1

G.R. No. L-9996 October 15, 1957 9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out
of which amount was deducted in the sum of P16,288.27 for expenses thereby
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, leaving them a net rental income of P7,498.13;
petitioners,
vs. 10. That in 1948, they realized a gross rental income of P17,453.00 out of the which
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a
APPEALS, respondents. net rental income of P12,615.35.

This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca It further appears that on September 24, 1954 respondent Collector of Internal
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part Revenue demanded the payment of income tax on corporations, real estate dealer's
of which reads: fixed tax and corporation residence tax for the years 1945-1949, computed,
according to assessment made by said officer, as follows:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax,
real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive,
INCOME TAXES
in accordance with the respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is
1945 14.84
hereby dismissed with costs against petitioners.

It appears from the stipulation submitted by the parties: 1946 1,144.71

1. That the petitioners borrowed from their father the sum of P59,1400.00 which 1947 10.34
amount together with their personal monies was used by them for the purpose of
buying real properties,. 1948 1,912.30

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an 1949 1,575.90
area of 3,713.40 sq. m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of P57,517.00 as of 1948; Total including surcharge and compromise P6,157.09

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land REAL ESTATE DEALER'S FIXED TAX
with an aggregate area of 3,718.40 sq. m. including improvements thereon for
P130,000.00; this property has an assessed value of P82,255.00 as of 1948; 1946 P37.50

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 1947 150.00
4,353 sq. m. including improvements thereon for P108,825.00. This property has an
assessed value of P4,983.00 as of 1948; 1948 150.00
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.
1949 150.00
including improvements thereon for P237,234.34. This property has an assessed
value of P59,140.00 as of 1948;
Total including penalty P527.00
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and RESIDENCE TAXES OF CORPORATION
receive rents; to issue receipts therefor; in default of such payment, to bring suits
against the defaulting tenants; to sign all letters, contracts, etc., for and in their 1945 P38.75
behalf, and to endorse and deposit all notes and checks for them;
1946 38.75
7. That after having bought the above-mentioned real properties the petitioners had
the same rented or leases to various tenants; 1947 38.75

8. That from the month of March, 1945 up to an including December, 1945, the total 1948 38.75
amount collected as rents on their real properties was P9,599.00 while the expenses
amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33; 1949 38.75

Total including surcharge P193.75
TOTAL TAXES DUE P6,878.34.
Said letter of demand and corresponding assessments were delivered to petitioners
on December 3, 1954, whereupon they instituted the present case in the Court of
Tax Appeals, with a prayer that "the decision of the respondent contained in his
letter of demand dated September 24, 1954" be reversed, and that they be absolved
from the payment of the taxes in question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned
decision for the respondent, and a petition for reconsideration and new trial having
been subsequently denied, the case is now before Us for review at the instance of
the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations and
the real estate dealers fixed tax. With respect to the tax on corporations, the issue
hinges on the meaning of the terms "corporation" and "partnership," as used in
section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding taxable year from
all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (compaias colectivas), a tax upon such income equal to
the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, properly, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the facts
and circumstances surrounding the case, we are fully satisfied that their purpose
was to engage in real estate transactions for monetary gain and then divide the
same among themselves, because:
1. Said common fund was not something they found already in existence. It was not
property inherited by them pro indiviso. They created it purposely. What is more
2
they jointly borrowed a substantial portion thereof in order to establish said common
fund.
2. They invested the same, not merely not merely in one transaction, but in
a series of transactions. On February 2, 1943, they bought a lot for P100,000.00. On
April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on April
23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days
later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transactions undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioners in
February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way
of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely Simeon Evangelista, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over twelve
(12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose
in creating the set up already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality
independent of that of its members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance,

section 24 of said Code exempts from the aforementioned tax "duly registered
general partnerships which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code,
"the term corporation includes partnerships, no matter how created or organized."
This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said section
84(b), the term "corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality of its own,
independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" which are possessed of the aforementioned personality have
been expressly excluded by law (sections 24 and 84 [b] from the connotation of the
term "corporation" It may not be amiss to add that petitioners' allegation to the
effect that their liability in connection with the leasing of the lots above referred to,
under the management of one person even if true, on which we express no
opinion tends to increase the similarity between the nature of their venture and
that corporations, and is, therefore, an additional argument in favor of the imposition
of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed
differently from "partnerships". By specific provisions of said laws, such
"corporations" include "associations, joint-stock companies and insurance
companies." However, the term "association" is not used in the aforementioned
laws.
. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its members or participants change, and
the affairs of which, like corporate affairs, are conducted by a single individual, a
committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock
corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'
trust, and 'investment' trust (whether of the fixed or the management type), an
interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is
not, within the meaning of the Code, a trust or an estate, or a partnership. (7A
Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it
includes not only a partnership as known at common law but, as well, a syndicate,
group, pool, joint venture or other unincorporated organizations which carries on
any business financial operation, or venture, and which is not, within the meaning of
the Code, a trust, estate, or a corporation. . . (7A Merten's Law of Federal Income
taxation, p. 789; emphasis supplied.)
3
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships with the exception only of duly registered general
copartnerships within the purview of the term "corporation." It is, therefore, clear
to our mind that petitioners herein constitute a partnership, insofar as said Code is
concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No.
465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how created or
organized, whether domestic or resident foreign, engaged in or doing business in the
Philippines shall pay an annual residence tax of five pesos and an annual additional
tax which in no case, shall exceed one thousand pesos, in accordance with the
following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership,
joint account (cuentas en participacion), association or insurance company, no
matter how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section
24 and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466),
and that the latter was approved on June 15, 1939, the day immediately after the
approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with substantially
the same meaning. Consequently, petitioners are subject, also, to the residence tax
for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the
properties above mentioned for a period of over twelve years, and that the yearly
gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to
P17,453. Thus, they are subject to the tax provided in section 193 (q) of our National
Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section
194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding
himself out as a full or part time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with
costs against the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a
common fund with express purpose of engaging in real estate business for profit.
The series of transactions which they had undertaken attest to this. This appears in
the following portion of the decision:
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000. On April 3, 1944,
they purchase 21 lots for P18,000. This was soon followed on April 23, 1944, by the
acquisition of another real state for P108,825. Five (5) days later (April 28, 1944),
they got a fourth lot for P237,234.14. The number of lots (24) acquired and
transactions undertaken, as well as the brief interregnum between each, particularly
the last three purchases, is strongly indicative of a pattern or common design that
was not limited to the conservation and preservation of the aforementioned common
fund or even of the property acquired by the petitioner in February, 1943, In other
words, we cannot but perceive a character of habitually peculiar
to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides:
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish partnership, whether or
not the person sharing them have a joint or common right or interest in any property
from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-ownership
shared or do not share any profits made by the use of property held in common does
not convert their venture into a partnership. Or the sharing of the gross returns does
not of itself establish a partnership whether or not the persons sharing therein have
a joint or common right or interest in the property. This only means that, aside from
the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a judicial
personality different from that of the individual partners, and the freedom to transfer
or assign any interest in the property by one with the consent of the others (Padilla,
Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds derived. (Elements of
the law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.)
4
A joint venture purchase of land, by two, does not constitute a copartnership in
respect thereto; nor does not agreement to share the profits and loses on the sale of
land create a partnership; the parties are only tenants in common. (Clark vs.
Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract
of reality, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to
third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally a participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.
(Municipal Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.)
The common ownership of property does not itself create a partnership between the
owners, though they may use it for purpose of making gains; and they may, without
becoming partners, agree among themselves as to the management and use of
such property and the application of the proceeds therefrom. (Spurlock vs. Wilson,
142 S. W. 363, 160 No. App. 14.)
This is impliedly recognized in the following portion of the decision: "Although, taken
singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances (referring to the series of
transactions) such as to leave no room for doubt on the existence of said intent in
petitioners herein."
EVANGELISTA VS CIR
Facts: Petitioners borrowed money from their father and purchased several lands.
For several years, these lands were leased to tenants by the petitioners. In 1954,
respondent Collector of Internal Revenuedemanded from petitioners the payment
of income tax on corporations, real estate dealer's fixed tax and corporation
residence tax for the years 1945-1949. A letter of demand and
correspondingassessments were delivered to petitioners. Petitioners claim that they
should be absolved from paying said taxes since they are not a corporation.
Issue: Whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal
Revenue Code, as well as to the residence tax for corporations and the real estate
dealers fixed tax.
Held: Yes. Petitioners are subject to the income tax and residence tax for
corporation.
As defined in section 84 (b) of the Internal Revenue Code, "the term corporation
includes partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of
the standard forms, or in conformity with the usual requirements of the law on
 5

partnerships, in order that one could be deemed constituted for purposes of the tax
on corporations. Partnership, as has been defined in the civil code refers to two or
more persons who bind themselves to contribute money, properly, or industry to a
common fund, with the intention of dividing the profits among themselves. Thus,
petitioners, being engaged in the real estate transactions for monetary gain and
dividing the same among themselves constitute a partnership so far as the Code is
concerned and are subject to income tax for corporation.

Since Sec 2 of the Code in defining corporations also includes joint-stock company,
partnership, joint account, association or insurance company, no matter how created
or organized, it follows that petitioners, regardless of how their partnership was
created is alsosubject to the residence tax for corporations.

G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and
CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V.
LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE
F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court
of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision
dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three
(3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be,
with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary
purpose of manufacturing and marketing sanitary wares. One of the incorporators,
Mr. Baldwin Young went abroad to look for foreign partners, European or American
who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation
domiciled in Delaware, United States entered into an Agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino investors agreed to participate
in the ownership of an enterprise which would engage primarily in the business of
manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines
shall be carried on by an incorporated enterprise and that the name of the
corporation shall initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on
the nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
6
(a) The management of the Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts
and the right to designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the
condition that at least 60% of the capital stock of the corporation shall be owned by
Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According
to the Filipino group, a basic disagreement was due to their desire to expand the
export operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports
were contemplated. On March 8, 1983, the annual stockholders' meeting was held.
The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in
turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last
two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to
nominate only nine persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the
3 nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua
protested the decision of the Chairman and announced that all votes accruing to ASI
shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes

equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, and Baldwin Young. The Secretary then certified for the election of the
following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr.,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin
Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617).
This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the American
Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by
the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie
among the other six (6) nominees for the four (4) remaining positions of directors
and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for
preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against
Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No.
2417. The second petition was for quo warranto and application for receivership by
Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets
of parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
The two petitions were consolidated and tried jointly by a hearing officer who
rendered a decision upholding the election of the Lagdameo Group and dismissing
the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's
decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in
its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.
7
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles
Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN
IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING
THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY
REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO
THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on
the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property
rights of stockholders without due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a continuing monopoly of
the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT
THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO
FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH
1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined: (1) the nature of the
business established by the parties whether it was a joint venture or a corporation
and (2) whether or not the ASI Group may vote their additional 10% equity during
elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the
interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and
Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20
Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-
GR No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7,
Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young
Group never pleaded in their pleading that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and therefore,
there can be, between the parties and their successors in interest, no evidence of
the terms of the agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties or the validity of the agreement is put in issue
by the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their
Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed
to express the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two
distinct groups of stockholders in Saniwares one of which (the Philippine Investors)
shall constitute the majority, and the other ASI shall constitute the minority
stockholder. In any event, the evident intention of the Philippine Investors and ASI in
8
entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted together attributing to the doubtful
ones that sense which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371,
New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question whether
they intended by their agreement to create a joint adventure, or to assume some
other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27
Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as
well as the testimonial evidence presented by the Lagdameo and Young Group
shows that the parties agreed to establish a joint venture and not a corporation. The
history of the organization of Saniwares and the unusual arrangements which govern
its policy making body are all consistent with a joint venture and not with an
ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under
the Agreement, ASI agreed to provide technology and know-how to Saniwares and
the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9
votes of the board of directors for certain actions, in effect gave ASI (which
designates 3 directors under the Agreement) an effective veto power. Furthermore,
the grant to ASI of the right to designate certain officers of the corporation; the

super-majority voting requirements for amendments of the articles and by-laws; and
most significantly to the issues of tms case, the provision that ASI shall designate 3
out of the 9 directors and the other stockholders shall designate the other 6, clearly
indicate that there are two distinct groups in Saniwares, namely ASI, which owns
40% of the capital stock and the Philippine National stockholders who own the
balance of 60%, and that 2) ASI is given certain protections as the minority
stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture.
Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing
herein contained shall be construed to constitute any of the parties hereto partners
or joint venturers in respect of any transaction hereunder" was merely to obviate the
possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a
firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The
foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test
the Philippine waters, so to speak. Or the covetousness may come later. As the
Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is
not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in
industries where constitutional and legal requirements reserve controlling ownership
to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any voting rights, the shares held by
them shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
9
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because
it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from
each other but are divisible into groups representing a single Identifiable interest.
For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered
as one (which, it is respectfully submitted, they should be for purposes of
determining how closely held Saniwares is there were as of 8 March 1983, practically
only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of
appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint
venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335;
Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard
Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90,
295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint
Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt
with legal questions as to the extent to which the requirements arising from the
corporate form of joint venture corporations should control, and the courts ruled that
substantial justice lay with those litigants who relied on the joint venture agreement
rather than the litigants who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has
pointed out that just as in close corporations, shareholders' agreements in joint
venture corporations often contain provisions which do one or more of the following:
(1) require greater than majority vote for shareholder and director action; (2) give
certain shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of disputes by arbitration
(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this
provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to in
close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close
corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come
within the definition. In such case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are otherwise valid. (Campos
& Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation
or nomination of directors restricts the right of the Agreement's signatories to vote
for directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp.
90-94)
In regard to the question as to whether or not the ASI group may vote their
additional equity during elections of Saniwares' board of directors, the Court of
Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining
six by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations
thereunder. Appellants seem to contend that any allocation of board seats, even in
joint venture corporations, are null and void to the extent that such may interfere
with the stockholder's rights to cumulative voting as provided in Section 24 of the
Corporation Code. This Court should not be prepared to hold that any agreement
which curtails in any way cumulative voting should be struck down, even if such
agreement has been freely entered into by experienced businessmen and do not
prejudice those who are not parties thereto. It may well be that it would be more
cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and
local stockholders, so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule
on this question. Rather, all that needs to be done is to give life and effect to the
10
particular contractual rights and obligations which the parties have assumed for
themselves.
On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should
recognize and uphold the division of the stockholders into two groups, and at the
same time uphold the right of the stockholders within each group to cumulative
voting in the process of determining who the group's nominees would be. In practical
terms, as suggested by appellant Luciano E. Salazar himself, this means that if the
Filipino stockholders cannot agree who their six nominees will be, a vote would have
to be taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group
has the right to vote their additional equity pursuant to Section 24 of the
Corporation Code which gives the stockholders of a corporation the right to
cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which
provides:
And provided finally that the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in
the capital of such entities. (amendments introduced by Presidential Decree 715,
section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the
Corporation Code. The point of query, however, is whether or not that provision is
applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact
hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual

right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12
289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P.
2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal,
and a particular partnership may have for its object a specific undertaking. (Art.
1783, Civil Code). It would seem therefore that under Philippine law, a joint venture
is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167)
43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the
parties as regards the allocation of director seats under Section 5 (a) of the
"Agreement," and the right of each group of stockholders to cumulative voting in the
process of determining who the group's nominees would be under Section 3 (a) (1)
of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to
the manner of nominating the members of the board of directors while Section 3 (a)
(1) relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority
of the board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
11
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the
Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner
Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted,
however, that the same law also limits the election of aliens as members of the
board of directors in proportion to their allowance participation of said entity. In the
instant case, the foreign Group ASI was limited to designate three directors. This is
the allowable participation of the ASI Group. Hence, in future dealings, this limitation
of six to three board seats should always be maintained as long as the joint venture
agreement exists considering that in limiting 3 board seats in the 9-man board of
directors there are provisions already agreed upon and embodied in the parties'
Agreement to protect the interests arising from the minority status of the foreign
investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors
allotted the Filipino stockholders should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the word "designate" meaning "nominate,
delegate or appoint."
They also stress the possibility that the ASI Group might take control of the
enterprise if the Filipino stockholders are allowed to select their nominees separately
and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in
relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1)
relates to the manner of voting for these nominees which is cumulative voting while
section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they
cannot now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being
genuine members of the Filipino group, not voters whose interest is to increase the
ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under
its original agreement. Cumulative voting may not be used as a device to enable ASI
to achieve stealthily or indirectly what they cannot accomplish openly. There are
 12

substantial safeguards in the Agreement which are intended to preserve the
majority status of the Filipino investors as well as to maintain the minority status of
the foreign investors group as earlier discussed. They should be maintained.
The Agreement also requires a 75% super-majority vote for the amendment
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED
and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the
Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R.
Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly
elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In
all other respects, the questioned decision is AFFIRMED. Costs against the
petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
The legal concept of a joint venture is of common law origin. It has no
SO ORDERED.
Aurbach vs. Sanitary Wares
(Partnership; Joint Venture; Foreign and Domestic Corp)
F: This consolidated petition assailed the decision of the CA directing a certain
MANNER OF ELECTION OF OFFICERS IN THE BOARD OF DIRECTORS
*There are two groups in this case, the Lagdameo group composed of Filipino
investors and the American Standard Inc. (ASI) composed of foreign investors.
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a
corporation and not a joint venture.
acts. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions
of the articles and by-laws of Saniwares. ASI is also given the right to
designate the president and plant manager .The Agreement further
provides that the sales policy of Saniwares shall be that which is normally
followed by ASI and that Saniwares should not export "Standard" products
otherwise than through ASI's Export Marketing Services. Under the
Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same.
precise legal definition but it has been generally understood to mean an
organization formed for some temporary purpose. It is in fact hardly
distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a
mutual right of control.
The main distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary
nature.

I: The main issue hinges on who were the duly elected directors of Saniwares for the
year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer
this question the following factors should be determined:

*(1) the nature of the business established by the parties whether it was a joint
venture or a corporation and

H:

While certain provisions of the Agreement would make it appear that the
parties thereto disclaim being partners or joint venturers such disclaimer is
directed at third parties and is not inconsistent with, and does not preclude,
the existence of two distinct groups of stockholders in Saniwares one of
which (the Philippine Investors) shall constitute the majority, and the other
ASI shall constitute the minority stockholder. In any event, the evident
intention of the Philippine Investors and ASI in entering into the
Agreement is to enter into a joint venture enterprise

An examination of the Agreement shows that certain provisions were

inccuded to protect the interests of ASI as the minority. For example, the
vote of 7 out of 9 directors is required in certain enumerated corporate

[G.R. No. 127347. November 25, 1999]
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS
and FELICIDAD S. VDA. DE ABROGAR, respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision[1] of the Court of Appeals,
dated November 29, 1990, which reversed the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed
the petition for declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Private respondent and her late husband, Ruben M. Abrogar, were
the registered owners of a house and lot, covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be executed by the FIRST PARTY conveying
the property to the SECOND PARTY for and in consideration of the sum of Two
Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase
the said property within a period of ninety (90) days from the execution of this
memorandum of agreement effective April 18, 1991, for the amount of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the
said property within a period of ninety (90) days, the FIRST PARTY is obliged to
deliver peacefully the possession of the property to the SECOND PARTY within fifteen
(15) days after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis
pendens or whatever claims on the property nor shall be cause the annotation of say
claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY against
any party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the
account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the
13
principal amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of
delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property
within ninety (90) days period above-mentioned, this memorandum of agreement
shall be deemed cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the parties and the
SECOND PARTY shall proceed to transfer ownership of the property above described
to its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale,[3] dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000.00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in
the Memorandum of Agreement.[4]
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power of
attorney mentioned above, petitioner caused the cancellation of TCT No. 195101
and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co.
[5]
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the
premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial
Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent
did not redeem the subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent appealed first to the
Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of Appeals,
and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale
with the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4,
1993.She alleged that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was supposed to have been
executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City which
was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
 14

Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they
could not personally appear before Notary Public Lamberto C. Nanquil on June 11,
1991 because her husband, Ruben Abrogar, died on May 8, 1991 or one month and
2 days before the execution of the Deed of Absolute Sale, while the plaintiff was still
in the Quezon City Medical Center recuperating from wounds which she suffered at
the same vehicular accident on May 8, 1991, cannot be sustained. The Court is
convinced that the three required documents, to wit: the Memorandum of
Agreement, the Special Power of Attorney, and the Deed of Absolute Sale were all
signed by the parties on the same date on April 18, 1991. It is a common and
accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff
never questioned receiving the sum of P200,000.00 representing her loan from the
defendant. Common sense dictates that an established lending and realty firm like
the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who
are virtual strangers to it, without the simultaneous accomplishment and signing of
all the required documents, more particularly the Deed of Absolute Sale, to protect
its interest.
....
WHEREFORE, foregoing premises considered, the case in caption is hereby
ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New
Civil Code finds strong application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the
residential house of plaintiff-appellant stands. The property is inside a
subdivision/village. The property is situated in Marikina which is already part of
Metro Manila. The alleged sale took place in 1991 when the value of the land had
considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33
per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-
appellant is obliged to deliver peacefully the possession of the property to the
SECOND PARTY within fifteen (15) days after the expiration of the said ninety (90)
day grace period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property sold as if they were
still the absolute owners. There was no provision for maintenance or expenses,
much less for payment of rent.
possession of the land covered by the tax declaration, constitute evidence of great
weight that a person under whose name the real taxes were declared has a claim of
right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602
of the New Civil Code is sufficient to declare a contract of sale with right to
repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually
inadequate, has retained possession of the subject property and has continued
paying the realty taxes over the subject property, (circumstances mentioned in par.
(1) (2) and (5) of Article 1602 of the New Civil Code), it must be conclusively
presumed that the transaction the parties actually entered into is an equitable
mortgage, not a sale with right to repurchase. The factors cited are in support to the
finding that the Deed of Sale/Memorandum of Agreement with right to repurchase is
in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was
executed by reason of the loan extended by defendant-appellee to plaintiff-
appellant. The amount of loan being the same with the amount of the purchase
price.
....
Since the real intention of the party is to secure the payment of debt, now deemed
to be repurchase price: the transaction shall then be considered to be an equitable
mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a
pactum commissorium which is clearly prohibited by Article 2088 of the New Civil
Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to
exist: (1) that there should be a pledge or mortgage wherein a property is pledged
or mortgaged by way of security for the payment of principal obligation; and (2) that
there should be a stipulation for an automatic appropriation by the creditor of the
thing pledged and mortgaged in the event of non-payment of the principal obligation
within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-
appellant secured by a mortgage on the property of plaintiff-appellant. The loan was
payable within ninety (90) days, the period within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of
plaintiff-appellee to pay the P230,000,00 within the ninety (90) days period, the
property shall automatically belong to defendant-appellee by virtue of the deed of
sale executed.

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the
property sold. It is well-known that payment of taxes accompanied by actual

Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so
declare to be invalid, for being violative of law.
....
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and
SET ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101
issued in favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in
favor of defendant-appellee pursuant to the questioned Deed of Sale is hereby
declared VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101 of
the Registry of Marikina is hereby ordered REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days from the finality of this decision. In
case of failure to pay the amount of P230,000.00 from the period therein stated, the
property shall be sold at public auction to satisfy the mortgage debt and costs and if
there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila &
Co., against which this case should have been brought; (2) the judgment in the
ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held by
the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that every action must be prosecuted and defended in the name of
the real party in interest. A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. [7] This ruling is
now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any decision
rendered against a person who is not a real party in interest in the case cannot be
executed.[8] Hence, a complaint filed against such a person should be dismissed for
failure to state a cause of action.[9]
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate
and distinct from that of each of the partners. The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal purposes.
[10]
In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. [11] We
cannot understand why both the Regional Trial Court and the Court of Appeals
sidestepped this issue when it was squarely raised before them by petitioner.
15
Our conclusion that petitioner is not the real party in interest against whom this
action should be prosecuted makes it unnecessary to discuss the other issues raised
by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED.
SO ORDERED.
AGUILA VS CA CASE DIGEST
Business Organization Partnership, Agency, Trust Identity Separate and Distinct
In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan
agreement with a lending firm called A.C. Aguila & Sons, Co., a partnership. The loan
was for P200k. To secure the loan, the spouses mortgaged their house and lot
located in a subdivision. The terms of the loan further stipulates that in case of non-
payment, the property shall be automatically appropriated to the partnership and a
deed of sale be readily executed in favor of the partnership. She does have a 90 day
redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the
property and so the firm filed an ejectment case against her (wherein she lost). She
also failed to redeem the property within the period stipulated. She then filed a civil
case against Alfredo Aguila, manager of the firm, seeking for the declaration of
nullity of the deed of sale. The RTC retained the validity of the deed of sale. The
Court of Appeals reversed the RTC. The CA ruled that the sale is void for it is
a pactum commissorium sale which is prohibited under Art. 2088 of the Civil Code
(note the disparity of the purchase price, which is the loan amount, with the actual
value of the property which is after all located in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party in
interest. As pointed out by Aguila, he is not the real party in interest but rather it
was the partnership A.C. Aguila & Sons, Co. The Rules of Court provide that every
action must be prosecuted and defended in the name of the real party in interest. A
real party in interest is one who would be benefited or injured by the judgment, or
who is entitled to the avails of the suit. Any decision rendered against a person who
is not a real party in interest in the case cannot be executed. Hence, a complaint
filed against such a person should be dismissed for failure to state a cause of action,
as in the case at bar.
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate
and distinct from that of each of the partners. The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal
purposes. In this case, Felicidad has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. It
is the partnership, not its officers or agents, which should be impleaded in any
litigation involving property registered in its name. A violation of this rule will result
in the dismissal of the complaint.
16

[G.R. No. 122807. July 5, 1996]
ROGELIO P. MENDIOLA, petitioner, vs. COURT OF APPEALS and PHILIPPINE
NATIONAL BANK, respondents.
RESOLUTION
HERMOSISIMA, JR., J.:
Sometime in December 1987, a certain Ms. Norma S. Nora convinced petitioner
Rogelio Mendiola to enter into a joint venture with her for the export of prawns. As
proposed by Ms. Nora, they were to secure financing from private respondent
Philippine National Bank. The credit line, it was agreed on, was to be secured by
collaterals consisting of real estate properties of the petitioner, particularly two (2)
parcels of land, situated in Marikina, and covered by Transfer Certificate of Title No.
27307 issued by the Registry of Deeds of Marikina, Rizal.
On January 27, 1988, the petitioner signed a Special Power of Attorney authorizing
Ms. Norma S. Nora to mortgage his aforementioned properties to PNB in order to
secure the obligations of the joint venture with the said bank of up to Five (5) Million
(5,000,000.00) Pesos. The planned joint venture became a failure even before it
could take off the ground. But, in the meantime, Ms. Norma S. Nora, on the strength
of the special power of attorney issued in her favor, obtained loans from PNB in the
amount of P8,101,440.62 for the account of petitioner and secured by the parcels of
land hereinabove described.
On November 11, 1988, petitioner rather belatedly revoked the special power of
attorney in favor of Ms. Nora and requested PNB to release his properties from the
mortgage executed by Ms. Nora in its favor. The request notwithstanding, petitioner
was notified under a Notice of Sheriff Sale, dated April 20, 1989, that PNB had
initiated foreclosure proceedings against the properties of the petitioner.
On May 16, 1989, petitioner filed a case for injunction against the PNB, docketed as
Civil Case No. 58173, with Branch 162, of the Regional Trial Court of Pasig City,
seeking to enjoin the foreclosure of the properties in question. PNB filed a motion to
dismiss the case on the ground that the complaint did not state a sufficient cause of
action. After hearing, the trial court, in its Order, dated August 17, 1989, granted
PNB's motion to dismiss in this wise:
"Since the Court finds that the complaint does not state a sufficient cause of action,
it follows therefore that the prayer, for issuance of the writ of preliminary injunction
has no leg to stand on.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the complaint is hereby ordered
dismissed, without pronouncement as to costs. The temporary restraining order
under the date of May 16, 1989 is hereby lifted and set aside." [1]
Petitioner filed a Notice of Appeal from said Order, which was noted by the lower
court in an Order, dated November 16, 1989.
While Civil Case No. 58173 was pending appeal with the court a
quo, aforementioned properties were sold in an auction sale on October 3, 1990. The
PNB, as the highest bidder, acquired petitioner's properties.
17
On October 10, 1990, petitioner filed an action to annul the auction sale of October
3, 1990, which was docketed as Civil Case No. 60012. The case was raffled to Branch
154 of the Regional Trial Court of Pasig City.
PNB likewise filed a motion to dismiss Civil Case No. 60012 alleging that "another
action is pending between the same parties for the same cause of action."
Apparently, PNB was referring to Civil Case No. 58173 then pending with respondent
Court of Appeals. Attached to the motion to dismiss was a copy of the complaint in
Civil Case No. 58173 which had the same allegations as the complaint in Civil Case
No. 60012, except that the relief sought in the first case was to enjoin the
foreclosure of the mortgaged properties of the petitioner.
Petitioner opposed said motion to dismiss.
After due hearing, Branch 154, RTC of Pasig, issued an Order, dated February 28,
1991, granting PNB's motion to dismiss Civil Case No. 60012 on the ground of litis
pendentia. The dispositive portion of the Order reads:
"WHEREFORE, the Motion to Dismiss is hereby GRANTED, the injunction DENIED and
the instant complaint DISMISSED with prejudice, without costs." [2]
A motion for reconsideration was filed by the petitioner but the same was
denied. Petitioner appealed before the court a quo, which rendered its Decision,
dated November 15, 1995 in CA-GR. CV No. 37940, affirming the Orders issued by
Branch 154 of the RTC-Pasig, to wit:
"WHEREFORE, the orders herein appealed from are hereby affirmed in toto, with
costs against the plaintiff-appellant."[3]
Hence, the instant petition submitting the following grounds.
I
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE ORDER
DATED FEBRUARY 28, 1991 BASED ON THE ORDER DATED AUGUST 17, 1989
CONSIDERING THAT THE LATTER ORDER SIMPLY RESOLVED THAT THE MORTGAGE IN
FAVOR OF THE PHILIPPINE NATIONAL BANK IS BINDING UPON PETITIONER, BUT HAS
NOT RESOLVED IN THE DECRETAL PORTION OF SUCH LATTER ORDER WHETHER
PHILIPPINE NATIONAL BANK HAS THE RIGHT TO FORECLOSE SUCH MORTGAGE
BASED ON THE DEFAULTED OBLIGATIONS OF NORMA NORA, AND IT HAS NOT
LIKEWISE RESOLVED IN THE DECRETAL PORTION THEREOF WHETHER SUCH
DEFAULTED OBLIGATIONS OF NORMA NORA ARE SECURED BY THE MORTGAGE IN
FAVOR OF PHILIPPINE NATIONAL BANK; AND
II
ASSUMING FOR THE SAKE OF ARGUMENT THAT RES JUDICATA HAS SET IN, ITS
APPLICATION WOULD INVOLVE THE SACRIFICE OF JUSTICE TO TECHNICALITY. [4]
We deny the petition.
The instant petition has now become moot and academic, because the first case,
docketed as Civil Case No. 58173, which is an application for injunction filed by
herein petitioner before Branch 162 of the Regional Trial Court, Pasig City against

private respondent PNB to prevent the latter from foreclosing his real properties, and
which was then pending appeal before the court a quo at the time the second action
(Civil Case No. 60012) was filed, has now been finally dismissed by the respondent
Court of Appeals in CA-G.R. CV No. 29601, to wit:
"WHEREFORE, the appeal is hereby declared abandoned and is dismissed pursuant
to Section 1(d), Rule 50 of the Rules of Court."[5]
Consequently, the instant petition which prays for the declaration of nullity of the
auction sale by PNB of private respondent's properties [6] becomes dismissible under
the principle of res judicata.
Section 49, Rule 39 of the Revised Rules of Court provides in part:
"SEC. 49. Effect of judgments. - The effect of a judgment or final order rendered by a
court or judge of the Philippines, having jurisdiction to pronounce the judgment or
order, may be as follows:
xxxxxxxxx
(b) In other cases the judgment or order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation thereto,
conclusive between the parties and their successors-in-interest by title subsequent
to the commencement of the action or special proceeding, litigating for the same
thing and under the same title and; in the same capacity;
(c) In any other litigation between the same parties of their successors-in-interest,
that only is deemed to have been adjudged in a former judgment which appears
upon its face to have been so adjudged, or which was actually and necessarily
included therein or necessary thereto.
Section 49 (b) enunciates the first concept of res judicata known as "bar by prior
judgment," whereas, Section 49 is referred to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the first case where the judgment
was rendered, and the second case where such judgment is invoked, there is
identity of parties, subject matter and cause of action. When the three identities are
present, the judgment on the merits rendered in the first constitutes an absolute bar
to subsequent action. It is final as to the claim or demand in controversy, including
the parties and those in privity with them, not only as to every matter which was
offered and received to sustain or defeat the claim or demand, but as to any other
admissible matter which might have been offered for that purpose. But where
between the first case wherein judgment is rendered and the second case wherein
such judgment is invoked, there is no identity of cause of action, the judgment is
conclusive in the second case, only as to those matters actually and directly
controverted and determined, and not as to matters merely involved therein. This is
what is termed conclusiveness of judgment.[7]
It is res judicata in the first concept which finds relevant application in the case at
bar.
There are four (4) essential requisites which must concur in order for res judicata as
a "bar by former judgment" to attach, viz.:
18
"1. The former judgment must be final;
2. It must have been rendered by a court having jurisdiction over the subject matter
and the parties;
3. It must be a judgment or order on the merits; and
4. There must be between the first and second action identity of parties, identity of
subject matter, and identity of causes of action." [8]
All the foregoing requisites obtain in the present case. The Order of Branch 162, RTC
- Pasig, dated August 17, 1989, denying petitioner Mendiola's application for
injunction of the foreclosure of his properties in Civil Case No. 58173, had long
become final and executory in light of the Decision of the Court of Appeals in CA-G.R.
CV No. 29601 affirming the trial court's order. Petitioner did not appeal the Decision
of the court a quo in CA-G.R. CV No. 29601.
The parties do not dispute the fact that Branch 162, RTC, Pasig, had obtained
jurisdiction over the subject matter of the first case as well as over the parties
thereto.
The judgment of the trial court in Civil Case No. 58173, as affirmed by the Court of
Appeals, is a judgment on the merits. A judgment is on the merits when it
determines the rights and liabilities of the parties based on the disclosed facts,
irrespective of formal, technical or dilatory objections. It is not necessary, however,
that there should have been a trial. If the judgment is general, and not based on any
technical defect or objection, and the parties had a full legal opportunity to be heard
on their respective claims and contentions, it is on the merits although there was no
actual hearing or arguments on the facts of the case. [9] In the case at bar, not only
was petitioner provided an opportunity to be heard in support of his complaint for
injunction; petitioner was given an actual hearing to argue his complaint on its
merits.[10] Evidently, the Order of the trial court denying petitioner's application for
injunction was rendered only after due consideration of the facts and evidence
presented by both parties thereto. The said Order cannot be said to be one on sheer
technicality, it actually goes into the very substance of the relief sought therein by
petitioner, that is, for the issuance of a writ of injunction against the private
respondent, and must thus be regarded as an adjudication on the merits.
Finally, the fourth element is likewise extant in this case. Required in order to satisfy
this element are: (1) identity of the parties and subject matter; and (2) identity of
the causes of action. In Civil Case No. 58173, the complaint was filed by herein
petitioner Mendiola against private respondent PNB, Norma S. Nora, Eliezer L.
Castillo, Norman C. Nora, Grace S. Belvis, and Victor S. Sta. Ana, as Deputy Sheriff-
In-Charge. In Civil Case No. 60012, the complaint was filed by petitioner Mendiola
against private respondent PNB and Nilda P. Bongat in substitution of Grace S.
Belvis. It is to be noted that there is no absolute identity of parties on the two
cases. This is of no consequence. We have established jurisprudence to the effect
that, in order for res judicata to apply, absolute identity of parties is not required
because substantial identity is sufficient. [11] In any case, PNB is a defendant in both
cases. The subject matter involved in both cases, the real properties of petitioner
covered by TCT No. 27307, are also identical.

The similarity between the two causes of action is only too glaring. The test of
identity of causes of action lies not in the form of an action but on whether the same
evidence would support and establish the former and the present causes of
action. The difference of actions in the aforesaid cases is of no moment. [12] In Civil
Case No. 58173, the action is to enjoin PNB from foreclosing petitioner's properties,
while in Civil Case No. 60012, the action is one to annul the auction sale over the
foreclosed properties of petitioner based on the same grounds. Notwithstanding a
difference in the forms of the two actions, the doctrine of res judicatastill applies
considering that the parties were litigating for the same thing, i.e. lands covered by
TCT No. 27307, and more importantly, the same contentions and evidence as
advanced by herein petitioner in this case were in fact used to support the former
cause of action.
Petitioner, now argues on equitable grounds. He maintains that, assuming for the
sake of argument that res judicata has set in, its application would involve the
sacrifice of justice for technicality.
We are not persuaded.
Equity, which has been aptly described "a justice outside legality," is applied only in
the absence of, and never against, statutory law or judicial rules of procedure. The
pertinent positive rules being present here, they should pre-empt and prevail over
all abstract arguments based only on equity. [13]
WHEREFORE, in view of the foregoing, the petition should be, as it is, hereby
DENIED.
SO ORDERED.
MENDIOLA VS CA CASE DIGEST
11
ARSENIO T. MENDIOLA vs. COURT OF APPEALS, NATIONAL LABOR RELATIONS
COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB
(July 31, 2006)
DOCTRINE: In a partnership, the members become co-owners of what is contribute
d confirmation of his 50% equity of Pacfor Phils. Private respondent Pacfor, through
to the firm capital and of all property that may be acquired thereby and through the
efforts of the members. The property or stock of the partnership forms a community
of goods, a common fund, in which each party has a proprietary interest. In fact, the
New Civil Code regards a partner as a co-owner of specific partnership property.
Each partner possesses a joint interest in the whole of partnership property. If the
relation does not have this feature, it is not one of partnership. This essential
element, the community of interest, or co-ownership of, or joint interest in
partnership property is absent in the relations between petitioner and private
respondent Pacfor. xxx the parties in this case, merely shared profits. This alone doe
s 11
not make a partnership.
19
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter. This doctrine is based on the following
considerations: (1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly appointed
and authorized agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and exclusively; and, (2)
that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested
in the corporation.
PONENTE: Puno, J.
FACTS:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of
Cellulose Marketing International (organized in Sweden)
Private respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc." with petitioner Arsenio T. Mendiola
(ATM). The Side Agreement outlines the business relationship of the parties with
regard to the Philippine operations of Pacfor. Private respondent will establish a
Pacfor representative office in the Philippines, to be known as Pacfor Phils, and
petitioner ATM will be its President. Petitioner's base salary and the overhead
expenditures of the company shall be borne by the representative office and funded
by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and
Pacfor-usa.
PARTNERSHIP [1
st
SET]
(DIONNE) || D2014
In its application (to the SEC), private respondent Pacfor proposed to establish its
representative office in the Philippines. It also designated petitioner as its resident
agent in the Philippines, authorized to accept summons and processes in all legal
proceedings, and all notices affecting the corporation.
The Side Agreement was amended through a "Revised Operating and Profit Sharing
Agreement for the Representative Office Known as Pacific Forest Resources
(Philippines)," where the salary of petitioner was increased to $78,000 per annum.
Both agreements show that the operational expenses will be borne by the
representative office and funded by all parties "as equal partners," while the profits
and commissions will be shared among them.
In July 2000, petitioner wrote the Vice President for Asia of Pacfor, seeking
its President, replied that petitioner is not a part-owner of Pacfor Phils. because the
latter is merely Pacfor-USA's representative office and not an entity separate and
distinct from Pacfor-USA. "It's simply a 'theoretical company' with the purpose o
f
dividing the income 50-50."
Petitioner presumably knew of this arrangement
from the start, having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the Philippines to
save on taxes.

Petitioner claimed that he was all along made to believe that he was in a joint ventur
e misconduct for the latter's alleged act of fraud and misrepresentation in authorizing
with them; that he would have been better off remaining as an independent agent or
representative of Pacfor-USA as ATM Marketing Corp. Petitioner raised other issues,
such as the rentals of office furniture, salary of the employees, company car, as well
as commissions allegedly due him. The issues were not resolved, hence, in October
2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and
office furniture and equipment rentals.
Privatre respondent Pacfor through counsel ordered petitioner to turn over to it all
papers, documents, files, records, and other materials in his or ATM Marketing
Corporation's possession that belong to Pacfor or Pacfor Phils then to remit more
than 300k xmas giveaway fund for clients of Pacfor Phil and finally Pacfor withdraw
all its offers of settlement and ordered petitioner to transfer title and turn over to it
possession of the service car.
18
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils.
Petitioner construed these directives as a severance of the "unregistered
partnership" between him and Pacfor, and the termination of his employment as
resident manager of Pacfor Phils.
On the basis of the "Side Agreement," petitioner insisted that he and Pacfo
r SET]
equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a
12
50/50 basis, Pacfor Phils.' office furniture and equipment and the service car. He also
reiterated his demand for unpaid commissions, and proposed to offset these with th
e Issues: Was there an employer-employee relationship or a partnership? Can both
remaining Christmas giveaway fund in his possession. Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises
of
Pacfor Phils., wherein he was the signatory to the lease agreement.
Private respondent Pacfor placed petitioner on preventive suspension and ordered
him to show cause why no disciplinary action should be taken against him. Private
respondent Pacfor charged petitioner with willful disobedience and serious
misconduct for his refusal to turn over the service car and the Christmas giveaway
fund which he applied to his alleged unpaid commissions. Private respondent also
alleged loss of confidence and gross neglect of duty on the part of petitioner for
allegedly allowing another corporation owned by petitioner's relatives, High End
Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to
possibly steal and divert the sales and business of private respondent.
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
Presidents letters as a "cessation of his position and of the existence of Pacfor Phils.
" the members. The property or stock of the partnership forms a community of goods,
He likewise informed private respondent Pacfor that ATM Marketing Corp. now
occupies Pacfor Phils.' office premises, and demanded payment of his separation
pay.
Petitioner filed his complaint for illegal dismissal, recovery of separation pay, and
payment of attorney's fees with the NLRC.
Private respondent directed petitioner to explain why he should not be disciplined
20
for serious misconduct and conflict of interest; charged petitioner anew with serious
the release of an additional peso salary for himself, besides the dollar salary agreed
upon by the parties. Private respondent also accused petitioner of disloyalty and
representation of conflicting interests for having continued using the Pacfor Phils.'
office for operations of HEPI
LA: ruled in favor of petitioner, finding there was constructive dismissal. By
directing petitioner to turn over all office records and materials, regardless of
whether he may have retained copies, private respondent Pacfor virtually deprived
petitioner of his job by the gradual diminution of his authority as resident manager.
Petitioner's position as resident manager whose duty, among others, was to maintai
n
the security of its business transactions and communications was rendered
meaningless.
NLRC: in favor of Private respondent Pacfor. He set aside the July 30, 2001 decision
of the labor arbiter, for lack of jurisdiction and lack of merit. It held there was no
employer-employee relationship between the parties. Based on the two
agreements between the parties, it concluded that petitioner is not an
employee of private respondent Pacfor, but a full co-owner (50/50 equity).
MR denied.
PARTNERSHIP [1
st
(DIONNE) || D2014
CA: Affirmed holding that "the legal basis of the complaint is not employment but
perhaps partnership, co-ownership, or independent contractorship." Hence, the
Labor Code cannot apply.
MR denied
exist at the same time? There was an employer employee relationship but no
partnership
Was he constructively dismissed? (Not important so omitted) YES.
Ratio:
Petitioner argues that he is an industrial partner of the partnership he formed with
private respondent Pacfor, and also an employee of the partnership. Petitioner insist
s
that an industrial partner may at the same time be an employee of the partnership,
provided there is such an agreement, which, in this case, is the "Side Agreement" an
d
the "Revised Operating and Profit Sharing Agreement." We hold that petitioner is an
employee of private respondent Pacfor and that no partnership or co-ownership
exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby and through the efforts of
a common fund, in which each party has a proprietary interest. In fact, the New Civil
Code regards a partner as a co-owner of specific partnership property. Each partner
possesses a joint interest in the whole of partnership property. If the relation does
not have this feature, it is not one of partnership. This essential element, the
community of interest, or co-ownership of, or joint interest in partnership property
is absent in the relations between petitioner and private respondent Pacfor.
 21

Petitioner is not a part-owner of Pacfor Phils. William Gleason, private respondent private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an
Pacfor's President established this fact when he said that Pacfor Phils. is simply a agent of the corporation, a representative of Pacfor, who transacts business, and
"theoretical company" for the purpose of dividing the income 50-50. He stressed tha accepts service on its behalf.
t 44
petitioner knew of this arrangement from the very start, having been the one to This right of control was exercised by private respondent Pacfor during the period of
propose to private respondent Pacfor the setting up of a representative office, and November to December 2000, when it directed petitioner to turn over to it all
"not a branch office" in the Philippines to save on taxes. Thus, the parties in this cas records of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway
e, fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of
merely shared profits. This alone does not make a partnership. settlement and ordered petitioner to transfer title and turn over to it the possession
Besides, a corporation cannot become a member of a partnership in the absence of PARTNERSHIP [1
express authorization by statute or charter. This doctrine is based on the following st
considerations: (1) that the mutual agency between the partners, whereby the SET]
corporation would be bound by the acts of persons who are not its duly appointed (DIONNE) || D2014
of the service car. It was also during this period when private respondent Pacfor sent
13 letters to its clients in the Philippines, particularly Intercontinental Paper Industries,
and authorized agents and officers, would be inconsistent with the policy of the law Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its
that the corporation shall manage its own affairs separately and exclusively; and, (2) letter to DAVCOR, private respondent Pacfor replied to the client's request for an
that such an arrangement would improperly allow corporate property to become invoice payment extension, and formulated a revised payment program for DAVCOR.
subject to risks not contemplated by the stockholders when they originally invested This is one unmistakable proof that private respondent Pacfor exercises control over
in the corporation. No such authorization has been proved in the case at bar. the petitioner.
(This part goes into the employer-employee relationship bit, I dont think its DISPOSITIVE: IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals'
important but I included it na din if ever magtanong re: paano nagging employee) January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution,
Be that as it may, we hold that on the basis of the evidence, an employer-employee affirming the December 20, 2001 Decision of the National Labor Relations
relationship is present in the case at bar. The elements to determine the existence of Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor
an employment relationship are: (a) the selection and engagement of the employee; Arbiter isREINSTATED with the MODIFICATION that the amount of P250,000.00 re
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power presenting an alleged increase in petitioner's salary shall be deducted from the
to control the employee's conduct. The most important element is the employer's grant of separation pay for lack of evidence.
control of the employee's conduct, not only as to the result of the work to be done, SO ORDERED.
but also as to the means and methods to accomplish it.
43
In the instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner as its
resident agent in the Philippines. Second, as stipulated in their Side Agreement,
private respondent Pacfor pays petitioner his salary amounting to $65,000 per
annum which was later increased to $78,000. Third, private respondent Pacfor holds
the power of dismissal, as may be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive suspension while charging him
with various offenses, including willful disobedience, serious misconduct, and gross
neglect of duty, and ordering him to show cause why no disciplinary action should b
e
taken against him.
Lastly and most important, private respondent Pacfor has the power of control over
the means and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the
actual exercise thereof. The principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not the actual exercise of the
right by interfering with the work, but the right to control, which constitutes the test
of the existence of an employer-employee relationship.
In the case at bar, private
respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, a
s
 22

G.R. No. 154486 December 1, 2010 of Participating Capital," they stated the participating capital of their co-owners as of
the year 1952, with Antonieta Jarantillas stated as eight thousand pesos (P8,000.00)
FEDERICO JARANTILLA, JR., Petitioner, and Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00). 12
vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by The present case stems from the amended complaint 13 dated April 22, 1987 filed by
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS Antonieta Jarantilla against Buenaventura Remotigue, Cynthia Remotigue, Federico
JARANTILLA, Respondents. Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the accounting of the assets
and income of the co-ownership, for its partition and the delivery of her share
DECISION corresponding to eight percent (8%), and for damages. Antonieta claimed that in
1946, she had entered into an agreement with Conchita and Buenaventura
LEONARDO-DE CASTRO, J.: Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in
business. Antonieta alleged that the initial contribution of property and money came
This petition for review on certiorari1 seeks to modify the Decision2 of the Court of
from the heirs inheritance, and her subsequent annual investment of seven
Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set aside the
thousand five hundred pesos (P7,500.00) as additional capital came from the
Decision3 dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon City,
proceeds of her farm. Antonieta also alleged that from 1946-1969, she had helped in
Branch 98 in Civil Case No. Q-50464.
the management of the business they co-owned without receiving any salary. Her
The pertinent facts are as follows: salary was supposedly rolled back into the business as additional investments in her
behalf. Antonieta further claimed co-ownership of certain properties 14 (the subject
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: real properties) in the name of the defendants since the only way the defendants
Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta. 4 Petitioner could have purchased these properties were through the partnership as they had no
Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by their son other source of income.
Federico Jarantilla, Sr. and his wife Leda Jamili. 5 Petitioner also has two other
brothers: Doroteo and Tomas Jarantilla. The respondents, including petitioner herein, in their Answer, 15 denied having
formed a partnership with Antonieta in 1946. They claimed that she was in no
Petitioner was one of the defendants in the complaint before the RTC while Antonieta position to do so as she was still in school at that time. In fact, the proceeds of the
Jarantilla, his aunt, was the plaintiff therein. His co-respondents before he joined his lands they partitioned were devoted to her studies. They also averred that while she
aunt Antonieta in her complaint, were his late aunt Conchita Jarantillas husband may have helped in the businesses that her older sister Conchita had formed with
Buenaventura Remotigue, who died during the pendency of the case, his cousin Buenaventura Remotigue, she was paid her due salary. They did not deny the
Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and Buenaventura existence and validity of the "Acknowledgement of Participating Capital" and in fact
Remotigue, and his brothers Doroteo and Tomas Jarantilla.6 used this as evidence to support their claim that Antonietas 8% share was limited to
the businesses enumerated therein. With regard to Antonietas claim in their other
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real corporations and businesses, the respondents said these should also be limited to
properties of their deceased parents. 7 With the exception of the real property the number of her shares as specified in the respective articles of incorporation. The
adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce of the said respondents denied using the partnerships income to purchase the subject real
real properties for the years 1947-1949 for the studies of Rafael and Antonieta properties and said that the certificates of title should be binding on her. 16
Jarantilla.8
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into one of the original defendants, entered into a compromise agreement 17 with
an agreement with the spouses Buenaventura Remotigue and Conchita Jarantilla to Antonieta Jarantilla wherein he supported Antonietas claims and asserted that he
provide mutual assistance to each other by way of financial support to any too was entitled to six percent (6%) of the supposed partnership in the same manner
commercial and agricultural activity on a joint business arrangement. This business as Antonieta was. He prayed for a favorable judgment in this wise:
relationship proved to be successful as they were able to establish a manufacturing
and trading business, acquire real properties, and construct buildings, among other Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an accounting
things.9 This partnership ended in 1973 when the parties, in an from the other defendants, and the partition of the properties of the co-ownership
"Agreement,"10 voluntarily agreed to completely dissolve their "joint business and the delivery to the plaintiff and to defendant Federico Jarantilla, Jr. of their
relationship/arrangement."11 rightful share of the assets and properties in the co-ownership. 181avvphi1

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a
document wherein they acknowledged that while registered only in Buenaventura
Remotigues name, they were not the only owners of the capital of the businesses
Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real,
Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement
The RTC, in an Order 19 dated March 25, 1992, approved the Joint Motion to Approve
Compromise Agreement20and on December 18, 1992, decided in favor of Antonieta,
to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the
plaintiff Antonieta Jarantilla and against defendants Cynthia Remotigue, Doroteo
Jarantilla and Tomas Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real
properties covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the Registry
of Deeds of Quezon City; TCT Nos. (18303)23341, 142882 & 490007(4615), all of the
Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato
based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue
Agro-Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc.
and Buendia Recapping Corporation based on the shares of stocks present book
value;
3. to account for the assets and income of the co-ownership and deliver to plaintiff
her rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as attorneys fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to the Court of
Appeals. The petitioner claimed that the RTC "erred in not rendering a complete
judgment and ordering the partition of the co-ownership and giving to [him] six per
centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTCs factual findings, it also
established that Antonieta Jarantilla was not part of the partnership formed in 1946,
and that her 8% share was limited to the businesses enumerated in the
Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals
rendered the herein challenged decision setting aside the RTCs decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE
and a new one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the
assets and profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the
assets and profits of the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the
extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
23
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but
the Court of Appeals denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review
on certiorari25 dated September 16, 2002, assailing the Court of Appeals decision on
"similar grounds and similar assignments of errors as this present case" 26 but it was
dismissed on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the
Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT
PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%)
SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER
DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD
OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the
Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and
Quintin Vismanos, as evidenced by the Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends that from this partnership,
several other corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his 6% share in
the subject real properties. He is relying on the Acknowledgement of Participating
Capital, on his own testimony, and Antonieta Jarantillas testimony to support this
contention.
The core issue is whether or not the partnership subject of the Acknowledgement of
Participating Capital funded the subject real properties. In other words, what is the
petitioners right over these real properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules
of Civil Procedure, only questions of law may be raised by the parties and passed
upon by this Court.29
A question of law arises when there is doubt as to what the law is on a certain state
of facts, while there is a question of fact when the doubt arises as to the truth or
falsity of the alleged facts. For a question to be one of law, the same must not
involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. Thus, the test of
whether a question is one of law or of fact is not the appellation given to such
question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which
case, it is a question of law; otherwise it is a question of fact. 30

Since the Court of Appeals did not fully adopt the factual findings of the RTC, this
Court, in resolving the questions of law that are now in issue, shall look into the facts
only in so far as the two courts a quo differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was
affirmed in the 1957 document, the "Acknowledgement of Participating Capital." The
RTC used this as its basis for giving Antonieta Jarantilla an 8% share in the three
businesses listed therein and in the other businesses and real properties of the
respondents as they had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to Antonietas 8%
share in the business enumerated in the Acknowledgement of Participating Capital,
but not as to her share in the other corporations and real properties. The Court of
Appeals ruled that Antonietas claim of 8% is based on the "Acknowledgement of
Participating Capital," a duly notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to pattern her share in the other
corporations from her share in the partnerships businesses. The Court of Appeals
also said that her claim in the respondents real properties was more "precarious" as
these were all covered by certificates of title which served as the best evidence as to
all the matters contained therein.32 Since petitioners claim was essentially the same
as Antonietas, the Court of Appeals also ruled that petitioner be given his 6% share
in the same businesses listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals, are final
and conclusive except in the following cases: (1) when the inference made is
manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of
discretion; (3) when the finding is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the
findings of the Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they
are based; (9) when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties and which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence on
record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with the
respondents as a co-ownership, but in the same breath, assert that a verbal
partnership was formed in 1946 and was affirmed in the 1957 Acknowledgement of
Participating Capital.
There is a co-ownership when an undivided thing or right belongs to different
persons.34 It is a partnership when two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.35 The Court, in Pascual v. The Commissioner
of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo Bautista in
24
Evangelista v. The Collector of Internal Revenue 37 to further elucidate on the
distinctions between a co-ownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of the new Civil Code
lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the property held in
common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership,
the existence of a juridical personality different from that of the individual partners,
and the freedom to transfer or assign any interest in the property by one with the
consent of the others.
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to become owners of a single tract
of realty, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in plaintiffs commission, no
partnership existed as between the three parties, whatever their relation may have
been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An intent to form
the same; (b) generally participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property. x x x.
The common ownership of property does not itself create a partnership between the
owners, though they may use it for the purpose of making gains; and they may,

without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom. 38 (Citations
omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a contract
of partnership: (a) an agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among the contracting parties . The
first element is undoubtedly present in the case at bar, for, admittedly, all the
parties in this case have agreed to, and did, contribute money and property to a
common fund. Hence, the issue narrows down to their intent in acting as they
did.39 It is not denied that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its profits. They have admitted
this fact, agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of
Participating Capital, it would be instructive to examine the pertinent portions of this
document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de
Remotigue, both of legal age, Filipinos and residents of Loyola Heights, Quezon City,
P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle
Real, Iloilo City and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all
dealing in athletic goods and equipments, and general merchandise are recorded in
their respective books with Buenaventura Remotigue as the registered owner and
are being operated by them as such:
That they are not the only owners of the capital of the three establishments and
their participation in the capital of the three establishments together with the other
co-owners as of the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)P25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
25
That aside from the persons mentioned in the next preceding paragraph, no other
person has any interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th
day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document
voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura Remotigue
in 1957. Petitioner does not dispute its contents and is actually relying on it to prove
his participation in the partnership. Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall
be in proportion to what he may have contributed, but the industrial partner shall
not be liable for the losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the circumstances. If besides his
services he has contributed capital, he shall also receive a share in the profits in
proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed
upon, or in the absence of any such stipulations, then to his share in proportion to
his contribution to the partnership. The petitioner himself claims his share to be 6%,
as stated in the Acknowledgement of Participating Capital. However, petitioner fails
to realize that this document specifically enumerated the businesses covered by the
partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue
Trading in Cotabato City. Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then there is no reason to
deviate from such agreement and go beyond the stipulations in the document.
Therefore, the Court of Appeals did not err in limiting petitioners share to the assets
of the businesses enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical
entity, the shares to be paid out to the partners is necessarily limited only to its total
resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. After all the creditors have
been paid, whatever is left of the partnership assets becomes available for the
payment of the partners shares.42

There is no evidence that the subject real properties were assets of the partnership
referred to in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents properties based on
the concept of trust. He claims that since the subject real properties were purchased
using funds of the partnership, wherein he has a 6% share, then "law and equity
mandates that he should be considered as a co-owner of those properties in such
proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of trusts, to
wit:
Express trusts are created by the intention of the trustor or of the parties, while
implied trusts come into being by operation of law, either through implication of an
intention to create a trust as a matter of law or through the imposition of the trust
irrespective of, and even contrary to, any such intention. In turn, implied trusts are
either resulting or constructive trusts. Resulting trusts are based on the equitable
doctrine that valuable consideration and not legal title determines the equitable title
or interest and are presumed always to have been contemplated by the parties.
They arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is
obligated in equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting the
need to prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the
trust and its elements. While implied trusts may be proved by oral evidence, the
evidence must be trustworthy and received by the courts with extreme caution, and
should not be made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject real
properties. Aside from his bare allegations, he has failed to show that the
respondents used the partnerships money to purchase the said properties. Even
assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came
from his share in the partnership profits. After all, by his own admission, and as
stated in the Acknowledgement of Participating Capital, he owned a mere 6% equity
in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties, by
relying on his own self-serving testimony and the equally biased testimony of
Antonieta Jarantilla. Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents did not have the means
to fund their other businesses and real properties without the partnerships income.
On the other hand, the respondents have not only, by testimonial evidence, proven
their case against the petitioner, but have also presented sufficient documentary
evidence to substantiate their claims, allegations and defenses. They presented
preponderant proof on how they acquired and funded such properties in addition to
tax receipts and tax declarations.47 It has been held that "while tax declarations and
26
realty tax receipts do not conclusively prove ownership, they may constitute strong
evidence of ownership when accompanied by possession for a period sufficient for
prescription."48Moreover, it is a rule in this jurisdiction that testimonial evidence
cannot prevail over documentary evidence. 49This Court had on several occasions,
expressed our disapproval on using mere self-serving testimonies to support ones
claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was sufficiently
proved by their witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree.
Their testimonies cannot prevail over the array of documents presented by Belen. A
claim of ownership cannot be based simply on the testimonies of witnesses; much
less on those of interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title over the
particular property described therein. Registration in the Torrens system does not
create or vest title as registration is not a mode of acquiring ownership; hence, this
cannot deprive an aggrieved party of a remedy in law. 52 However, petitioner asserts
ownership over portions of the subject real properties on the strength of his own
admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held by this
Court in Republic of the Philippines v. Orfinada, Sr. 53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land
referred to therein, and a strong presumption exists that a Torrens title was regularly
issued and valid. A Torrens title is incontrovertible against any informacion
possessoria, of other title existing prior to the issuance thereof not annotated on the
Torrens title. Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its face. 54
As we have settled that this action never really was for partition of a co-ownership,
to permit petitioners claim on these properties is to allow a collateral, indirect
attack on respondents admitted titles. In the words of the Court of Appeals, "such
evidence cannot overpower the conclusiveness of these certificates of title, more so
since plaintiffs [petitioners] claims amount to a collateral attack, which is
prohibited under Section 48 of Presidential Decree No. 1529, the Property
Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. A certificate of title shall not be
subject to collateral attack. It cannot be altered, modified, or cancelled except in a
direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when its
objective is to nullify the title, thereby challenging the judgment pursuant to which
the title was decreed."56 In Aguilar v. Alfaro,57 this Court further distinguished
between a direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief and
as an incident to the present action, an attack is made against the judgment
granting the title. This manner of attack is to be distinguished from a direct attack
against a judgment granting the title, through an action whose main objective is to
annul, set aside, or enjoin the enforcement of such judgment if not yet implemented,
or to seek recovery if the property titled under the judgment had been disposed of. x
x x.

Petitioners only piece of documentary evidence is the Acknowledgement of
Participating Capital, which as discussed above, failed to prove that the real
properties he is claiming co-ownership of were acquired out of the proceeds of the
businesses covered by such document. Therefore, petitioners theory has no factual
or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.
SO ORDERED.
JARANTILLA, JR. vs. JARANTILLA
636 SCRA 299, G.R. No. 154486, December 1, 2010, Leonardo-De Castro, J.:
p common fund. Hence, the issue narrows down to their intent in acting as they did . It
FACTS: The present case stems from the complaintfiled by Antonieta Jarantilla
against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets and income of the co-
ownership, for its partition and the delivery of her share corresponding to eight
percent (8%), and for damages. Antonieta claimed that in 1946, she had entered
into an agreement with the defendants to engage in business through the execution
of a document denominated as "Acknowledgement of Participating Capital.
Antonieta also alleged that she had helped in the management of the business they
co-owned without receiving any salary. Antonieta further claimed co-ownership of
certain properties (the subject real properties) in the name of the defendants since
the only way the defendants could have purchased these properties were through
the partnership as they had no other source of income. The respondents did not
deny the existence and validity of the "Acknowledgement of Participating Capital"
and in fact used this as evidence to support their claim that Antonietas 8% share
was limited to the businesses enumerated therein. The respondents denied using
the partnerships income to purchase the subject real properties.
27
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was
one of the original defendants, entered into a compromise agreement 17 with
Antonieta Jarantilla wherein he supported Antonietas claims and asserted that he
too was entitled to six percent (6%) of the supposed partnership in the same manner
as Antonieta was.
ISSUE: Whether or not the partnership subject of the Acknowledgement of
Participating Capital funded the subject real properties.
HELD: Under Article 1767 of the Civil Code, there are two essential elements in a
contract of partnership: (a) an agreement to contribute money, property or industry
to a common fund; and (b) intent to divide the profits among the contracting parties .
The first element is undoubtedly present in the case at bar, for, admittedly, all the
parties in this case have agreed to, and did, contribute money and property to a
is not denied that all the parties in this case have agreed to contribute capital to a
common fund to be able to later on share its profits. They have admitted this fact,
agreed to its veracity, and even submitted one common documentary evidence to
prove such partnership - the Acknowledgement of Participating Capital. The
petitioner himself claims his share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the partnership: Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City.
Since there was a clear agreement that the capital the partners contributed went to
the three businesses, then there is no reason to deviate from such agreement and
go beyond the stipulations in the document. There is no evidence that the subject
real properties were assets of the partnership referred to in the Acknowledgement of
Participating Capital. Petition denied.