1998 and the October 9, 1998 Resolutions, issued by the entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby
Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows: leaving the balance of P1,555,065.70 unaccounted for.
"WHEREFORE, the decision appealed from is AFFIRMED save as
"In their answer, [respondents] asserted that they were partners and
for the counterclaim which is hereby DISMISSED. Costs against [petitioner]."
not mere employees of [petitioner]. The complaint, they alleged, was filed to
Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution preempt and prevent them from claiming their rightful share to the profits of the
ruled as follows: partnership.

"WHEREFORE, [respondents'] motion for reconsideration is ". . . Arsenio alleged that he was enticed by [petitioner] to take the
GRANTED. Accordingly, the court's decision dated November 28, 1997 is place of Zabat after [petitioner] learned of Zabat's activities. Arsenio resigned
hereby MODIFIED in that the decision appealed from is AFFIRMED in toto, from his job at the Asian Development Bank to join the partnership.
with costs against [petitioner]."
"For her part, . . . Nieves claimed that she participated in the business
The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for as a partner, as the lending activity with Monte Maria originated from her
Reconsideration of the August 17, 1998 Resolution. 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
The Facts over to Gragera because he guaranteed 100% payment of all sums loaned by
The events that led to this case are summarized by the CA as follows: 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
"Sometime in June, 1986, [Petitioner] Fernando Santos and commission. Because of this arrangement, she neither received payments from
[Respondent] Nieves Reyes were introduced to each other by one Meliton Zabat borrowers nor remitted any amount to Gragera. Her job was merely to make
regarding a lending business venture proposed by Nieves. It was verbally worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey to [petitioner] how
agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] much he would earn if all the sums guaranteed by Gragera were collected.
take charge of solicitation of members and collection of loan payments. The
venture was launched on June 13, 1986, with the understanding that [petitioner] "[Petitioner] on the other hand insisted that [respondents] were his
would receive 70% of the profits while . . . Nieves and Zabat would earn 15% mere employees and not partners with respect to the agreement with Gragera.
each. He claimed that after he discovered Zabat's activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
"In July, 1986, . . . Nieves introduced Cesar Gragera to [petitioner]. Gragera was a distinct partnership [from] that of [respondent] and Zabat.
Gragera, as chairman of the Monte Maria Development Corporation (Monte [Petitioner] asserted that [respondents] were hired as salaried employees with
Maria, for brevity), sought short-term loans for members of the corporation. respect to the partnership between [petitioner] and Gragera.
[Petitioner] and Gragera executed an agreement providing funds for Monte
Maria's members. Under the agreement, Monte Maria, represented by Gragera,
 "[Petitioner] further asserted that in Nieves' capacity as bookkeeper, 39.4.1. P50,000.00 — As attorney's fees; and
she received all payments from which Nieves deducted Gragera's commission. 39.4.2 The cost of the suit."
The commission would then be remitted to Gragera. She likewise determined
loan releases. Ruling of the Court of Appeals

"During the pre-trial, the parties narrowed the issues to the following On appeal, the Decision of the trial court was upheld, and the counterclaim of
points: whether [respondents] were employees or partners of [petitioner], respondents was dismissed. Upon the latter's Motion for Reconsideration, however, the trial
whether [petitioner] entrusted money to [respondents] for delivery to Gragera, court's Decision was reinstated in toto. Subsequently, petitioner's own Motion for
whether the P1,555,068.70 claimed under the complaint was actually remitted Reconsideration was denied in the CA Resolution of October 9, 1998.
to Gragera and whether [respondents] were entitled to their counterclaim for The CA ruled that the following circumstances indicated the existence of a partnership
share in the profits." 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-
Ruling of the Trial Court
shares" covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract
In its August 13, 1991 Decision, the trial court held that respondents were partners, not was executed after the Agreement with Gragera and petitioner and thus showed the parties'
mere employees, of petitioner. It further ruled that Gragera was only a commission agent of intention to consider it as a transaction of the partnership. In their common venture, petitioner
petitioner, not his partner. Petitioner moreover failed to prove that he had entrusted any money to invested capital while respondents contributed industry or services, with the intention of sharing
Nieves. Thus, respondents' counterclaim for their share in the partnership and for damages was in the profits of the business.
granted. The trial court disposed as follows:
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of
"39. WHEREFORE, the Court hereby renders judgment as follows: 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
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is (Exhs. "15-15DDDDDDDDDD") to keep track of his collections.
DISMISSED.
Hence, this Petition.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the
[Respondent] NIEVES S. REYES, the following: Issue
Petitioner asks this Court to rule on the following issues:
39.2.1 P3,064,428.00 —The 15 percent share of the
[respondent] NIEVES S. REYES "Whether or not Respondent Court of Appeals acted with grave abuse
in the profits of her joint venture of discretion tantamount to excess or lack of jurisdiction in:
with the [petitioner]. 1. Holding that private respondents were partners/joint venturers and
39.2.2. Six (6) percent of — As damages from August 3, not employees of Santos in connection with the agreement between Santos and
P3,064,428.00 1987 until the P3,064,428.00 Monte Maria/Gragera;
is fully paid.
2. Affirming the findings of the trial court that the phrase 'Received
39.2.3. P50,000.00 — As moral damages by' on documents signed by Nieves Reyes signified receipt of copies of the
39.2.4. P10,000.00 — As exemplary damages documents and not of the sums shown thereon;
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO
REYES, the following: 3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a
39.3.1. P2,899,739.50 — The balance of the 15 percent forgery;
share of the [respondent] 4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes
ARSENIO REYES in the profits of P200,000.00 for delivery to Gragera;
of his joint venture with the
[petitioner]. 5 Affirming the dismissal of Santos' [Second] Amended Complaint;
39.3.2. Six (6) percent of — As damages from August 3, 6. Affirming the decision of the trial court, upholding private
P2,899,739.50 1987 until the P2,899,739.50 is respondents' counterclaim;
fully paid.
7. Denying Santos' motion for reconsideration dated September 11,
39.3.3. P25,000.00 — As moral damages
1998."
39.3.4. P10,000.00 — As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
 Succinctly put, the following were the issues raised by petitioner: (1) whether the We agree with both courts on this point. By the contract of partnership, two or more
parties' relationship was one of partnership or of employer-employee; (2) whether Nieves persons bind themselves to contribute money, property or industry to a common fund, with the
misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his intention of dividing the profits among themselves. The "Articles of Agreement" stipulated that
commissions; and (3) whether respondents were entitled to the partnership profits as determined the signatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting
by the trial court. the lion's share. This stipulation clearly proved the establishment of a partnership.
The Court's Ruling 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,
The Petition is partly meritorious. Inc., which later on changed its business name to Private Association for Community
First Issue: 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
Business Relationship follows:
Petitioner maintains that he employed the services of respondent spouses in the money- "2. That the SECOND PARTY and THIRD PARTY shall handle the
lending venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That solicitation and screening of prospective borrowers, and shall . . . each be
Nieves introduced Gragera to Santos did not make her a partner. She was only a witness to the responsible in handling the collection of the loan payments of the borrowers
Agreement between the two. Separate from the partnership between petitioner and Gragera was that they each solicited.
that which existed among petitioner, Nieves and Zabat, a partnership that was dissolved when
Zabat was expelled. "3. That the bookkeeping and daily balancing of account of the
business operation shall be handled by the SECOND PARTY."
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 The "Second Party" named in the Agreement was none other than Nieves Reyes. On
follows: the other hand, Arsenio's duties as credit investigator are subsumed under the phrase "screening
"[Respondents] were industrial partners of [petitioner]. . . . Nieves of prospective borrowers." Because of this Agreement and the disbursement of monthly
herself provided the initiative in the lending activities with Monte Maria. In "allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual
consonance with the agreement between appellant, Nieves and Zabat (later finding of both courts that he replaced Zabat in the partnership.
replaced by Arsenio), [respondents] contributed industry to the common fund Indeed, the partnership was established to engage in a money-lending business, despite
with the intention of sharing in the profits of the partnership. [Respondents] the fact that it was formalized only after the Memorandum of Agreement had been signed by
provided services without which the partnership would not have [had] the petitioner and Gragera. Contrary to petitioner's contention, there is no evidence to show that a
wherewithal to carry on the purpose for which it was organized and as such different business venture is referred to in this Agreement, which was executed on August 6,
[were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 1986, or about a month after the Memorandum had been signed by petitioner and Gragera on July
416 [1973]). 14, 1986. The Agreement itself attests to this fact:
"While concededly, the partnership between [petitioner,] Nieves and "WHEREAS, the parties have decided to formalize the terms of their
Zabat was technically dissolved by the expulsion of Zabat therefrom, the business relationship in order that their respective interests may be properly
remaining partners simply continued the business of the partnership without defined and established for their mutual benefit and understanding."
undergoing the procedure relative to dissolution. Instead, they invited Arsenio
to participate as a partner in their operations. There was therefore, no intent to Second Issue:
dissolve the earlier partnership. The partnership between [petitioner,] Nieves No Proof of Misappropriation of Gragera's Unpaid Commission
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 Petitioner faults the CA finding that Nieves did not misappropriate money intended for
with Monte Maria. 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
xxx xxx xxx 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,
"Gragera and [petitioner] were not partners. The money-lending petitioner infers that she misappropriated the difference of P1,214,296.10, which represented the
activities undertaken with Monte Maria was done in pursuit of the business for unpaid commissions. Exhibit "H" is an untitled tabulation which, according to him, shows that
which the partnership between [petitioner], Nieves and Zabat (later Arsenio) Gragera was also entitled to a commission of P200,000, an amount that was never delivered by
was organized. Gragera who represented Monte Maria was merely paid Nieves.
commissions in exchange for the collection of loans. The commissions were
fixed on gross returns, regardless of the expenses incurred in the operation of On this point, the CA ruled that Exhibits "B", "F", "E" and "H" did not show that
the business. The sharing of gross returns does not in itself establish a Nieves received for delivery to Gragera any amount from which the P1,214,296.10 unpaid
partnership."
commission was supposed to come, and that such exhibits were insufficient proof that she had that she received the documents themselves is more believable than
embezzled P200,000. Said the CA: [petitioner's] assertion that she actually handled the amounts.
"The presentation of Exhibit "D" vaguely denominated as 'members "Contrary to [petitioner's] assertion, Exhibit 'H' does not
ledger' does not clearly establish that Nieves received amounts from Monte unequivocally establish that . . . Nieves received P200,000.00 as commission
Maria's members. The document does not clearly state what amounts the entries for Gragera. As correctly stated by the court a quo, the document showed a
thereon represent. More importantly, Nieves made the entries for the limited liquidation of P240,000.00 and not P200,000.00.
period of January 11, 1987 to February 17, 1987 only while the rest were made
by Gragera's own staff. "Accordingly, we find Nieves' testimony that after August 20, 1986,
all collections were made by Gragera believable and worthy of credence. Since
"Neither can we give probative value to Exhibit 'E' which allegedly Gragera guaranteed a daily 100% payment of the loans, he took charge of the
shows acknowledgment of the remittance of commissions to Verona Gonzales. collections. As [petitioner's] representative, Nieves merely prepared the daily
The document is a private one and its due execution and authenticity have not cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to enable [petitioner] to
been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court keep track of Gragera's operations. Gragera on the other hand devised the
which states: schedule of daily payment (Exhs. 'B' and 'F') to record the projected gross daily
collections.
'SECTION 20. Proof of Private Document
— Before any private document offered as authentic is "As aptly observed by the court a quo:
received in evidence, its due execution and authenticity
must be proved either: '26.1. As between the versions of SANTOS and NIEVES on
how the commissions of GRAGERA [were] paid to him[,] that of
(a) By anyone who saw the document executed or written; NIEVES is more logical and practical and therefore, more believable.
SANTOS' version would have given rise to this improbable situation:
(b) By evidence of the genuineness of the signature or GRAGERA would collect the daily amortizations and then give them
handwriting of the maker. to NIEVES; NIEVES would get GRAGERA's commissions from the
'Any other private document need only be identified as that amortizations and then give such commission to GRAGERA.'"
which it is claimed to be.' These findings are in harmony with the trial court's ruling, which we quote below:
"The court a quo even ruled that the signature thereon was a forgery, "21. Exh. H does not prove that SANTOS gave to NIEVES and the
as it found that: 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.
'. . . . But NIEVES denied that Exh. E-1 is her signature; she
If Exh. H were the liquidation of the P200,000.00 as alleged by SANTOS, then
claimed that it is a forgery. The initial stroke of Exh. E-1 starts from
his claim is not true. This is so because it is a liquidation of the sum of
up and goes downward. The initial stroke of the genuine signatures of
P240,000.00.
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 "21.1. SANTOS claimed that he learned of NIEVES' failure to give
signatures Exhs. E-1 and of the genuine signatures lends credence to the P200,000.00 to GRAGERA when he received the latter's letter complaining
Nieves' claim that the signature Exh. E-1 is a forgery.' 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
xxx xxx xxx
not give it to GRAGERA. The only proof that NIEVES did not give it is the
"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and letter. But SANTOS did not even present the letter in evidence. He did not
'F') were based on the predetermined 100% collection as guaranteed by Gragera explain why he did not.
is credible and clearly in accord with the evidence. A perusal of Exhs. "B" and
"21.2. The evidence shows that all money transactions of the money-
"F" as well as Exhs. '15' to 15-DDDDDDDDDD' reveal that the entries were
lending business of SANTOS were covered by petty cash vouchers. It is
indeed based on the 100% assumptive collection guaranteed by Gragera. Thus,
therefore strange why SANTOS did not present any voucher or receipt covering
the total amount recorded on Exh. 'B' is exactly the number of borrowers
the P200,000.00."
multiplied by the projected collection of P150.00 per borrower. This holds true
for Exh. 'F'. 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
"Corollarily, Nieves' explanation that the documents were pro
deducted his commissions before remitting his collections. Exhibits "B" and "F" are merely
forma and that she signed them not to signify that she collected the amounts but
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, "27.1.1 SANTOS never denied NIEVES' testimony that the money-
because Exhibit "H" does not indicate that such amount was received by her; in fact, it shows a lending business he was engaged in netted a profit and that the originals of the
different figure. daily case flow reports were furnished to him. SANTOS however alleged that
the money-lending operation of his joint venture with NIEVES and ZABAT
Petitioner has utterly failed to demonstrate why a review of these factual findings is resulted in a loss of about half a million pesos to him. But such loss, even if
warranted. Well-entrenched is the basic rule that factual findings of the Court of Appeals true, does not negate NIEVES' claim that overall, the joint venture among them
affirming those of the trial court are binding and conclusive on the Supreme Court. Although — SANTOS, NIEVES and ARSENIO — netted a profit. There is no reason for
there are exceptions to this rule, petitioner has not satisfactorily shown that any of them is the Court to doubt the veracity of [the testimony of] NIEVES.
applicable to this issue.
Third Issue: Accounting of Partnership "27.2 The 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."
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 After a close examination of respondents' exhibits, we find reason to disagree with the
and eaten up by the commissions orchestrated to be due Gragera" — a situation that "could not CA. Exhibit "10-I" shows that the partnership earned a "total income" of P20,429,520 for the
have been rendered possible without complicity between Nieves and Gragera." 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
Respondent spouses, on the other hand, postulate that petitioner instituted the action Fee," "Application Fee," "Net Interest Income" and "Interest Income on Investment." Such entries
below to avoid payment of the demands of Nieves, because sometime in March 1987, she represent the collections of the money-lending business or its gross income. SEACTH
"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 The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by
dividends or liquidated its earnings, the profits are already reflected on paper. To prove the the partnership. For instance, it did not factor in the "gross loan releases" representing the money
counterclaim of Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit loaned to clients. Since the business is money-lending, such releases are comparable with the
totaled P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that income, her 15 percent inventory or supplies in other business enterprises.
share under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 Noticeably missing from the computation of the "total income" is the deduction of the
minus the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6- weekly allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. show that Arsenio
B"). received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;
The CA originally held that respondents' counterclaim was premature, pending an and Nieves, from July 12, 1986 to March 27, 1987 in the total amount of P25,600. These
accounting of the partnership. However, in its assailed Resolution of August 17, 1998, it allowances are different from the profit already received by Arsenio. They represent expenses
turned volte face. Affirming the trial court's ruling on the counterclaim, it held as follows: 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
"We earlier ruled that there is still need for an accounting of the profits and
based on this "net profit" and not from the "gross income" or "total income" reflected in Exhibit
losses of the partnership before we can rule with certainty as to the respective
"10-I," which the two courts invariably referred to as "cash flow" sheets.
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 Similarly, Exhibits "15" et seq., which are the "Daily Cashflow Reports," do not reflect
of the parties and damages incurred by [respondents]. The fact is that the court a the business expenses incurred by the parties, because they show only the daily cash collections.
quo already made such a determination [in its] decision dated August 13, 1991 Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits do not
on the basis of the facts on record." 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"
The trial court's ruling alluded to above is quoted below: earned by the partnership.
"27. The defendants' counterclaim for the payment of their share in For the purpose of determining the profit that should go to an industrial partner (who
the profits of their joint venture with SANTOS is supported by the evidence. shares in the profits but is not liable for the losses), the gross income from all the transactions
"27.1. NIEVES testified that: Her claim to a share in the profits is carried on by the firm must be added together, and from this sum must be subtracted the expenses
based on the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the or the losses sustained in the business. Only in the difference representing the net profits does the
working papers (Exhs. 10 to 10-I, inclusive) which she prepared. Exhs. 10 to industrial partner share. But if, on the contrary, the losses exceed the income, the industrial
10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a partner does not share in the losses.
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D When the judgment of the CA is premised on a misapprehension of facts or a failure to
(10) were given to SANTOS. The joint venture had a net profit of notice certain relevant facts that would otherwise justify a different conclusion, as in this
P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to April particular issue, a review of its factual findings may be conducted, as an exception to the general
19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and rule applied to the first two issues. The trial court has the advantage of observing the witnesses
ARSENIO, about P2,926,000.00, in the profits.
while they are testifying, an opportunity not available to appellate courts. Thus, its assessment of repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963,
the credibility of witnesses and their testimonies are accorded great weight, even finality, when Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9,
supported by substantial evidence; more so when such assessment is affirmed by the CA. But 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his
when the issue involves the evaluation of exhibits or documents that are attached to the case share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as
records, as in the third issue, the rule may be relaxed. Under that situation, this Court has a attorney's fees, and ordering the dissolution of the partnership, as well as the winding up of its
similar opportunity to inspect, examine and evaluate those records, independently of the lower affairs by a receiver to be appointed therefor.
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. In his answer, Mabato admitted the formal allegations of the complaint and denied the
existence of said partnership, upon the ground that the contract therefor had not been perfected,
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 despite the execution of Annex "A", because Agad had allegedly failed to give his P1,000
Decision is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed;
1998 are REVERSED and SET ASIDE. No costs. that Annex "A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and
exemplary damages, as well as attorney's fees.
[G.R. No. L-24193. June 28, 1968.]
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint
states no cause of action and that the lower court had no jurisdiction over the subject matter of the
MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO MABATO & case, because it involves principally the determination of rights over public lands. After due
MABATO & AGAD COMPANY, defendants-appellees. hearing, the court issued the order appealed from, granting the motion to dismiss the complaint
for failure to state a cause of action. This conclusion was predicated upon the theory that the
contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil Code,
Angeles, Maskariño & Associates for plaintiff-appellant. because an inventory of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter to us for review by
Victorio S. Advincula for defendants-appellees.
record on appeal.
Articles 1771 and 1773 of said Code provide:
SYLLABUS "Art. 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto, in which
1. CIVIL LAW; PARTNERSHIP; PURPOSE TO "OPERATE A FISHPOND"; case a public instrument shall be necessary.
APPLICABILITY OF ART. 1773 N.C.C. — Where a partnership was formed "to operate a "Art. 1773. A contract of partnership is void, whenever immovable
fishpond", not to "engage in a fishpond business", and the partners contributed P1,000.00 each as property is contributed thereto, if inventory of said property is not made,
their share, Art. 1773 of the Civil Code does not apply, it appearing that neither a fishpond nor a signed by the parties, and attached to the Public instrument."
real right thereto was contributed to the partnership or become a part of the capital thereof, even
if a fishpond or a real right thereto could become part of its assets. The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower court held
that the answer should be in the affirmative, because "it is really inconceivable how a partnership
engaged in the fishpond business could exist without said fishpond property (being) contributed
DECISION to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of
the partners contributed either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of the Annex "A" provides:
CONCEPCION, J p: "That the capital of the said partnership is Two Thousand
(P2,000.00) Pesos Philippine Currency, of which One Thousand (P1,000.00)
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the pesos has been contributed by Severino Mabato and One Thousand
Court of First Instance of Davao, we are called upon to determine the applicability of Article (P1,000.00) Pesos has been contributed by Mauricio Agad.
1773 of our Civil Code to the contract of partnership on which the complaint herein is based.
xxx xxx xxx"
Alleging that he and defendant Severino Mabato are — pursuant to a public instrument
dated August 29, 1952, copy of which is attached to the complaint as Annex "A" — partners in a The operation of the fishpond mentioned in Annex "A" was the purpose of the
fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50% partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or
of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership became part of the capital thereof, even if a fishpond or a real right thereto could become part of
funds, had yearly rendered accounts of the operations of the partnership; and that, despite its assets.
 WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, 1. CIVIL LAW; CONTRACTS; BIND THE PARTIES NOT ONLY TO WHAT HAS
the order appealed from should be, as it is hereby set aside and the case remanded to the lower BEEN EXPRESSLY STIPULATED, BUT ALSO TO ALL NECESSARY CONSEQUENCES
court for further proceedings, with the costs of this instance against defendant- appellee, Severino THEREOF. — Under Article 1315 of the Civil Code, contracts bind the parties not only to what has
Mabato. It is so ordered. 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
||| (Agad v. Mabato, G.R. No. L-24193, [June 28, 1968], 132 PHIL 634-637) 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 consequence
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.
[G.R. No. 134559. December 9, 1999.] 2. ID.; PARTNERSHIP; THE CONTRACT OF PARTNERSHIP IS NOT VOID EVEN
WHEN NO INVENTORY OF THE REAL PROPERTY IS MADE IF THIRD PARTIES ARE NOT
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and PREJUDICED. — Article 1773 was intended primarily to protect third persons. Thus, the eminent
EMETERIA BARING, petitioners, vs. COURT OF APPEALS and Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771,
MANUEL TORRES, respondents. "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
Delfin V. Nacua for petitioners. immovables may consist. Thus, the contract is declared void by the law when no such inventory is
Zosa & Quijano Law Offices for private respondent. made." The case at bar does not involve third parties who may be prejudiced.
3. ID.; CONTRACTS; CONSIDERATION; MORE PROPERLY DENOMINATED AS
CAUSE, CAN TAKE DIFFERENT FORMS, SUCH AS THE PRESTATION OR PROMISE OF A
SYNOPSIS THING OR SERVICE BY ANOTHER. — 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
Petitioners and respondent entered into a joint venture agreement for the development of a
respondent. Consideration, more properly denominated as cause, can take different forms, such as the
parcel land located at Lapu-Lapu City island of Mactan into a subdivision. Pursuant to the contract,
prestation or promise of a thing or service by another. In this case, the cause of the contract of sale
petitioners executed a deed of sale covering the said parcel of land in favor of the respondent, who
consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision
then had it registered in his name. Thereafter, respondent mortgaged the property in the bank, and
project, for which the land was intended to be used. As explained by the trial court, "the land was in
according to the joint agreement, the money obtained amounting to P40,000.00 was to be used for the
effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a
development of the subdivision. However, the project did not push through, and the land was
consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into
subsequently foreclosed by the bank. Because of this, petitioners filed a civil case before the Regional
fruition, they [would] get sixty percent of the net profits."
Trial Court of Cebu City, which was later dismissed by the trial court. On appeal, the Court of Appeals
affirmed the decision of the trial court. The appellate court held that the petitioner and respondent had 4. REMEDIAL LAW; CIVIL PROCEDURE; FACTUAL ISSUES CANNOT BE
formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by RESOLVED IN A PETITION FOR REVIEW UNDER RULE 45. — True, the Court of Appeals held
the partnership in the same proportion as their share in the profits stipulated in the contract. Aggrieved that petitioners' acts were not the cause of the failure of the project. But it also ruled that neither was
by the decision, petitioner filed the instant petition contending that the Court of Appeals erred in respondent responsible therefor. In imputing the blame solely to him, petitioners failed to give any
concluding that the transaction between the petitioners and respondent was that of a joint reason why we should disregard the factual findings of the appellate court relieving him of fault.
venture/partnership. IaECcH 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
The Supreme Court found the petition bereft of merit. A reading of the terms of the Joint
this doctrine. Accordingly, we find no reversible error in the CA's ruling that petitioners are not
Venture Agreement indubitably showed the existence of a partnership pursuant to Article 1767 of
entitled to damages. EScaIT
the Civil [Link] Court also found no reversible error in the CA's ruling that petitioners are not
entitled to damages. Accordingly, the petition was denied and the challenged decision was affirmed.

DECISION
SYLLABUS
PANGANIBAN, J p: Hence, this Petition.

Courts may not extricate parties from the necessary consequences of their acts. That the Ruling of the Court of Appeals
terms of a contract turn out to be financially disadvantageous to them will not relieve them of their In affirming the trial court, the Court of Appeals held that petitioners and respondent had
obligations therein. The lack of an inventory of real property will not ipso facto release the contracting formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by
partners from their respective obligations to each other arising from acts executed in accordance with the partnership in the same proportion as their share in the profits stipulated in the contract.
their agreement. cdphil Disagreeing with the trial court's pronouncement that losses as well as profits in a joint venture should
be distributed equally, the CA invoked Article 1797 of the Civil Code which provides:
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision of the "Article 1797 — The losses and profits shall be distributed in conformity with the
Court of Appeals (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying agreement. If only the share of each partner in the profits has been agreed upon, the share of each in
reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu the losses shall be in the same proportion."
City in Civil Case No. R-21208, which disposed as follows: The CA elucidated further:
"WHEREFORE, for all the foregoing considerations, the Court, "In the absence of stipulation, the share of each partner in the profits
finding for the defendant and against the plaintiffs, orders the dismissal of the and losses shall be in proportion to what he may have contributed, but the
plaintiff's complaint. The counterclaims of the defendant are likewise ordered industrial partner shall not be liable for the losses. As for the profits, the
dismissed. No pronouncement as to costs." industrial partner shall receive such share as may be just and equitable under the
The Facts circumstances. If besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital." prcd
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. The Issue
Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of Petitioners impute to the Court of Appeals the following error:
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] Court of Appeals erred in concluding that the transaction . .
the development of the subdivision. All three of them also agreed to share the proceeds from the sale . between the petitioners and respondent was that of a joint venture/partnership,
of the subdivided lots. ignoring outright the provision of Article 1769, and other related provisions of
the Civil Code of the Philippines."
The project did not push through, and the land was subsequently foreclosed by the bank.
The Court's Ruling
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 The Petition is bereft of merit.
furtherance of his own company, Universal Umbrella Company.
Main Issue:
On the other hand, respondent alleged that he used the loan to implement the Agreement.
Existence of a Partnership
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 Petitioners deny having formed a partnership with respondent. They contend that the Joint
newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's
contract with an engineering firm for the building of sixty low-cost housing units and actually even set finding of a partnership, were void.
up a model house on one of the subdivision lots. He did all of these for a total expense of
P85,000. Cdpr 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
Respondent claimed that the subdivision project failed, however, because petitioners and percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them
their relatives had separately caused the annotations of adverse claims on the title to the land, which damages equivalent to 60 percent of the value of the property.
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. The pertinent portions of the Joint Venture Agreement read as follows:

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, "KNOW ALL MEN BY THESE PRESENTS:
who were however acquitted. Thereafter, they filed the present civil case which, upon respondent's "This AGREEMENT, is made and entered into at Cebu City,
motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, Philippines, this 5th day of March, 1969, by and between MR. MANUEL R.
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.
TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, "SEVENTH: That the SECOND PARTIES, should be given an option
and MISS EMETERIA BARING, . . . the SECOND PARTY: to get back the property mentioned provided the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
WITNESSETH: SECOND PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and the FIRST PARTY
"That, whereas, the SECOND PARTY, voluntarily offered the FIRST
will be given a grace period to turnover the property mentioned above.
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, "That this AGREEMENT shall be binding and obligatory to the
to be sub-divided by the FIRST PARTY; parties who executed same freely and voluntarily for the uses and purposes
therein stated."
"Whereas, the FIRST PARTY had given the SECOND PARTY, the
sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, A reading of the terms embodied in the Agreement indubitably shows the existence of a
upon the execution of this contract for the property entrusted by the SECOND partnership pursuant to Article 1767 of the Civil Code, which provides:
PARTY, for sub-division projects and development purposes;
"ART. 1767. By the contract of partnership two or more persons bind
"NOW THEREFORE, for and in consideration of the above themselves to contribute money, property, or industry to a common fund, with
covenants and promises herein contained the respective parties hereto do hereby the intention of dividing the profits among themselves."
stipulate and agree as follows: cdphil
Under the above-quoted Agreement, petitioners would contribute property to the partnership
"ONE: That the SECOND PARTY signed an absolute Deed of Sale . . in the form of land which was to be developed into a subdivision; while respondent would give, in
. dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE addition to his industry, the amount needed for general expenses and other costs. Furthermore, the
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, income from the said project would be divided according to the stipulated percentage. Clearly, the
for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine contract manifested the intention of the parties to form a partnership.
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment. 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
"SECOND: That the SECOND PARTY, had received from the caused the subject land to be mortgaged, the proceeds of which were used for the survey and the
FIRST PARTY, the necessary amount of TWENTY THOUSAND (P20,000.00) subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the
pesos, Philippine currency, for their personal obligations and this particular subdivision and entered into a contract to construct low-cost housing units on the property. llcd
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. 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
"THIRD: That the FIRST PARTY, will not collect from the property, but also industry.
SECOND PARTY, the interest and the principal amount involving the amount
of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the Petitioners Bound by
sub-division project is terminated and ready for sale to any interested parties, Terms of Contract
and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
currency, will be deducted accordingly.
expressly stipulated, but also to all necessary consequences thereof, as follows:
"FOURTH: That all general expense[s] and all cost[s] involved in the
"ART. 1315. Contracts are perfected by mere consent, and from that
sub-division project should be paid by the FIRST PARTY, exclusively and all
moment the parties are bound not only to the fulfillment of what has been
the expenses will not be deducted from the sales after the development of the
expressly stipulated but also to all the consequences which, according to their
sub-division project.
nature, may be in keeping with good faith, usage and law."
"FIFTH: That the sales of the sub-divided lots will be divided into
It is undisputed that petitioners are educated and are thus presumed to have understood the
SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY
terms of the contract they voluntarily signed. If it was not in consonance with their expectations, they
PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever
should have objected to it and insisted on the provisions they wanted.
income deriving from the sales will be divided equally according to the . . .
percentage [agreed upon] by both parties. 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
"SIXTH: That the intended sub-division project of the property
relieve parties thereto of their obligations. They cannot now disavow the relationship formed from
involved will start the work and all improvements upon the adjacent lots will be
such agreement due to their supposed misunderstanding of its terms.
negotiated in both parties['] favor and all sales shall [be] decided by both
parties. cdtai
Alleged Nullity of the Claiming that respondent was solely responsible for the failure of the subdivision project,
Partnership Agreement 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.
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
Code, which provides: We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the
cause of the failure of the project. But it also ruled that neither was respondent responsible therefor. In
"ART. 1773. A contract of partnership is void, whenever immovable
imputing the blame solely to him, petitioners failed to give any reason why we should disregard the
property is contributed thereto, if an inventory of said property is not made,
factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved
signed by the parties, and attached to the public instrument."
in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown,
They contend that since the parties did not make, sign or attach to the public instrument an that their Petition constitutes one of the exceptions to this doctrine. Accordingly, we find no
inventory of the real property contributed, the partnership is void. reversible error in the CA's ruling that petitioners are not entitled to damages. cdtai

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the WHEREFORE, the Petition is hereby DENIED and the challenged Decision AFFIRMED.
eminent Arturo M. Tolentino states that under the aforecited provision which is a complement Costs against petitioners.
of Article 1771, "the execution of a public instrument would be useless if there is no inventory of the
SO ORDERED.
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 ||| (Torres v. Court of Appeals, G.R. No. 134559, [December 9, 1999], 378 PHIL 170-182)
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. 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. llcd
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 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.
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
 and property in their possession, it is not necessary that all members of the association be made
parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been remanded to the
court of origin, both parties amended, respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents and accounts of "Turnuhan Polistico & Co.,"
and to receive whatever evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the record, with the
[G.R. No. 31057. September 7, 1929.] following resume:
Income:
ADRIANO ARBES ET AL., plaintiffs-appellees, vs. VICENTE POLISTICO Members' shares P97,263.70
ET AL., defendants-appellants. Credits paid 6,196.55
Interest received 4,569.45
Miscellaneous 1,891.00
SYLLABUS
———— P109,620.70
Expenses:
1. UNLAWFUL PARTNERSHIPS; "TURNUHAN POLISTICO & CO.;" Premiums to members 68,146.25
CHARITABLE INSTITUTIONS. — The partnership "Turnuhan Polistico & Co." is an unlawful Loans on real-estate security 9,827.00
partnership (U. S. vs. Baguio, 39 Phil., 962). According to paragraph 2 of article 1666 of the Civil
Loans on promissory notes 4,258.55
Code, when an unlawful partnership is judicially dissolved, the earnings shall not be disposed of
as profits, but shall be given to charitable institutions. But in a case like the one at bar, whose Salaries 1,095.00
object is to determine the rights of the parties, and to liquidate the unlawful partnership, no Miscellaneous 1,686.108
charitable institution should be included as defendant, as the appellants contend, because it is not ———— 85,012.90
a necessary party to the case. ————
2. ID.; ACTION TO OBTAIN PROFITS OF UNLAWFUL PARTNERSHIP. — Said Cash on hand 24,607.80
article 1666 of the Civil Code allows no action for the purpose of obtaining the earnings made by The defendants objected to the commissioner's report, but the trial court, having
the unlawful partnership, during its existence, as a result of the business in which it was engaged; examined the reasons for the objection, found the same sufficiently explained in the report and
because for that purpose the partner will have to base his action on the partnership contract which the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan
is null and without legal existence by reason of its unlawful object, and it is self-evident that what Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the
does not exist cannot be a cause of action. amount of P24,607.80, as well as the documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest of the members of said association
represented by said plaintiffs, with costs against the defendants.
The defendants assigned several errors as grounds for their appeal, but we believe they
DECISION
can all be reduced to two points, to wit: (1) That not all persons having an interest in this
association are included as plaintiffs or defendants; (2) that the objection to the commissioner's
report should have been admitted by the court below.
VILLAMOR, J p: As to the first point, the decision in the case of Borlasa vs. Polistico, supra, must be
followed.
This is an action to bring about a liquidation of the funds and property of the With regard to the second point, despite the praiseworthy efforts of the attorney for the
association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and defendants, we are of opinion that, the trial court having examined all the evidence touching the
the defendants were designated as president-treasurer, directors and secretary of said association. grounds for the objection and having found that they had been explained away in the
It is well to remember that this case is now brought before the consideration of this commissioner's report, the conclusion reached by the court below, accepting and adopting the
court for the second time. The first time was when the same plaintiffs appealed from the order of findings of fact contained in said report, and especially those referring to the disposition of the
the court below sustaining the defendants' demurrer, and requiring the former to amend their association's money, should not be disturbed.
complaint within a certain period, so as to include all the members of "Turnuhan Polistico & In Tan Diangseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the
Co.," either as plaintiffs or as defendants. This court held then that in an action against the findings of fact made by a referee appointed under the provisions of section 135 of the Code of
officers of a voluntary association to wind up its affairs and to enforce an accounting for money Civil Procedure stand upon the same basis, when approved by the court, as findings made by the
judge himself. And in Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), the court held: "Under "The authors discuss this point at great length; but Ricci decides the
section 140 of the Code of Civil Procedure it is made the duty of the court, to render judgment in matter quite clearly, dispelling all doubts thereon. He holds that the partner who
accordance with the report of the referee unless the court shall for cause shown set aside the limits himself to demanding only the amount contributed by him need not resort
report or recommit it to the referee. This provision places upon the litigant parties the duty of to the partnership contract on which to base his claim or action. And, he adds in
discovering and exhibiting to the court any error that may be contained therein." The appellants explanation, that the partner makes his contribution, which passes to the
stated the grounds for their objection. The trial court examined the evidence and the managing partner for the purpose of carrying on the business or industry which
commissioner's report, and accepted the findings of fact made in the report. We find no is the object of the partnership; or, in other words, to breathe the breath of life
convincing argument in the appellants' brief to justify a reversal of the trial court's conclusion into a partnership contract with an object forbidden by the law. And as said
admitting the commissioner's findings. contract does not exist in the eyes of the law, the purpose for which the
contribution was made has not come into existence, and the administrator of the
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.
partnership holding said contribution retains what belongs to others, without any
S. vs. Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable
consideration; for which reason he is bound to return it, and he who has paid in
institution to whom the partnership funds may be ordered to be turned over, should be included as
his share is entitled to recover it.
a party defendant. The appellants refer to article 1666 of the Civil Code, which provides:
"But this is not the case with regard to profits earned in the course of
"A partnership must have a lawful object, and must be established for
the partnership, because they do not constitute or represent the partner's
the common benefit of the partners.
contribution but are the result of the industry, business, or speculation, which is
"When the dissolution of an unlawful partnership is decreed, the the object of the partnership; and, therefore, in order to demand the proportional
profits shall be given to the charitable institutions of the domicile of the part of said profits, the partner would have to base his action on the contract,
partnership, or, in default of such, to those of the province." which is null and void, since this partition or distribution of the profits is one of
the juridical effects thereof. Wherefore, considering this contract as non-
Appellants' contention on this point is untenable. According to said article, no
existent, by reason of its illicit object, it cannot give rise to the necessary action,
charitable institution is a necessary party in the present case for the determination of the rights of
which must be the basis of the judicial complaint. Furthermore, it would be
the parties. The action which may arise from said article, in the case of an unlawful partnership,
immoral and unjust for the law to permit a profit from an industry prohibited by
is that for the recovery of the amounts paid in by the members from those in charge of the
it.
administration of said partnership, and it is not necessary for the said partners to base their action
on the existence of the partnership, but on the fact of having contributed some money to the "Hence, the distinction made in the second paragraph of this article of
partnership capital. And hence, the charitable institutions of the domicile of the partnership, and our Code, providing that the profits obtained by unlawful means shall not enrich
in default thereof, those of the province are not necessary parties in this case. The article cited the partners, but shall, upon the dissolution of the partnership, be given to the
above permits no action for the purpose of obtaining the earnings made by the unlawful charitable institutions of the domicile of the partnership, or, in default of such,
partnership, during its existence as a result of the business in which it was engaged, because, for to those of the province.
that purpose, as Manresa remarks, the partner will have to base his action upon the partnership
"This is a new rule, unprecedented in our law, introduced to supply an
contract, which is null and without legal existence by reason of its unlawful object; and it is self-
obvious deficiency of the former law, which did not prescribe the purpose to
evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same
which those profits denied to the partners were to be applied, nor state what was
article provides that when the dissolution of an unlawful partnership is decreed, the profits cannot
to be done with them.
inure to the benefit of the partners, but must be given to some charitable institution.
"The profits are so applied, and not the individual contributions,
We deem it pertinent to quote Manresa's commentaries on article 1666 at length, as a
because this would be an excessive and unjust sanction for, as we have seen,
clear explanation of the scope and spirit of the provision of the Civil Code with which we are
there is no reason, in such a case, for depriving the partner of the portion of the
concerned. Commenting on said article, Manresa, among other things says:
capital that he contributed, the circumstances of the two cases being entirely
"When the subscriptions of the members have been paid to the different.
management of the partnership, and employed by the latter in transactions
"Our Code does not state whether, upon the dissolution of the
consistent with the purposes of the partnership may the former demand the
unlawful partnership, the amounts contributed are to be returned to the partners,
return or reimbursement thereof from the manager or administrator withholding
because it only deals with the disposition of the profits; but the fact that said
them?
contributions are not included in the disposal prescribed for said profits, shows
"Apropos of this, it is asserted: If the partnership has had no valid that in consequence of said exclusion, the general rules of law must be
existence, if it is considered juridically non-existent, the contract entered into followed, and hence, the partners must be reimbursed the amount of their
can have no legal effect; and in that case, how can it give rise to an action in respective contributions. Any other solution would be immoral, and the law will
favor of the partners to judicially demand from the manager or administrator of not consent to the latter remaining in the possession of the manager or
the partnership capital, each one's contribution? administrator who has refused to return them, by denying to the partners the
 action to demand them." (Manresa, Commentaries on the Spanish Civil Code, the Court of Appeals are one in ruling that petitioners and private respondent established a
vol. XI, pp. 262-264.) business partnership. This Court finds no reason to rule otherwise. DASCIc
The judgment appealed from, being in accordance with law, should be, as it is hereby, 2. CIVIL LAW; PARTNERSHIP; WHEN CONSIDERED A JURIDICAL
affirmed with costs against the appellants; provided, however, that the defendants shall pay the PERSONALITY. — To be considered a juridical personality, a partnership must fulfill these
legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, requisites: (1) two or more persons bind themselves to contribute money, property or industry to
further, that the defendants shall deposit these sums of money and other documents evidencing a common fund; and (2) intention on the part of the partners to divide the profits among
uncollected credits in the office of the clerk of the trial court, in order that said court may themselves.
distribute them among the members of said association, upon being duly identified in the manner
it may deem proper. So ordered. 3. ID.; ID.; MAY BE CONSTITUTED IN ANY FORM EXCEPT WHERE REAL
RIGHTS ARE INVOLVED. — It may be constituted in any form; a public instrument is
||| (Arbes v. Polistico, G.R. No. 31057, [September 7, 1929], 53 PHIL 489-496) necessary only where immovable property or real rights are contributed thereto. 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
[G.R. No. 127405. October 4, 2000.] parties have complied with the requisites of a partnership.
4. ID.; ID.; INDUSTRIAL PARTNER; EXAMPLE THEREOF. — Petitioners admit
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT
that private respondent had the expertise to engage in the business of distributorship of cookware.
OF APPEALS and NENITA A. ANAY, respondents.
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
SYNOPSIS cookware products; it was through the same efforts that the business was propelled to financial
success.
For having been excluded from the partnership "Geminesse Enterprises," Nenita Anay 5. ID.; ID.; ACTS INDICATING THAT ONE IS A PARTNER. — Petitioner Belo's
brought a complaint for sum of money with damages against Marjorie D. Tocao and William denial that he financed the partnership rings hollow in the face of the established fact that he
Belo before the Regional Trial Court of Makati. In their answer, Tocao and Belo asserted that presided over meetings regarding matters affecting the operation of the business. Moreover, his
Geminesse Enterprises was the sole proprietorship of Tocao and that Anay merely acted as having authorized in writing on October 7, 1987, on a stationery of his own business firm,
Marketing Demonstrator of Geminesse. Thus, Tocao and Belo theorized that Anay's complaint Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the
which pertains to her compensation or dismissal, should have been lodged with the Department proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary
of Labor. At the pre-trial, the parties defined as the main issue, the question of whether or not interest in the business. If he was indeed a guarantor of future debts of petitioner Tocao under
Anay was a partner of Tocao and Belo. The trial court ruled that she was. Article 2053 of the Civil Code, he should have presented documentary evidence therefor. While
Article 2055 of the Civil Code simply provides that guaranty must be "express," Article 1403, the
Tocao and Belo admitted that Anay had the expertise to engage in the business of
Statute of Frauds, requires that "a special promise to answer for the debt, default or miscarriage
distributorship of cookware. Anay contributed such expertise to the partnership and, hence, under
of another" be in writing. While it is true that the receipt of a percentage of net profits constitutes
the law, she was the industrial or managing partner. It was through her reputation that the
only prima facie evidence that the recipient is a partner in the business, the evidence in the case at
partnership was able to open the business of distributorship; it was through the same efforts that
bar controverts an employer-employee relationship between the parties. In the first place, private
the business was propelled to financial success. Moreover, Anay had a voice in the management
respondent had a voice in the management of the affairs of the cookware distributorship,
of the affairs of the business, including selection of people who would constitute the
including selection of people who would constitute the administrative staff and the sales force.
administrative staff and the sales force. Likewise, Tocao admitted that, like her who owned
Secondly, petitioner Tocao's admissions militate against an employer-employee relationship. She
Gimenesse Enterprises, Anay received only commissions and transportation and representation
admitted that, like her who owned Geminesse Enterprise, private respondent received only
allowances and not a fixed salary. If indeed Tocao was Anay's employer, it was difficult to
commissions and transportation and representation allowances and not fixed salary.
believe that they shall receive the same income in the business.
6. ID.; ID.; RIGHTS AND OBLIGATIONS OF A PARTNER; TO SHARE IN THE
PROFITS AND LOSSES OF THE VENTURE; EXCEPTION. — In a partnership, each partner
SYLLABUS must share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses. As an industrial partner, private respondent had the right to demand for a
1. REMEDIAL LAW; EVIDENCE; FACTUAL FINDINGS OF TRIAL COURT formal accounting of the business and to receive her share in the net profit.
GENERALLY UPHELD ON APPEAL. — 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 7. ID.; ID.; UNACCOUNTED STOCK PROVES THE EXISTENCE OF A
Court cannot set aside factual findings of such courts absent any showing that there is no PARTNERSHIP. — Petitioners underscore the fact that the Court of Appeals did not return the
evidence to support the conclusion drawn by the court a quo. In this case, both the trial court and "unaccounted and unremitted stocks of Geminesse Enterprise amounting to P208,250.00."
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, sales she would make; and (4) two percent (2%) for her demonstration services. The agreement
this Court said: "The best evidence of the existence of the partnership, which was not yet was not reduced to writing on the strength of Belo's assurances that he was sincere, dependable
terminated (though in the winding up stage), were the unsold goods and uncollected receivables, and honest when it came to financial commitments.
which were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. . . . ."
8. ID.; ID.; EXISTS UNTIL DISSOLVED UNDER THE LAW. — A mere falling out Anay having secured the distributorship of cookware products from the West Bend
or misunderstanding between partners does not convert the partnership into a sham organization. Company and organized the administrative staff and the sales force, the cookware business took
The partnership exists until dissolved under the law. 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
9. ID.; ID.; DISSOLUTION AND WINDING UP; PARTNERSHIP AT WILL MAY City. Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of
BE DISSOLVED BY THE WILL OF A PARTNER. — Since the partnership created by West Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin,
petitioners and private respondent has no fixed term and is therefore a partnership at will U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach,
predicated on their mutual desire and consent, it may be dissolved by the will of a partner. California, U.S.A., 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
10. ID.; ID.; ID.; UNJUSTIFIED DISSOLUTION SUBJECTS GUILTY PARTNER Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
TO DAMAGES. — 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 "Ms. Nenita D. Anay (sic), who has been patronizing and
personae allows the partners to have the power, although not necessarily the right to dissolve the supporting West Bend Co. for twenty (20) years now, acquired the
partnership. ADScCE distributorship of Royal Queen cookware for Geminesse Enterprise, is the
Vice President Sales Marketing and a business partner of our company, will
11. ID.; ID.; ID.; UNILATERAL EXCLUSION OF ONE PARTNER, AN attend in response to the invitation." (Italics supplied.) 3
EFFECTIVE WITHDRAWAL FROM THE PARTNERSHIP; CASE AT BAR. — Petitioner
Tocao's unilateral exclusion of private respondent from the partnership is shown by her memo to Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task
the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the of saving the business on account of the unsatisfactory sales record in the Makati and Cubao
vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her offices. On August 31, 1987, she received a plaque of appreciation from the administrative and
own withdrawal from the partnership and considered herself as having ceased to be associated sales people through Marjorie Tocao for her excellent job performance. On October 7, 1987, in
with the partnership in the carrying on of the business. Nevertheless, the partnership was not the presence of Anay, Belo signed a memo entitling her to a thirty seven percent (37%)
terminated thereby; it continues until the winding up of the business. 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
DECISION Marjorie Tocao had signed a letter addressed to the Cubao sales office to the effect that she was
YNARES-SANTIAGO, J p: 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
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV holding office and conducting demonstrations in both Makati and Cubao offices. Anay attempted
No. 41616, affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil to contact Belo. She wrote him twice to demand her overriding commission for the period of
Case No. 88-509. January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations Belo a letter. Still, that letter was not answered. TCIDSa
of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo introduced Anay to Anay still received her five percent (5%) overriding commission up to December 1987.
petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the The following year, 1988, she did not receive the same commission although the company netted
importation and local distribution of kitchen cookwares. Belo volunteered to finance the joint a gross sales of P 13,300,360.00.
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 On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and money with damages against Marjorie D. Tocao and William Belo before the Regional Trial
general manager, and Anay as head of the marketing department and later, vice-president for Court of Makati, Branch 140.
sales. Anay organized the administrative staff and sales force while Tocao hired and fired In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
employees, determined commissions and/or salaries of the employees, and assigned them to severally, the following: (1) P32,000.00 as unpaid overriding commission from January 8, 1988
different branches. The parties agreed that Belo's name should not appear in any documents to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
relating to their transactions with West Bend Company. Instead, they agreed to use Anay's name damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the
in securing distributorship of cookware from that company. The parties agreed further that Anay inception of its business operation until she was "illegally dismissed" to determine her ten percent
would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding (10%) share in the net profits. She further prayed that she be paid the five percent (5%)
commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the "overriding commission" on the remaining 150 West Bend cookware sets before her "dismissal."
 In their answer, Marjorie Tocao and Belo asserted that the "alleged agreement" with when plaintiff was wrongfully excluded from the partnership by
Anay that was "neither reduced in writing, nor ratified," was "either unenforceable or void or defendants;
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 3. Ordering defendants to pay plaintiff overriding commission on the total
was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as marketing production which for the period covering January 8, 1988 to February
demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to 5, 1988 amounted to P32,000.00;
either her compensation or dismissal, such complaint should have been lodged with the 4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00
Department of Labor and not with the regular court. as exemplary damages, and
Petitioners (defendants therein) further alleged that Anay filed the complaint on 5. Ordering defendants to pay P50,000.00 as attorney's fees and P20,000.00 as
account of "ill-will and resentment" because Marjorie Tocao did not allow her to "lord it over in costs of suit.
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 SO ORDERED."
"including unreturned and unaccounted stocks of Geminesse Enterprise," and "serious anxiety, The trial court held that there was indeed an "oral partnership agreement between the
besmirched reputation in the business world, and various damages not less than P500,000.00." plaintiff and the defendants," based on the following: (a) there was an intention to create a
They also alleged that, to "vindicate their allies," they had to hire counsel for a fee of P23,000.00. partnership; (b) a common fund was established through contributions consisting of money and
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth Bantilan,
was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are Anay's cousin and the administrative officer of Geminesse Enterprise from August 21, 1986 until
entitled to damages. 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
In their defense, Belo denied that Anay was supposed to receive a share in the profit of distributorship to Anay and Marjorie Tocao because he was convinced that with Marjorie's
the business. He, however, admitted that the two had agreed that Anay would receive a three to financial contribution and Anay's experience, the combination of the two would be invaluable to
four percent (3-4%) share in the gross sales of the cookware. He denied contributing capital to the the partnership, also supported that conclusion. Belo's claim that he was merely a "guarantor" has
business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, no basis since there was no written evidence thereof as required by Article 2055 of the Civil
who was new in the business. He attended and/or presided over business meetings of the venture Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise
in his capacity as a guarantor but he never participated in decision-making. He claimed that he plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the
wrote the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal contrary, it demonstrated his involvement as a partner in the business.
from the business venture at the request of Tocao, because Anay had no other income.
The trial court further held that the payment of commissions did not preclude the
For her part, Marjorie Tocao denied having entered into an oral partnership agreement existence of the partnership inasmuch as such practice is often resorted to in business circles as
with Anay. However, she admitted that Anay was an expert in the cookware business and hence, an impetus to bigger sales volume. It did not matter that the agreement was not in writing because
they agreed to grant her the following commissions: thirty-seven percent (37%) on personal sales; Article 1771 of the Civil Code provides that a partnership may be "constituted in any form." The
five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent fact that Geminesse Enterprise was registered in Marjorie Tocao's name is not determinative of
(2%) for recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) whether or not the business was managed and operated by a sole proprietor or a partnership.
commission on the net profits. Marjorie claimed that she got the capital for the business out of the What was registered with the Bureau of Domestic Trade was merely the business name or style
sale of the sewing machines used in her garments business and from Peter Lo a Singaporean of Geminesse Enterprise.
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 The trial court finally held that a partner who is excluded wrongfully from a partnership
account for stocks valued at P200,000.00. 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
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as partnership business and goodwill." An innocent partner thus possesses "pecuniary interest in
follows: every existing contract that was incomplete and in the trade name of the co-partnership and assets
"WHEREFORE, in view of the foregoing, judgment is hereby at the time he was wrongfully expelled."
rendered: Petitioners' appeal to the Court of Appeals was dismissed, but the amount of damages
1. Ordering defendants to submit to the Court a formal account as to the awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 exemplary damages. Their motion for Reconsideration was denied by the Court of Appeals for
of the Civil Code in order to determine the ten percent (10%) share of lack of merit. Petitioners Belo and Marjorie Tocao are now before this Court on a petition for
plaintiff in the net profits of the cookware business; aIHCSA 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
2. Ordering defendants to pay five percent (5%) overriding commission for the by the Court of Appeals.
one hundred and fifty (150) cookware sets available for disposition
 Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and build
partnership existed between them and private respondent Anay because Geminesse Enterprise up the organization. All they need is the finance and the products to sell."
"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 On the other hand, petitioner Belo's denial that he financed the partnership rings hollow
contributing nothing, without any "memorandum whatsoever regarding the alleged partnership."' 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
The issue of whether or not a partnership exists is a factual matter which are within the stationery of his own business firm, Wilcon Builders Supply, that private respondent should
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual receive thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted
findings of such courts absent any showing that there is no evidence to support the conclusion otherwise than that he had a proprietary interest in the business. His claim that he was merely a
drawn by the court a quo. In this case, both the trial court and the Court of Appeals are one in guarantor is belied by that personal act of proprietorship in the business. Moreover, if he was
ruling that petitioners and private respondent established a business partnership. This Court finds indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code, he
no reason to rule otherwise. 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
To be considered a juridical personality, a partnership must fulfill these requisites: (1) "a special promise to answer for the debt, default or miscarriage of another" be in writing.
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. It may Petitioner Tocao, a former ramp model, was also a capitalist in the partnership. She
be constituted in any form; a public instrument is necessary only where immovable property or claimed that she herself financed the business. Her and petitioner Belo's roles as both capitalists
real rights are contributed thereto. This implies that since a contract of partnership is consensual, to the partnership with private respondent are buttressed by petitioner Tocao's admissions that
an oral contract of partnership is as good as a written one. Where no immovable property or real petitioner Belo was her boyfriend and that the partnership was not their only business venture
rights are involved, what matters is that the parties have complied with the requisites of a together. They also established a firm that they called "Wiji," the combination of petitioner Belo's
partnership. The fact that there appears to be no record in the Securities and Exchange first name, William, and her nickname, Jiji. The special relationship between them dovetails with
Commission of a public instrument embodying the partnership agreement pursuant to Article petitioner Belo's claim that he was acting in behalf of petitioner Tocao. Significantly, in the early
1772 of the Civil Code did not cause the nullification of the partnership. The pertinent provision stage of the business operation, petitioners requested West Bend Company to allow them to
of the Civil Code on the matter states: "utilize their banking and trading facilities in Singapore" in the matter of importation and
payment of the cookware products. The inevitable conclusion, therefore, was that petitioners
Art. 1768. The partnership has a juridical personality separate and merged their respective capital and infused the amount into the partnership of distributing
distinct from that of each of the partners, even in case of failure to comply cookware with private respondent as the managing partner.
with the requirements of Article 1772, first paragraph. aEHIDT
The business venture operated under Geminesse Enterprise did not result in an
Petitioners admit that private respondent had the expertise to engage in the business of employer-employee relationship between petitioners and private respondent. While it is true that
distributorship of cookware. Private respondent contributed such expertise to the partnership and the receipt of a percentage of net profits constitutes only prima facie evidence that the recipient is
hence, under the law, she was the industrial or managing partner. It was through her reputation a partner in the business, the evidence in the case at bar controverts an employer-employee
with the West Bend Company that the partnership was able to open the business of relationship between the parties. In the first place, private respondent had a voice in the
distributorship of that company's cookware products; it was through the same efforts that the management of the affairs of the cookware distributorship, including selection of people who
business was propelled to financial success. Petitioner Tocao herself admitted private would constitute the administrative staff and the sales force. Secondly, petitioner Tocao's
respondent's indispensable role in putting up the business when, upon being asked if private admissions militate against an employer-employee relationship. She admitted that, like her who
respondent held the positions of marketing manager and vice-president for sales, she testified owned Geminesse Enterprise, private respondent received only commissions and transportation
thus: and representation allowances and not a fixed salary. Petitioner Tocao testified:
"A: No, sir at the start she was the marketing manager because there were no "Q: Of course. Now, I am showing to you certain documents already marked as
one to sell yet, it's only me there then her and then two (2) people, so Exhs. 'X' and 'Y.' Please go over this. Exh. 'Y' is denominated 'Cubao
about four (4). Now, after that when she recruited already Oscar overrides' 8-21-87 with ending August 21, 1987, will you please go
Abella and Lina Torda-Cruz these two (2) people were given the over this and tell the Honorable Court whether you ever came across
designation of marketing managers of which definitely Nita as this document and know of your own knowledge the amount —
superior to them would be the Vice President." A: Yes, sir this is what I am talking about earlier. That's the one I am telling you
By the set-up of the business, third persons were made to believe that a partnership had indeed been earlier a certain percentage for promotions, advertising, incentive.
forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of Q: I see. Now, this promotion, advertising, incentive, there is a figure here and
Missy Jagler of West Bend Company to Roger Muencheberg of the same company states: words which I quote: 'Overrides Marjorie Ann Tocao P21,410.50' this
means that you have received this amount?
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the A: Oh yes, sir.
operations. Marge does not have cookware experience. Nita Anay has started to gather former Q: I see. And, by way of amplification this is what you are saying as one
managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty representing commission, representation, advertising and promotion?
 A: Yes, sir. Petitioners underscore the fact that the Court of Appeals did not return the
Q: I see. Below your name is the words and figure and I quote 'Nita D. Anay "unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P21,410.50,' what is this? P208,250.00." Obviously a ploy to offset the damages awarded to private respondent, that claim,
A: That's her overriding commission. more than anything else, proves the existence of a partnership between them. In Idos v. Court of
Q: Overriding commission, I see. Of course, you are telling this Honorable Appeals, this Court said:
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 "The best evidence of the existence of the partnership, which was
kasi, you know in a sense because of her expertise in the business she not yet terminated (though in the winding up stage), were the unsold goods
is vital to my business. So, as part of the incentive I offer her the same and uncollected receivables, which were presented to the trial court. Since the
thing. aHADTC partnership has not been terminated, the petitioner and private complainant
Q: So, in short you are saying that this you have shared together, I mean having remained as co-partners. . . . . "
gotten from the company P21,140.50 is your way of indicating It is not surprising then that, even after private respondent had been unceremoniously booted out of
that you were treating her as an equal? the partnership in October 1987, she still received her overriding commission until December 1987.
A: As an equal.
Q: As an equal, I see. You were treating her as an equal? Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
A: Yes, sir. partnership to reap for herself and/or for petitioner Belo financial gains resulting from private
Q: I am calling again your attention to Exh. 'Y' "Overrides Makati the other one respondent's efforts to make the business venture a success. Thus, as petitioner Tocao became
is — adept in the business operation, she started to assert herself to the extent that she would even
A: That is the same thing, sir. shout at private respondent in front of other people. Her instruction to Lina Torda Cruz,
Q: With ending August 21, words and figure 'Overrides Marjorie Ann Tocao marketing manager, not to allow private respondent to hold office in both the Makati and Cubao
P15,314.25' the amount there you will acknowledge you have sales offices concretely spoke of her perception that private respondent was no longer necessary
received that? in the business operation, and resulted in a falling out between the two. However, a mere falling
A: Yes, sir. out or misunderstanding between partners does not convert the partnership into a sham
Q: Again in concept of commission, representation, promotion, etc.? organization. The partnership exists until dissolved under the law. Since the partnership created
A: Yes, sir. by petitioners and private respondent has no fixed term and is therefore a partnership at will
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus:
indication that she received the same amount? ". . . . The right to choose with whom a person wishes to associate
A: Yes, sir. himself is the very foundation and essence of that partnership. Its continued
Q: And, as in your previous statement it is not by coincidence that these two (2) existence is, in turn, dependent on the constancy of that mutual resolve, along
are the same? with each partner's capability to give it, and the absence of cause for
A: No, sir. dissolution provided by the law itself. Verily, any one of the partners may, at
Q: It is again in concept of you treating Miss Anay as your equal? his sole pleasure, dictate a dissolution of the partnership at will. He must,
A: Yes, sir." (italics supplied.) 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
If indeed petitioner Tocao was private respondent's employer, it is difficult to believe damages."
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 An unjustified dissolution by a partner can subject him to action for damages because by the mutual
losses. As an industrial partner, private respondent had the right to demand for a formal agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
accounting of the business and to receive her share in the net profit. the power, although not necessarily the right to dissolve the partnership.

The fact that the cookware distributorship was operated under the name of Geminesse In this case, petitioner Tocao's unilateral exclusion of private respondent from the
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of partnership is shown by her memo to the Cubao office plainly stating that private respondent was,
Domestic Trade on August 19, 1987 was merely the name of that enterprise. While it is true that as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that
in her undated application for renewal of registration of that firm name, petitioner Tocao memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself
indicated that it would be engaged in retail of "kitchenwares, cookwares, utensils, skillet," she as having ceased to be associated with the partnership in the carrying on of the business.
also admitted that the enterprise was only "60% to 70% for the cookware business," while 20% to Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the
30% of its business activity was devoted to the sale of water sterilizer or purifier. Indubitably business. The winding up of partnership affairs has not yet been undertaken by the partnership.
then, the business name Geminesse Enterprise was used only for practical reasons — it was This is manifest in petitioners' claim for stocks that had been entrusted to private respondent in
utilized as the common name for petitioner Tocao's various business activities, which included the pursuit of the partnership business.
the distributorship of cookware. 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. The Court of Appeals may modify
 that amount only when its factual findings are diametrically opposed to that of the lower court,
or the award is palpably or scandalously and unreasonably excessive. However, exemplary
damages that are awarded "by way of example or correction for the public good," 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, 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.
||| (Tocao v. Court of Appeals, G.R. No. 127405, [October 4, 2000], 396 PHIL 166-186)
 state a cause of action. Accordingly, the decision of the Court of Appeals was reversed and the
complaint against petitioner was dismissed.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; REAL PARTY IN INTEREST; EVERY
ACTION MUST BE PROSECUTED AND DEFENDED IN THE NAME OF THE REAL PARTY IN
INTEREST. — Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case is
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.
2. CIVIL LAW; PARTNERSHIP; 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. — Under Article 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
[G.R. No. 127347. November 25, 1999.]
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,
ALFREDO N. AGUILA, JR., petitioner, vs. HONORABLE COURT OF unfair or illegal purposes. Moreover, the title to the subject property is in the name of A. C. Aguila &
APPEALS and FELICIDAD S. VDA. DE ABROGAR, respondents. 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. We cannot
SYNOPSIS
understand why both the Regional Trial Court and the Court of Appeals sidestepped this issue when it
On April 18, 1991, private respondent, with the consent of her late husband and AC Aguila
was squarely raised before them by petitioner.
& Sons Co., as represented by petitioner, entered into a Memorandum of Agreement selling her
property in the amount of P200,000.00. In a special power of attorney, private respondent authorized DECISION
petitioner to cause the cancellation of TCT No. 195101, in the event that she failed to redeem the MENDOZA, J p:
subject property as provided in the memorandum of agreement. Private respondent failed to redeem
the property on time, causing the petitioner to cancel TCT No. 195101 and applied for the issuance of This is a petition for review on certiorari of the decision of the Court of Appeals, dated
a new title in the name of AC Aguila & Sons Co. Thereafter, petitioner demanded for the peaceful November 29, 1990, which reversed the decision of the Regional Trial Court, Branch 273, Marikina,
surrender of the questioned property, but private respondent refused to vacate prompting the petitioner Metro Manila, dated April 11, 1995. The trial court dismissed the petition for declaration of nullity of
to file an ejectment suit. Petitioner won the case. Private respondent then filed a petition for a deed of sale filed by private respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N.
declaration of nullity of a deed of sale with the Regional Trial Court of Marikina against herein Aguila, Jr. cdrep
petitioner alleging that the signature of her husband on the deed of sale was a forgery because he was
already dead when it was supposed to be executed on June 11, 1991. On April 11, 1995, the lower The facts are as follows:
court rendered a decision dismissing the petition. On appeal, the Court of Appeals reversed the
decision rendered by the Regional Trial Court and ruled that the memorandum of agreement entered Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
into by the parties was in the nature of a pactum commisorium. Thus, the deed of sale was void for activities. Private respondent and her late husband, Ruben M. Abrogar, were the registered owners of a
being violative of law. Aggrieved by the decision, petitioner filed the instant petition for review house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On
contending that he is not the real party in interest but AC Aguila & Co. against which this case should April 18, 1991, private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co.,
have been brought. Likewise, petitioner contended that the contract between the parties is a pacto de represented by petitioner, entered into a Memorandum of Agreement, which provided:
retro sale and not a equitable mortgage as held by the appellate court.
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy
The Supreme Court found the petition meritorious. The Court ruled that since the the above-described property from the FIRST PARTY [Felicidad S. Vda. de
memorandum of agreement was executed by A.C. Aguila & Sons, Co. and the private respondent, it is Abrogar], and pursuant to this agreement, a Deed of Absolute Sale shall be
the partnership, not its officers or agents, which should be impleaded in the instant case. Verily, since executed by the FIRST PARTY conveying the property to the SECOND
petitioner was not the proper party in interest in this case, the case should be dismissed for failure to
 PARTY for and in consideration of the sum of Two Hundred Thousand Pesos petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in
(P200,000.00), Philippine Currency; the name of A.C. Aguila and Sons, Co.
(2) The FIRST PARTY is hereby given by the SECOND PARTY the Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C.
option to repurchase the said property within a period of ninety (90) days from Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days
the execution of this memorandum of agreement effective April 18, 1991, for after receipt of the letter and surrender its possession peacefully to A.C. Aguila & Sons, Co.
the amount of TWO HUNDRED THIRTY THOUSAND PESOS Otherwise, the latter would bring the appropriate action in court.
(P230,000.00);
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons,
(3) In the event that the FIRST PARTY fail to exercise her option to Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro
repurchase the said property within a period of ninety (90) days, the FIRST Manila. In a decision, dated April 3, 1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila
PARTY is obliged to deliver peacefully the possession of the property to the & Sons, Co. on the ground that private respondent did not redeem the subject property before the
SECOND PARTY within fifteen (15) days after the expiration of the said 90 expiration of the 90-day period provided in the Memorandum of Agreement. Private respondent
day grace period; appealed first to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of
Appeals, and later to this Court, but she lost in all the cases.
(4) During the said grace period, the FIRST PARTY obliges herself
not to file any lis pendens or whatever claims on the property nor shall be cause Private respondent then filed a petition for declaration of nullity of a deed of sale with the
the annotation of say claim at the back of the title to the said property; Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the
signature of her husband on the deed of sale was a forgery because he was already dead when the deed
(5) With the execution of the deed of absolute sale, the FIRST was supposed to have been executed on June 11, 1991.
PARTY warrants her ownership of the property and shall defend the rights of
the SECOND PARTY against any party whom may have any interests over the It appears, however, that private respondent had filed a criminal complaint for falsification
property; against petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a
resolution, dated February 14, 1994. prcd
(6) All expenses for documentation and other incidental expenses
shall be for the account of the FIRST PARTY; On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
(7) Should the FIRST PARTY fail to deliver peaceful possession of Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery
the property to the SECOND PARTY after the expiration of the 15-day grace because they could not personally appear before Notary Public Lamberto C.
period given in paragraph 3 above, the FIRST PARTY shall pay an amount Nanquil on June 11, 1991 because her husband, Ruben Abrogar, died on May 8,
equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS 1991 or one month and 2 days before the execution of the Deed of Absolute
(P200.00) or P10,000.00 per month of delay as and for rentals and liquidated Sale, while the plaintiff was still in the Quezon City Medical Center
damages; recuperating from wounds which she suffered at the same vehicular accident on
May 8, 1991, cannot be sustained. The Court is convinced that the three
(8) Should the FIRST PARTY fail to exercise her option to required documents, to wit: the Memorandum of Agreement, the Special Power
repurchase the property within ninety (90) days period above-mentioned, this of Attorney, and the Deed of Absolute Sale were all signed by the parties on the
memorandum of agreement shall be deemed cancelled and the Deed of same date on April 18, 1991. It is a common and accepted business practice of
Absolute Sale, executed by the parties shall be the final contract considered as those engaged in money lending to prepare an undated absolute deed of sale in
entered between the parties and the SECOND PARTY shall proceed to transfer loans of money secured by real estate for various reasons, foremost of which is
ownership of the property above described to its name free from lines and the evasion of taxes and surcharges. The plaintiff never questioned receiving the
encumbrances. sum of P200,000.00 representing her loan from the defendant. Common sense
dictates that an established lending and realty firm like the Aguila & Sons, Co.
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale,
would not part with P200,000.00 to the Abrogar spouses, who are virtual
dated June 11, 1991, wherein private respondent, with the consent of her late husband, sold the subject
strangers to it, without the simultaneous accomplishment and signing of all the
property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000.00. In a special power of
required documents, more particularly the Deed of Absolute Sale, to protect its
attorney dated the same day, April 18, 1991, private respondent authorized petitioner to cause the
interest.
cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C.
Aguila and Sons, Co., in the event she failed to redeem the subject property as provided in the xxx xxx xxx
Memorandum of Agreement.
WHEREFORE, foregoing premises considered, the case in caption is
Private respondent failed to redeem the property within the 90-day period as provided in the hereby ORDERED DISMISSED, with costs against the plaintiff.
Memorandum of Agreement. Hence, pursuant to the special power of attorney mentioned above,
On appeal, the Court of Appeals reversed. It held:
 The facts and evidence show that the transaction between plaintiff- Being a mortgage, the transaction entered into by the parties is in the
appellant and defendant-appellee is indubitably an equitable mortgage. Article nature of a pactum commissorium which is clearly prohibited by Article 2088 of
1602 of the New Civil Code finds strong application in the case at bar in the the New Civil Code. Article 2088 of the New Civil Code reads:
light of the following circumstances.
ART. 2088. The creditor cannot appropriate the things
First: The purchase price for the alleged sale with right to repurchase given by way of pledge or mortgage, or dispose of them. Any
is unusually inadequate. The property is a two hundred forty (240) sq.m. lot. On stipulation to the contrary is null and void.
said lot, the residential house of plaintiff-appellant stands. The property is inside
a subdivision/village. The property is situated in Marikina which is already part The aforequoted provision furnishes the two elements for pactum
of Metro Manila. The alleged sale took place in 1991 when the value of the land commissorium to exist: (1) that there should be a pledge or mortgage wherein a
had considerably increased. property is pledged or mortgaged by way of security for the payment of
principal obligation; and (2) that there should be a stipulation for an automatic
For this property, defendant-appellee pays only a measly P200,000.00 appropriation by the creditor of the thing pledged and mortgaged in the event of
or P833.33 per square meter for both the land and for the house. non-payment of the principal obligation within the stipulated period.
Second: The disputed Memorandum of Agreement specifically In this case, defendant-appellee in reality extended a P200,000.00
provides that plaintiff-appellant is obliged to deliver peacefully the possession loan to plaintiff-appellant secured by a mortgage on the property of plaintiff-
of the property to the SECOND PARTY within fifteen (15) days after the appellant. The loan was payable within ninety (90) days, the period within
expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff- which plaintiff-appellant can repurchase the property. Plaintiff-appellant will
appellant is to retain physical possession of the thing allegedly sold. pay P230,000.00 and not P200,000.00, the P30,000.00 excess is the interest for
the loan extended. Failure of plaintiff-appellee to pay the P230,000.00 within
In fact, plaintiff-appellant retained possession of the property "sold" the ninety (90) days period, the property shall automatically belong to
as if they were still the absolute owners. There was no provision for defendant-appellee by virtue of the deed of sale executed.
maintenance or expenses, much less for payment of rent.
Clearly, the agreement entered into by the parties is in the nature
Third: The apparent vendor, plaintiff-appellant herein, continued to of pactum commissorium. Therefore, the deed of sale should be declared void as
pay taxes on the property "sold". It is well-known that payment of taxes we hereby so declare to be invalid, for being violative of law. dctai
accompanied by actual possession of the land covered by the tax declaration,
constitute evidence of great weight that a person under whose name the real xxx xxx xxx
taxes were declared has a claim of right over the land.
WHEREFORE, foregoing considered, the appealed decision is hereby
It is well-settled that the presence of even one of the circumstances in REVERSED and SET ASIDE. The questioned Deed of Sale and the
Article 1602 of the New Civil Code is sufficient to declare a contract of sale cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant and
with right to repurchase an equitable mortgage. the issuance of TCT No. 267073 issued in favor of defendant-appellee pursuant
to the questioned Deed of Sale is hereby declared VOID and is hereby
Considering that plaintiff-appellant, as vendor, was paid a price which ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of
is unusually inadequate, has retained possession of the subject property and has Marikina is hereby ordered REINSTATED. The loan in the amount of
continued paying the realty taxes over the subject property, (circumstances P230,000.00 shall be paid within ninety (90) days from the finality of this
mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil Code), it decision. In case of failure to pay the amount of P230,000.00 from the period
must be conclusively presumed that the transaction the parties actually entered therein stated, the property shall be sold at public auction to satisfy the
into is an equitable mortgage, not a sale with right to repurchase. The factors mortgage debt and costs and if there is an excess, the same is to be given to the
cited are in support to the finding that the Deed of Sale/Memorandum of owner.
Agreement with right to repurchase is in actuality an equitable mortgage.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co.,
Moreover, it is undisputed that the deed of sale with right of against which this case should have been brought; (2) the judgment in the ejectment case is a bar to the
repurchase was executed by reason of the loan extended by defendant-appellee filing of the complaint for declaration of nullity of a deed of sale in this case; and (3) the contract
to plaintiff-appellant. The amount of loan being the same with the amount of the between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an equitable
purchase price. mortgage as held by the appellate court. cdll
xxx xxx xxx The petition is meritorious.
Since the real intention of the party is to secure the payment of debt, Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was filed,
now deemed to be repurchase price: the transaction shall then be considered to provided that "every action must be prosecuted and defended in the name of the real party in interest."
be an equitable mortgage.
A real party in interest is one who would be benefited or injured by the judgment, or who is entitled to returned to Merian upon demand. Neither of the parties, however, presented evidence to show
the avails of the suit. 7 This ruling is now embodied in Rule 3, §2 of the 1997 Revised Rules of Civil that such agreement was reduced in writing.
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 Merian began investing several amounts from November 15, 2000 to June 30, 2003,
cause of action. reaching an aggregate amount of P1,569,000.00. Edna had remitted to Merian the amount of
P877,000.00 as interest on said amounts. However, in December 2003, Edna defaulted in
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and remitting to Merian the interest due from said investments. Despite demands, Edna failed to remit
distinct from that of each of the partners." The partners cannot be held liable for the obligations of the the interest to Merian.
partnership unless it is shown that the legal fiction of a different juridical personality is being used for Consequently, Merian, through her lawyer, sent a letter dated January 20, 2004 to Edna
fraudulent, unfair, or illegal purposes. In this case, private respondent has not shown that A.C. Aguila demanding for the return of Merian's total investment of P1,569,000.00. Merian also went to
& Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Edna's house where the latter agreed to pay the principal amount invested on a "pay when able"
Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the basis. On the same day, Edna paid Merian P15,000.00 in cash and P5,000.00 in gift cheque, for a
Memorandum of Agreement was executed between private respondent, with the consent of her late
total of P20,000.00. Merian then signed a receipt prepared by Edna wherein she acknowledged
husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its that the P20,000.00 constitutes partial payment for the principal amount of P1,569,000.00. The
officers or agents, which should be impleaded in any litigation involving property registered in its acknowledgment receipt reads as follows:
name. A violation of this rule will result in the dismissal of the complaint. We cannot understand why
both the Regional Trial Court and the Court of Appeals sidestepped this issue when it was squarely This is to acknowledge receipt from Edna L. Garcia partial payment from
raised before them by petitioner. [the] principal this 18th day of January 2004 the amount of [P]20,000
([P]15,000 cash and [P]5,000 gift cheque)
Our conclusion that petitioner is not the real party in interest against whom this action
should be prosecuted makes it unnecessary to discuss the other issues raised by him in this appeal. Signed
Me-anne Bernardo
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED. cdll [T]otal Principal
[P]1,569,000 (emphasis supplied)
[G.R. No. 228356. March 9, 2020.]
Because Merian learned that several other persons were likewise taken advantage of by
Edna, Merian filed the complaint a quo on February 12, 2004, for sum of money with prayer for
MERIAN B. SANTIAGO, petitioner, vs. SPOUSES EDNA L. GARCIA the issuance of a writ of preliminary attachment against spouses Edna L. Garcia and Bayani
AND BAYANI GARCIA, respondents. Garcia (spouses Garcia). In their Answer, spouses Garcia admitted the facts that Merian was
enticed by Edna to invest in her lending business that will yield a high return in terms of monthly
interest ranging from 5% to 8%, and that under said investment proposal, it was agreed that the
interest earned shall be remitted by Edna to Merian on a monthly basis, while the principal
DECISION amount shall be returned upon Merian's demand. Nevertheless, spouses Garcia sought for the
dismissal of the complaint for lack of cause of action since the amounts given by Merian were
investments, not loans.
The Regional Trial Court (RTC) rendered its decision finding that a partnership was
J.C. REYES, JR., J p: formed between Merian and Edna — the former as capitalist partner and the latter as industrial
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the partner. It ruled that a person who invested in a business which incurred losses cannot convert
Decision dated January 26, 2016 and Resolution dated November 11, 2016 of the Court of such investment into a loan. As such, the RTC dismissed Merian's complaint, and further ordered
Appeals (CA) in CA-G.R. CV No. 101908. In dismissing petitioner's appeal, the CA ruled that the payment of moral damages, attorney's fees, and costs of suit in favor of spouses Garcia.
the contractual relation between the parties is one of investment and, as such, entails risk on the When Merian's motion for reconsideration was denied, she appealed to the CA.
part of the petitioner as investor. Finding petitioner to have invested her money, the CA ruled that
she has no cause of action for the return of investment. The CA disagreed with the RTC in its finding that a partnership was formed between
Merian and Edna. The CA found that the money was given not as Merian's contribution or share
Facts in Edna's capital in the lending business, but as an investment that will earn interest in case of
In November 2000, petitioner Merian B. Santiago (Merian) was enticed by respondent profit. Nevertheless, the CA agreed with the RTC that the complaint lacked cause of action as
Edna L. Garcia (Edna) to invest money in the latter's lending business with a promise of a high Merian was without legal right to recover her investment in case of losses, as to what happened to
return in terms of monthly interest ranging from 5% to 8%. The parties agreed that monthly Edna's lending business, since an investment entails business risk. The CA thus affirmed the
interest shall be remitted by Edna to Merian and that the principal amount invested shall be dismissal of Merian's complaint but deleted the award for moral damages, attorney's fees, and
costs of suit.
 Merian's motion for partial reconsideration met similar denial from the CA. Thus, this The facts therefore demonstrate that Edna was engaged in the business of lending and
petition. that she solicited funds from Merian which Edna then used to grant loans to other persons. The
parties' contemporaneous and subsequent acts reveal their intent to enter into an investment
Issue contract in a lending business. Parenthetically, the lending activity conducted by Edna is what
The sole issue raised for resolution is whether the CA erred in finding that the the law under Republic Act (R.A.) No. 9474 or the Lending Company Act of 2007 presently
contractual relation between Merian and Edna is one of investment which entails the assumption seeks to regulate. Under R.A. 9474, only corporations with a validly subsisting authority from the
of business risk. Merian maintains that while she agreed to invest or place her money in Edna's Securities and Exchange Commission can engage in the business of granting loans sourced from
lending business, it was their further agreement that the amount so invested will earn interest, and its own capital funds or from funds coming from not more than nineteen (19) persons.
that the principal amount shall be returned to her upon demand. Nevertheless, since R.A. No. 9474 was passed into law only on May 22, 2007, the lending
activities of Edna conducted from 2000 to 2003 cannot be considered unlawful.
Ruling of the Court
Having established that the transaction between Merian and Edna is one of investment
There is merit in the petition. in a lending business, the question to be addressed is whether Edna is contractually bound to
There is no dispute that Merian invested the total amount of P1,569,000.00 as this return Merian's capital. Investment is ordinarily defined as the placement of capital or lay out of
much was admitted by spouses Garcia in their answer to the complaint. The contention lies as to money in a way intended to secure income or profit from its employment. As in all contractual
whether Edna is obligated to return the principal amount to Merian upon demand. In resolving relations, an investment contract is largely governed by the stipulations, clauses, terms, and
the issue in the negative, the RTC held that a partnership was formed between Merian and Edna; conditions as the parties may deem convenient, which shall be respected as long as it is not
while the CA held that the contractual relation between the parties was neither a partnership nor a contrary to law, morals, good customs, public order, or public policy. Thus, the parties are free to
contract of loan but was an investment that entailed business risk. agree that the investment shall entail the sharing of profits and losses, or otherwise.

A partnership, a simple contract of loan, and an investment contract carry peculiar In this case, Merian alleged that she and Edna agreed that Merian will be investing
definitions and are governed by pertinent laws. The existence of a partnership, simple loan, or an capital on the lending business which shall earn a 5% monthly interest; that the capital will be
investment contract should not, therefore, be inferred lightly, especially where any of its requisite revolving; and that the capital shall be returned upon demand. That Edna agreed to return the
elements are lacking. principal amount to Merian is further supported by the acknowledgment receipt which Edna
herself had written. In said acknowledgment receipt, Edna paid the amount of P20,000.00 as
The Court cannot subscribe to the view that Merian and Edna formed a partnership. By "partial payment from the principal" — thus acknowledging her obligation to return the principal
the contract of partnership two or more persons bind themselves to contribute money, property, amount invested. Notably as well, Edna failed to present countervailing evidence to demonstrate
or industry to a common fund, with the intention of dividing the profits among the real agreement between the parties as her husband, who solely participated at the trial, merely
themselves. Partnership is essentially a result of an agreement or a contract, either express or denied knowledge of the agreement between Merian and Edna.
implied, oral or in writing, between two or more persons. Here, there was neither allegation nor
proof that Merian and Edna agreed to enter into a partnership for purposes of carrying out the Even assuming that the agreement between the parties was that Merian shall bear the
lending business. risk of losing the principal amount she invested, in case of business loss, there was no allegation
nor proof presented that, indeed, Edna's lending business suffered business loss. The ruling,
There was likewise no agreement for the sharing of profits, only that Merian expects to therefore, that the principal amount should no longer be returned because of Merian's assumption
receive remittance of monthly interest from the amount she invested. At any rate, the receipt by a of risk lacks factual basis.
person of a share of the profits, or of a payment of a contingent amount in case of profits earned,
is not a conclusive evidence of partnership. Article (Art.) 1769 (3) of the Civil Code provides that WHEREFORE, the petition is GRANTED. The Decision dated January 26, 2016 and
"the sharing of gross returns does not of itself establish a partnership, whether or not the persons the Resolution dated November 11, 2016 of the Court of Appeals are REVERSED and SET
sharing them have a joint or common right or interest in any property from which the returns are ASIDE. Spouses Edna. L. Garcia and Bayani Garcia are ORDERED to PAY Merian B.
derived." There must be an unmistakable intention to form a partnership which is lacking in this Santiago the principal amount of One Million Five Hundred Forty-Nine Thousand Pesos
case. Most importantly, the facts do not disclose that there is mutual agency between Merian and (P1,549,000.00) with interest at the rate of 12% per annum from January 20, 2004, the date of
Edna, that is, neither party alleged that she can bind by her acts the other, and can be bound by extrajudicial demand, until June 30, 2013, and at the rate of 6% per annum from July 1, 2013,
the acts of the other in the ordinary course of business. until full payment.

The facts of the instant case do not support the conclusion that the parties entered into a SO ORDERED.
contract of loan either. By a contract of simple loan, one of the parties delivers to another money ||| (Santiago v. Spouses Garcia, G.R. No. 228356, [March 9, 2020])
upon the condition that the same amount of the same kind and quality shall be paid. A person
who receives a loan of money acquires ownership thereof, and is bound to pay to the creditor an
equal amount of the same kind and quality. Merian herself testified that Edna did not borrow
money from her and Merian consistently alleged that she invested money in Edna's lending
business. This is consistent with the fact that Merian gave to Edna money in various amounts and
on various dates, in a series of transactions beginning November 15, 2000 to June 30, 2003, for
which she earned profits in the form of interest payments.
 other properties in the resort. He also entertained guests and occupants of the cottages. He
worked from 5 a.m. to 9 p.m. every day, including weekends and holidays, and was given an
allowance of P100.00 per week, which was later increased to P239.00 in 2001. Sometime in
1995, Pedro was also asked to work in the fishpond business owned by the parents of Emmarck.
They agreed that Pedro will be compensated based on the income to be derived from the harvests.
However, the arrangement only lasted for two harvest seasons or a span of around seven months.
Emmarck's parents discontinued it because the business was not profitable. All the while and
even after this endeavor, Pedro continued to serve as caretaker of Ralco Beach.
In 2001, Pedro married Maricel, and on January 28, 2007, Maricel was employed by
Emmarck to manage the store in the resort. For her services, she was paid P1,000.00 a month
and entitled to 15% commission on the rentals collected from the cottages and rest house. Like
Pedro, she also worked from 5 a.m. to 9 p.m. every day. Sometime in July 2008, Emmarck
notified Pedro and Maricel that he will be leasing out Ralco Beach because the business was not
profitable. Thus, their services are no longer needed. Due to this, on July 31, 2008, Pedro and
Maricel no longer reported for work. Subsequently, they filed a complaint asserting that they
were illegally dismissed and deprived of procedural due process. To substantiate their claims,
they submitted accounting records of the rentals of the resort facilities and the sales of the store.
The accounting records showed that the items sold in the store had a 20% mark-up price — with
10% to generate income and the other 10% to cover operational expenses of the resort. The
accounting also showed that Pedro's and Maricel's allowances and commission were deducted
from the rentals and sales.
For his part, Emmarck denied the employment relationship with Pedro and Maricel,
and asserted that they were his industrial partners. Emmarck explained that, in 1993, Pedro
[G.R. No. 200555. January 20, 2021.] became an industrial partner of her mother in the fishpond business with an agreement to be
entitled to 1/3 of the total harvest made, as well as receive a weekly allowance of P230.00.
Emmarck merely adopted this arrangement with Pedro when he took over the business. They
PEDRO D. DUSOL AND MARICEL M. agreed that Pedro was entitled to 1/3 of the total harvest made. Pedro was also given a weekly
DUSOL, petitioners, vs. EMMARCK A. LAZO, AS OWNER OF RALCO allowance of P230.00 as industrial partner and overseer. Similarly, Maricel was taken in as an
BEACH, respondent. industrial partner to manage the store inside the beach property, who was entitled to a P1,000.00
monthly allowance and 15% commission on the rent of the resort facilities. She was also allowed
to sell anything in the store with the profits solely belonging to her.

DECISION Emmarck likewise claimed that, as the fishpond business was not doing good, he put up
cottages and a store at their beach property so that Pedro and Maricel would have a means of
livelihood. He allowed Pedro and Maricel to reside on the beach property free of charge. They
then received an allowance or commission from the income generated by the rentals on the
M.V. LOPEZ, J p: cottages and sales of the store. Their receipt of the share in the profits was in their capacity as
business partners. He also asserted that he had no power to dismiss Pedro and Maricel because
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of the existence of a partnership depends on the viability of the business. Since the beach resort did
Court assailing the Decision dated May 23, 2011 and Resolution dated January 27, 2012 of the not produce much profit, it was not practicable nor feasible to hire employees. Lastly, Emmarck
Court of Appeals (CA) in CA-G.R. SP No. 03356-MIN, which ruled that petitioners were not stressed that he had no control over Pedro and Maricel, and in fact did not control or guide them
employees of respondent. since he left the entire business operation to them.
Antecedents Labor Arbiter Decision
This case arose from a complaint for illegal dismissal, underpayment of benefits, claim In its Decision dated January 26, 2009, the Labor Arbiter (LA) dismissed the complaint
for damages, and attorney's fees filed by petitioners Pedro (Pedro) and Maricel Dusol (Maricel) for lack of jurisdiction because Pedro and Maricel failed to prove that they were Emmarck's
against respondent Emmarck A. Lazo (Emmarck) as the owner of Ralco Beach. According to employees. It was not shown that Emmarck controlled or reserved the right to control not only
Pedro and Maricel, on January 6, 1993, Pedro started working as the caretaker of the Ralco the ends to be achieved, but also the manner they performed their duties. Pedro and Maricel did
Beach, a beach resort then operated by the parents of Emmarck. As caretaker and the only not state who supervised them, whether they filled up time records, or showed any regulations
employee, Pedro cleaned, watched, and secured the beach area, cottages, rest house, store, and and the corresponding sanctions imposed by Emmarck. While they submitted accounting records
of the proceeds of the income generated by the rentals on the resort facilities and the sales of the The Fiscal Examiner of the Regional Arbitration Branch is hereby
store, the documents do not show that these were wages and not commissions or share of income. directed to make a computation of the total award which is deemed part of
Finally, the LA stressed that Emmarck need not prove that Pedro and Maricel were not his this Resolution.
employees because it was a negative allegation. Aggrieved, Pedro and Maricel appealed to the
National Labor Relations Commission (NLRC). SO ORDERED. (Emphases in the original.)

NLRC Decision Emmarck then moved for reconsideration, but was denied. Unsatisfied, Emmarck filed
a petition for certiorari with the CA.
In its Resolution dated August 27, 2009, the NLRC granted the appeal, and ruled that
Emmarck employed Pedro and Maricel "as overseers and caretakers of [his] business involving a CA Decision
bangus fishpond and beach resort." Applying the four-fold test, the NLRC held that Emmarck In its Decision dated May 23, 2011, the CA reversed and set aside the NLRC's
engaged the services of Pedro and Maricel. His control over them is manifest because Pedro and Resolutions. The CA disagreed with the NLRC that Pedro and Maricel were employees of
Maricel did not undertake other independent productive activities, but solely tended to the duties Emmarck in the beach resort. Relying on the control test, the CA ruled that they were not
for Emmarck's business. Records show that Pedro and Maricel were duly compensated for their employees because Emmarck did not have the power to control them. On the contrary, Emmarck
services in the form of salaries, allowances, and commissions since compensation in the form of a "allowed [Pedro and Maricel] all the leeway in regard to the means and manner of running the
commission based on gross sales is considered as wage. business of the beach resort." The CA summarized its reasons for concluding that control was
The NLRC was skeptical as to the presence of a business partnership, there being no absent and ruled as follows:
parity of standing between the parties. Pedro and Maricel merely acted as employees. There was After a careful review of the evidence on record, We find that the
no record of profit sharing nor any consultation made pertaining to the affairs of the partnerships, power to control over the supposed employees' conduct is absent. Here are at
particularly, with respect to the cessation of the businesses. least four reasons:
As employees, Pedro's and Maricel's dismissal were illegal for Emmarck's failure to First, We noted that [Pedro and Maricel] were free to conduct and
comply with the procedural requirements under Article 298 of the Labor Code. Accordingly, promote the operations in the resort. Second, no guidelines were imposed by
Pedro and Maricel were awarded separation pay, nominal damages, wage differentials, 13th [Emmarck] on how to run the business operations or improve the income of
month pay and attorney's fees. Thus: the resort. Third, [Pedro and Maricel] were at complete liberty not only in the
WHEREFORE, the assailed Decision dated 26 January 2009 is conduct of their work, but also free to engage in other means of livelihood,
hereby VACATED and SET ASIDE and a new one entered: there being nothing on record that would show any limitation on the nature
and scope of work, and fourth, Maricel was allowed to sell anything in the
1. Declaring the complainants as employees of respondents; store for her exclusive gain.
2. Declaring their dismissal as illegal for lack of due process; The total factual picture clearly shows that [Emmarck] did not have
the power to control [Pedro and Maricel] with respect to the means and
3. Directing respondents to jointly and solidarily pay each of the methods by which [their] work were to be accomplished. There is no
complainants the following: employer-employee relationship when the element of control is absent.
a. MARICEL DUSOL xxx xxx xxx
Separation Pay
Nominal Damages — [P]30,000.00 FOR THESE REASONS, the petition is GRANTED. The assailed
Wage Differentials Resolutions of the NLRC are REVERSED and the Decision of the Labor
13th Month Pay Arbiter dated January 26, 2009 is REINSTATED.
b. PEDRO DUSOL SO ORDERED.
Separation Pay
Nominal Damages — [P]30,000.00 Thereafter, Pedro and Maricel's motion for reconsideration was denied by the CA it in
Wage Differentials its Resolution dated January 27, 2012. Hence, this petition.
13th Month Pay Pedro and Maricel argue that, as opposed to the absurd claim of Emmarck that they
4. Directing respondents to jointly and solidarily pay the complainants were his business partners, they were able to prove that they were his employees in Ralco Beach.
attorney['s] fees equivalent to 10% of the total award. Emmarck and his parents were the ones who engaged and hired them and paid their salaries.
Later on, it was Emmarck terminated their employment. Emmarck's control over their work and
All other claims are denied for lack of merit. their conduct is also shown by their regular submission of reports and the other circumstances of
their employment.
 They further argue that the CA erred in concluding that the element of control was Undoubtedly, the best evidence to prove the existence of a partnership is the contract or
lacking. Their daily rendition of work and regular submission of accounting of the rentals and articles of partnership. Nevertheless, in its absence, its existence can be established by
sales of the store is indicative of control. Explicit or written directives and guidelines were not circumstantial evidence. Under Article 1769 of the Civil Code, "the receipt by a person of a
necessary since Ralco Beach was not big and its operation is not complicated. Due to their work share of the profits of a business is a prima facie evidence that he is a partner in the business,
load, they can no longer engage in other means of livelihood. There is no proof that Maricel was [but] no such inference shall be drawn if such profits were received in payment as wages of an
allowed to sell personal items in the store. Indeed, all the items sold in the store were owned by employee [or rent to a landlord]." In addition, "the sharing of gross returns does not of itself
Emmarck. Emmarck's claim that Pedro was an industrial partner in the fishpond business was establish a partnership, whether or not the persons sharing them have a joint or common right or
unsubstantiated, and as to Ralco Beach, it is absurd that a person who is merely receiving an interest in any property from which the returns are derived."
allowance of P230.00 is a business partner.
On the other hand, an employee is any person in the service of another under a contract
In response, Emmarck maintains that there is sufficient proof to show that Pedro and for hire, express, or implied, oral or written. To determine whether an employment relationship
Maricel were his industrial partners, especially, since they shared in the profits of the exists, the following elements are considered: (1) the selection and engagement of the employee;
businesses. More importantly, Pedro admitted that he was a partner in the fishpond business. (2) the payment of wages; (3) the power of dismissal; and (4) the employer's power to control the
Lastly, Emmarck, echoing the justifications of the CA, insists that Pedro and Maricel were not his employee's conduct. The most important element is the employer's control of the employee's
employees as he had no control over them. conduct, not only as to the result of the work to be done, but also as to the means and methods to
accomplish it. However, the power of control refers merely to the existence of the power, and not
In their Reply, Pedro and Maricel aver that Emmarck's defense that they were his to the actual exercise thereof. No particular form of evidence is required to prove the existence of
industrial partners, was a mere afterthought as shown by the lack of evidence presented to an employer-employee relationship. Any competent and relevant evidence to prove the
support the claim. The truth remains, that they were not industrial partners in either Ralco Beach relationship may be admitted. However, a finding that such relationship exists must still rest on
or the fishpond business, but were employees of Emmarck in Ralco Beach. some substantial evidence.
Issues Here, it is undisputed that Pedro and Maricel rendered their services in Ralco Beach
1. Whether Pedro and Maricel are employees or partners of Emmarck. and received compensation sourced from rentals and sales of the resort. Moreover, Emmarck's
allegation that Pedro was his industrial partner in the fishpond business is inconsequential
2. In the event that Pedro and Maricel are employees, whether they were validly because Pedro's complaint and claims were for his services rendered in the beach resort. Even if it
dismissed. is true, being an industrial partner of the fishpond business is immaterial to Pedro's status as an
Ruling employee in Ralco Beach. Thus, the crux of controversy is the nature by which Pedro and
Maricel rendered their services and the capacity by which they received their compensation.
We find merit in Pedro and Maricel's petition.
Emmarck failed to prove the
Rule 45 of the Rules of Court circumscribes that only questions of law may be raised in existence of partnership
a petition for review on certiorari as the Court is not a trier of facts. The issue of the existence of
relationship, whether that of an employer-employee or a partnership, is ultimately a question of Based on record, there is no proof that a partnership existed between Pedro or Maricel,
fact. However, by way of exception, when there is a conflict among the factual findings of the and Emmarck in relation to the beach resort. No documentary evidence was submitted by
LA and the CA as opposed to that of the NLRC, it is proper, in the exercise of the Court's equity Emmarck to even suggest a partnership. Emmarck relied solely on his own statements that Pedro
jurisdiction, to review and re-evaluate the factual issues and to look into the records of the case and Maricel did not receive wages, but merely allowances and commission from the profits of
and re-examine the questioned findings. their partnership. However, it is beyond dispute that receipt by a person of share in the profits of
a business does not by itself establish the existence of a partnership, if the amounts are received
Proof of employment as as wages of an employee. Neither does the sharing of gross returns establish partnership, most
distinguished from proof of especially, in light of the absence of the any other evidence to establish the existence of the
partnership partnership.
On one hand, there is a partnership if two or more persons bind themselves to In Sy v. CA, Jaime Sahot served as a truck helper and later on as a truck driver for a
contribute money, property, or industry to a common fund, with the intention of dividing the trucking business owned and operated by a family corporation. When Jaime filed a complaint for
profits among themselves. A particular partnership may have for its object a particular illegal dismissal, the family corporation countered that Jaime was an industrial partner. The Court
undertaking. The existence of a partnership is established when it is shown that: (1) two or more rejected the defense because the existence of the partnership was not duly proven, to wit:
persons bind themselves to contribute money, property, or industry to a common fund; and (2)
they intend to divide the profits among themselves. Generally, it is not required that the Article 1767 of the Civil Code states that in a contract of partnership two or
agreement be in writing or in a public instrument. However, when immovable properties or real more persons bind themselves to contribute money, property or industry to a
rights are contributed to the partnership, it is required that an inventory of the real properties or common fund, with the intention of dividing the profits among themselves.
rights contributed be prepared and signed by the parties, and attached to the public instrument, Not one of these circumstances is present in this case. No written agreement
otherwise, the agreement is void. 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 First, Ralco Beach engaged the services of Pedro as caretaker and Maricel as a
receiving a share in the profits as a matter of course, during the period storekeeper. While Emmarck did not personally engage the services of Pedro, he nonetheless
when the trucking business was under operation. Neither is there any proof retained his services. Second, Emmarck paid their wages in the form of allowances and
that he had actively participated in the management, administration and commissions. The term 'wages' encompasses "the remuneration or earnings, however
adoption of policies of the business. Thus, the NLRC and the CA did not err designated, capable of being expressed in terms of money, whether fixed or ascertained on a
in reversing the finding of the Labor Arbiter that private respondent was an time, task, piece, or commission basis, or other method of calculating the same, which is payable
industrial partner from 1958 to 1994. (Emphasis supplied; citations omitted.) by an employer to an employee under a written or unwritten contract of employment for work
done or to be done, or for services rendered or to be rendered." Third, Emmarck terminated their
We reached the same conclusion in Corporal, Sr. v. National Labor Relations employment when he notified them that he will be leasing the beach Resort, and that their
Commission, and ignored the defense of the employer that a joint venture existed. Apart from a services were no longer needed.
self-serving affidavit executed by the president of the employer-corporation, no other
documentary evidence was presented. The Court also concluded that although barbers enjoy the Finally, and most importantly, Emmarck had the power to control their conduct in the
privilege of profit-sharing with the barber shop, it does not mean that they were not employees. performance of their duties. The existence of control is manifestly shown by Emmarck's express
Also, in Negre v. Workmen's Compensation Commission, Jose Negre (Jose) owned fishing boats admission that he left the entire business operation of the Resort to Pedro and Maricel. While
and employed crew members. He paid them a fixed amount plus a percentage in the catch. Pedro and Maricel are to a large extent allowed to carry out their respective duties as caretaker
Unfortunately, all the members of his crew manning one of his ships died due to a typhoon. To and store keeper on their own, this does not negate the existence of control. It was Emmarck
avoid payment of death benefits, Jose asserted that the crew member concerned was his industrial himself, who gave Pedro and Maricel immense flexibility in the performance of their duties. This,
partner. The Court rejected Jose's stand since he failed to present evidence to prove the alone, clearly shows that Emmarck had control over the conduct of Pedro and Maricel in
partnership, and noted that payment on a commission basis does not support Jose's theory. performing their duties. The apparent high latitude of freedom is to be expected given that Pedro
Similarly, in Jo v. National Labor Relations Commission, Peter Mejila (Peter) worked as a and Maricel were the only employees, and this is coupled with the apparent lackadaisical attitude
barber and caretaker in Dina's Barber Shop. As a barber, Peter was entitled to 2/3 of the fee paid of Emmarck in the management of the resort. Thus, even if Emmarck claims that he did not
for every haircut while 1/3 went to the owners. Peter subsequently sued the owners of the control nor supervise their performance of duties — which may indicate lack of control —
barbershop for illegal dismissal. The owners raised the defense that Peter was a "partner in trade" Emmarck's admission reveals that control resided upon him.
whose compensation was based on a sharing arrangement per haircut or shaving job done. The
Court disregarded the defense since there was no clear showing that the parties had intended to Thus, contrary to the findings of the CA, the lack of guidelines or limitations, and close
pursue a relationship of industrial partnership despite the sharing of the fees paid by the supervision as to the conduct of operations of the resort cannot be construed as evidence of lack
customers. of control. More so that there is no proof that Pedro and Maricel were allowed to engage in other
means of livelihood, and that they indeed worked for or engaged in any other business. Similarly,
Moreover, in Santiago v. Spouses Garcia, the Court ruled that no partnership existed there is no proof that Maricel sold anything in the store for her exclusive gain.
because there was no "unmistakable intention to form a partnership." As in this case, there is no
clear indication that the parties agreed to contribute money, property or industry to engage in In any case, the record shows that Emmarck had positively exercised control when he
particular business. Aside from Emmarck's self-serving statements, no other piece of evidence imposed a total of twenty percent (20%) mark-up on the items sold in the store. In addition, it is
was presented to prove their intent to form a partnership. Neither did Emmarck bother to specify undisputed that Pedro and Maricel labored for long hours every day and even on holidays to meet
his supposed contributions to the partnership. In addition, there is no proof that there was an the demands of the business. With these set up, and considering that Ralco Beach had no other
intention to divide the profits as partners. The absence of this intention is exemplified by the lack staff or employees, it cannot be certainly said that they worked at their own pleasure, and that
of sharing of profits. In Santos v. Spouses Reyes, the Court ruled that net profits, upon which the they were not subject to definite hours or conditions of work.
industrial partner can share, is determined by adding all the gross income from all the To recall, Emmarck admits that Pedro and Maricel have rendered services in the beach
transactions of the partnership less the expenses or losses sustained in the business. Here, the resort — but he miserably failed to substantiate his claim that they were his partners. Thus, their
allowances and commission which were taken from the gross sales of Ralco Beach, cannot be relationship can only be characterized as employment.
deemed as their share in the profits. There is no showing that Pedro and Maricel shared in the net
profits, as defined by law. The absence of any actual sharing of the profits reinforces the finding Failure to observe procedural
that there was no intention to do it. Clearly, Emmarck palpably failed to substantiate that Pedro due process in closure of
and Maricel were his industrial partners. business as an authorized cause

Pedro and Maricel were Article 298 of the Labor Code considers closure of business as an authorized cause for
employees of Emmarck, as owner the dismissal of employees, whether or not the closure is due to serious business losses. However,
of Ralco Beach if the closure is not due to serious business losses, the employer is required to pay its employees
separation pay equivalent to one (1) month pay or at least one-half (1/2) month pay for every year
Considering that no partnership exists, we proceed to determine whether Pedro and of service, whichever is higher. In this case, the closure of the business is not disputed by Pedro
Maricel were employees. The records show that all the elements of an employer-employee and Maricel. While closure of the business is an authorized cause, there no proof that it was due
relationship are present. to serious business losses. In effect, Pedro and Maricel are entitled to separation pay.
 In addition, since Emmarck clearly failed to comply with the required notices, Pedro This is a petition for certiorari to annul the letter-resolution dated 1 February 2000 of the
and Maricel are each entitled to nominal damages in the amount of P30,000. Lastly, we sustain Secretary of Justice in Resolution No. 155. The Secretary of Justice affirmed the resolution in I.S.
the NLRC's award of salary differentials and 13th month pay as Emmarck failed to prove their No. 96-939 dated 28 February 1997 rendered by the Provincial Prosecution Office of the Department
payment. The total monetary awards shall also be subject to ten percent (10%) attorney's of Justice in Santa Cruz, Laguna ("Provincial Prosecution Office"). The Provincial Prosecution Office
fees. These awards shall earn interest at the rate of six percent (6%) computed from the date of resolved to dismiss the complaint for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles
finality of this Decision until it is fully paid. spouses") against respondent Felino Mercado ("Mercado").
FOR THESE REASONS, the Decision dated May 23, 2011 and Resolution dated Antecedent Facts
January 27, 2012 of the Court of Appeals in CA-G.R. SP No. 03356-MIN
are REVERSED and SET ASIDE. The Resolutions dated August 27, 2009 and October 30, On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under
2009 of the National Labor Relations Commission in NLRC Case No. MAC-03-010774-2009 Article 315 of the Revised Penal Code against Mercado before the Provincial Prosecution Office.
are REINSTATED. Mercado is the brother-in-law of the Angeles spouses, being married to Emerita Angeles' sister Laura.

SO ORDERED. In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced
them to enter into a contract of antichresis, colloquially known as sanglaang-perde, covering eight
||| (Dusol v. Lazo, G.R. No. 200555, [January 20, 2021]) parcels of land ("subject land") planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna
and owned by Juana Suazo. The contract of antichresis was to last for five years with P210,000 as
consideration. As the Angeles spouses stay in Manila during weekdays and go to Laguna only on
weekends, the parties agreed that Mercado would administer the lands and complete the necessary
paperwork.
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado
explained that the subject land earned P46,210 in 1993, which he used to buy more lanzones trees.
Mercado also reported that the trees bore no fruit in 1994. Mercado gave no accounting for 1995. The
Angeles spouses claim that only after this demand for an accounting did they discover that Mercado
had put the contract of sanglaang-perde over the subject land under Mercado and his spouse's names.
The relevant portions of the contract of sanglaang-perde, signed by Juana Suazo alone, read:
xxx xxx xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG
LIBONG PISO (P210,000), salaping gastahin, na aking tinanggap sa mag[-
]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong gulang,
[G.R. No. 142612. July 29, 2005.] Filipino, tumitira at may pahatirang sulat sa Bgy. Maravilla, bayan ng
Nagcarlan, lalawigan ng Laguna, ay aking ipinagbili, iniliwat at isinalin sa
naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG. FELINO
OSCAR ANGELES and EMERITA ANGELES petitioners, vs. THE HON. MERCADO[,] sa kanila ay magmamana, kahalili at ibang dapat pagliwatan ng
SECRETARY OF JUSTICE and FELINO MERCADO, respondents. kanilang karapatan, ang lahat na ibubunga ng lahat na puno ng lanzones, hindi
kasama ang ibang halaman na napapalooban nito, ng nabanggit na WALONG
(8) Lagay na Lupang Cocal-Lanzonal, sa takdang LIMA (5) NA [sic] TAON,
Leonardo G. Ragasa, Jr. for petitioners. magpapasimula sa taong 1993, at magtatapos sa taong 1997, kaya't pagkatapos
ng lansonesan sa taong 1997, ang pamomosision at pakikinabang sa lahat na
Cayetano T. Santos & Associates for private respondent. puno ng lanzones sa nabanggit na WALONG (8) Lagay na Lupang Cocal-
Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa mang
halaga, sa mag[-] asawa nila G. AT GNG. FELINO MERCADO. aIAHcE
DECISION
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO
ay nagkasundo na ako ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones
taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.
CARPIO, J p:
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO
ay nagkasundo na silang mag[-]asawa nila G. AT GNG. FELINO MERCADO
The Case
 ang magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA The Secretary of Justice found otherwise. Thus:
(5) [sic] taonng [sic] aming kasunduang ito.
Reviewing the records of the case, we are of the opinion that the
In his counter-affidavit, Mercado denied the Angeles spouses' allegations. Mercado claimed indictment of [Mercado] for the crime of estafa cannot be sustained. [The
that there exists an industrial partnership, colloquially known as sosyo industrial, between him and his Angeles spouses] failed to show sufficient proof that [Mercado] deliberately
spouse as industrial partners and the Angeles spouses as the financiers. This industrial partnership had deceived them in the "sanglaang perde" transaction. The document alone, which
existed since 1991, before the contract of antichresis over the subject land. As the years passed, was in the name of [Mercado and his spouse], failed to convince us that there
Mercado used his and his spouse's earnings as part of the capital in the business transactions which he was deceit or false representation on the part of [Mercado] that induced the
entered into in behalf of the Angeles spouses. It was their practice to enter into business transactions [Angeles spouses] to part with their money. [Mercado] satisfactorily explained
with other people under the name of Mercado because the Angeles spouses did not want to be that the [Angeles spouses] do not want to be revealed as the financiers. Indeed,
identified as the financiers. it is difficult to believe that the [Angeles spouses] would readily part with their
money without holding on to some document to evidence the receipt of money,
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and or at least to inspect the document involved in the said transaction. Under the
contracts under his name for the Angeles spouses. Mercado also attached the minutes of the barangay circumstances, we are inclined to believe that [the Angeles spouses] knew from
conciliation proceedings held on 7 September 1996. During the barangay conciliation proceedings, the very start that the questioned document was not really in their names.
Oscar Angeles stated that there was a written sosyo industrial agreement: capital would come from the
Angeles spouses while the profit would be divided evenly between Mercado and the Angeles spouses. In addition, we are convinced that a partnership truly existed between
the [Angeles spouses] and [Mercado]. The formation of a partnership was clear
The Ruling of the Provincial Prosecution Office from the fact that they contributed money to a common fund and divided the
On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the profits among themselves. Records would show that [Mercado] was able to
filing of criminal information for estafa against Mercado. This resolution, however, was issued make deposits for the account of the [Angeles spouses]. These deposits
without Mercado's counter-affidavit. represented their share in the profits of their business venture. Although the
[Angeles spouses] deny the existence of a partnership, they, however, never
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 disputed that the deposits made by [Mercado] were indeed for their account.
January 1997 resolution, Mercado moved for its reconsideration. Hence, on 26 February 1997, the
Provincial Prosecution Office issued an amended resolution dismissing the Angeles spouses' The transcript of notes on the dialogue between the [Angeles spouses]
complaint for estafa against Mercado. and [Mercado] during the hearing of their barangay conciliation case reveals
that the [Angeles spouses] acknowledged their joint business ventures with
The Provincial Prosecution Office stated thus: [Mercado] although they assailed the manner by which [Mercado] conducted
the business and handled and distributed the funds. The veracity of this
The subject of the complaint hinges on a partnership gone sour. The transcript was not raised in issued [sic] by [the Angeles spouses]. Although the
partnership was initially unsaddled [with] problems. Management became the legal formalities for the formation of a partnership were not adhered to, the
source of misunderstanding including the accounting of profits, which led to partnership relationship of the [Angeles spouses] and [Mercado] is evident in
further misunderstanding until it was revealed that the contract with the orchard this case. Consequently, there is no estafa where money is delivered by a
owner was only with the name of the respondent, without the names of the partner to his co-partner on the latter's representation that the amount shall be
complainants. applied to the business of their partnership. In case of misapplication or
The accusation of "estafa" here lacks enough credible evidentiary conversion of the money received, the co-partner's liability is civil in nature
support to sustain a prima facie finding. (People v. Clarin, 7 Phil. 50

Premises considered, it is respectfully recommended that the WHEREFORE, the appeal is hereby DISMISSED.
complaint for estafa be dismissed. Hence, this petition.
RESPECTFULLY SUBMITTED. Issues
The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution The Angeles spouses ask us to consider the following issues:
Office denied in a resolution dated 4 August 1997.
[Link] the Secretary of Justice committed grave abuse of discretion
The Ruling of the Secretary of Justice amounting to lack of jurisdiction in dismissing the appeal of the
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document Angeles spouses;
evidencing the contract of sanglaang-perde with Juana Suazo was executed in the name of the [Link] a partnership existed between the Angeles spouses and Mercado
Mercado spouses, instead of the Angeles spouses. The Angeles spouses allege that this document even without any documentary proof to sustain its existence;
alone proves Mercado's misappropriation of their P210,000. aHTDAc
 [Link] that there was a partnership, whether there was misappropriation by The Angeles spouses' position that there is no partnership because of the lack of a public
Mercado of the proceeds of the lanzones after the Angeles spouses instrument indicating the same and a lack of registration with the Securities and Exchange
demanded an accounting from him of the income at the office of the Commission ("SEC") holds no water. First, the Angeles spouses contributed money to the partnership
barangay authorities on 7 September 1996, and Mercado failed to do and not immovable property. Second, mere failure to register the contract of partnership with the SEC
so and also failed to deliver the proceeds to the Angeles spouses; does not invalidate a contract that has the essential requisites of a partnership. The purpose of
registration of the contract of partnership is to give notice to third parties. Failure to register the
contract of partnership does not affect the liability of the partnership and of the partners to third
persons. Neither does such failure to register affect the partnership's juridical personality. A
[Link] the Secretary of Justice should order the filing of the information for
partnership may exist even if the partners do not use the words "partner" or "partnership." cSIADH
estafa against Mercado.
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a
The Ruling of the Court
contract showing a sosyo industrial or industrial partnership, contribution of money and industry to a
The petition has no merit. common fund, and division of profits between the Angeles spouses and Mercado.
Whether the Secretary of Justice Committed Whether there was
Grave Abuse of Discretion Misappropriation by Mercado
An act of a court or tribunal may constitute grave abuse of discretion when the same is The Secretary of Justice adequately explained the alleged misappropriation by Mercado:
performed in a capricious or whimsical exercise of judgment amounting to lack of jurisdiction. The "The document alone, which was in the name of [Mercado and his spouse], failed to convince us that
abuse of discretion must be so patent and gross as to amount to an evasion of positive duty, or to a there was deceit or false representation on the part of [Mercado] that induced the [Angeles spouses] to
virtual refusal to perform a duty enjoined by law, as where the power is exercised in an arbitrary and part with their money. [Mercado] satisfactorily explained that the [Angeles spouses] do not want to be
despotic manner because of passion or personal hostility. revealed as the financiers."
The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil
of discretion when he dismissed their appeal. Moreover, the Angeles spouses committed an error in case for damages, injunction and restraining order filed by the Angeles spouses against Mercado and
procedure when they failed to file a motion for reconsideration of the Secretary of Justice's resolution. Leo Cerayban, stated:
A previous motion for reconsideration before the filing of a petition for certiorari is necessary unless:
(1) the issue raised is one purely of law; (2) public interest is involved; (3) there is urgency; (4) a . . . [I]t was the practice to have all the contracts of antichresis of their
question of jurisdiction is squarely raised before and decided by the lower court; and (5) the order is a partnership secured in [Mercado's] name as [the Angeles spouses] are
patent nullity. The Angeles spouses failed to show that their case falls under any of the exceptions. In apprehensive that, if they come out into the open as financiers of said contracts,
fact, this present petition for certiorari is dismissible for this reason alone. they might be kidnapped by the New People's Army or their business deals be
questioned by the Bureau of Internal Revenue or worse, their assets and
Whether a Partnership Existed unexplained income be sequestered, as . . . Oscar Angeles was then working
Between Mercado and the Angeles Spouses with the government.
The Angeles spouses allege that they had no partnership with Mercado. The Angeles Furthermore, accounting of the proceeds is not a proper subject for the present case. aSIATD
spouses rely on Articles 1771 to 1773 of the Civil Code, which state that:
For these reasons, we hold that the Secretary of Justice did not abuse his discretion in
Art. 1771.A partnership may be constituted in any form, except where dismissing the appeal of the Angeles spouses.
immovable property or real rights are contributed thereto, in which case a public
instrument shall be necessary. WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition
for certiorari is DISMISSED.
Art. [Link] contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a public SO ORDERED.
instrument, which must be recorded in the Office of the Securities and
||| (Angeles v. Secretary of Justice, G.R. No. 142612, [July 29, 2005], 503 PHIL 93-103)
Exchange Commission.
Failure to comply with the requirements of the preceding paragraph
shall not affect the liability of the partnership and the members thereof to third
persons.
Art. 1773.A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not made,
signed by the parties, and attached to the public instrument.
 — Where the facts shown entitled plaintiff to relief other than that asked for, no amendment to
the complaint is necessary, especially where defendant has himself raised the point on which
recovery is based, and the appellate court may treat the pleading as amended to confirm to the
evidence, although the pleadings were not actually amended. (Citing Maran, Rules of Court, 1952
ed., 389-390.)
4. LAND REGISTRATION; REOPENING OF DECREE AFTER ONE YEAR, NOT
ALLOWED. — A decree of registration can no longer be impugned on the ground of fraud, error
or lack of notice to defendant, after one year has elapsed from the issuance and entry of the
decree. Neither could the decree be collaterally attacked by any person claiming title to, or
interest in, the land prior to the registration proceedings, nor could title to that land in derogation
of that of plaintiff be acquired by adverse possession or prescription since adverse, notorious and
continuous possession under claim of ownership is ineffective against Torrens title ands the right
to secure possession under a decree of registration does not prescribe.
5. ACTIONS; IDENTITY OF CAUSE OF ACTION. — Where one action is for the
recovery of ownership and the other is for recovery of possession, there is no identity of cause of
action.
6. ID.; CLASS SUIT. — Where the action seeks relief for each individual plaintiff and
not relief for and on behalf of others, the action is not a class suit.
DECISION
REYES, J p:

This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possession of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and description
of the land sought to be recovered. The original complaint described the land as a portion of a lot
[G.R. No. L-4935. May 28, 1954.] registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of
Rizal Province and as containing an area of 13 hectares more or less. But the complaint was
J.M. TUASON & CO., INC., represented by its Managing PARTNER, GREGORIO amended by reducing the area to 6 hectares, more or less, after defendant had indicated the
ARANETA, INC., plaintiff-appellee, vs. QUIRINO BOLAÑOS, defendant-appellant. plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment
became necessary and was allowed following the testimony of plaintiff's surveyors that a portion
of the area was embraced in another certificate of title, which was plaintiff's Transfer Certificate
SYLLABUS of Title No. 37677. And still later, in the course of trial, after defendant's surveyor and witness,
Quirino Feria, had testified that the area occupied and claimed by defendant was about 13
hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court, amended its complaint
1. PARTIES; REAL PARTY IN INTEREST; ATTORNEY MAY BRING ACTION IN to make its allegations conform to the evidence.
THE PLAINTIFF'S NAME. — Section 2 of the Rules of Court requires that an action be
brought in the name of, but not necessarily by, the real property interest. In fact the practice is for Defendant, in his answer, sets up prescription and title in himself thru "open,
an attorney-at-law to bring the action, that is, to file the complaint, in the name of the plaintiff. continuous, exclusive and public and notorious possession (of the land in dispute) under claim of
ownership, adverse to the entire world by defendant and his predecessors in interest" from "time
2. ID.; CORPORATION AS PARTY MAY BE REPRESENTED BY ANOTHER immemorial". The answer further alleges that registration of the land in dispute was obtained by
PERSON. NATURAL OR JUDICIAL. — There is nothing against one corporation being plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or notice
represented by another person, natural or juridical, in a suit in court, for the true rule is that either personal or thru publication to defendant and/or predecessors in interest." The answer
"although a corporation has no power to enter into a partnership, it may nevertheless enter into a therefore prays that the complaint be dismissed with costs and plaintiff required to reconvey the
joint venture with another where the nature of that venture is in line with the business authorized land to defendant or pay its value.
by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A.L.R., 1043, citing 2 Fletcher
Cyc. E. 1082.) After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof to
3. COMPLAINTS; AMENDMENTS TO CONFIRM TO EVIDENCE NOT plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the
NECESSARY TO RENDER JUDGMENT ON FACTS PROVED THOUGH NOT ALLEGED. land, and also to pay the costs.
 Appealing directly to this court because of the value of the property involved, on the ground that it is not within the issues made by the pleadings, the court
defendant makes the following assignment of errors: may allow the pleadings to be amended and shall be so freely when the
presentation of the merits of the action will be subserved thereby and the
"I. The trial court erred in not dismissing the case on the ground that the case
objecting party fails to satisfy the court that the admission of such evidence
was not brought by the real party in interest.
would prejudice him in maintaining his action or defense upon the merits. The
"II. The trial court erred in admitting the third amended complaint. court may grant a continuance to enable the objecting party to meet such
evidence."
"III. The trial court erred in denying defendant's motion to strike.
Under this provision amendment is not even necessary for the purpose of rendering judgment on
"IV. The trial court erred in including in its decision land not involved in the
issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says
litigation.
in his Rules of Court:
"V. The trial court erred in holding that the land in dispute is covered by
"Under this section, American courts have, under the New Federal Rules of
transfer certificates of Title Nos. 37686 and 37677.
Civil Procedure, ruled that where the facts shown entitled plaintiff to relief other than
"VI. The trial court erred in not finding that the defendant is the true and that asked for, no amendment to the complaint is necessary, especially where defendant
lawful owner of the land. has himself raised the point on which recovery is based, and that the appellate court
"VII. The trial court erred in finding that the defendant is liable to pay the treat the pleadings as amended to conform to the evidence, although the pleadings were
plaintiff the amount of P132.62 monthly from January, 1940, until he vacates the not actually amended." (I Moran, Rules of Court, 1952 ed., 389-390.)
premises. Our conclusion therefore is that specification of error II, III, and IV are without merit.
"VIII. The trial court erred in not ordering the plaintiff to reconvey the land in Let us now pass on the errors V and VI. Admitting, through his attorney, at the early
litigation to the defendant." stage of the trial, that the land in dispute "is that described or represented in Exhibit A and in
As to the first assigned error, there is nothing to the contention that the present action is Exhibit B enclosed in red pencil with the name Quirino Bolaños," defendant later changed his
not brought by the real party in interest, that is, by J. M. Tuason & Co., Inc. What the Rules of lawyer and also his theory and tried to prove that the land in dispute was not covered by
Court require is that an action be brought in the name of, but not necessarily by, the real party in plaintiff's certificate of title. The evidence, however, is against defendant, for it clearly establishes
interest. (Section 2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that that plaintiff is the registered owner of lot No. 4-B-3-C, situate in barrio Tatalon, Quezon City,
is to file the complaint, in the name of the plaintiff. That practice appears to have been followed with an area of 5,297,429.3 square meters, more or less, covered by transfer certificate of title No.
in this case, since the complaint is signed by the law firm of Araneta & Araneta, "counsel for 37686 of the land records of Rizal province, and of lot No. 4-B-4, situated in the same barrio,
plaintiff" and commences with the statement "Comes now plaintiff, through its undersigned having an area of 74,789 square meters, more or less, covered by transfer certificate of title No.
counsel." It is true that the complaint also states that the plaintiff is "represented herein by its 37677 of the land records of the same province, both lots having been originally registered on
Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one July 8, 1914 under original certificate of title No. 735. The identity of the lots was established by
corporation being represented by another person, natural or juridical, in a suit in court. The the testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the identity
contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory of the portion thereof claimed by defendant was established by the testimony of his own witness,
that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is Quirico Feria. The combined testimony of these three witnesses clearly shows that the portion
that "though a corporation has no power to enter into a partnership, it may nevertheless enter into claimed by defendant is made up of a part of lot 4 B- 3-C and major on portion of lot 4-B-4, and
a joint venture with another where the nature of that venture is in line with the business is well within the area covered by the two transfer certificates of title already mentioned. This
authorized by its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 fact also appears admitted in defendant's answer to the third amended complaint.
Fletcher Cyc. of Corp., 1082.) There is nothing in the record to indicate that the venture in which As the land in dispute is covered by plaintiff's Torrens certificate of title and was
plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the registered in 1914, the decree of registration can no longer be impugned on the ground of fraud,
corporate business of either of them. error or lack of notice to defendant, as more than one year has already elapsed from the issuance
Errors II, III, and IV, referring to the admission of the third amended complaint, may be and entry of the decree. Neither could the decree be collaterally attacked by any person claiming
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions such title to, or interest in, the land prior to the registration proceedings.
amendment. It reads: (Soroñgon vs. Makalintal, 1 45 Off. Gaz., 3819.) Nor could title to that land in derogation of that
of plaintiff, the registered owner, be acquired by prescription or adverse possession. (Section
SEC. 4. Amendment to conform to evidence. — When issues not 46, Act No. 496.) Adverse, notorious and continuous possession under claim of ownership for the
raised by the pleadings are tried by express or implied consent of the parties, period fixed by law is ineffective against a Torrens title. (Valiente vs. Judge of CFI of
they shall be treated in all respects, as if they had been raised in the pleadings. Tarlac, 2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to secure
Such amendment of the pleadings as may be necessary to cause them to possession under a decree of registration does not prescribe. (Francisco vs. Cruz, 43 Off. Gaz.,
conform to the evidence and to raise these issues may be made upon motion of 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of Jose
any party at my time, even after judgment; but failure so to amend does not Alcantara et al., vs. Marinao et al., 92 Phil., 796. This disposes of the alleged errors V and VI.
affect the result of the trial of these issues. If evidence is objected to at the trial
 As to error VII, it is claimed that 'there was no evidence to sustain the finding that CRUZ, petitioners, vs. THE COURT OF APPEALS,
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P.
vacates the premises." But it appears from the record that the reasonable compensation for the use WHITTINGHAM, CHARLES CHAMSAY and LUCIANO
and occupation of the premises, as stipulated at the hearing was P10 a month for each hectare and SALAZAR, respondents.
that the area occupied by defendant was 13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It also appears from the testimony of J. A.
Araneta and witness Emigdio Tanjuatco that as early as 1939 an action of ejectment had already [G.R. Nos. 75975-76. December 15, 1989.]
been filed against defendant. And it cannot be supposed that defendant has been paying rents, for
he has been asserting all along that the premises in question "have always been since time
immemorial in open, continuous, exclusive and public and notorious possession and under claim LUCIANO E.
of ownership adverse to the entire world by defendant and his predecessors in interest." This SALAZAR, petitioner, vs. SANITARY WARES MANUFACTURING
assignment of error is thus clearly without merit. CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR.,ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL
Error No. VIII is but a consequence of the other errors alleged and needs for further
A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT
consideration.
OF APPEALS, respondents.
During the pendency of this case in this Court appellant, thru other counsel, has filed a
motion to dismiss alleging that there is pending before the Court of First Instance of Rizal
another action between the same parties and for the same cause and seeking to sustain that
allegation with a copy of the complaint filed in said action. But an examination of that complaint DECISION
reveals that appellant's allegation is not correct, for the pretended identity of parties and cause of
action in the two suits does not appear. That other case is one for recovery of ownership, while
the present one is for recovery of possession. And while appellant claims that he is also involved
in that other action because it is a class suit, the complaint does not show that such is really the GUTIERREZ, JR.,J p:
case. On the contrary, it appears that the action seeks relief for each individual plaintiff and not
relief for and on behalf of others. The motion for dismissal is clearly without merit. These consolidated petitions seek the review of the amended decision of the Court of
Wherefore, the judgment appealed from is affirmed, with costs against the appellant. 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
||| (J.M. Tuason & Co., Inc. v. Bolaños, G.R. No. L-4935, [May 28, 1954], 95 PHIL 106-113) 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
[G.R. No. 75875. December 15, 1989.] 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.
WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM
and CHARLES The antecedent facts can be summarized as follows:
CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose
CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young
LAGDAMEO, JR.,ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL went abroad to look for foreign partners, European or American who could help in its expansion
A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents. 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
Belo, Abiera & Associates for petitioners in 75875. 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
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar. be carried on by an incorporated enterprise and that the name of the corporation shall initially be
"Sanitary Wares Manufacturing Corporation." LibLex
[G.R. No. 75951. December 15, 1989.]
The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO
R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE F. LEE, RAUL "3. Articles of Incorporation
A. BONCAN, BALDWIN YOUNG and AVELINO V.
 (a) The Articles of Incorporation of the Corporation shall be 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted
substantially in the form annexed hereto as Exhibit A and, insofar as for the three ASI nominees and Charles Chamsay, and instructed the Secretary
permitted under Philippine law, shall specifically provide for. 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-
(1) Cumulative voting for directors: G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E.
xxx xxx xxx Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary
to cast all votes equally in favor of the three ASI nominees, namely,
"5. Management Wolfgang Aurbach, John Griffin and David Whittingham, and the six originally
(a) The management of the Corporation shall be vested in a nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr.,Raul Boncan,
Board of Directors, which shall consist of nine individuals. As long as Ernesto Lagdameo, Jr.,Enrique Lagdameo, George F. Lee, and Baldwin Young.
American-Standard shall own at least 30% of the outstanding stock of The Secretary then certified for the election of the following —
the Corporation, three of the nine directors shall be designated by Wolfgang Aurbach, John Griffin, David Whittingham, Ernesto Lagdameo,
American-Standard, and the others six: shall be designated by the Sr.,Ernesto Lagdameo, Jr.,Enrique Lagdameo, George F. Lee, Raul A. Boncan,
other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875). 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-
At the request of ASI, the agreement contained provisions designed to protect it as a G.R. SP No. 05617).This motion to adjourn was accepted by the Chairman,
minority group, including the grant of veto powers over a number of corporate acts and the right Baldwin Young, who announced that the motion was carried and declared the
to designate certain officers, such as a member of the Executive Committee whose vote was meeting adjourned. Protests against the adjournment were registered and having
required for important corporate transactions. 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
Later, the 30% capital stock of ASI was increased to 40%.The corporation was also next room. The Chairman then threatened to have the stockholders who did not
registered with the Board of Investments for availment of incentives with the condition that at agree to the decision of the Chairman on the casting of votes bodily thrown out.
least 60% of the capital stock of the corporation shall be owned by Philippine nationals. The ASI Group, Luciano E. Salazar and other stockholders, allegedly
The joint enterprise thus entered into by the Filipino investors and the American representing 53 or 54% of the shares of Saniwares, decided to continue the
corporation prospered. Unfortunately, with the business successes, there came a deterioration of meeting at the elevator lobby of the American Standard Building. The
the initially harmonious relations between the two groups. According to the Filipino group, a continued meeting was presided by Luciano E. Salazar, while Andres
basic disagreement was due to their desire to expand the export operations of the company to Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier
which ASI objected as it apparently had other subsidiaries of joint venture groups in the countries in the meeting, the ASI Group nominated its four nominees;
where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay.
meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Luciano E. Salazar voted for himself, thus the said five directors were certified
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders as elected directors by the Acting Secretary, Andres Gatmaitan, with the
then proceeded to the election of the members of the board of directors. The ASI group explanation that there was a tie among the other six (6) nominees for the four
nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. (4) remaining positions of directors and that the body decided not to break the
The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr.,Raul A. Boncan, Ernesto tie." (pp. 37-39, Rollo of 75975-76)
R. Lagdameo, Jr.,George F. Lee, and Baldwin Young. Mr. Eduardo R. Ceniza then nominated These incidents triggered off the filing of separate petitions by the parties with the
Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Securities and Exchange Commission (SEC).The first petition filed was for preliminary
Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, injunction by Saniwares, Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R.
the consistent practice of the parties during the past annual stockholders' meetings to nominate Lagdameo, Jr.,Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles
only nine persons as nominees for the nine-member board of directors, and the legal advice of Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo
Saniwares' legal counsel. The following events then, transpired: warranto and application for receivership by Wolfgang Aurbach, John Griffin, David
....There were protests against the action of the Chairman and heated Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and
arguments ensued. An appeal was made by the ASI representative to the body Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as
of stockholders present that a vote be taken on the ruling of the Chairman. The SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate
Chairman, Baldwin Young, declared the appeal out of order and no vote on the directors of the corporation. LLphil
ruling was taken. The Chairman then instructed the Corporate Secretary to cast The two petitions were consolidated and tried jointly by a hearing officer who rendered
all the votes present and represented by proxy equally for the 6 nominees of the a decision upholding the election of the Lagdameo Group and dismissing the quo warranto
Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the
additional persons nominated, namely, Luciano E. Salazar and Charles SEC en banc which affirmed the hearing officer's decision.
Chamsay. The ASI representative, Mr. Jaqua, protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of
 The SEC decision led to the filing of two separate appeals with the Intermediate II
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay
"THE AMENDED DECISION DOES NOT CATEGORICALLY
(docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No.
RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY
05617).The petitions were consolidated and the appellate court in its decision ordered the remand
ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
of the case to the Securities and Exchange Commission with the directive that a new
STOCKHOLDERS MEETING OF SANIWARES." (P. 24, Rollo —
stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the
75951).
supervision of the Commission.
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
Upon a motion for reconsideration filed by the appellees (Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision. 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
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
following factors should be determined: (1) the nature of the business established by the parties
Chamsay in G.R. No. 75875 assign the following errors:
— whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE their additional 10% equity during elections of Saniwares' board of directors. LLjur
ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF
The rule is that whether the parties to a particular contract have thereby established
THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE
among themselves a joint venture or some other relation depends upon their actual intention
WAS NO ELECTION AT ALL.
which is determined in accordance with the rules governing the interpretation and construction of
II. THE COURT OF APPEALS PROHIBITS THE contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
DEPRIVING PETITIONERS AND THE CORPORATION THEY intention of the parties should be viewed strictly on the "Agreement" dated August 15, 1962
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS wherein it is clearly stated that the parties' intention was to form a corporation and not a joint
OF LAW. venture.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND They specifically mention number 16 under Miscellaneous Provisions which states:
READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES
WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY xxx xxx xxx
DO. (p. 17, Rollo — 75875). "(c) nothing herein contained shall be construed to constitute any of
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the parties hereto partners or joint venturers in respect of any transaction
the following grounds: hereunder." (At p. 66, Rollo — G.R. No. 75875)

"11.1 That Amended Decision would sanction the CA's disregard of They object to the admission of other evidence which tends to show that the parties'
binding contractual agreements entered into by stockholders and the agreement was to establish a joint venture presented by the Lagdameo and Young Group on the
replacement of the conditions of such agreements with terms never ground that it contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules
contemplated by the stockholders but merely dictated by the CA. 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.
"11.2 The Amended decision would likewise sanction the unlawful
deprivation of the property rights of stockholders without due process of law in The parol evidence Rule under Rule 130 provides:
order that a favored group of stockholders may be illegally benefited and "Evidence of written agreements — When the terms of an agreement
guaranteed a continuing monopoly of the control of a corporation." (pp. 14-15, have been reduced to writing, it is to be considered as containing all such terms,
Rollo — 75975-76). 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,
On the other hand, the petitioners in G.R. No. 75951 contend that:
except in the following cases:
I
(a) Where a mistake or imperfection of the writing, or its failure to
"THE AMENDED DECISION OF THE RESPONDENT COURT, express the true intent and agreement of the parties or the validity of the
WHILE RECOGNIZING THAT THE STOCKHOLDERS OF agreement is put in issue by the pleadings.
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT (b) When there is an intrinsic ambiguity in the writing.
AND THE LAW.
 Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply [Sec. 5 (6)].The Agreement further provides that the sales policy of Saniwares
and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true shall be that which is normally followed by ASI [Sec. 13 (a)] and that
intent of the parties, to wit: Saniwares should not export "Standard" products otherwise than through ASI's
Export Marketing Services [Sec. 13 (6)].Under the Agreement, ASI agreed to
xxx xxx xxx provide technology and know-how to Saniwares and the latter paid royalties for
"4. While certain provisions of the Agreement would make it appear the same. (At p. 2).
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, xxx xxx xxx
the existence of two distinct groups of stockholders in Saniwares one of which "It is pertinent to note that the provisions of the Agreement requiring
(the Philippine Investors) shall constitute the majority, and the other (ASI) shall a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI
constitute the minority stockholder. In any event, the evident intention of the (which designates 3 directors under the Agreement) an effective veto power.
Philippine Investors and ASI in entering into the Agreement is to enter into a Furthermore, the grant to ASI of the right to designate certain officers of the
joint venture enterprise, and if some words in the Agreement appear to be corporation; the super-majority voting requirements for amendments of the
contrary to the evident intention of the parties, the latter shall prevail over the articles and by-laws; and most significantly to the issues of this case, the
former (Art. 1370, New Civil Code). The various stipulations of a contract shall provision that ASI shall designate 3 out of the 9 directors and the other
be interpreted together attributing to the doubtful ones that sense which may stockholders shall designate the other 6, clearly indicate that — 1) there are two
result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock
order to judge the intention of the contracting parties, their contemporaneous and the Philippine National stockholders who own the balance of 60%,and that
and subsequent acts shall be principally considered. (Art. 1371, New 2) ASI is given certain protections as the minority stockholder.
Civil Code). (Part I, Original Records, SEC Case No. 2417).
Premises considered, we believe that under the Agreement there are
It has been ruled: two groups of stockholders who established a corporation with provisions for a
"In an action at law, where there is evidence tending to prove that the special contractual relationship between the parties, i.e.,ASI and the other
parties joined their efforts in furtherance of an enterprise for their joint profit, stockholders." (pp. 4-5)
the question whether they intended by their agreement to create a joint Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
adventure, or to assume some other relation is a question of fact for the jury. "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a
(Binder v. Kessler v 200 App. Div. 40, 192 NYS 653; Pyroa v. Brownfield fixed number of directors in the board.
(Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p.
871). 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
In the instant cases, our examination of important provisions of the Agreement as well shall be construed to constitute any of the parties hereto partners or joint venturers in respect of
as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as
agreed to establish a joint venture and not a corporation. The history of the organization of partnership for tax purposes and liabilities to third parties.
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: 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
"According to the unrebutted testimony of Mr. Baldwin Young, he assistance of huge multinational corporations of the developed world. Arrangements are
negotiated the Agreement with ASI in behalf of the Philippine nationals. He formalized where a foreign group becomes a minority owner of a firm in exchange for its
testified that ASI agreed to accept the role of minority vis-a-vis the Philippine manufacturing expertise, use of its brand names, and other such assistance. However, there is
National group of investors, on the condition that the Agreement should contain always a danger from such arrangements. The foreign group may, from the start, intend to
provisions to protest ASI as the minority. 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.
"An examination of the Agreement shows that certain provisions were As the Philippine firm enlarges its operations and becomes profitable, the foreign group
included to protect the interests of ASI as the minority. For example, the vote of undermines the local majority ownership and actively tries to completely or predominantly take
7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) over the entire company. This undermining of joint ventures is not consistent with fair dealing to
(ii) (a) of the Agreement].ASI is contractually entitled to designate a member of say the least. To the extent that such subversive actions can be lawfully prevented, the courts
the Executive Committee and the vote of this member is required for certain should extend protection especially in industries where constitutional and legal requirements
transactions [Sec. 3 (b) (i)]. reserve controlling ownership to Filipino citizens. cdll
"The Agreement also requires a 75% super-majority vote for the The Lagdameo Group stated in their appellees' brief in the Court of Appeals:
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
 "In fact, the Philippine Corporation Code itself recognizes the right of "As correctly held by the SEC Hearing Officer:
stockholders to enter into agreements regarding the exercise of their voting
rights. "'It is said that participants in a joint venture, in organizing the joint
venture deviate from the traditional pattern of corporation management. A noted
"'Sec. 100. Agreements by stockholders. — authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one
xxx xxx xxx or more of the following: (1) require greater than majority vote for shareholder
"'2. An agreement between two or more stockholders, if in writing and director action; (2) give certain shareholders or groups of shareholders
and signed by the parties thereto, may provide that in exercising any voting power to select a specified number of directors; (3) give to the shareholders
rights, the shares held by them shall be voted as therein provided, or as they control over the selection and retention of employees; and (4) set up a procedure
may agree, or as determined in accordance with a procedure agreed upon by for the settlement of disputes by arbitration (See I O'Neal, Close Corporations,
them.' 1971 ed.,Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, p. 16)'

"Appellants contend that the above provision is included in "Thirdly, paragraph 2 of Sec. 100 of the Corporation Code does not
the Corporation Code's chapter on close corporations and Saniwares cannot be a necessarily imply that agreements regarding the exercise of voting rights are
close corporation because it has 95 stockholders. Firstly, although Saniwares allowed only in close corporations. As Campos and Lopez-Campos explain:
had 95 stockholders at the time of the disputed stockholders meeting, these 95 "'Paragraph 2 refers to pooling and voting agreements in particular.
stockholders are not separate from each other but are divisible into groups Does this provision necessarily imply that these agreements can be valid only in
representing a single identifiable interest. For example, ASI, its nominees and close corporations as defined by the Code? Suppose that a corporation has
lawyers count for 13 of the 95 stockholders. The Young/Yutivo family count for twenty five stockholders, and therefore cannot qualify as a close corporation
another 13 stockholders, the Cham family for 8 stockholders, the Santos family under section 96, can some of them enter into an agreement to vote as a unit in
for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one the election of directors? It is submitted that there is no reason for denying
family and/or business or interest group are considered as one (which, it is stockholders of corporations other than close ones the right to enter into voting
respectfully submitted, they should be for purposes of determining how closely or pooling agreements to protect their interests, as long as they do not intend to
held Saniwares is), there were as of 8 March 1983, practically only 17 commit any wrong, or fraud on the other stockholders not parties to the
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' agreement. Of course, voting or pooling agreements are perhaps more useful
Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof). and more often resorted to in close corporations. But they may also be found
"Secondly, even assuming that Saniwares is technically not a close necessary even in widely held corporations. Moreover, since the Code limits the
corporation because it has more than 20 stockholders, the undeniable fact is that legal meaning of close corporations to those which comply with the requisites
it is a close-held corporation. Surely, appellants cannot honestly claim that laid down by section 96, it is entirely possible that a corporation which is in fact
Saniwares is a public issue or a widely held corporation. a close corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like voting
"In the United States, many courts have taken a realistic approach to agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p.
joint venture corporations and have not rigidly applied principles of corporation 405)'
law designed primarily for public issue corporations. These courts have
indicated that express arrangements between corporate joint ventures should be "In short, even assuming that sec. 5(a) of the Agreement relating to
construed with less emphasis on the ordinary rules of law usually applied to the designation or nomination of directors restricts the right of the Agreement's
corporate entities and with more consideration given to the nature of the signatories to vote for directors, such contractual provision, as correctly held by
agreement between the joint venturers (Please see Wabash Ry v. American the SEC, is valid and binding upon the signatories thereto, which include
Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines appellants." (Rollo G.R. No. 75951, pp. 90-94).
Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line In regard to the question as to whether or not the ASI group may vote their additional
Ry; 240 N.C. 495, 82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212, 113 A 2d equity during elections of Saniwares' board of directors, the Court of Appeals correctly stated:
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 "As in other joint venture companies, the extent of ASI's participation
Corporations", 11 Vand. Law Rev., p. 680, 1958). These American cases dealt in the management of the corporation is spelled out in the Agreement. Section
with legal questions as to the extent to which the requirements arising from the 5(a) hereof says that three of the nine directors shall be designated by ASI and
corporate form of joint venture corporations should control, and the courts ruled the remaining six by the other stockholders, i.e.,the Filipino stockholders. This
that substantial justice lay with those litigants who relied on the joint venture allocation of board seats is obviously in consonance with the minority position
agreement rather than the litigants who relied on the orthodox principles of ASI.
of corporation law.
 "Having entered into a well-defined contractual relationship, it is Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a
imperative that the parties should honor and adhere to their respective rights and violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a
obligations thereunder. Appellants seem to contend that any allocation of board thereof which provides:
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 "And provided finally that the election of aliens as members of the
provided in Section 24 of the Corporation Code. This Court should not be board of directors or governing body of corporations or associations engaging in
prepared to hold that any agreement which curtails in any way cumulative partially nationalized activities shall be allowed in proportion to their allowable
voting should be struck down, even if such agreement has been freely entered participation or share in the capital of such entities. (amendments introduced by
into by experienced businessmen and do not prejudice those who are not parties Presidential Decree 715, section 1, promulgated May 28, 1975)"
thereto. It may well be that it would be more cogent to hold, as the Securities The ASI Group's argument is correct within the context of Section 24 of
and exchange Commission has held in the decision appealed from, that the Corporation Code. The point of query, however, is whether or not that provision is applicable
cumulative voting rights may be voluntary waived by stockholders who enter to a joint venture with clearly defined agreements:
into special relationships with each other to pursue and implement specific
purposes, as in joint venture relationships between foreign and local "The legal concept of a joint venture is of common law origin. It has
stockholders, so long as such agreements do not adversely affect third parties. no precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed.
"In any event, it is believed that we are not here called upon to make a 811 [1920]) It is in fact hardly distinguishable from the partnership, since their
general rule on this question. Rather, all that needs to be done is to give life and elements are similar — community of interest in the business, sharing of profits
effect to the particular contractual rights and obligations which the parties have and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d.
assumed for themselves. 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
"On the one hand, the clearly established minority position of ASI and distinction cited by most opinions in common law jurisdictions is that the
the contractual allocation of board seats cannot be disregarded. On the other partnership contemplates a general business with some degree of continuity,
hand, the rights of the stockholders to cumulative voting should also be while the joint venture is formed for the execution of a single transaction, and is
protected. thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500
"In our decision sought to be reconsidered, we opted to uphold the [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v.
second over the first. Upon further reflection, we feel that the proper and just Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
solution to give due consideration to both factors suggests itself quite clearly. jurisdiction, since under the Civil Code, a partnership may be particular or
This Court should recognize and uphold the division of the stockholders into universal, and a particular partnership may have for its object a specific
two groups, and at the same time uphold the right of the stockholders within undertaking. (Art. 1783, Civil Code). It would seem therefore that under
each group to cumulative voting in the process of determining who the group's Philippine law, a joint venture is a form of partnership and should thus be
nominees would be. In practical terms, as suggested by appellant Luciano E. governed by the law of partnerships. The Supreme Court has however
Salazar himself, this means that if the Filipino stockholders cannot agree who recognized a distinction between these two business forms, and has held that
their six nominees will be, a vote would have to be taken among the Filipino although a corporation cannot enter into a partnership contract, it may however
stockholders only. During this voting, each Filipino stockholder can cumulate engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906
his votes. ASI, however, should not be allowed to interfere in the voting within [1954]) (Campos and Lopez — Campos Comments, Notes and Selected
the Filipino group. Otherwise, ASI would be able to designate more than the Cases, Corporation Code 1981).
three directors it is allowed to designate under the Agreement, and may even be Moreover, the usual rules as regards the construction and operations of contracts
able to get a majority of the board seats, a result which is clearly contrary to the generally apply to a contract of joint venture. (O'Hara v. Harman 14 App. Dev. (167) 43 NYS
contractual intent of the parties. 556).
"Such a ruling will give effect to both the allocation of the board seats Bearing these principles in mind, the correct view would be that the resolution of the
and the stockholder's right to cumulative voting. Moreover, this ruling will also question of whether or not the ASI Group may vote their additional equity lies in the agreement
give due consideration to the issue raised by the appellees on possible violation of the parties.
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 Necessarily, the appellate court was correct in upholding the agreement of the parties as
allowed to nominate more than three directors." (Rollo — 75875, pp. 38-39) 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
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group nominees would be under Section 3(a) (1) of the "Agreement." As pointed out by SEC, Section
has the right to vote their additional equity pursuant to Section 24 of the Corporation Code which 5(a) of the Agreement relates to the manner of nominating the members of the board of directors
gives the stockholders of a corporation the right to cumulate their votes in electing 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 nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to
of members of the board of directors. this procedure, hence, they cannot now impugn its legality.
To allow the ASI Group to vote their additional equity to help elect even a Filipino The insinuation that the ASI Group may be able to control the enterprise under the
director who would be beholden to them would obliterate their minority status as agreed upon by cumulative voting procedure cannot, however, be ignored. The validity of the cumulative voting
the parties. As aptly stated by the appellate court: 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.
"....ASI, however, should not be allowed to interfere in the voting The joint venture character of the enterprise must always be taken into account, so long as the
within the Filipino group. Otherwise, ASI would be able to designate more than company exists under its original agreement. Cumulative voting may not be used as a device to
the three directors it is allowed to designate under the Agreement, and may even enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are
be able to get a majority of the board seats, a result which is clearly contrary to substantial safeguards in the Agreement which are intended to preserve the majority status of the
the contractual intent of the parties. Filipino investors as well as to maintain the minority status of the foreign investors group as
"Such a ruling will give effect to both the allocation of the board seats earlier discussed. They should be maintained. cdll
and the stockholder's right to cumulative voting. Moreover, this ruling will also WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are
give due consideration to the issue raised by the appellees on possible violation DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of
or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach, John Griffin, David
and the nationalization requirements of the Constitution and the laws if ASI is Whittingham, Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo,
allowed to nominate more than three directors." (At p. 39, Rollo, 75875). 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
Equally important as the consideration of the contractual intent of the parties is the
is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
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 SO ORDERED.
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 ||| (Aurbach v. Sanitary Wares Manufacturing Corp., G.R. Nos. 75875, 75951 & 75975-76, [December
[Link] is to be noted, however, that the same law also limits the election of aliens as members of 15, 1989], 259 PHIL 606-627)
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. LexLib
With these findings, we affirm 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, Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto
R. 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
 CORP.,"L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC.,LITONJUA
SHIPPING CO. INC.,MACOIL INC.,ODEON REALTY CORP.,SARATOGA
REALTY, INC.,ACT THEATER INC. (formerly General Theatrical & Film
Exchange, INC.),AVENUE REALTY, INC.,AVENUE THEATER, INC. and LVF
PHILIPPINES, INC.,(Formerly VF PHILIPPINES), respondents.

GARCIA, J p:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K.
Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31,
2004 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution
dated December 07, 2004, denying petitioner's motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr.
(Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002, in the
Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations for specific performance and accounting.
In his complaint, docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court,
Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement
in the Odeon Theater business which had expanded thru investment in Cineplex, Inc.,LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres),Avenue Realty,
Inc.,owner of lands and buildings, among other corporations. Yang is described in the complaint as
petitioner's and Eduardo's partner in their Odeon Theater investment. The same complaint also
contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a
joint venture/partnership for the continuation of their family business and
common family funds ....
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other relatives.
Copy of this memorandum is attached hereto and made an integral part
as Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-
1". AcSIDE
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio's] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater. ...
[G.R. Nos. 166299-300. December 13, 2005.]
4.01 ...from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership
AURELIO K. LITONJUA, JR., petitioner,[Link] K. LITONJUA,
various assets including but not limited to the corporate defendants and [their]
SR.,ROBERT T. YANG, ANGLO PHILS. MARITIME, INC.,CINEPLEX, INC.,DDM
respective assets.
GARMENTS, INC.,EDDIE K. LITONJUA SHIPPING AGENCY, INC.,EDDIE K.
LITONJUA SHIPPING CO.,INC.,LITONJUA SECURITIES, INC. (formerly E. K. 4.02 In addition ...the joint venture/partnership ...had also acquired
Litonjua Sec),LUNETA THEATER, INC.,E & L REALTY, (formerly E & L INT'L [various other assets],but Eduardo caused to be registered in the names of other
SHIPPING CORP.),FNP CO.,INC.,HOME ENTERPRISES, INC.,BEAUMONT DEV. parties ....
REALTY CO.,INC.,GLOED LAND CORP.,EQUITY TRADING CO.,INC.,3D
 xxx xxx xxx into a contract of partnership. As affirmative defenses, Eduardo, et al.,apart from raising a
jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may
4.04 The substantial assets of most of the corporate defendants consist be derived from the actionable document, i.e.,Annex "A-1", being void under the terms of Article
of real properties ....A list of some of these real properties is attached hereto and 1767 in relation to Article 1773 of the Civil Code, [Link] is further alleged that whatever undertaking
made an integral part as Annex "B". Eduardo agreed to do, if any, under Annex "A-1",are unenforceable under the provisions of the
Statute of Frauds.
xxx xxx xxx
For his part, Yang — who was served with summons long after the other defendants
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
submitted their answer — moved to dismiss on the ground, inter alia,that, as to him, petitioner has no
became sour so that [Aurelio] requested for an accounting and liquidation of his
cause of action and the complaint does not state any. Petitioner opposed this motion to dismiss.
share in the joint venture/partnership [but these demands for complete
accounting and liquidation were not heeded]. On January 10, 2003, Eduardo, et al.,filed a Motion to Resolve Affirmative [Link] this
motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.
xxx xxx xxx
Acting on the separate motions immediately adverted to above, the trial court, in an
5.05 What is worse, [Aurelio] has reasonable cause to believe that
Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the
Eduardo and/or the corporate defendants as well as Bobby [Yang],are
case for pre-trial on April 10, 2003.
transferring ...various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio].In consequence, In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et
[Aurelio] is therefore causing at this time the annotation on the titles of these al.,for reconsideration and Yang's motion to dismiss. The following then transpired insofar as Yang is
real properties ...a notice of lis pendens ....(Emphasis in the original; concerned:
underscoring and words in bracket added.)
1. On April 14, 2003, Yang filed his ANSWER,but expressly reserved
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been the right to seek reconsideration of the April 2, 2003 Omnibus Order and to
meant for him by his brother Eduardo, pertinently reads: pursue his failed motion to dismiss to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
Order of April 2, 2003, but his motion was denied in an Order of July 4, 2003.
You have now your own life to live after having been married. .... 3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a
petition for certiorari under Rule 65 of the Rules of Court, docketed as CA-
I am trying my best to mold you the way I work so you can follow the G.R. SP No. 78774, o nullify the separate orders of the trial court, the first
pattern ....You will be the only one left with the company, among us brothers denying his motion to dismiss the basic complaint and, the second, denying his
and I will ask you to stay as I want you to run this office every time I am away. motion for reconsideration.
I want you to run it the way I am trying to run it because I will be all alone and I Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of
will depend entirely to you (sic).My sons will not be ready to help me yet until discretion and injudicious haste attended the issuance of the trial court's aforementioned Omnibus
about maybe 15/20 years from now. Whatever is left in the corporation, I will Orders dated March 5, and April 2, 2003, sought relief from the CA via similar recourse. Their
make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent petition for certiorari was docketed as CA G.R. SP No. 76987.
(10%) equity, whichever is greater. We two will gamble the whole thing of
what I have and what you are entitled to. ....It will be you and me alone on this. Per its resolution dated October 2, 2003, the CA's 14th Division ordered the consolidation
If ever I pass away, I want you to take care of all of this. You keep my share for of CA G.R. SP No. 78774 with CA G.R. SP No. 76987. CIAcSa
my two sons are ready take over but give them the chance to run the company
Following the submission by the parties of their respective Memoranda of Authorities, the
which I have built.
appellate court came out with the herein assailed Decision dated March 31, 2004,finding for Eduardo
Because you will need a place to stay, I will arrange to give you first and Yang, as lead petitioners therein, disposing as follows:
ONE HUNDRED THOUSANDS PESOS: (P100,000.00) in cash or asset, like
WHEREFORE, judgment is hereby rendered granting the issuance of
Lt. Artiaga so you can live better there. The rest I will give you in form of
the writ of certiorari in these consolidated cases annulling, reversing and setting
stocks which you can keep. This stock I assure you is good and saleable. I will
aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003
also gladly give you the share of Wack-Wack ...and Valley Golf ...because you
and July 4, 2003 and the complaint filed by private respondent [now petitioner
have been good. The rest will be in stocks from all the corporations which I
Aurelio] against all the petitioners [now herein respondents Eduardo, et al.]
repeat, ten percent (10%) equity.
with the court a quo is hereby dismissed.
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo,filed a
SO ORDERED. (Emphasis in the original; words in bracket added.)
joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered
 Explaining its case disposition, the appellate court stated, inter alia,that the alleged Art. 1772. Every contract of partnership having a capital of three
partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached to the thousand pesos or more, in money or property, shall appear in a public
complaint, and upon which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang instrument, which must be recorded in the Office of the Securities and
and the corporate defendants a quo is "void or legally inexistent". Exchange Commission.
In time, petitioner moved for reconsideration but his motion was denied by the CA in its Failure to comply with the requirement of the preceding paragraph
equally assailed Resolution of December 7, 2004. shall not affect the liability of the partnership and the members thereof to third
persons.
Hence, petitioner's present recourse, on the contention that the CA erred:
Art. 1773. A contract of partnership is void, whenever immovable
A. When it ruled that there was no partnership created by the property is contributed thereto, if an inventory of said property is not made,
actionable document because this was not a public instrument and immovable signed by the parties, and attached to the public instrument.
properties were contributed to the partnership.
Annex "A-1",on its face, contains typewritten entries, personal in tone, but is unsigned and
B. When it ruled that the actionable document did not create a undated. As an unsigned document, there can be no quibbling that Annex "A-1" does not meet the
demandable right in favor of petitioner. public instrumentation requirements exacted under Article 1771 of the Civil [Link], being
unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property,
C. When it ruled that the complaint stated no cause of action against
Annex "A-1" cannot be presented for notarization, let alone registered with the Securities and
[respondent] Robert Yang; and
Exchange Commission (SEC),as called for under the Article 1772 of the Code. And inasmuch as the
D. When it ruled that petitioner has changed his theory on appeal inventory requirement under the succeeding Article 1773 goes into the matter of validity when
when all that Petitioner had done was to support his pleaded cause of action by immovable property is contributed to the partnership, the next logical point of inquiry turns on the
another legal perspective/argument. nature of petitioner's contribution, if any, to the supposed partnership.

The petition lacks merit. The CA, addressing the foregoing query, correctly stated that petitioner's contribution
consisted of immovables and real rights. Wrote that court:
Petitioner's demand, as defined in the petitory portion of his complaint in the trial court, is
for delivery or payment to him, as Eduardo's and Yang's partner, of his partnership/joint venture share, A further examination of the allegations in the complaint would show
after an accounting has been duly conducted of what he deems to be partnership/joint venture that [petitioner's] contribution to the so-called "partnership/joint venture" was
property. his supposed share in the family business that is consisting of movie theaters,
shipping and land development under paragraph 3.02 of the complaint. In other
A partnership exists when two or more persons agree to place their money, effects, labor, words, his contribution as a partner in the alleged partnership/joint venture
and skill in lawful commerce or business, with the understanding that there shall be a proportionate consisted of immovable properties and real rights. ....
sharing of the profits and losses between them. A contract of partnership is defined by the Civil
Code as one where two or more persons bound themselves to contribute money, property, or industry Significantly enough, petitioner matter-of-factly concurred with the appellate court's
to a common fund with the intention of dividing the profits among themselves. A joint venture, on the observation that, prescinding from what he himself alleged in his basic complaint, his contribution to
other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements the partnership consisted of his share in the Litonjua family businesses which owned variable
are similar, i.e.,community of interests in the business and sharing of profits and losses. Being a form immovable properties. Petitioner's assertion in his motion for reconsideration of the CA's decision,
of partnership, a joint venture is generally governed by the law on partnership. that "what was to be contributed to the business [of the partnership] was [petitioner's] industry and
his share in the family [theatre and land development] business" leaves no room for speculation as to
The underlying issue that necessarily comes to mind in this proceedings is whether or not what petitioner contributed to the perceived partnership.
petitioner and respondent Eduardo are partners in the theatre, shipping and realty business, as one
claims but which the other denies. And the issue bearing on the first assigned error relates to the Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of
question of what legal provision is applicable under the premises, petitioner seeking, as it were, to the Civil Code applies as long real property or real rights are initially brought into the partnership. In
enforce the actionable document — Annex "A-1" — which he depicts in his complaint to be the short, it is really of no moment which of the partners, or, in this case, who between petitioner and his
contract of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal brother Eduardo, contributed immovables. In context, the more important consideration is that real
provisions determinative of the existence, or defining the formal requisites, of a partnership is property was contributed, in which case an inventory of the contributed property duly signed by the
indicated. Foremost of these are the following provisions of the Civil Code: parties should be attached to the public instrument, else there is legally no partnership to speak of.

Art. 1771. A partnership may be constituted in any form, except Petitioner, in an obvious bid to evade the application of Article 1773, argues that the
where immovable property or real rights are contributed thereto, in which case a immovables in question were not contributed, but were acquired after the formation of the supposed
public instrument shall be necessary. TCDcSE partnership. Needless to stress, the Court cannot accord cogency to this specious argument. For, as
earlier stated, petitioner himself admitted contributing his share in the supposed shipping, movie
theatres and realty development family businesses which already owned immovables even before Under the second assigned error, it is petitioner's posture that Annex "A-1",assuming its
Annex "A-1" was allegedly executed. IATHaS inefficacy or nullity as a partnership document, nevertheless created demandable rights in his favor.
As petitioner succinctly puts it in this petition:
Considering thus the value and nature of petitioner's alleged contribution to the purported
partnership, the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that 43. Contrariwise, this actionable document, especially its above-
petitioner so desires and pleads to be given. Annex "A-1",in fine, cannot support the existence of the quoted provisions, established an actionable contract even though it may not be
partnership sued upon and sought to be enforced. The legal and factual milieu of the case calls for this a partnership. This actionable contract is what is known as an innominate
disposition. A partnership may be constituted in any form, save when immovable property or real contract (Civil Code, Article 1307).
rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in which case
a public instrument shall be necessary. And if only to stress what has repeatedly been articulated, an 44. It may not be a contract of loan, or a mortgage or whatever, but
inventory to be signed by the parties and attached to the public instrument is also indispensable to the surely the contract does create rights and obligations of the parties and which
validity of the partnership whenever immovable property is contributed to it. rights and obligations may be enforceable and demandable. Just because the
relationship created by the agreement cannot be specifically labeled or
Given the foregoing perspective, what the appellate court wrote in its assailed pigeonholed into a category of nominate contract does not mean it is void or
Decision about the probative value and legal effect of Annex "A-1" commends itself for concurrence: unenforceable. aESHDA
Considering that the allegations in the complaint showed that Petitioner has thus thrusted the notion of an innominate contract on this Court — and earlier
[petitioner] contributed immovable properties to the alleged partnership, the on the CA after he experienced a reversal of fortune thereat — as an afterthought. The appellate court,
"Memorandum" (Annex "A" of the complaint) which purports to establish the however, cannot really be faulted for not yielding to petitioner's dubious stratagem of altering his
said "partnership/joint venture" is NOT a public instrument and there was NO theory of joint venture/partnership to an innominate contract. For, at bottom, the appellate
inventory of the immovable property duly signed by the parties. As such, the court's certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued
said "Memorandum" ...is null and void for purposes of establishing the by the trial court in grave abuse of discretion. As respondent Yang pointedly observed, since the
existence of a valid contract of partnership. Indeed, because of the failure to parties' basic position had been well-defined, that of petitioner being that the actionable document
comply with the essential formalities of a valid contract, the purported established a partnership/joint venture, it is on those positions that the appellate court exercised
"partnership/joint venture" is legally inexistent and it produces no effect its certiorari jurisdiction. Petitioner's act of changing his original theory is an impermissible practice
whatsoever. Necessarily, a void or legally inexistent contract cannot be the and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first
source of any contractual or legal right. Accordingly, the allegations in the place.
complaint, including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or legal right which [Petitioner] is now humming a different tune ....In a sudden twist of
could be violated by the [individual respondents] herein. As a consequence, stance, he has now contended that the actionable instrument may be considered
[petitioner's] complaint does NOT state a valid cause of action because NOT all an innominate contract....Verily, this now changes [petitioner's] theory of the
the essential elements of a cause of action are present.(Underscoring and words case which is not only prohibited by the Rules but also is an implied admission
in bracket added.) that the very theory he himself ...has adopted, filed and prosecuted before the
respondent court is erroneous.
Likewise well-taken are the following complementary excerpts from the CA's equally
assailed Resolution of December 7, 2004 denying petitioner's motion for reconsideration: Be that as it may ....We hold that this new theory contravenes
[petitioner's] theory of the actionable document being a partnership document.
Further, We conclude that despite glaring defects in the allegations in If anything, it is so obvious we do have to test the sufficiency of the cause of
the complaint as well as the actionable document attached thereto (Rollo,p. action on the basis of partnership law .... (Emphasis in the original; Words in
191),the [trial] court did not appreciate and apply the legal provisions which bracket added).
were brought to its attention by herein [respondents] in the their pleadings. In
our evaluation of [petitioner's] complaint, the latter alleged inter alia to have But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected
contributed immovable properties to the alleged partnership but the actionable innominate contract, petitioner's complaint would still be dismissible as against Eduardo and, more so,
document is not a public document and there was no inventory of immovable against Yang. It cannot be over-emphasized that petitioner points to Eduardo as the author of
properties signed by the parties. Both the allegations in the complaint and the Annex "A-1".Withal, even on this consideration alone, petitioner's claim against Yang is doomed
actionable documents considered, it is crystal clear that [petitioner] has no valid from the very start.
or legal right which could be violated by [respondents].(Words in bracket
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as
added.)
vesting petitioner with a right to demand from respondent Eduardo the observance of a determinate
conduct, reads:
...You will be the only one left with the company, among us brothers
and I will ask you to stay as I want you to run this office everytime I am away. I
 want you to run it the way I am trying to run it because I will be alone and I will became their partner in their Odeon Theater investment thereafter. Several
depend entirely to you, My sons will not be ready to help me yet until about paragraphs later, however, petitioner would contradict himself by alleging that
maybe 15/20 years from now. Whatever is left in the corporation, I will make his "investment and that of Eduardo and Yang in the Odeon theater business has
sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) expanded through a reinvestment of profit income and direct investments in
equity, whichever is greater.(Underscoring added) several corporation including but not limited to [six] corporate respondents"
This simply means that the "Odeon Theatre business" came before the corporate
It is at once apparent that what respondent Eduardo imposed upon himself under the above respondents. Significantly enough, petitioner refers to the corporate respondents
passage, if he indeed wrote Annex "A-1",is a promise which is not to be performed within one year as "progeny" of the Odeon Theatre business.
from "contract" execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is
covered by the Statute of Frauds and ergo unenforceable for non-compliance therewith. By force of Needless to stress, petitioner has not sufficiently established in his complaint the
the statute of frauds, an agreement that by its terms is not to be performed within a year from the legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its
making thereof shall be unenforceable by action, unless the same, or some note or memorandum assailed decision, captured and formulated the legal situation in the following wise:
thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved unless
the requirement exacted by the statute of frauds is complied with. [Respondent] Yang, ...is impleaded because, as alleged in the
complaint, he is a "partner" of [Eduardo] and the [petitioner] in the Odeon
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity Theater Investment which expanded through reinvestments of profits and direct
of the family businesses supposedly promised by Eduardo to give in the near future. Any suggestion investments in several corporations, thus:
that the stated amount or the equity component of the promise was intended to go to a common fund
would be to read something not written in Annex "A-1".Thus, even this angle alone argues against xxx xxx xxx
the very idea of a partnership, the creation of which requires two or more contracting minds mutually
Clearly, [petitioner's] claim against ...Yang arose from his alleged
agreeing to contribute money, property or industry to a common fund with the intention of dividing
partnership with petitioner and the ...respondent. However, there was NO
the profits between or among themselves.
allegation in the complaint which directly alleged how the supposed contractual
In sum then, the Court rules, as did the CA, that petitioner's complaint for specific relation was created between [petitioner] and ...Yang. More importantly,
performance anchored on an actionable document of partnership which is legally inexistent or void or, however, the foregoing ruling of this Court that the purported partnership
at best, unenforceable does not state a cause of action as against respondent Eduardo and the corporate between [Eduardo] is void and legally inexistent directly affects said claim
defendants. And if no action can successfully be maintained against respondent Eduardo because no against ...Yang. Since [petitioner] is trying to establish his claim against ...Yang
valid partnership existed between him and petitioner, the Court cannot see its way clear on how the by linking him to the legally inexistent partnership ...such attempt had become
same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, futile because there was NOTHING that would contractually connect
or could not have had any form of business relationship with, an inexistent partnership. [petitioner] and ...Yang. To establish a valid cause of action, the complaint
should have a statement of fact upon which to connect [respondent] Yang to the
As may be noted, petitioner has not, in his complaint, provide the logical nexus that would alleged partnership between [petitioner] and respondent [Eduardo],including
tie Yang to him as his partner. In fact, attendant circumstances would indicate the contrary. Consider: their alleged investment in the Odeon Theater. A statement of facts on those
matters is pivotal to the complaint as they would constitute the ultimate facts
1. Petitioner asserted in his complaint that his so-called joint necessary to establish the elements of a cause of action against ...Yang.
venture/partnership with Eduardo was "for the continuation of their family
business and common family funds which were theretofore being mainly Pressing its point, the CA later stated in its resolution denying petitioner's motion for
managed by Eduardo." But Yang denies kinship with the Litonjua family and reconsideration the following:
petitioner has not disputed the disclaimer.
...Whatever the complaint calls it, it is the actionable document
2. In some detail, petitioner mentioned what he had contributed to the attached to the complaint that is controlling. Suffice it to state, We have not
joint venture/partnership with Eduardo and what his share in the businesses will ignored the actionable document ...As a matter of fact, We emphasized in our
be. No allegation is made whatsoever about what Yang contributed, if any, let decision ...that insofar as [Yang] is concerned, he is not even mentioned in the
alone his proportional share in the profits. But such allegation cannot, however, said actionable document. We are therefore puzzled how a person not
be made because, as aptly observed by the CA, the actionable document did not mentioned in a document purporting to establish a partnership could be
contain such provision, let alone mention the name of Yang. How, indeed, considered a partner. (Words in bracket ours).
could a person be considered a partner when the document purporting to
establish the partnership contract did not even mention his name. The last issue raised by petitioner, referring to whether or not he changed his theory of the
case, as peremptorily determined by the CA, has been discussed at length earlier and need not detain
3. Petitioner states in par. 2.01 of the complaint that "[he] and us long. Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner
Eduardo are business partners in the [respondent] corporations," while "Bobby took a different tack. Thus, from a joint venture/partnership theory which he adopted and consistently
is his and Eduardo's partner in their Odeon Theater investment' (par. 2.03).This pursued in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift
means that the partnership between petitioner and Eduardo came first; Yang
is petitioner's statement in par. #8 of his motion for reconsideration of the CA's decision combined WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution
with what he said in par. # 43 of this petition, as follows: of the Court of Appeals AFFIRMED.
8. Whether or not the actionable document creates a partnership, joint Cost against the petitioner
venture, or whatever, is a legal matter. What is determinative for purposes of
sufficiency of the complainant's allegations, is whether the actionable document [G.R. Nos. L-41182-3. April 15, 1988.]
bears out an actionable contract — be it a partnership, a joint venture or
whatever or some innominate contract ...It may be noted that one kind of
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-
innominate contract is what is known as du ut facias (I give that you may do).
appellants, vs. THE COURT OF APPEALS, TOURIST WORLD
43. Contrariwise, this actionable document, especially its above- SERVICE, INC., ELISEO S. CANILAO, and SEGUNDINA
quoted provisions, established an actionable contract even though it may not be NOGUERA, respondents-appellees.
a partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).
SYLLABUS
Springing surprises on the opposing party is offensive to the sporting idea of fair play,
justice and due process; hence, the proscription against a party shifting from one theory at the trial
court to a new and different theory in the appellate court. On the same rationale, an issue which was 1. LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYER-
neither averred in the complaint cannot be raised for the first time on appeal. It is not difficult, EMPLOYEE RELATIONSHIP; TEST TO DETERMINE ITS EXISTENCE. — In this
therefore, to agree with the CA when it made short shrift of petitioner's innominate contract theory on jurisdiction, there has been no uniform test to determine the existence of an employer-employee
the basis of the foregoing basic reasons. cDIHES 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
Petitioner's protestation that his act of introducing the concept of innominate contract was also the means to be used in reaching such end." Subsequently, however, we have considered, in
not a case of changing theories but of supporting his pleaded cause of action — that of the existence of addition to the standard of right-of-control, the existing economic conditions prevailing between
a partnership — by another legal perspective/argument, strikes the Court as a strained attempt to the parties, like the inclusion of the employee in the payrolls, in determining the existence of an
rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CA's decision employer-employee relationship.
virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same notion,
petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as 2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; CONSTRUED. —
establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on When the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World
whether or not to pursue the original cause of action or altogether abandoning the same, thus: 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."
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner],no immovables 3. ID.; ID.; ID.; CASE AT BAR. — In the case at bar, Sevilla solicited airline fares, but
were contributed to this partnership. ... 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,
14. All told, the Decision takes off from a false premise that the based on her letter of November 28, 1961, presumed her principal's authority as owner of the
actionable document attached to the complaint does not establish a contractual business undertaking. We are convinced, considering the circumstances and from the respondent
relationship between [petitioner] and ...Eduardo, Sr. and Roberto T Yang simply Court's recital of facts, that the parties had contemplated a principal-agent relationship, rather
because his document does not create a partnership or a joint venture. This is than a joint management or a partnership.
...a myopic reading of the actionable document.
4. ID.; ID.; ID.; CANNOT BE REVOKED AT WILL. — The agency that we hereby
Per the Court's own count, petitioner used in his complaint the mixed words "joint declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is
venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made reference to that it is one coupled with an interest, the agency having been created for the mutual interest of
the "law of joint venture/partnership [being applicable] to the business relationship ...between the agent and the principal.
[him],Eduardo and Bobby [Yang]" and to his "rights in all specific properties of their joint 5. CIVIL LAW; DAMAGES; AWARD THEREOF PROPER IN BREACH OF
venture/partnership".Given this consideration, petitioner's right of action against respondents Eduardo CONTRACT. — We rule that for its unwarranted revocation of the contract of agency, the
and Yang doubtless pivots on the existence of the partnership between the three of them, as private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under
purportedly evidenced by the undated and unsigned Annex "A-1".A void Annex "A-1",as an the Civil Code, moral damages may be awarded for "breaches of contract where the defendant
actionable document of partnership, would strip petitioner of a cause of action under the premises. A acted . . . in bad faith." We likewise condemn Tourist World Service, Inc. to pay further damages
complaint for delivery and accounting of partnership property based on such void or legally non- for the moral injury done to Lina Sevilla arising from its brazen conduct subsequent to the
existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil
Appeals. The Court agrees. Code, in relation to Article 2219 (10) thereof. The Court considers the sums of P25,000.00 as and
for moral damages, P10,000.00 as exemplary damages, and P5,000.00 as nominal and/or counterclaims. For apparent lack of interest of the parties therein, the trial
temperate damages, to be just, fair, and reasonable under the circumstances. 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
DECISION
counterclaim.
On June 17, 1963, appellant Lina Sevilla refiled her case against
the herein appellees and after the issues were joined, the reinstated
SARMIENTO, J p: counterclaim of Segundina Noguera and the new complaint of appellant Lina
Sevilla were jointly heard following which the court a quo ordered both cases
The petitioners invoke the provisions on human relations of the Civil Code in this dismissed for lack of merit, on the basis of which was elevated the instant
appeal by certiorari. The facts are beyond dispute: appeal on the following assignment of errors:

xxx xxx xxx "I. THE LOWER COURT ERRED EVEN IN APPRECIATING
THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S
On the strength of a contract (Exhibit A for the appellants Exhibit 2 COMPLAINT.
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., "II. THE LOWER COURT ERRED IN HOLDING THAT
represented by Mr. Eliseo Canilao as party of the second part, and hereinafter APPELLANT MRS. LINA O. SEVILLA'S ARRANGEMENT (WITH
referred to as appellants, the Tourist World Service, Inc. leased the premises APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF
belonging to the party of the first part at Mabini St., Manila for the former's EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD
use as a branch office. In the said contract the party of the third part held THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
herself solidarily liable with the party of the second part for the prompt VENTURE.
payment of the monthly rental agreed on. When the branch office was "III. THE LOWER COURT ERRED IN RULING THAT
opened, the same was run by the herein appellant Lina O. Sevilla payable to PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED
Tourist World Service Inc. by any airline for any fare brought in on the FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF
efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS
withheld by the Tourist World Service, Inc. Cdpr AGAINST THE LATTER.
On or about November 24, 1961 (Exhibit 16) the Tourist World "IV. THE LOWER COURT ERRED IN NOT HOLDING THAT
Service, Inc. appears to have been informed that Lina Sevilla was connected APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O.
with a rival firm, the Philippine Travel Bureau, and, since the branch office SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW
was anyhow losing, the Tourist World Service considered closing down its INTO THEIR OWN HANDS.
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 "V. THE LOWER COURT ERRED IN NOT CONSIDERING AT
abolishing the office of the manager and vice-president of the Tourist World ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT
Service, Inc., Ermita Branch, and the second, authorizing the corporate MRS. LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A.
secretary to receive the properties of the Tourist World Service then located MABINI PREMISES.
at the said branch office. It further appears that on Jan. 3, 1962, the contract "VI. THE LOWER COURT ERRED IN FINDING THAT
with the appellees for the use of the Branch Office premises was terminated APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS
and while the effectivity thereof was Jan. 31, 1962, the appellees no longer GUARANTOR FOR RENTALS."
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 On the foregoing facts and in the light of the errors assigned the
corporate secretary Gabino Canilao went over to the branch office, and, issues to be resolved are:
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 1. Whether the appellee Tourist World Service unilaterally
World Service. When neither the appellant Lina Sevilla nor any of her disconnected the telephone line at the branch office on Ermita;
employees could enter the locked premises, a complaint was filed by the 2. Whether or not the padlocking of the office by the Tourist World
herein appellants against the appellees with a prayer for the issuance of Service was actionable or not; and
mandatory preliminary injunction. Both appellees answered with
 3. Whether or not the lessee to the office premises belonging to the Upon the other hand, appellee TWS contend that the appellant was
appellee Noguera was appellee TWS or TWS and the appellant. cdll an employee of the appellee Tourist World Service, Inc. and as such was
designated manager."
In this appeal, appellant Lina Sevilla claims that a joint business
venture was entered into by and between her and appellee TWS with offices xxx xxx xxx
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 The trial court held for the private respondents on the premise that the private
appellant made declarations showing: respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to
terminate the lease and padlock the premises. It likewise found the petitioner, Lina Sevilla, to be
"1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of
wife of an eminent eye, ear and nose specialist as well as a society columnist, her employer. The respondent Court of Appeals rendered an affirmance. prLL
had been in the travel business prior to the establishment of the joint business
venture with appellee Tourist World Service, Inc. and appellee Eliseo The petitioners now claim that the respondent Court, in sustaining the lower court,
Canilao, her compadre, she being the godmother of one of his children, with erred. Specifically, they state:
her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. I.
February 16, 1965).
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
"2. Appellant Mrs. Sevilla was signatory to a lease agreement dated AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE
19 October 1960 (Exh. "A") covering the premises at A. Mabini St., she PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE
expressly warranting and holding [sic] herself 'solidarily' liable with appellee INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE
Tourist World Service, Inc. for the prompt payment of the monthly rentals APPELLANT LINA SEVILLA . . . WITHOUT NOTIFYING MRS. LINA
thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18, 1964). O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT
"3. Appellant Mrs. Sevilla did not receive any salary from appellee INFORMING COUNSEL FOR THE APPELLANT (SEVILLA), WHO
Tourist World Service, Inc., which had its own separate office located at the IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN
Trade & Commerce Building; nor was she an employee thereof, having no CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST
participation in nor connection with said business at the Trade & Commerce WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
Building (pp. 16-18 tsn. id.). THE SAID OFFICE), IN THEIR ATTEMPT TO AMICABLY SETTLE
THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND
"4. Appellant Mrs. Sevilla earned commissions for her own THE TOURIST WORLD SERVICE . . . (DID NOT) ENTITLE THE
passengers, her own bookings, her own business (and not for any of the LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7, 8 AND
business of appellee Tourist World Service, Inc.) obtained from the airline ANNEX "B" P. 2) - A DECISION AGAINST DUE PROCESS WHICH
companies. She shared the 7% commissions given by the airline companies, ADHERES TO THE RULE OF LAW.
giving appellee Tourist World Service, Inc. 3% thereof and retaining 4% for
herself (pp. 18 tsn. id.) II.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
AND GRAVELY ABUSED ITS DISCRETION IN DENYING
"5. Appellant Mrs. Sevilla likewise shared in the expenses of APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
maintaining the A. Mabini St. office, paying for the salary of an office WITHDRAW HER COMPLAINT PROVIDED THAT ALL CLAIMS AND
secretary, Miss Obieta, and other sundry expenses, aside from designing the COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE
office furniture and supplying some office furnishings (pp. 15, 18 tsn. April WITHDRAWN." (ANNEX "A" P. 8)
6, 1965), appellee Tourist World Service, Inc. shouldering the rental and
other expenses in consideration for the 3% split in the commissions procured III.
by appellant Mrs. Sevilla (p. 35 tsn. Feb. 16, 1965).
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
"6. It was the understanding between them that appellant Mrs. AND GRAVELY ABUSED ITS DISCRETION IN DENYING - IN FACT
Sevilla would be given the title of branch manager for appearance's sake only NOT PASSING AND RESOLVING - APPELLANT SEVILLA'S CAUSE
(p. 31 tsn. id.), appellee Eliseo Canilao admitting that it was just a title for OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL
dignity (p. 36 tsn June 18, 1965 - testimony of appellee Eliseo Canilao; pp. CODE ON HUMAN RELATIONS.
38-39 tsn. April 6, 1966 - testimony of corporate secretary Gabino Canilao)."
(pp. 2-5, Appellants' Reply Brief) IV.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW
AND GRAVELY ABUSED ITS DISCRETION IN DENYING
 APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM It is further admitted that Sevilla was not in the company's payroll. For her efforts, she
THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World.
SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN Unlike an employee then, who earns a fixed salary usually, she earned compensation in
INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED fluctuating amounts depending on her booking successes.
UNILATERALLY BY TOURIST WORLD SERVICE INC.
The fact that Sevilla had been designated "branch manager" does not make her, ergo,
As a preliminary inquiry, the Court is asked to declare the true nature of the relation Tourist World's employee. As we said, employment is determined by the right-of-control test and
between Lina Sevilla and Tourist World Service, Inc. The respondent Court of Appeals did not certain economic parameters. But titles are weak indicators.
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 In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a
of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint
not the evidence for the said appellant supports the contention that the appellee Tourist World venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the
Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone existence of such a relation. In her letter of November 28, 1961, she expressly "concedes your
lines of the Ermita branch office of the appellee Tourist World Service, Inc." Tourist World [Tourist World Service, Inc.'s] right to stop the operation of your branch office," in effect,
Service, Inc., insists, on the other hand, that Lina Sevilla was a mere employee, being "branch accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A
manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed joint venture, including a partnership, presupposes generally a parity of standing between the
with the private respondent, Segundina Noguera. The petitioners contend, however, that relation joint co-venturers or partners, in which each party has an equal proprietary interest in the capital
between the parties was one of joint venture, but concede that "whatever might have been the true or property contributed and where each party exercises equal rights in the conduct of the
relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World business. Furthermore, the parties did not hold themselves out as partners, and the building itself
Service and Canilao from taking the law into their own hands," in reference to the padlocking was embellished with the electric sign "Tourist World Service, Inc.," in lieu of a distinct
now questioned. cdphil partnership name.

The Court finds the resolution of the issue material, for if, as the private respondent, It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to
Tourist World Service, Inc., maintains, that the relation between the parties was in the character (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done
of employer and employee, the courts would have been without jurisdiction to try the case, labor so pursuant to a contract of agency. It is the essence of this contract that the agent renders
disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau of services "in representation or on behalf of another." In the case at bar, Sevilla solicited airline
Labor Relations, pursuant to statutes then in force. 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,
In this jurisdiction, there has been no uniform test to determine the existence of an Sevilla herself, based on her letter of November 28, 1961, presumed her principal's authority as
employer-employee relation. In general, we have relied on the so-called right of control test, owner of the business undertaking. We are convinced, considering the circumstances and from
"where the person for whom the services are performed reserves a right to control not only the the respondent Court's recital of facts, that the parties had contemplated a principal-agent
end to be achieved but also the means to be used in reaching such end." Subsequently, however, relationship, rather than a joint management or a partnership.
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 But unlike simple grants of a power of attorney, the agency that we hereby declare to
determining the existence of an employer-employee relationship. 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 the mutual interest of the agent and
The records will show that the petitioner, Lina Sevilla, was not subject to control by the the principal. It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had
private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the acquired an interest in the business entrusted to her. Moreover, she had assumed a personal
means used in connection therewith. In the first place, under the contract of lease covering the obligation for the operation thereof, holding herself solidarily liable for the payment of rentals.
Tourist World's Ermita office, she had bound herself in solidum as and for rental payments, an She continued the business, using her own name, after Tourist World had stopped further
arrangement that would belie claims of a master-servant relationship. True, the respondent Court operations. Her interest, obviously, is not limited to the commissions she earned as a result of her
would later minimize her participation in the lease as one of mere guaranty, that does not make business transactions, but one that extends to the very subject matter of the power of management
her an employee of Tourist World, since in any case, a true employee cannot be made to part with delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the
his own money in pursuance of his employer's business, or otherwise, assume any liability principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to
thereof. In that event, the parties must be bound by some other relation, but certainly not damages. cdll
employment.
As we have stated, the respondent Court avoided this issue, confining itself to the
In the second place, and as found by the Appellate Court, "[w]hen the branch office telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding
was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World of the Court of Appeals that there is "no evidence showing that the Tourist World Service, Inc.
Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla." Under disconnected the telephone lines at the branch office." Yet, what cannot be denied is the fact that
these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Tourist World Service, Inc. did not take pains to have them reconnected. Assuming, therefore,
Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts that it had no hand in the disconnection now complained of, it had clearly condoned it, and as
and capabilities. 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 (10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30,
padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the 32, 34, and 35.
lease contract did not accord it any authority to terminate that contract without notice to its actual
occupant, and to padlock the premises in such blitzkrieg fashion. As this Court has ruled, the The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to
petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in respond for the same damages in a solidary capacity.
the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having Insofar, however, as the private respondent, Segundina Noguera is concerned, no
been explicitly named therein as a third party in charge of rental payments (solidarily with evidence has been shown that she had connived with Tourist World Service, Inc. in the
Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject disconnection and padlocking incidents. She cannot therefore be held liable as a co-tortfeasor.
an interloper.
The Court considers the sums of P25,000.00 as and for moral damages, P10,000.00 as
The Court is satisfied that from the chronicle of events, there was indeed some exemplary damages, and P5,000.00 as nominal and/or temperate damages, to be just, fair, and
malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she reasonable under the circumstances.
had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to
justify the closure, but there is no clear showing that Tourist World Ermita Branch had in fact WHEREFORE, the Decision promulgated on January 23, 1975 as well as the
sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED
the evidence discloses, on the other hand, is that following such an information (that Sevilla was and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are
working for another company), Tourist World's board of directors adopted two resolutions ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of P25,000.00
abolishing the office of "manager" and authorizing the corporate secretary, the respondent Eliseo as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of
Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private P5,000.00, as and for nominal and/or temperate damages. llcd
respondents ended the lease over the branch office premises, incidentally, without notice to her. Costs against said private respondents.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office SO ORDERED.
was padlocked, personally by the respondent Canilao, on the pretext that it was necessary "to
protect the interests of the Tourist World Service." It is strange indeed that Tourist World ||| (Sevilla v. Court of Appeals, G.R. Nos. L-41182-3, [April 15, 1988], 243 PHIL 340-354)
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 of her participation
therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to
punish Sevilla for what 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."
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral
injury done to Lina Sevilla arising 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. prcd
ART. 2219. Moral damages may be recovered in the following and
analogous cases:
xxx xxx xxx