Partnership (1st) 1

THIRD DIVISION

[G.R. No. 136448. November 3, 1999.]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC, respondent.

PANGANIBAN, J p:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being
partners, they are all liable for debts incurred by or on behalf of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract. cda

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477, 1 which disposed as follows:

"WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed." 2

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

"WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990; cdphil

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter
made by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of
this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus
P68,000.00 representing the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as
follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of auction sale); cdasia

e. Cost of suit.

"With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats in the
amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court noted that these
 Partnership (1st) 2
items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but, upon agreement of the
parties, and, to avoid further deterioration of the nets during the pendency of this case, it was ordered sold at public auction
for not less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached property as a guaranty for any
judgment that plaintiff may be able to secure in this case with the ownership and possession of the nets and floats awarded
and delivered by the sheriff to plaintiff as the highest bidder in the public auction sale. It has also been noted that ownership
of the nets [was] retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect, the
plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by
plaintiff to guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to
serve as its bond in favor of defendants.

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

SO ORDERED." 3 cdasia

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated February 7,
1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were also
sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a collection suit against
Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was brought against the
three in their capacities as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent
corporation as shown by a Certification from the Securities and Exchange Commission. 5 On September 20, 1990, the
lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on board F/B
Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila. LLpr

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

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

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided: cdll
 Partnership (1st) 3
"a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;

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

"c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered
and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao." 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that joint liability
could be presumed from the equal distribution of the profit and loss. 12

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business and may thus be
held liable as such for the fishing nets and floats purchased by and for the use of the partnership. The appellate court ruled:

"The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership for a
specific undertaking, that is for commercial fishing . . . . Obviously, the ultimate undertaking of the defendants was to divide
the profits among themselves which is what a partnership essentially is . . . . By a contract of partnership, two or more
persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits
among themselves (Article 1767, New Civil Code)." 13 cdtai

Hence, petitioner brought this recourse before this Court. 14

The Issues

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

"I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA,
YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED
AMONG THEM.

"II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

"III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIMS
GOODS."

In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent, the Court
must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.
cdasia

This Courts Ruling

The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA
finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the
 Partnership (1st) 4
Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that
the negotiations were conducted by Chua and Yao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated
February 1, 1990, showed that he had merely leased to the two the main asset of the purported partnership the fishing
boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the
boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly showed that there
existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which provides:

"ARTICLE 767. By the contract of partnership, two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves." llcd

Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while
Antonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.

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

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

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnership in the amount of
P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas
FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim. cdtai

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent
Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter
Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration
of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the
terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The contribution
to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties agreed that
any loss or profit from the sale and operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It
 Partnership (1st) 5
would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not have proceeded. cdtai

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

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

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered into only to end the dispute among them, but not to adjudicate
their preexisting rights and obligations. His arguments are baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.

A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all relevant facts. Both
lower courts have done so and have found, correctly, a preexisting partnership among the parties. In implying that the lower
courts have decided on the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the possible consequential combinations in harmony with law, logic
and fairness. Verily, the two lower courts factual findings mentioned above nullified petitioners argument that the existence
of a partnership was based only on the Compromise Agreement. LLphil

Petitioner Was a Partner, Not a Lessor

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

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

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

We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not
to him. Again, we disagree.

Section 21 of the Corporation Code of the Philippines provides:

 Partnership (1st) 6
"SECTION 21. Corporation by estoppel. All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.

"One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that
there was in fact no corporation." LibLex

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

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

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

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name does not
appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he cannot be
held liable.

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

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties
in representation of it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of
the contract entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in
Alonso v. Villamor: 19 prLL

"A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and
position, entraps and destroys the other. It is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and technicalities of
procedure, asks that justice be done upon the merits. Lawsuits, unlike duels, are not to be won by a rapiers thrust.
 Partnership (1st) 7
Technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts. There should be no vested rights in technicalities."

Third Issue:

Validity of Attachment

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

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. Cdpr

SO ORDERED.

G.R. No. 154486 December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE, DOROTEO
JARANTILLA and TOMAS JARANTILLA, Respondents.

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July 30, 2002 in CA-G.R.
CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon City,
Branch 98 in Civil Case No. Q-50464.

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin, Benjamin, Conchita,
Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by
their son Federico Jarantilla, Sr. and his wife Leda Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas
Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt, was the plaintiff
therein. His co-respondents before he joined his aunt Antonieta in her complaint, were his late aunt Conchita Jarantillas
husband Buenaventura Remotigue, who died during the pendency of the case, his cousin Cynthia Remotigue, the adopted
daughter of Conchita Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their deceased
parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce of
the said real properties for the years 1947-1949 for the studies of Rafael and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the spouses
Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other by way of financial support to
any commercial and agricultural activity on a joint business arrangement. This business relationship proved to be successful
as they were able to establish a manufacturing and trading business, acquire real properties, and construct buildings,
among other things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to completely
dissolve their "joint business relationship/arrangement."11
 Partnership (1st) 8
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 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) and Federico
Jarantilla, Jr.s as five thousand pesos (P5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed 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 Conchita and
Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged
that the initial contribution of property and money came from the heirs inheritance, and her subsequent annual investment
of seven thousand five hundred pesos (P7,500.00) as additional capital came from the proceeds of her farm. Antonieta also
alleged that from 1946-1969, she had helped in the management of the business they co-owned without receiving any
salary. Her salary was supposedly rolled back into the business as additional investments in her behalf. Antonieta further
claimed co-ownership of certain properties14 (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, including petitioner herein, in their Answer,15 denied having formed a partnership with Antonieta in 1946.
They claimed that she was in no position to do so as she was still in school at that time. In fact, the proceeds of the lands
they partitioned were devoted to her studies. They also averred that while she may have helped in the businesses that her
older sister Conchita had formed with Buenaventura Remotigue, she was paid her due salary. They 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. With regard to Antonietas claim in their
other corporations and businesses, the respondents said these should also be limited to the number of her shares as
specified in the respective articles of incorporation. The respondents denied using the partnerships income to purchase the
subject real properties and said that the certificates of title should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original defendants, entered
into a compromise agreement17 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. He prayed for a
favorable judgment in this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an accounting from the other defendants, and the
partition of the properties of the co-ownership and the delivery to the plaintiff and to defendant Federico Jarantilla, Jr. of their
rightful share of the assets and properties in the co-ownership.181avvphi1

The RTC, in an Order19 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%;
 Partnership (1st) 9
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
(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?
 Partnership (1st) 10
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.32Since 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 Evangelista v. The Collector of Internal Revenue37 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;
 Partnership (1st) 11
(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:

 Partnership (1st) 12
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

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:
 Partnership (1st) 13
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 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
 Partnership (1st) 14
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
anyinformacion 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.

THIRD DIVISION

[G.R. No. 75875. December 15, 1989.]

WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs. SANITARY
WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.

Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

[G.R. No. 7595. December 15, 1989]

 Partnership (1st) 15
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, petitioners, vs. THE COURT OF
APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO
SALAZAR, respondents.

[G.R. Nos. 75975-76. December 15, 1989]

LUCIANO E. SALAZAR, petitioner, vs. SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V.

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

SYLLABUS

1. COMMERCIAL LAW; JOINT VENTURE; WHETHER THERE EXISTS A JOINT VENTURE DEPENDS UPON THE
PARTIES' ACTUAL INTENTION WHICH IS DETERMINED IN ACCORDANCE WITH THE RULES COVERING THE
INTERPRETATION AND CONSTRUCTION OF CONTRACTS. 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)

2. ID.; ID.; ESTABLISHED IN CASE AT BAR. 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. 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.

3. ID.; ID.; CONCEPT OF JOINT VENTURE; DISTINGUISHED FROM PARTNERSHIP. 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 a joint 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. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95
P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited
by most opinions in 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 Ill. 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. Bolaos, 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).

4. ID.; ID.; RIGHT OF STOCKHOLDERS TO CUMULATE VOTES IN ELECTING DIRECTORS LIES IN THE
AGREEMENT OF PARTIES. 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. The appellate
court was correct in upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of
 Partnership (1st) 16
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.

5. ID.; ANTI-DUMMY; LIMITS THE ELECTION OF ALIENS AS MEMBERS OF THE BOARD OF DIRECTORS IN
PROPORTION TO THEIR ALLOWANCE PARTICIPATION OF THE ENTITY. 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.

DECISION

GUTIERREZ, JR., J p:

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." LibLex

The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the
directors of the corporation:

"3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and,
insofar as permitted under Philippine law, shall specifically provide for.
(1) Cumulative voting for directors:
xxx xxx xxx
"5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals.
As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the others 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.
 Partnership (1st) 17
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 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, Ernesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, 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. LLphil
 Partnership (1st) 18
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of
the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the hearing officer's decision.

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

Upon a motion for reconsideration filed by the appellees (Lagdameo Group) the appellate court (Court of Appeals) rendered
the questioned amended decision.

Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the
following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING
RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF
THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo 75875).

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:

"11.1 That Amended Decision would sanction the CA's disregard 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 unlawful deprivation of the property rights of stockholders
without due process of law in order that a favored group of stockholders may be illegally benefited and guaranteed a
continuing monopoly of the control of a corporation." (pp. 14-15, Rollo 75975-76).

On the other hand, the petitioners in G.R. No. 75951 contend that:

"THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF
SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.
II
"THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE
DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANIWARES."
(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. LLjur
 Partnership (1st) 19
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 G.R. No. 75875)

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

The parol evidence Rule under Rule 130 provides:

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

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties
or the validity of the agreement is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

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

xxx xxx xxx

"4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence
of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute the majority, and
the other (ASI) shall constitute the minority stockholder. In any event, the evident intention of the Philippine Investors and
ASI in entering into the Agreement is to enter into a joint 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 NYS 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871).
 Partnership (1st) 20
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 protest 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 this 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 1) 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. cdll
 Partnership (1st) 21
The Lagdameo Group stated in their appellees' brief in the Court of Appeals:

"In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the
exercise of their voting rights.

"'Sec. 100. Agreements by stockholders.

xxx xxx xxx

"'2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that
in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.'

"Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders
at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible
into groups representing a single identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95
stockholders. The Young/Yutivo family count for another 13 stockholders, the Cham 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
 Partnership (1st) 22
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 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 G.R. 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 voluntary waived by stockholders who enter into special relationships with each other to pursue and
implement specific purposes, as in joint venture relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.

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

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

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

"Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors." (Rollo 75875, pp. 38-39)
 Partnership (1st) 23
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 a joint 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. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main
distinction cited by most opinions in 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 Ill. 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. Bolaos, 95 Phil. 906 [1954]) (Campos
and Lopez Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint
venture. (O'Hara v. Harman 14 App. Dev. (167) 43 NYS 556).

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

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

This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors.

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

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

"Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors." (At p. 39, Rollo, 75875).
 Partnership (1st) 24
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. LexLib

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

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

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

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

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

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, Ernesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique
Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8, 1983 annual
stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R.
Nos. 75975-76 and G.R. No. 75875.

G.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.

Ruiz Law Offices for defendant-appellant.
 Partnership (1st) 25
CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21, 1956, all of the Court
of First Instance of Davao, in civil case 629. The basic action is for specific performance, and damages resulting from an
alleged breach of contract.

In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of Malalag (now the
Municipality of Malalag), Municipality of Padada, Davao. No action was taken thereon by the authorities concerned. During
the Japanese occupation, he filed another fishpond application for the same area, but because of the conditions then
prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond application for the same area,
which, after a survey, was found to contain 178.76 hectares. Upon investigation conducted by a representative of the
Bureau of Forestry, it was discovered that the area applied for was still needed for firewood production. Hence on May 13,
1946 this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this motion was pending
resolution, he was advised by the district forester of Davao City that no further action would be taken on his motion, unless
he filed a new application for the area concerned. So he filed on May 27, 1947 his fishpond application 1717.

Meanwhile, several applications were submitted by other persons for portions of the area covered by Casteel's application.

On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land found inside the area
applied for by Casteel; he was later granted fishpond permit F-289-C covering 9.3 hectares certified as available for
fishpond purposes by the Bureau of Forestry.

Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied for by Casteel.
Alejandro Cacam's fishpond application 1276, filed on December 26, 1946, was given due course on December 9, 1947
with the issuance to him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of the area applied
for by Casteel, upon certification of the Bureau of Forestry that the area was likewise available for fishpond purposes. On
November 17, 1948 Felipe Deluao filed his own fishpond application for the area covered by Casteel's application.

Because of the threat poised upon his position by the above applicants who entered upon and spread themselves within the
area, Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters from usurping the land. But lacking financial resources at that
time, he sought financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with
which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built.

Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel
immediately filed the corresponding protests. Consequently, two administrative cases ensued involving the area in question,
to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A.
No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717),
Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro
Cacam, Permittees-Respondents."

However, despite the finding made in the investigation of the above administrative cases that Casteel had already
introduced improvements on portions of the area applied for by him in the form of dikes, fishpond gates, clearings, etc., the
Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the
improvements which he had introduced on the land, and ordered that the land be leased through public auction. Failing to
secure a favorable resolution of his motion for reconsideration of the Director's order, Casteel appealed to the Secretary of
Agriculture and Natural Resources.

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our discussion of the
appellant's third assignment of error.
 Partnership (1st) 26
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of
the second part, executed a contract denominated a "contract of service" the salient provisions of which are as
follows:

That the Party of the First Part in consideration of the mutual covenants and agreements made herein to the Party of the
Second Part, hereby enter into a contract of service, whereby the Party of the First Part hires and employs the Party of the
Second Part on the following terms and conditions, to wit:

That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN THOUSAND PESOS
(P27,000.00), Philippine Currency, to the Party of the Second Part who renders only his services for the construction and
improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of Davao, Philippines;

That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that will be produced
from said fishpond;

That the Party of the First Part will be the administrator of the same she having financed the construction and improvement
of said fishpond;

That this contract was the result of a verbal agreement entered into between the Parties sometime in the month of
November, 1947, with all the above-mentioned conditions enumerated; ...

On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in favor of
Jesus Donesa, extending to the latter the authority "To represent me in the administration of the fishpond at Malalag,
Municipality of Padada, Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor Casteel, but
rejected by the Bureau of Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being
periodically realized from it...."

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948.
Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases (DANR Cases 353
and 353-B) and asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by letter
dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary of
Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR Case 353, the
dispositive portion of which reads as follows:

In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor Casteel should be, as
hereby it is, reinstated and given due course for the area indicated in the sketch drawn at the back of the last page
hereof; and Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.

On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion stating as follows:

WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of Alejandro
Cacam, should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to pay the
improvements introduced thereon by said permittees in accordance with the terms and dispositions contained
elsewhere in this decision....

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected
the latter's representative (encargado), Jesus Donesa, from the premises.

Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor Casteel, Felipe
Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance
and damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract),
praying inter alia, (a) that Casteel be ordered to respect and abide by the terms and conditions of said contract and that
 Partnership (1st) 27
Inocencia Deluao be allowed to continue administering the said fishpond and collecting the proceeds from the sale of the
fishes caught from time to time; and (b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum of
P20,000 in damages.

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction, praying among other
things, that during the pendency of the case and upon their filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing the acts complained of, and that after trial the said injunction
be made permanent. The lower court on April 26, 1951 granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the dispositive portion of which reads as follows:

POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y todos usu abogados,
agentes, mandatarios y demas personas que obren en su ayuda, desista de impedir a la demandante Inocencia R. Deluao
que continue administrando personalmente la pesqueria objeto de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho demandado
Nicanor Casteel a desahuciar mediante fuerza al encargado de los demandantes llamado Jesus Donesa de la pesqueria
objeto de la demanda de autos.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner, lawful
applicant and occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by
the lower court in its order of June 26, 1961.

The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the material
averments of the plaintiffs' complaint. A reply to the defendants' amended answer was filed by the plaintiffs on January 31,
1952.

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the plaintiffs
opposed his motion.

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint failed to state a
claim upon which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of
merit by the lower court in its order of October 22, 1951. The defendants' motion for reconsideration filed on October 31,
1951 suffered the same fate when it was likewise denied by the lower court in its order of November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The lower court (Branch I,
presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in open court, reading as follows: .

Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case is hereby transferred to
May 2 and 3, 1956 at 8:30 o'clock in the morning.

This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any other transfer of hearing of
this case and if the parties will not be ready on that day set for hearing, the court will take the necessary steps for the final
determination of this case. (emphasis supplied)

On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued by the office of the Clerk
of Court (thru the special deputy Clerk of Court) of the Court of First Instance of Davao, setting the hearing of the case for
May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion
for postponement. Acting on this motion, the lower court (Branch II, presided by Judge Gomez) issued an order dated April
27, 1956, quoted as follows:

This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion is filed by the counsel
for the defendants and has the conformity of the counsel for the plaintiffs.

An examination of the records of this case shows that this case was initiated as early as April 1951 and that the same has
been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since September 24,
 Partnership (1st) 28
1953, and that various incidents have already been considered and resolved by Judge Fernandez on various occasions.
The last order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he definitely states that the
Court will not entertain any further postponement of the hearing of this case.

CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of any incident referring
to this case should be referred back to Branch I, so that the same may be disposed of therein. (emphasis supplied)

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.

On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez presiding),
when informed about the defendants' motion for postponement filed on April 26, 1956, issued an order reiterating its
previous order handed down in open court on March 21, 1956 and directing the plaintiffs to introduce their evidence ex
parte, there being no appearance on the part of the defendants or their counsel. On the basis of the plaintiffs' evidence, a
decision was rendered on May 4, 1956 the dispositive portion of which reads as follows:

EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del demandado Nicanor Casteel:

(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad () del "fishpond" en cuestion
con todas las mejoras existentes dentro de la misma;

(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto de danos a contar
de la fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" en conflicto;

(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado beneficiados, mas los
intereses legales de la fecha de la incoacion de la demanda de autos hasta el completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos incurridos por aquella durante la
pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se refiere al demandado
Juan Depra;

(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;

(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of knowledge of the
order of the court a quo setting the case for trial. The petition, however, was denied by the lower court in its order of May 21,
1956, the pertinent portion of which reads as follows:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has been transferred or not,
but to inquire from the presiding Judge, particularly because his motion asking the transfer of this case was not set for
hearing and was not also acted upon.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as follows:

Upon petition of the plaintiff without any objection on the part of the defendants, the hearing of this case is hereby
transferred to May 2 and 3, 1956, at 8:30 o'clock in the morning.
 Partnership (1st) 29
This case was filed on April 3, 1951, and under any circumstance this Court will not entertain any other transfer of
the hearing of this case, and if the parties will not be ready on the day set for hearing, the Court will take necessary
steps for the final disposition of this case.

In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty of Atty. Ruiz is no other
than to be present in the Sala of this Court and to call the attention of the same to the existence of his motion for transfer.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is hereby denied.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final
determination on the ground that it involves only questions of law.

Casteel raises the following issues:

(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the appellees'
evidence in the absence of the appellant at the trial on May 2, 1956, thus depriving the appellant of his day in court
and of his property without due process of law;

(2) Whether the lower court committed grave abuse of discretion when it denied the verified petition for relief from
judgment filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of Court; and

(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction against
defendant-appellant, and in not dismissing appellees' complaint.

1. The first and second issues must be resolved against the appellant.

The record indisputably shows that in the order given in open court on March 21, 1956, the lower court set the case for
hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated that, since the case had been pending
since April 3, 1951, it would not entertain any further motion for transfer of the scheduled hearing.

An order given in open court is presumed received by the parties on the very date and time of promulgation,1 and amounts
to a legal notification for all legal purposes.2 The order of March 21, 1956, given in open court, was a valid notice to the
parties, and the notice of hearing dated April 21, 1956 or one month thereafter, was a superfluity. Moreover, as between the
order of March 21, 1956, duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a
"special deputy clerk of court" setting the hearing in another branch of the same court, the former's order was the one legally
binding. This is because the incidents of postponements and adjournments are controlled by the court and not by the clerk
of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.

Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage from one sala to
another without authority or order from the court where the case originated and was being tried. He had neither the duty nor
prerogative to re-assign the trial of the case to a different branch of the same court. His duty as such clerk of court, in so far
as the incident in question was concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of
court and not upon the "special deputy clerk of court" who purportedly signed the notice of hearing.

It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The postponement of
hearings does not depend upon agreement of the parties, but upon the court's discretion.3

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had ever withdrawn as
counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting the case for hearing for May 2 and 3,
1956, was sufficient notice to all the appellant's eleven other counsel of record. This is a well-settled rule in our jurisdiction.4

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear before Judge
Fernandez on the scheduled dates of hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded fact
 Partnership (1st) 30
that since September 24, 1953 until the trial held on May 2, 1956, the case was under the advisement of Judge Fernandez
who presided over Branch I. There was, therefore, no necessity to "re-assign" the same to Branch II because Judge
Fernandez had exclusive control of said case, unless he was legally inhibited to try the case and he was not.

There is truth in the appellant's contention that it is the duty of the clerk of court not of the Court to prepare the trial
calendar. But the assignment or reassignment of cases already pending in one sala to another sala, and the setting of the
date of trial after the trial calendar has been prepared, fall within the exclusive control of the presiding judge.

The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of court of the Court of
First Instance of Davao was located directly below Branch I. If the appellant and his counsel had exercised due diligence,
there was no impediment to their going upstairs to the second storey of the Court of First Instance building in Davao on May
2, 1956 and checking if the case was scheduled for hearing in the said sala. The appellant after all admits that on May 2,
1956 his counsel went to the office of the clerk of court.

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he was properly
accorded this right. He was notified in open court on March 21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his
counsel was entitled to a timely notice of the denial of his motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the case at bar, there had already been a series of
postponements. Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the cited
case did not spend for a long time, the case at bar was only finally and intransferably set for hearing on March 21, 1956
after almost five years had elapsed from the filing of the complaint on April 3, 1951.

The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for trial is unacceptable
because between March 21, 1956 and May 2, 1956, they had one month and ten days to do so. In effect, the appellant had
waived his right to appear at the trial and therefore he cannot be heard to complain that he has been deprived of his
property without due process of law.7 Verily, the constitutional requirements of due process have been fulfilled in this case:
the lower court is a competent court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the
subject matter of the action; the defendant (appellant) was given an opportunity to be heard; and judgment was rendered
upon lawful hearing.8

2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte of a writ of
preliminary injunction against him, and in not dismissing the appellee's complaint. We find this contention meritorious.

Apparently, the court a quo relied on exhibit A the so-called "contract of service" and the appellees' contention that it
created a contract of co-ownership and partnership between Inocencia Deluao and the appellant over the fishpond in
question.

Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to know the law. It
must be assumed, conformably to such rule, that the parties entered into the so-called "contract of service" cognizant of the
mandatory and prohibitory laws governing the filing of applications for fishpond permits. And since they were aware of the
said laws, it must likewise be assumed in fairness to the parties that they did not intend to violate them. This view
must perforce negate the appellees' allegation that exhibit A created a contract of co-ownership between the parties over
the disputed fishpond. Were we to admit the establishment of a co-ownership violative of the prohibitory laws which will
hereafter be discussed, we shall be compelled to declare altogether the nullity of the contract. This would certainly not serve
the cause of equity and justice, considering that rights and obligations have already arisen between the parties. We shall
therefore construe the contract as one of partnership, divided into two parts namely, a contract of partnership to exploit
the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of partnership to divide the
fishpond between them after such award. The first is valid, the second illegal.

It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of service"
on November 25, 1949, there were two pending applications over the fishpond. One was Casteel's which was appealed by
him to the Secretary of Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on October 25,
1949. The other was Felipe Deluao's application over the same area which was likewise rejected by the Director of
Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the
 Partnership (1st) 31
Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was then in the possession of Casteel,
neither he nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that as it may, they were not
however precluded from exploiting the fishpond pending resolution of Casteel's appeal or the approval of Deluao's
application over the same area whichever event happened first. No law, rule or regulation prohibited them from doing so.
Thus, rather than let the fishpond remain idle they cultivated it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to form a co-ownership but to
establish a partnership Inocencia Deluao as capitalist partner and Casteel as industrial partner the ultimate
undertaking of which was to divide into two equal parts such portion of the fishpond as might have been developed by the
amount extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse the expenses incurred
by the appellees over one-half of the fishpond that would pertain to him. This can be gleaned, among others, from the letter
of Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:

... [W]ith respect to your allowing me to use your money, same will redound to your benefit because you are the
ones interested in half of the work we have done so far, besides I did not insist on our being partners in my
fishpond permit, but it was you "Tatay" Eping the one who wanted that we be partners and it so happened that we
became partners because I am poor, but in the midst of my poverty it never occurred to me to be unfair to you.
Therefore so that each of us may be secured, let us have a document prepared to the effect that we are partners
in the fishpond that we caused to be made here in Balasinon, but it does not mean that you will treat me as one of
your "Bantay" (caretaker) on wage basis but not earning wages at all, while the truth is that we are partners. In the
event that you are not amenable to my proposition and consider me as "Bantay" (caretaker) instead, do not blame
me if I withdraw all my cases and be left without even a little and you likewise.
(emphasis supplied)9

Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their partnership, the appellee
Inocencia Deluao and the appellant executed exhibit A which, although denominated a "contract of service," was actually
the memorandum of their partnership agreement. That it was not a contract of the services of the appellant, was admitted by
the appellees themselves in their letter10 to Casteel dated December 19, 1949 wherein they stated that they did not employ
him in his (Casteel's) claim but because he used their money in developing and improving the fishpond, his right must be
divided between them. Of course, although exhibit A did not specify any wage or share appertaining to the appellant as
industrial partner, he was so entitled this being one of the conditions he specified for the execution of the document of
partnership.11

Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a letter,12dated March
24, 1950, the appellant suggested that they divide the fishpond and the remaining capital, and offered to pay the Deluaos a
yearly installment of P3,000 presumably as reimbursement for the expenses of the appellees for the development and
improvement of the one-half that would pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising the latter to ask for a reconsideration of the
order of the Director of Fisheries disapproving his (appellant's) application, so that if a favorable decision was secured, then
they would divide the area.

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to maintain his petition for
the reinvestigation of Casteel's application. Thus by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture
and Natural Resources, he withdrew his petition on the alleged ground that he was no longer interested in the area, but
stated however that he wanted his interest to be protected and his capital to be reimbursed by the highest bidder.

The arrangement under the so-called "contract of service" continued until the decisions both dated September 15, 1950
were issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development, by
itself, brought about the dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of both
parties to terminate the partnership because each refused to share the fishpond with the other.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "... any event which
makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership." The
approval of the appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore several
provisions of law which made the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
 Partnership (1st) 32
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or subletting
the fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not transfer
or sublet all or any area herein granted or any rights acquired therein without the previous consent and approval of this
Office." Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one of the parties therein,
Leoncio Aradillos, was cancelled not solely for the reason that his permit covered a portion of the area included in the
appellant's prior fishpond application, but also because, upon investigation, it was ascertained thru the admission of
Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop with the latter's capital the area covered
by his fishpond permit F-289-C with the understanding that he (Aradillos) would be given a share in the produce thereof.16

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that

The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of Agriculture and
Commerce, and the violation of this condition shall avoid the contract; Provided, That assignment, encumbrance,
or subletting for purposes of speculation shall not be permitted in any case:Provided, further, That nothing
contained in this section shall be understood or construed to permit the assignment, encumbrance, or subletting of
lands leased under this Act, or under any previous Act, to persons, corporations, or associations which under this
Act, are not authorized to lease public lands.

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources issued in August
1937, prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms and conditions
as he may prescribe. Thus, it states:

When a transfer or sub-lease of area and improvement may be allowed. If the permittee or lessee had, unless
otherwise specifically provided, held the permit or lease and actually operated and made improvements on the
area for at least one year, he/she may request permission to sub-lease or transfer the area and improvements
under certain conditions.

(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first approved by the Director
under such terms and conditions as may be prescribed, otherwise it shall be null and void. A transfer not previously
approved or reported shall be considered sufficient cause for the cancellation of the permit or lease and forfeiture
of the bond and for granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of
this Order.

Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the
appellant after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half
thereof to parties other than the applicant Casteel, it was dissolved by the approval of his application and the award to him
of the fishpond. The approval was an event which made it unlawful for the business of the partnership to be carried on or for
the members to carry it on in partnership.

The appellees, however, argue that in approving the appellant's application, the Secretary of Agriculture and Natural
Resources likewise recognized and/or confirmed their property right to one-half of the fishpond by virtue of the contract of
service, exhibit A. But the untenability of this argument would readily surface if one were to consider that the Secretary of
Agriculture and Natural Resources did not do so for the simple reason that he does not possess the authority to violate the
aforementioned prohibitory laws nor to exempt anyone from their operation.

However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the foregoing prohibitory
laws, was not enough to cause the dissolution ipso facto of their partnership, succeeding events reveal the intent of both
parties to terminate the partnership by refusing to share the fishpond with the other.

On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond so that
he could administer his own share, such division to be subject to the approval of the Secretary of Agriculture and Natural
Resources. By letter dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's proposition because
there were allegedly no appropriate grounds to support the same and, moreover, the conflict over the fishpond had not been
finally resolved.
 Partnership (1st) 33
19
The appellant wrote on January 4, 1951 a last letter to the appellee Felipe Deluao wherein the former expressed his
determination to administer the fishpond himself because the decision of the Government was in his favor and the only
reason why administration had been granted to the Deluaos was because he was indebted to them. In the same letter, the
appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto,
Felipe Deluao wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the administration of the
fishpond to the appellant, stating as a ground his belief "that only the competent agencies of the government are in a better
position to render any equitable arrangement relative to the present case; hence, any action we may privately take may not
meet the procedure of legal order."

Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to share the fishpond
with each other in direct violation of the undertaking for which they have established their partnership each must be
deemed to have expressly withdrawn from the partnership, thereby causing its dissolution pursuant to art. 1830(2) of the
Civil Code which provides, inter alia, that dissolution is caused "by the express will of any partner at any time."

In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and administrative powers with
regard to the survey, classification, lease, sale or any other form of concession or disposition and management of the lands
of the public domain, and, more specifically, with regard to the grant or withholding of licenses, permits, leases and
contracts over portions of the public domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-
15414, June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that

... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by law regarding the
disposition of public lands such as granting of licenses, permits, leases, and contracts, or approving, rejecting,
reinstating, or cancelling applications, or deciding conflicting applications, are all executive and administrative in
nature. It is a well-recognized principle that purely administrative and discretionary functions may not be interfered
with by the courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no
supervising power over the proceedings and action of the administrative departments of the government. This is
generally true with respect to acts involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur.
558-559) Findings of fact by an administrative board or official, following a hearing, are binding upon the courts and
will not be disturbed except where the board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty or with grave abuse of discretion...
(emphasis supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellant's fishpond
application 1717 and awarded to him the possession of the area in question. In view of the finality of the Secretary's
decision in DANR Cases 353 and 353-B, and considering the absence of any proof that the said official exceeded his
statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in disregard of his duty, or with grave
abuse of discretion, we can do no less than respect and maintain unfettered his official acts in the premises. It is a salutary
rule that the judicial department should not dictate to the executive department what to do with regard to the administration
and disposition of the public domain which the law has entrusted to its care and administration. Indeed, courts cannot
superimpose their discretion on that of the land department and compel the latter to do an act which involves the exercise of
judgment and discretion.22

Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued because
present all the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper in
the face of the knowledge later acquired by the lower court that it was the appellant's application over the fishpond which
was given due course. After the Secretary of Agriculture and Natural Resources approved the appellant's application, he
became to all intents and purposes the legal permittee of the area with the corresponding right to possess, occupy and
enjoy the same. Consequently, the lower court erred in issuing the preliminary mandatory injunction. We cannot
overemphasize that an injunction should not be granted to take property out of the possession and control of one party and
place it in the hands of another whose title has not been clearly established by law.23

However, pursuant to our holding that there was a partnership between the parties for the exploitation of the fishpond before
it was awarded to Casteel, this case should be remanded to the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950, in order for the court to determine (a) the profits realized by
 Partnership (1st) 34
the partnership, (b) the share (in the profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao as
capitalist partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao to Casteel for the development
and improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia Deluao continued in
possession and enjoyment of the fishpond even after it was awarded to Casteel, she did so no longer in the concept of a
capitalist partner but merely as creditor of the appellant, and therefore, she must likewise submit in the lower court an
accounting of the proceeds of the sales of all the fishes harvested from the fishpond from September 16, 1950 until Casteel
shall have been finally given the possession and enjoyment of the same. In the event that the appellee Deluao has received
more than her lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus 6% interest thereon per
annum, then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1) dissolving the
injunction issued against the appellant, (2) placing the latter back in possession of the fishpond in litigation, and (3)
remanding this case to the court of origin for the reception of evidence relative to the accounting that the parties must
perforce render in the premises, at the termination of which the court shall render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to costs.
 Partnership (1st) 35

G.R. No. 167379 June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.

LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and
JOSE MARCOS T. LAZATIN,Respondents.

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners motion
for reconsideration thereof.

The factual and procedural antecedents are as follows:

Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation engaged in
real estate development. Rafaelito W. Lopez is its President and Chief Executive Officer.3

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos T.
Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a combined area of
30,000 square meters, located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-
108484 of the Register of Deeds of Tagaytay City.

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President, entered into
a Joint Venture Agreement5(JVA) for the development of the aforementioned property into a residential
subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings obliged themselves to
contribute the two parcels of land as their share in the joint venture. For its part, Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractors pool, marketing activities, managerial
expertise and other needed resources to develop the property and construct therein the units for sale to the
public. Specifically, Primelink bound itself to accomplish the following, upon the execution of the deed:

a.) Survey the land, and prepare the projects master plans, engineering designs, structural and architectural
plans, site development plans, and such other need plans in accordance with existing laws and the rules and
regulations of appropriate government institutions, firms or agencies;

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;

c.) Furnish all materials, equipment, labor and services for the development of the land in preparation for the
construction and sale of the different types of units (single-detached, duplex/twin, cluster and row house);

d.) Guarantee completion of the land development work if not prevented by force majeure or fortuitous event or
by competent authority, or other unavoidable circumstances beyond the DEVELOPERS control, not to exceed
three years from the date of the signing of this Joint Venture Agreement, except the installation of the electrical
facilities which is solely MERALCOS responsibility;

e.) Provide necessary manpower resources, like executive and managerial officers, support personnel and
 Partnership (1st) 36

marketing staff, to handle all services related to land and housing development (administrative and construction)
and marketing (sales, advertising and promotions).6

The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows:

1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw
allowances or make advances not exceeding a total of twenty percent (20%) of the net revenue for that
period, on the basis of sixty percent (60%) for the DEVELOPER and forty percent (40%) for the
LANDOWNERS.

The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first
two years, in order to have sufficient reserves or funds to protect and/or guarantee the construction and
completion of the different types of units mentioned above.

2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances
and/or advances equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net
revenue or income of the sale of the units.7

They also agreed to share in the profits from the joint venture, thus:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint
Venture project, after deducting all expenses incurred in connection with the land development (such
as administrative management and construction expenses), and marketing (such as sales, advertising
and promotions), and

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint
Venture project, after deducting all the above-mentioned expenses.8

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:

SALES-INCOME-COST PROJECTION

lawphil.net
SELLING PRICE COST PRICE DIFFERENCE INCOME
CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00

P138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00
Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
 Partnership (1st) 37
COMPUTATION OF ADDL. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000 P 69,360,000.00
Balance = 70% = 161,840,000
x .03069 x 48 = P238,409,740 238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00

less: 132,224,000.00
Total Expenses P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the
parties relative to the interpretation, scope and reach, and the enforcement/implementation of any provision of
the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration Law.10

The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably with the
escrow agreement, the owners duplicate of the title was deposited with the China Banking
Corporation.11 However, Primelink failed to immediately secure a Development Permit from Tagaytay City, and
applied the permit only on August 30, 1995. On October 12, 1995, the City issued a Development Permit to
Primelink.12

In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its
obligations under the JVA, otherwise the appropriate action would be filed against it to protect their rights and
interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the latter to review its
business records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed Primelink that they
had decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins demanded that
Primelink cease and desist from further developing the property.

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City,
Branch 18, a complaint for rescission accounting and damages, with prayer for temporary restraining order
and/or preliminary injunction against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776.
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from the execution of the JVA
and the delivery of the title and possession of the land to defendants, the land development aspect of the project
had not yet been completed, and the construction of the housing units had not yet made any headway, based on
the following facts, namely: (a) of the 50 housing units programmed for Phase I, only the following types of
houses appear on the site in these condition: (aa) single detached, one completed and two units uncompleted;
 Partnership (1st) 38

(bb) cluster houses, one unit nearing completion; (cc) duplex, two units completed and two units unfinished; and
(dd) row houses, two units, completed; (b) in Phase II thereof, all that was done by the defendants was to grade
the area; the units so far constructed had been the object of numerous complaints by their owners/purchasers
for poor workmanship and the use of sub-standard materials in their construction, thus, undermining the
projects marketability. Plaintiffs also alleged that defendants had, without justifiable reason, completely
disregarded previously agreed accounting and auditing procedures, checks and balances system installed for
the mutual protection of both parties, and the scheduled regular meetings were seldom held to the detriment
and disadvantage of plaintiffs. They averred that they sent a letter through counsel, demanding compliance of
what was agreed upon under the agreement but defendants refused to heed said demand. After a succession of
letters with still no action from defendants, plaintiffs sent a letter on October 22, 1997, a letter formally rescinding
the JVA.

Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they
(plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the joint venture project; to date,
however, after almost four (4) years and despite the undertaking in the JVA that plaintiffs shall initially get 20% of
the agreed net revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
share thereafter, defendants had yet to deliver these shares to plaintiffs which by conservative estimates would
amount to no less than P40,000,000.00.15

Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:

WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be forthwith
issued enjoining the defendants to immediately stop their land development, construction and marketing of the
housing units in the aforesaid project; after due proceedings, to issue a writ of preliminary injunction enjoining
and prohibiting said land development, construction and marketing of housing units, pending the disposition of
the instant case.

After trial, a decision be rendered:

1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as expenses incurred and
disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million Pesos
(P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million Pesos
(P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten percent (10%)
of the total amount due as and for attorneys fees; and
8. To pay the costs of this suit.

Other reliefs and remedies as are just and equitable are likewise being prayed for.16

Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that plaintiffs complaint was
premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to the JVA in relation to
Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They prayed for the dismissal of the
complaint under Section 1(j), Rule 16 of the Rules of Court:

WHEREFORE, it is respectfully prayed that an Order be issued:

a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court, or, in the
 Partnership (1st) 39

alternative,

b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate, and then asking
the parties to resolve their controversies, pursuant to the Arbitration Law, or in the alternative;

c) staying or suspending the proceedings in captioned case until the completion of the arbitration, and

d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of preliminary injunction.

Other reliefs and remedies just and equitable in the premises are prayed for.17

In the meantime, before the expiration of the reglementary period to answer the complaint, defendants, invoking
their counsels heavy workload, prayed for a 15-day extension18 within which to file their answer. The additional
time prayed for was granted by the RTC.19 However, instead of filing their answer, defendants prayed for a
series of 15-day extensions in eight (8) successive motions for extensions on the same justification.20 The RTC
again granted the additional time prayed for, but in granting the last extension, it warned against further
extension.21Despite the admonition, defendants again moved for another 15-day extension,22 which, this time,
the RTC denied. No answer having been filed, plaintiffs moved to declare the defendants in default,23 which the
RTC granted in its Order24 dated June 24, 1998.

On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition to the
Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set
Aside the Order of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14, 1998, the RTC denied
defendants motion to set aside the order of default and ordered the reception of plaintiffs evidence ex parte.
Defendants filed a motion for reconsideration29 of the July 14, 1998 Order, which the RTC denied in its
Order30 dated October 21, 1998.

Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as well as
the Order denying their motion to set aside the order of default, alleging that these were contrary to facts of the
case, the law and jurisprudence.31 On September 16, 1999, the appellate court issued a Resolution32 dismissing
the appeal on the ground that the Orders appealed from were interlocutory in character and, therefore, not
appealable. No motion for reconsideration of the Order of the dismissal was filed by defendants.

In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17, 2000, the
RTC rendered a Decision, the dispositive part of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;

2. Ordering the defendants to return possession, including all improvements therein, of the real estate property
belonging to the plaintiffs which is described in, and covered by Transfer Certificate of Title No. T-10848 of the
Register of Deeds of Tagaytay City, and located in Barangay Anulin, City of Tagaytay;

3. Ordering the defendants to turn over all documents, records or papers that have been executed, prepared
and retained in connection with any contract to sell or deed of sale of all lots/units sold during the effectivity of
the joint venture agreement;

4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share of the net
income of theP2,603,810.64 as of September 30, 1995, as stipulated in the joint venture agreement;

5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount of P104,152.40;
 Partnership (1st) 40

6. Ordering the defendants to pay the costs.

SO ORDERED.33

The trial court anchored its decision on the following findings:

x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly
paragraph II covering Developers (defendant) undertakings, as well as paragraph III and paragraph V of the
JVA. These violations are not limited to those made against the plaintiffs alone as it appears that some of the
unit buyers themselves have their own separate gripes against the defendants as typified by the letters (Exhibits
"G" and "H") of Mr. Emmanuel Enciso.

xxxx

Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6, 1998
(Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has
observed, and is thus convinced, that a pattern of what appears to be a scheme or plot to reduce and eventually
blot out the net income generated from sales of housing units by defendants, has been established. Exhibit "P-
2" is explicit in declaring that, as of September 30, 1995, the joint venture project earned a net income of
aboutP2,603,810.64. This amount, however, was drastically reduced in a subsequent financial report submitted
by the defendants to P1,954,216.39. Shortly thereafter, and to the dismay of the plaintiffs, the defendants
submitted an income statement and a balance sheet (Exhibits "R" and "R-1") indicating a net loss
of P5,122,906.39 as of June 30, 1997.

Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to be so.
Even before the plaintiffs could get hold of their share as indicated above, the defendants closed the chance
altogether by declaring a net loss. The court perceives this to be one calculated coup-de-grace that would put to
thin air plaintiffs hope of getting their share in the profit under the JVA.

That this matter had reached the court is no longer a cause for speculation. The way the defendants treated the
JVA and the manner by which they handled the project itself vis--vis their partners, the plaintiffs herein, there is
bound to be certain conflict as the latter repeatedly would received the losing end of the bargain.

Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file the
present action to enforce their rights. x x x34

On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants dilatory tactics for
its allowance. This was opposed by defendants.36

On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June 20, 2000.38

Defendants appealed the decision to the CA on the following assignment of errors:

I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT FOR
VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION
CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND
CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE
 Partnership (1st) 41
PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH THE WRIT OF
EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE COURT
HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH PRIMELINK
HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS FORTY MILLION
PESOS, AND DESPITE APPELLEES FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE
SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER THE
SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS
INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED
FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT
ORDERING APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE LAND
(CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH
PRIMELINK HAD SPENT FOR THE HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT,
THEREBY ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.39

The appeal was docketed in the CA as CA-G.R. CV No. 69200.

On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed decision.
The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay City,
Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly,
Transfer Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant to the Escrow Agreement
is ordered released for return to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No. 10848 by virtue of the
Joint Venture Agreement, is now proper.

SO ORDERED.40

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation,41 the appellate court
ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by the laws of
partnership. The aggrieved parties filed a motion for reconsideration,42 which the CA denied in its
Resolution43 dated March 7, 2005.

Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR
AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF THE
PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN
DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY, AND
THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?

2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND UNCONSCIONABLE,

CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS AND
JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF
CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF
 Partnership (1st) 42

PROPERTY BELONGING TO ANOTHER?44

Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents "all
improvements" on the project without requiring them to pay the value thereof or to reimburse Primelink for all
expenses incurred therefore is inherently and essentially illegal and confiscatory, oppressive and
unconscionable, contrary to the tenets of good human relations, and will allow respondents to unjustly enrich
themselves at Primelinks expense. At the time respondents contributed the two parcels of land, consisting of
30,000 square meters to the joint venture project when the JVA was signed on March 10, 1994, the said
properties were worth not more than P500.00 per square meter, the "price tag" agreed upon the parties for the
purpose of the JVA. Moreover, before respondents rescinded the JVA sometime in October/November 1997, the
property had already been substantially developed as improvements had already been introduced thereon;
petitioners had likewise incurred administrative and marketing expenses, among others, amounting to more or
less P40,000,000.00.45

Petitioners point out that respondents did not pray in their complaint that they be declared the owners and
entitled to the possession of the improvements made by petitioner Primelink on the property; neither did they
adduce evidence to prove their entitlement to said improvements. It follows, petitioners argue, that respondents
were not entitled to the improvements although petitioner Primelink was declared in default.

They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent necessary to
cover the damages caused and that, under Article 1385 of the same Code, rescission creates the obligation to
return the things which were not object of the contract, together with their fruits, and the price with its interest;
consequently, it can be effected only when respondents can return whatever they may be obliged to return.
Respondents who sought the rescission of the JVA must place petitioner Primelink in the status quo. They insist
that respondents cannot rescind and, at the same time, retain the consideration, or part of the consideration
received under the JVA. They cannot have the benefits of rescission without assuming its burden. All parties
must be restored to their original positions as nearly as possible upon the rescission of a contract. In the event
that restoration to the status quo is impossible, rescission may be granted if the Court can balance the equities
and fashion an appropriate remedy that would be equitable to both parties and afford complete relief.

Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for reimbursement
because "[w]hat matters is that the improvements exist and they cannot be denied."46 Moreover, they point out,
the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation47 cited by the CA is not in point.

On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically pray for
their takeover of the property and for the possession of the improvements on the parcels of land, nevertheless,
respondents were entitled to said relief as a necessary consequence of the ruling of the trial court ordering the
rescission of the JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838 of
the New Civil Code, to wit:

As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to.48

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New Civil Code, which reads:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
 Partnership (1st) 43

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.

They insist that petitioners are not entitled to rescission for the improvements because, as found by the RTC
and the CA, it was petitioner Primelink that enriched itself at the expense of respondents. Respondents reiterate
the ruling of the CA, and argue as follows:

PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that they
are and should be entitled to take over the development of the project, and that the improvements and existing
structures which were introduced by PRIMELINK after spending more or less Forty Million Pesos be awarded
to them. They merely asked in the complaint that the joint venture agreement be rescinded, and that the parcels
of land they contributed to the project be returned to them.

PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return possession of the real
estate property belonging to the LAZATINs including all improvements thereon was not a judgment that was
different in kind than what was prayed for by the LAZATINs. The order to return the property with all the
improvements thereon is just a necessary consequence to the order of rescission.

As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. In Aurbach
v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed the following points regarding joint
ventures and partnership:

The legal concept of a joint 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 elements are similar
community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v. Chadwick, 45 Cal.2d
183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by most opinions in 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. (Tuffs v. Mann, 116 Cal.App.
170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.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 laws of partnership. 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)
(Emphasis Supplied)

The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a quo,
was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net incomes
generated from sales of housing units by the defendants. Under Article 1838 of the Civil Code, where the
partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or right of
retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for
any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advance
contributed by him. In the instant case, the joint venture still has outstanding liabilities to third parties or the
buyers of the property.

It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for safekeeping
 Partnership (1st) 44

pursuant to the Escrow Agreement executed between Primelink Properties and Development Corporation and
Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a necessary consequence of the order
of rescission of contract. The reason for the existence of the Escrow Agreement has ceased to exist when the
joint venture agreement was rescinded.49

Respondents stress that petitioners must bear any damages or losses they may have suffered. They likewise
stress that they did not enrich themselves at the expense of petitioners.

In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements even if
their share in the P1,041,524.26 of the net income of the property and the sale of the land were to be deducted
from the value of the improvements, plus administrative and marketing expenses in the total amount
of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents. Respondents cannot deny
the existence and nature of said improvements as they are visible to the naked eye.

The threshold issues are the following: (1) whether respondents are entitled to the possession of the parcels of
land covered by the JVA and the improvements thereon introduced by petitioners as their contribution to the
JVA; (2) whether petitioners are entitled to reimbursement for the value of the improvements on the parcels of
land.

The petition has no merit.

On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint below
that possession of the improvements on the parcels of land which they contributed to the JVA be transferred to
them. Respondents made a specific prayer in their complaint that, upon the rescission of the JVA, they be
placed in possession of the parcels of land subject of the agreement, and for other "reliefs and such other
remedies as are just and equitable in the premises." However, the trial court was not precluded from awarding
possession of the improvements on the parcels of land to respondents in its decision. Section 2(c), Rule 7 of the
Rules of Court provides that a pleading shall specify the relief sought but it may add as general prayer for such
further or other relief as may be deemed just and equitable. Even without the prayer for a specific remedy,
proper relief may be granted by the court if the facts alleged in the complaint and the evidence introduced so
warrant.50 The court shall grant relief warranted by the allegations and the proof even if no such relief is prayed
for.51 The prayer in the complaint for other reliefs equitable and just in the premises justifies the grant of a relief
not otherwise specifically prayed for.52

The trial court was not proscribed from placing respondents in possession of the parcels of land and the
improvements on the said parcels of land. It bears stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the parties to the joint venture under the JVA, hence, formed
part of the assets of the joint venture.53 The trial court declared that respondents were entitled to the possession
not only of the parcels of land but also of the improvements thereon as a consequence of its finding that
petitioners breached their agreement and defrauded respondents of the net income under the JVA.

On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into a joint
venture as evidenced by their JVA which, under the Courts ruling in Aurbach, is a form of partnership, and as
such is to be governed by the laws on partnership.

When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that petitioners
willfully and persistently committed a breach of the JVA, the court thereby dissolved/cancelled the
partnership.54 With the rescission of the JVA on account of petitioners fraudulent acts, all authority of any partner
to act for the partnership is terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.55 On dissolution, the partnership is not terminated but
continues until the winding up of partnership affairs is completed.56 Winding up means the administration of the
assets of the partnership for the purpose of terminating the business and discharging the obligations of the
 Partnership (1st) 45

partnership.

The transfer of the possession of the parcels of land and the improvements thereon to respondents was only for
a specific purpose: the winding up of partnership affairs, and the partition and distribution of the net partnership
assets as provided by law.57 After all, Article 1836 of the New Civil Code provides that unless otherwise agreed
by the parties in their JVA, respondents have the right to wind up the partnership affairs:

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal
representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs,
provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain
winding up by the court.

It must be stressed, too, that although respondents acquired possession of the lands and the improvements
thereon, the said lands and improvements remained partnership property, subject to the rights and obligations of
the parties, inter se, of the creditors and of third parties under Articles 1837 and 1838 of the New Civil Code, and
subject to the outcome of the settlement of the accounts between the parties as provided in Article 1839 of the
New Civil Code, absent any agreement of the parties in their JVA to the contrary.58 Until the partnership
accounts are determined, it cannot be ascertained how much any of the parties is entitled to, if at all.

It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the parties does
not contain any provision designating any party to wind up the affairs of the partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in
contravention of the partnership agreement are as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and

(b) The right, as against each partner who has caused the dissolution wrongfully, to damages
for breach of the agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the
business in the same name either by themselves or jointly with others, may do so, during the agreed
term for the partnership and for that purpose may possess the partnership property, provided they
secure the payment by bond approved by the court, or pay to any partner who has caused the
dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages
recoverable under the second paragraph, No. 1(b) of this article, and in like manner indemnify him
against all present or future partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second paragraph, No. 2, all
the rights of a partner under the first paragraph, subject to liability for damages in the second
paragraph, No. 1(b), of this article.

(b) If the business is continued under the second paragraph, No. 2, of this article, the right as
against his co-partners and all claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership, less any damage caused to
his co-partners by the dissolution, ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released from all existing liabilities of the
partnership; but in ascertaining the value of the partners interest the value of the good-will of
 Partnership (1st) 46

the business shall not be considered.

And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any other
right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the
partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advances contributed by him;

(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the
partnership for any payments made by him in respect of the partnership liabilities; and

(3) To be indemnified by the person guilty of the fraud or making the representation against all debts
and liabilities of the partnership.

The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the New
Civil Code:

Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the payment of all the liabilities specified in
No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction
of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
liabilities.

(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to
enforce the contributions specified in the preceding number.

(6) Any partner or his legal representative shall have the right to enforce the contributions specified in
No. 4, to the extent of the amount which he has paid in excess of his share of the liability.

(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
 Partnership (1st) 47

(8) When partnership property and the individual properties of the partners are in possession of a court
for distribution, partnership creditors shall have priority on partnership property and separate creditors
on individual property, saving the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate
property shall rank in the following order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the Court.

Costs against petitioners.

SO ORDERED.
 Partnership (1st) 48

G.R. NOS. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR., Petitioner,

vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM
GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC.,
LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly
E & L INTL SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO.,
INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA
REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY,
INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES), Respondents.

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside
the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A.
G.R. SP. No 78774 and its Resolution dated December 07, 2004,2 denying petitioners motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal
dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a
suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific
performance and accounting. In his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the
court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon
Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other
corporations. Yang is described in the complaint as petitioners and Eduardos partner in their Odeon Theater
investment.5 The same complaint also contained the following material averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their
family business and common family funds .

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings,
parents and other relatives. Copy of this memorandum is attached hereto and made an integral part asAnnex "A" and the
portion referring to [Aurelio] submarked as Annex "A-1 ".
 Partnership (1st) 49
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelios] retaining his share in the
remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the
continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those
to be subsequently acquired by them whichever is greater. . . .

4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in their
joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective assets.

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

4.04 The substantial assets of most of the corporate defendants consist of real properties . A list of some of these real
properties is attached hereto and made an integral part as Annex "B".

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and
liquidation were not heeded].

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as
Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to
other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of
these real properties a notice of lis pendens . (Emphasis in the original; underscoring and words in bracket added.)

For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by his brother
Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. .

I am trying my best to mold you the way I work so you can follow the pattern . You will be the only one left with the
company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to
run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be ready
to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get
ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole
thing of what I have and what you are entitled to. . It will be you and me alone on this. If ever I pass away, I want you to
take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the
company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100,
000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can
keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack and Valley Golf
because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity. 6

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWERWith
Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion thereof
depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses, Eduardo, et al.,
apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action may
be derived from the actionable document, i.e., Annex "A-1", being void under the terms of Article 1767 in relation to Article
1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if any, under Annex "A-
1", are unenforceable under the provisions of the Statute of Frauds.7
 Partnership (1st) 50
For his part, Yang - who was served with summons long after the other defendants submitted their answer moved to
dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state
any.8 Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion, petitioner interposed
an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10

Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 2003,
denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.11

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration12 and
Yangs motion to dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 2003
Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied in an
Order of July 4, 2003.14

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules of
Court, docketed as CA-G.R. SP No. 78774 , 15 to nullify the separate orders of the trial court, the first denying his motion to
dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste
attended the issuance of the trial courts aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief
from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,16 the CAs 14th Division ordered the consolidation of CA G.R. SP No.
78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with the
herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing as
follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4,
2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein
respondents Eduardo, et al.] with the court a quo is hereby dismissed .

SO ORDERED.17 (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the
actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which petitioner solely predicates his
right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent".

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailedResolution of
December 7, 2004.18 .

Hence, petitioners present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was not a public instrument
and immovable properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.
 Partnership (1st) 51
C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his
pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him, as
Eduardos and Yangs partner, of his partnership/joint venture share, after an accounting has been duly conducted of what
he deems to be partnership/joint venture property.19

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a proportionate sharing of the profits and losses between them.20 A
contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of dividing the profits among themselves.21 A joint venture,
on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e.,
community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint venture is
generally governed by the law on partnership.22

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent
Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue
bearing on the first assigned error relates to the question of what legal provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable document - Annex "A-1 " - which he depicts in his complaint to be the contract
of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of
the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the
members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the public instrument.

Annex "A-1 ", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned
document, there can be no quibbling that Annex "A-1 " does not meet the public instrumentation requirements exacted
under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than
P3,000.00 in money or property, Annex " A-1 " cannot be presented for notarization, let alone registered with the Securities
and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of petitioners contribution, if any, to the supposed
partnership.

The CA, addressing the foregoing query, correctly stated that petitioners contribution consisted of immovables and real
rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioners] contribution to the so-called
"partnership/joint venture" was his supposed share in the family business that is consisting of movie theaters, shipping and
 Partnership (1st) 52
land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and real rights. .23

Significantly enough, petitioner matter-of-factly concurred with the appellate courts observation that, prescinding from what
he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua family
businesses which owned variable immovable properties. Petitioners assertion in his motion for reconsideration24 of the CAs
decision, that "what was to be contributed to the business [of the partnership] was [petitioners] industry and his share in the
family [theatre and land development] business" leaves no room for speculation as to what petitioner contributed to the
perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long real
property or real rights are initially brought into the partnership. In short, it is really of no moment which of the partners, or, in
this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the
parties should be attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not
contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court cannot accord
cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which already owned immovables even before
Annex "A-1" was allegedly executed.

Considering thus the value and nature of petitioners alleged contribution to the purported partnership, the Court, even if so
disposed, cannot plausibly extend Annex "A-1 " the legal effects that petitioner so desires and pleads to be given. Annex "A-
1" , in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable property or
real rights are contributed thereto or when the partnership has a capital of at least P3,000.00, in which case a public
instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, an inventory to be signed by the
parties and attached to the public instrument is alsoindispensable to the validity of the partnership whenever immovable
property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the probative value and
legal effect of Annex "A-1" commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged
partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said "partnership/joint venture"
is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the
said "Memorandum" is null and void for purposes of establishing the existence of a valid contract of partnership. Indeed,
because of the failure to comply with the essential formalities of a valid contract, the purported "partnership/joint venture" is
legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could be violated by the
[individual respondents] herein. As a consequence, [petitioners] complaint does NOT state a valid cause of action because
NOT all the essential elements of a cause of action are present. (Underscoring and words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CAs equally assailed Resolution of December 7,
200427 denying petitioners motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document
attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its
attention by herein [respondents] in the their pleadings. In our evaluation of [petitioners] complaint, the latter alleged inter
alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public
document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint
and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be
violated by [respondents]. (Words in bracket added.)
 Partnership (1st) 53
Under the second assigned error, it is petitioners posture that Annex "A-1 ", assuming its inefficacy or nullity as a
partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article
1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations of
the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by
the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not mean it is void or
unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced a
reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to
petitioners dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom,
the appellate courts certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued by the
trial court in grave abuse of discretion. As respondent Yang pointedly observed,28 since the parties basic position had been
well-defined, that of petitioner being that the actionable document established a partnership/joint venture, it is on those
positions that the appellate court exercised its certiorari jurisdiction. Petitioners act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first
place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable
instrument may be considered an innominate contract . xxx Verily, this now changes [petitioners] theory of the case which
is not only prohibited by the Rules but also is an implied admission that the very theory he himself has adopted, filed and
prosecuted before the respondent court is erroneous.

Be that as it may . . We hold that this new theory contravenes [petitioners] theory of the actionable document being a
partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the basis of
partnership law xxx.29 (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex "A-1 " partakes of a perfected innominate contract, petitioners complaint
would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that petitioner
points to Eduardo as the author of Annex "A-1 ". Withal, even on this consideration alone, petitioners claim against Yang is
doomed from the very start.

As it were, the only portion of Annex "A-1 " which could perhaps be remotely regarded as vesting petitioner with a right to
demand from respondent Eduardo the observance of a determinate conduct, reads:

xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this
office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely
to you, My sons will not be ready to help me yet until about maybe 15/20 years from now.Whatever is left in the corporation,
I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater.
(Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote
Annex "A-1 ", is a promise which is not to be performed within one year from "contract" execution on June 22, 1973.
Accordingly, the agreement embodied in Annex "A-1 " is covered by the Statute of Frauds and ergounenforceable for non-
compliance therewith.30 By force of the statute of frauds, an agreement that by its terms is not to be performed within a year
from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in
writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the
statute of frauds is complied with.31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses
supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component
 Partnership (1st) 54
of the promise was intended to go to a common fund would be to read something not written in Annex" A-1 ". Thus, even
this angle alone argues against the very idea of a partnership, the creation of which requires two or more contracting minds
mutually agreeing to contribute money, property or industry to a common fund with the intention of dividing the profits
between or among themselves.32

In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance anchored on an actionable
document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as
against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear on
how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not
have had any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner. In
fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the continuation of
their family business and common family funds which were theretofore being mainly managed by Eduardo." 33 But Yang
denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his
share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his
proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the
actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the [respondent]
corporations," while "Bobby is his and Eduardos partner in their Odeon Theater investment (par. 2.03). This means that the
partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment
thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his "investment and that of
Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate respondents" This simply means that the
"Odeon Theatre business" came before the corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon Theatre business.34

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his
right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation in
the following wise:

[Respondent] Yang, is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the [petitioner]
in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in several
corporations, thus:

xxx xxx xxx

Clearly, [petitioners] claim against Yang arose from his alleged partnership with petitioner and the respondent.
However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was
created between [petitioner] and Yang. More importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly affects said claim against Yang. Since [petitioner] is
trying to establish his claim against Yang by linking him to the legally inexistent partnership . . . such attempt had become
futile because there was NOTHING that would contractually connect [petitioner] and Yang. To establish a valid cause of
action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership
between [petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A statement of facts
on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to establish the elements
of a cause of action against Yang. 35
 Partnership (1st) 55
Pressing its point, the CA later stated in its resolution denying petitioners motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to
state, We have not ignored the actionable document As a matter of fact, We emphasized in our decision that insofar
as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person
not mentioned in a document purporting to establish a partnership could be considered a partner.36 (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily determined
by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA has ruled that
the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership theory which he
adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory. Illustrative of this
shift is petitioners statement in par. #8 of his motion for reconsideration of the CAs decision combined with what he said in
par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainants allegations, is whether the actionable document bears out an
actionable contract be it a partnership, a joint venture or whatever or some innominate contract It may be noted that
one kind of innominate contract is what is known as du ut facias (I give that you may do).37

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article
1307).38

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the
proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate
court.39 On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on
appeal.40 It is not difficult, therefore, to agree with the CA when it made short shrift of petitioners innominate contract theory
on the basis of the foregoing basic reasons.

Petitioners protestation that his act of introducing the concept of innominate contract was not a case of changing theories
but of supporting his pleaded cause of action that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CAs decision virtually relegates partnership as a fall-back theory. Two paragraphs later, in
the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to
pursue the original cause of action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and
[petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not
establish a contractual relationship between [petitioner] and Eduardo, Sr. and Roberto T Yang simply because his
document does not create a partnership or a joint venture. This is a myopic reading of the actionable document.

Per the Courts own count, petitioner used in his complaint the mixed words "joint venture/partnership" nineteen (19) times
and the term "partner" four (4) times. He made reference to the "law of joint venture/partnership [being applicable] to the
business relationship between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific properties of their joint
venture/partnership". Given this consideration, petitioners right of action against respondents Eduardo and Yang doubtless
pivots on the existence of the partnership between the three of them, as purportedly evidenced by the undated and
unsigned Annex "A-1 ". A void Annex "A-1", as an actionable document of partnership, would strip petitioner of a cause of
action under the premises. A complaint for delivery and accounting of partnership property based on such void or legally
non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The Court
agrees.
 Partnership (1st) 56
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of
AppealsAFFIRMED.

Cost against the petitioner.

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA,respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R.
SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in
its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4
January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show
that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm
[name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO &
MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO,
MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and
Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.

"I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would like to
have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

 Partnership (1st) 57
"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees
including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay scale of our
employees have been thwarted by the other partners. Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of their
self-respect. The result of such policies is the formation of the union, including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD)
a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the
Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or
interest attributable to the use of his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks
and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such
amounts as maybe proven during the trial and which the Commission may deem just and equitable under the
premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary
damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable
under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the
partnership interest." 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin
L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad
faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it
concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to
the Hearing Officer for determination of the respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a
receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April
1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and
reiterating the remand of the case to the Hearing Officer.
 Partnership (1st) 58
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on,
respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He
expressed concern over the need to preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of the
partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no
sufficient proof had been shown to indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito,
Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of
the partnership so that he can get a physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito,
Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did
the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking.
The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will,
citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative
of any individual, firm and corporation engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with respect to their legal and other affairs;
and to appear for and represent their principals and client in all courts of justice and government
departments and offices in the Philippines, and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore
be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a
specific undertaking or "project" which has a definite or definable period of completion. 3
 Partnership (1st) 59
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose
with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and
the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises
and the doctrine of delectus personae allows them to have the power, although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated
in the carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business culminating in its termination. 9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil
Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid
in accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for
allocation as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office
condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building,
140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement
shall be determined by two (2) independent appraisers, one to be appointed (by the partnership and the other by
the) retiring partner or the heirs of a deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of
the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon
the basis of the valuation above mentioned which shall be paid monthly within the first ten (10) days of every
month in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a
partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common
factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been
spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in
the partnership under such an atmosphere of animosity; certainly, not against their will. 12Indeed, for as long as the reason
for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm
and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.
 Partnership (1st) 60

G.R. No. 143340 August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
LAMBERTO T. CHUA, respondent.

GONZAGA-REYES, J .:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision1 of the Court of Appeals
dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the
Resolution dated May 23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga and Cecilia
Sunga (hereafter collectively referred to as petitioners).

The pertinent facts of this case are as follows:

 Partnership (1st) 61
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter
petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto
L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and
Damages with Writ of Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane Liquefied
Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto allegedly agreed to register the
business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto
as a sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to Jacinto while the
latter in turn produced P100,000.00 as his counterpart contribution, with the intention that the profits would be equally
divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Josephine),
a sister of the wife respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's fee or remuneration of 10%
of the gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other remuneration from
the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite and was
profitable. Respondent claimed that he could attest to success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished
respondent with the merchandise inventories, balance sheets and net worth of Shellite from 1977 to 1989, respondent
however suspected that the amount indicated in these documents were understated and undervalued by Jacinto and
Josephine for their own selfish reasons and for tax avoidance.

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner
Lilibeth, took over the operations, control, custody, disposition and management of Shellite without respondent's consent.
Despite respondent's repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of
his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of
Shellite, converting to her own use and advantage its properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to evade respondent's
demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to respondent.
Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the latter's share in
the partnership, with a promise that the former would make the complete inventory and winding up of the properties of the
business establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to account, and
continued to benefit from the assets and income of Shellite to the damage and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange Commission
(SEC) in Manila, not the Regional Trial Court in Zamboanga del Norte had jurisdiction over the action. Respondent opposed
the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that they are not liable for
partnership shares, unreceived income/profits, interests, damages and attorney's fees, that respondent does not have a
cause of action against them, and that the trial court has no jurisdiction over the nature of the action, the SEC being the
agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and
expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of
partnership affairs, accounting and recovery of shares in partnership affairs, accounting and recovery of shares in
partnership assets/properties should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or
intestate proceeding.

On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.
 Partnership (1st) 62
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of Appeals
docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as petitioners failed to show
that a reversible error was committed by the appellate court."2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the trial court on
April 26, 1995.

On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case of January 17,
1996. Respondent presented his evidence while petitioners were considered to have waived their right to present evidence
for their failure to attend the scheduled date for reception of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the Decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the
properties, assets, income and profits of the Shellite Gas Appliance Center Since the time of death of Jacinto L. Sunga, from
whom they continued the business operations including all businesses derived from Shellite Gas Appliance Center, submit
an inventory, and appraisal of all these properties, assets, income, profits etc. to the Court and to plaintiff for approval or
disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they
misapplied and converted to their own use and advantage the legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed
properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May
30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest
until fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after
delivering to the plaintiff all the interest, shares, participation and equity in the partnership, or the value thereof in money
or money's worth, if the properties are not physically divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the
plaintiff the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic) and P25,000.00 as litigation
expenses.

NO special pronouncements as to COSTS.

SO ORDERED."3
 Partnership (1st) 63
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the Court of Appeals.

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects."4

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.

Hence, this petition wherein petitioner relies upon following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent Lamberto
T. Chua and the late Jacinto L. Sunga upon the latter'' invitation and offer and that upon his death the partnership assets
and business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the instant
case.

3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to warrant the
finding of a partnership, and assuming arguendo that indeed there was a partnership, the finding of highly exaggerated
amounts or values in the partnership assets and profits."5

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership existed
between respondent and Jacinto from 1977 until Jacinto's death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argues that these courts were proscribes from hearing the
testimonies of respondent and his witness, Josephine, to prove the alleged partnership three years after Jacinto's death. To
support this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule 130 of the
Rules of Court that provides:

"SEC. 23. Disqualification by reason of death or insanity of adverse party. Parties or assignors of parties to a
case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other
representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the
estate of such deceased person, or against such person of unsound mind, cannot testify as to any matter of fact
occurring before the death of such deceased person or before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should not have
been admitted to prove certain claims against a deceased person (Jacinto), now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in
which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the facts
and ascertained from their language and conduct, a verbal contract of partnership may arise.7 The essential profits that
must be proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest
in the profits.8 Understandably so, in view of the absence of the written contract of partnership between respondent and
Jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership. The
crucial issue to settle then is to whether or not the "Dead Man's Statute" applies to this case so as to render inadmissible
respondent's testimony and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from testifying by death, insanity,
or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own uncontradicted and
unexplained account of the transaction.9 But before this rule can be successfully invoked to bar the introduction of
testimonial evidence, it is necessary that:

"1. The witness is a party or assignor of a party to case or persons in whose behalf a case in prosecuted.
 Partnership (1st) 64
2. The action is against an executor or administrator or other representative of a deceased person or a person of
unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against
person of unsound mind;

4. His testimony refers to any matter of fact of which occurred before the death of such deceased person or before
such person became of unsound mind."10

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim11 against respondents in their answer before the trial court, and with the
filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of the "Dead Man's
Statute".12 Well entrenched is the rule that when it is the executor or administrator or representatives of the estates that sets
up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat
the counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to matters
of facts occurring before the death of the deceased, said action not having been brought against but by the estate or
representatives of the deceased.14

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple reason that she is not "a
party or assignor of a party to a case or persons in whose behalf a case is prosecuted." Records show that respondent
offered the testimony of Josephine to establish the existence of the partnership between respondent and Jacinto.
Petitioners' insistence that Josephine is the alter ego of respondent does not make her an assignor because the term
"assignor" of a party means "assignor of a cause of action which has arisen, and not the assignor of a right assigned before
any cause of action has arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter being the party
plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because she was allegedly
coerced coerced by respondent, her brother-in-law, to testify in his favor, Josephine merely declared in court that she was
requested by respondent to testify and that if she were not requested to do so she would not have testified. We fail to see
how we can conclude from this candid admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent.

Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her testimony since
relationship per se, without more, does not affect the credibility of witnesses.16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail over the factual findings
of the trial court and the Court of Appeals that a partnership was established between respondent and Jacinto. Based not
only on the testimonial evidence, but the documentary evidence as well, the trial court and the Court of Appeals considered
the evidence for respondent as sufficient to prove the formation of partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual
matter like the finding of the existence of a partnership between respondent and Jacinto cannot be inquired into by this
Court on review.17 This Court can no longer be tasked to go over the proofs presented by the parties and analyze, assess
and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that
piece of evidence of one party or the other.18 It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and authenticity of the
documentary evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that
such evidence was offered.19

With regard to petitioners' insistence that laches and/or prescription should have extinguished respondent's claim, we agree
with the trial court and the Court of Appeals that the action for accounting filed by respondents three (3) years after Jacinto's
death was well within the prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in
six (6) years20 while the right to demand an accounting for a partner's interest as against the person continuing the business
accrues at the date of dissolution, in the absence of any contrary agreement.21 Considering that the death of a partner
 Partnership (1st) 65
22
results in the dissolution of the partnership , in this case, it was Jacinto's death that respondent as the surviving partner had
the right to an account of his interest as against petitioners. It bears stressing that while Jacinto's death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The Civil Code23 expressly provides that upon
dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business,
culminating in its termination.24

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners maintain
that said partnership that had initial capital of P200,000.00 should have been registered with the Securities and Exchange
Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires that
partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical personality even if it
fails to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so
long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties,
and it can be assumed that the members themselves knew of the contents of their contract.26 In the case at bar, non-
compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the
evidence proves that respondent and Jacinto indeed forged the partnership in question.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.

SO ORDERED.1wphi1.nt

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are
called upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the
complaint herein is based.

Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated August 29, 1952, copy of
which is attached to the complaint as Annex "A" partners in a fishpond business, to the capital of which Agad contributed
P1,000, with the right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts of the operations of the partnership; and that, despite repeated demands,
Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato
and Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the
sum of P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as
attorney's fees, and ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be
appointed therefor.
 Partnership (1st) 66
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon
the ground that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had
allegedly failed to give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be
dismissed; that Annex "A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary
damages, as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the
lower court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights
over public lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint
for failure to state a cause of action. This conclusion was predicated upon the theory that the contract of partnership, Annex
"A", is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument
had not been attached thereto. A reconsideration of this order having been denied, Agad brought the matter to us for review
by record on appeal.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said
property is not made, signed by the parties; and attached to the public instrument.

The issue before us hinges on whether or not "immovable property or real rights" have been contributed to the partnership
under consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is
really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being)
contributed to the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was established
"to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the partners contributed either a fishpond
or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A"
provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which One
Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One Thousand (P1,000.00) Pesos
has been contributed by Mauricio Agad.

xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real
right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be,
as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance
against defendant-appellee, Severino Mabato. It is so ordered.