G.R. No.

L-9996 October 15, 1957 rents; to issue receipts therefor; in default of such payment, to bring suits against the
defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, endorse and deposit all notes and checks for them;
petitioners,
vs. 7. That after having bought the above-mentioned real properties the petitioners had
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents. the same rented or leases to various tenants;

Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner. 8. That from the month of March, 1945 up to an including December, 1945, the total
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo amount collected as rents on their real properties was P9,599.00 while the expenses
Umali and Solicitor Felicisimo R. Rosete for Respondents. amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33;

CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca
Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of
which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real
estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in
accordance with the respondent's assessment for the same in the total amount of
P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of
which amount was deducted in the sum of P16,288.27 for expenses thereby leaving
them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which
amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net
rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue
demanded the payment of income tax on corporations, real estate dealer's fixed tax
and corporation residence tax for the years 1945-1949, computed, according to
assessment made by said officer, as follows:

INCOME TAXES
1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount
together with their personal monies was used by them for the purpose of buying real
properties,.
1945 14.84

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area
of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this 1946 1,144.71
property has an assessed value of P57,517.00 as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with 1947 10.34
an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00;
this property has an assessed value of P82,255.00 as of 1948;
1948 1,912.30
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353
sq. m. including improvements thereon for P108,825.00. This property has an assessed
value of P4,983.00 as of 1948; 1949 1,575.90

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for P237,234.34. This property has an assessed value of Total including surcharge and compromise P6,157.09
P59,140.00 as of 1948;

6. That in a document dated August 16, 1945, they appointed their brother Simeon REAL ESTATE DEALER'S FIXED TAX
Evangelista to 'manage their properties with full power to lease; to collect and receive

1
 been subsequently denied, the case is now before Us for review at the instance of the
1946 P37.50
petitioners.

The issue in this case whether petitioners are subject to the tax on corporations provided
1947 150.00
for in section 24 of Commonwealth Act. No. 466, otherwise known as the National
Internal Revenue Code, as well as to the residence tax for corporations and the real
1948 150.00 estate dealers fixed tax. With respect to the tax on corporations, the issue hinges on the
meaning of the terms "corporation" and "partnership," as used in section 24 and 84 of
said Code, the pertinent parts of which read:
1949 150.00
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding taxable year from
Total including penalty P527.00 all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (compaias colectivas), a tax upon such income equal to the
RESIDENCE TAXES OF CORPORATION sum of the following: . . .

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
1945 P38.75 organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
1946 38.75
Article 1767 of the Civil Code of the Philippines provides:

1947 38.75
By the contract of partnership two or more persons bind themselves to contribute
money, properly, or industry to a common fund, with the intention of dividing the profits
among themselves.
1948 38.75

Pursuant to the article, the essential elements of a partnership are two, namely: (a) an
1949 38.75 agreement to contribute money, property or industry to a common fund; and (b) intent
to divide the profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to, and did,
Total including surcharge P193.75 contribute money and property to a common fund. Hence, the issue narrows down to
their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real
TOTAL TAXES DUE P6,878.34. estate transactions for monetary gain and then divide the same among themselves,
because:
Said letter of demand and corresponding assessments were delivered to petitioners on
1. Said common fund was not something they found already in existence. It was not
December 3, 1954, whereupon they instituted the present case in the Court of Tax
property inherited by them pro indiviso. They created it purposely. What is more
Appeals, with a prayer that "the decision of the respondent contained in his letter of
they jointly borrowed a substantial portion thereof in order to establish said common
demand dated September 24, 1954" be reversed, and that they be absolved from the
fund.
payment of the taxes in question, with costs against the respondent.

2. They invested the same, not merely not merely in one transaction, but in a series of
After appropriate proceedings, the Court of Tax Appeals the above-mentioned
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944,
decision for the respondent, and a petition for reconsideration and new trial having
they purchased 21 lots for P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they
2
got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions
undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to
the conservation and preservation of the aforementioned common fund or even of the
property acquired by the petitioners in February, 1943. In other words, one cannot but
perceive a character of habitually peculiar to business transactions engaged in the
purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses,
of petitioners herein. The properties were leased separately to several persons, who,
from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals.
Seemingly, the lots are still being so let, for petitioners do not even suggest that there has
been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person,
namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts, and to indorse and deposit notes and checks.
Thus, the affairs relative to said properties have been handled as if the same belonged
to a corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact,
over fifteen (15) years, since the first property was acquired, and over twelve (12) years,
since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in
creating the set up already adverted to, or on the causes for its continued existence.
They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to leave
no room for doubt on the existence of said intent in petitioners herein. Only one or two
of the aforementioned circumstances were present in the cases cited by petitioners
herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality
independent of that of its members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar. This pretense was correctly
rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to the tax on "corporations",
said Code must allude, therefore, to organizations which are not necessarily
"partnerships", in the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general partnerships which
constitute precisely one of the most typical forms of partnerships in this jurisdiction.
3
Likewise, as defined in section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly
indicates that a joint venture need not be undertaken in any of the standard forms, or in
conformity with the usual requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on corporations. Again, pursuant
to said section 84(b), the term "corporation" includes, among other, joint accounts,
(cuentas en participation)" and "associations," none of which has a legal personality of
its own, independent of that of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the existence of the partnerships
therein referred to. In fact, as above stated, "duly registered general copartnerships"
which are possessed of the aforementioned personality have been expressly
excluded by law (sections 24 and 84 [b] from the connotation of the term "corporation"
It may not be amiss to add that petitioners' allegation to the effect that their liability in
connection with the leasing of the lots above referred to, under the management of
one person even if true, on which we express no opinion tends to increase the
similarity between the nature of their venture and that corporations, and is, therefore,
an additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed
differently from "partnerships". By specific provisions of said laws, such "corporations"
include "associations, joint-stock companies and insurance companies." However, the
term "association" is not used in the aforementioned laws.
. . . in any narrow or technical sense. It includes any organization, created for the
transaction of designed affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its members or participants change, and
the affairs of which, like corporate affairs, are conducted by a single individual, a
committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of
trust, a statute, or otherwise. It includes a voluntary association, a joint-stock corporation
or company, a 'business' trusts a 'Massachusetts' trust, a 'common law' trust, and
'investment' trust (whether of the fixed or the management type), an interinsuarance
exchange operating through an attorney in fact, a partnership association, and any
other type of organization (by whatever name known) which is not, within the meaning
of the Code, a trust or an estate, or a partnership. (7A Mertens Law of Federal Income
Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes not
only a partnership as known at common law but, as well, a syndicate, group, pool, joint
venture or other unincorporated organizations which carries on any business financial
operation, or venture, and which is not, within the meaning of the Code, a trust, estate,
or a corporation. . . (7A Merten's Law of Federal Income taxation, p. 789; emphasis
supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation, p.
562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes
these partnerships with the exception only of duly registered general copartnerships
within the purview of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned and are
subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No.
465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines
shall pay an annual residence tax of five pesos and an annual additional tax which in
no case, shall exceed one thousand pesos, in accordance with the following schedule:
...
The term 'corporation' as used in this Act includes joint-stock company, partnership, joint
account (cuentas en participacion), association or insurance company, no matter how
created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24
and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466), and
that the latter was approved on June 15, 1939, the day immediately after the approval
of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms
"corporation" and "partnership" are used in both statutes with substantially the same
meaning. Consequently, petitioners are subject, also, to the residence tax for
corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the
properties above mentioned for a period of over twelve years, and that the yearly gross
rentals of said properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus,
they are subject to the tax provided in section 193 (q) of our National Internal Revenue
Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding
himself out as a full or part time dealer in real estate or as an owner of rental property or
properties rented or offered to rent for an aggregate amount of three thousand pesos
or more a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with
costs against the petitioners herein. It is so ordered.
4
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually contributed money to a common
fund with express purpose of engaging in real estate business for profit. The series of
transactions which they had undertaken attest to this. This appears in the following
portion of the decision:
2. They invested the same, not merely in one transaction, but in a series of transactions.
On February 2, 1943, they bought a lot for P100,000. On April 3, 1944, they purchase 21
lots for P18,000. This was soon followed on April 23, 1944, by the acquisition of another
real state for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as
the brief interregnum between each, particularly the last three purchases, is strongly
indicative of a pattern or common design that was not limited to the conservation and
preservation of the aforementioned common fund or even of the property acquired by
the petitioner in February, 1943, In other words, we cannot but perceive a character
of habitually peculiar to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a
transaction should be deemed a partnership or a co-ownership. Said article paragraphs
2 and 3, provides:
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish partnership, whether or not the
person sharing them have a joint or common right or interest in any property from which
the returns are derived;
From the above it appears that the fact that those who agree to form a co-ownership
shared or do not share any profits made by the use of property held in common does
not convert their venture into a partnership. Or the sharing of the gross returns does not
of itself establish a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. This only means that, aside from the
circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a judicial
personality different from that of the individual partners, and the freedom to transfer or
assign any interest in the property by one with the consent of the others (Padilla, Civil
Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons contribute funds
to buy certain real estate for profit in the absence of other circumstances showing a
contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share
the gross returns of that enterprise in proportion to their contribution, but who severally
retain the title to their respective contribution, are not thereby rendered partners. They
have no common stock or capital, and no community of interest as principal proprietors
in the business itself which the proceeds derived. (Elements of the law of Partnership by
Floyd R. Mechem, 2n Ed., section 83, p. 74.)

A joint venture purchase of land, by two, does not constitute a copartnership in respect
thereto; nor does not agreement to share the profits and loses on the sale of land
create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142
U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of
reality, holding as tenants in common, and to divide the profits of disposing of it, the
brother and the other not being entitled to share in plaintiff's commissions, no
partnership existed as between the parties, whatever relation may have been as to third
parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the
same; (b) generally a participating in both profits and losses; (c) and such a community
of interest, as far as third persons are concerned as enables each party to make
contract, manage the business, and dispose of the whole property. (Municipal Paving
Co. vs Herring, 150 P. 1067, 50 Ill. 470.)

The common ownership of property does not itself create a partnership between the
owners, though they may use it for purpose of making gains; and they may, without
becoming partners, agree among themselves as to the management and use of such
property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S. W.
363, 160 No. App. 14.)

This is impliedly recognized in the following portion of the decision: "Although, taken
singly, they might not suffice to establish the intent necessary to constitute a partnership,
the collective effect of these circumstances (referring to the series of transactions) such
as to leave no room for doubt on the existence of said intent in petitioners herein."

5
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A.
Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The
appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter
to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between
them to run and operate a theatre on the premises occupied by former Cine Oro at
Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao
Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in
advance within the first 15 days of each quarter, (2) that the partnership shall be for a
period of two years and six months, starting from July 1, 1945 to December 31, 1947, with
the condition that if the land is expropriated or rendered impracticable for the business,
or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is
terminated by the owner, then the partnership shall be terminated even if the period for
which the partnership was agreed to be established has not yet expired; (3) that Mrs.
Yulo is authorized personally to conduct such business in the lobby of the building as is
ordinarily carried on in lobbies of theatres in operation, provided the said business may
not obstruct the free ingress and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the partnership shall belong to Mrs.
Yulo, but if the partnership agreement is terminated before the lapse of one and a half
years period under any of the causes mentioned in paragraph (2), then Yang Chiao
Seng shall have the right to remove and take away all improvements that the
partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a
partnership agreement establishing the "Yang & Company, Limited," which was to exist
from July 1, 1945 to December 31, 1947. It states that it will conduct and carry on the
business of operating a theatre for the exhibition of motion and talking pictures. The
capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and
P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the partners in
the same proportion as their capital contribution and the liability of Mrs. Yulo, in case of
loss, shall be limited to her capital contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending the partnership
for a period of three years beginning January 1, 1948 to December 31, 1950. The
6
benefits are to be divided between them at the rate of 50-50 and after December 31,
1950, the showhouse building shall belong exclusively to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from
Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it
was stipulated that the lease shall continue for an indefinite period of time, but that
after one year the lease may be cancelled by either party by written notice to the other
party at least 90 days before the date of cancellation. The last contract was executed
between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for
the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on
July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil
action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the
premises. On February 9, 1950, the Municipal Court of Manila rendered judgment
ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the
Court of First Instance, the two cases were afterwards heard jointly, and judgment was
rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the
contract of lease of the premises terminated as of July 31, 1949, and fixing the
reasonable monthly rentals of said premises at P100. Both parties appealed from said
decision and the Court of Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the
profits of the business. Yang answered the letter saying that upon the advice of his
counsel he had to suspend the payment (of the rentals) because of the pendency of
the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang alleges
that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors
the rentals from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted
this action on May 26, 1954, alleging the existence of a partnership between them and
that the defendant Yang Chiao Seng has refused to pay her share from December,
1949 to December, 1950; that after December 31, 1950 the partnership between Mrs.
Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner of
the building occupied by the Cine Astor; that the reasonable rental that the defendant
should pay therefor from January, 1951 is P5,000; that the defendant has acted
maliciously and refuses to pay the participation of the plaintiff in the profits of the
business amounting to P35,000 from November, 1949 to October, 1950, and that as a
result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered
damages in the amount of P160,000 and exemplary damages to the extent of P5,000.
The prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the
plaintiff and the defendant was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around the prohibition contained in the
contract of lease between the owners and the plaintiff against the sublease of the said
property. As to the other claims, he denies the same and alleges that the fair rental
value of the land is only P1,100. By way of counterclaim he alleges that by reason of an
attachment issued against the properties of the defendant the latter has suffered
damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The
court heard evidence of the plaintiff in the absence of the defendant and thereafter
rendered judgment ordering the defendant to pay to the plaintiff P41,000 for her
participation in the business up to December, 1950; P5,000 as monthly rental for the use
and occupation of the building from January 1, 1951 until defendant vacates the same,
and P3,000 for the use and occupation of the lobby from July 1, 1945 until defendant
vacates the property. This decision, however, was set aside on a motion for
reconsideration. In said motion it is claimed that defendant failed to appear at the
hearing because of his honest belief that a joint petition for postponement filed by both
parties, in view of a possible amicable settlement, would be granted; that in view of the
decision of the Court of Appeals in two previous cases between the owners of the land
and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation
in the profit of the business, etc. The court, finding the above motion, well-founded, set
aside its decision and a new trial was held. After trial the court rendered the decision
making the following findings: that it is not true that a partnership was created between
the plaintiff and the defendant because defendant has not actually contributed the
sum mentioned in the Articles of Partnership, or any other amount; that the real
agreement between the plaintiff and the defendant is not of the partnership but one of
the lease for the reason that under the agreement the plaintiff did not share either in
the profits or in the losses of the business as required by Article 1769 of the Civil Code;
and that the fact that plaintiff was granted a "guaranteed participation" in the profits
also belies the supposed existence of a partnership between them. It. therefore, denied
plaintiff's claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the
supposed lobby of the theatre, the court after ocular inspection found that the said
lobby was very narrow space leading to the balcony of the theatre which could not be
used for business purposes under existing ordinances of the City of Manila because it
would constitute a hazard and danger to the patrons of the theatre. The court,
therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on
the ground that the defendant failed to present sufficient evidence to sustain the same.
It is against this decision that the appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting aside its former
decision and allowing a new trial. This assignment of error is without merit. As that parties
agreed to postpone the trial because of a probable amicable settlement, the plaintiff
could not take advantage of defendant's absence at the time fixed for the hearing. The
lower court, therefore, did not err in setting aside its former judgment. The final result of
the hearing shown by the decision indicates that the setting aside of the previous
decision was in the interest of justice.
7
In the second assignment of error plaintiff-appellant claims that the lower court erred in
not striking out the evidence offered by the defendant-appellee to prove that the
relation between him and the plaintiff is one of the sublease and not of partnership. The
action of the lower court in admitting evidence is justified by the express allegation in
the defendant's answer that the agreement set forth in the complaint was one of lease
and not of partnership, and that the partnership formed was adopted in view of a
prohibition contained in plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth assignment
of error, to the effect that the lower court erred in holding that the written contracts,
Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and not of
partnership. We have gone over the evidence and we fully agree with the conclusion of
the trial court that the agreement was a sublease, not a partnership. The following are
the requisites of partnership: (1) two or more persons who bind themselves to contribute
money, property, or industry to a common fund; (2) intention on the part of the partners
to divide the profits among themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In
the third place, it does not appear that she has ever demanded from defendant any
accounting of the expenses and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business was progressing, whether
the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that
she did was to receive her share of P3,000 a month, which can not be interpreted in any
manner than a payment for the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this
offer as the real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the
business from December, 1949. But the original letter of the defendant, Exh. "A",
expressly states that the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having
terminated in July, 1949 as found by the Court of Appeals, the partnership agreement or
the agreement for her to receive a participation of P3,000 automatically ceased as of
said date.
We find no error in the judgment of the court below and we affirm it in toto, with costs
against plaintiff-appellant.
G.R. No. 413 February 2, 1903
JOSE FERNANDEZ, plaintiff-appellant,
vs.
FRANCISCO DE LA ROSA, defendant-appellee.
Vicente Miranda, for appellant.
Simplicio del Rosario, for appellee.
LADD, J.:
The object of this action is to obtain from the court a declaration that a partnership
exists between the parties, that the plaintiff has a consequent interested in certain
cascoes which are alleged to be partnership property, and that the defendant is bound
to render an account of his administration of the cascoes and the business carried on
with them.
Judgment was rendered for the defendant in the court below and the plaintiff
appealed.
The respective claims of the parties as to the facts, so far as it is necessary to state them
in order to indicate the point in dispute, may be briefly summarized. The plaintiff alleges
that in January, 1900, he entered into a verbal agreement with the defendant to form a
partnership for the purchase of cascoes and the carrying on of the business of letting
the same for hire in Manila, the defendant to buy the cascoes and each partner to
furnish for that purpose such amount of money as he could, the profits to be divided
proportionately; that in the same January the plaintiff furnished the defendant 300
pesos to purchase a casco designated as No. 1515, which the defendant did purchase
for 500 pesos of Doa Isabel Vales, taking the title in his own name; that the plaintiff
furnished further sums aggregating about 300 pesos for repairs on this casco; that on the
fifth of the following March he furnished the defendant 825 pesos to purchase another
casco designated as No. 2089, which the defendant did purchase for 1,000 pesos of Luis
R. Yangco, taking the title to this casco also in his own name; that in April the parties
undertook to draw up articles of partnership for the purpose of embodying the same in
an authentic document, but that the defendant having proposed a draft of such
articles which differed materially from the terms of the earlier verbal agreement, and
being unwillingly to include casco No. 2089 in the partnership, they were unable to
come to any understanding and no written agreement was executed; that the
defendant having in the meantime had the control and management of the two
cascoes, the plaintiff made a demand for an accounting upon him, which the
defendant refused to render, denying the existence of the partnership altogether.
The defendant admits that the project of forming a partnership in the casco business in
which he was already engaged to some extent individually was discussed between
himself and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a
partner of the plaintiff in a bakery business, being also a party to the negotiations, but
he denies that any agreement was ever consummated. He denies that the plaintiff
8
furnished any money in January, 1900, for the purchase of casco No. 1515, or for repairs
on the same, but claims that he borrowed 300 pesos on his individual account in
January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio
Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he
claims was for the purchase of casco No. 1515, which he alleged was bought March 12,
and he alleges that he never received anything from the defendant toward the
purchase of casco No. 2089. He claims to have paid, exclusive of repairs, 1,200 pesos for
the first casco and 2,000 pesos for the second one.
The case comes to this court under the old procedure, and it is therefore necessary for
us the review the evidence and pass upon the facts. Our general conclusions may be
stated as follows:
(1) Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies that
the sale was made and the casco delivered in January, although the public document
of sale was not executed till some time afterwards. This witness is apparently
disinterested, and we think it is safe to rely upon the truth of her testimony, especially as
the defendant, while asserting that the sale was in March, admits that he had the casco
taken to the ways for repairs in January.
It is true that the public document of sale was executed March 10, and that the vendor
declares therein that she is the owner of the casco, but such declaration does not
exclude proof as to the actual date of the sale, at least as against the plaintiff, who was
not a party to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in such
cases, that the actual sale precedes by a considerable time the execution of the formal
instrument of transfer, and this is what we think occurred here.
(2) The plaintiff presented in evidence the following receipt: "I have this day received
from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco
which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa."
The authenticity of this receipt is admitted by the defendant. If casco No. 1515 was
bought, as we think it was, in January, the casco referred to in the receipt which the
parties "are to purchase in company" must be casco No. 2089, which was bought
March 22. We find this to be the fact, and that the plaintiff furnished and the defendant
received 825 pesos toward the purchase of this casco, with the understanding that it
was to be purchased on joint account.
(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio
Angulo give the defendant, in the name of the plaintiff, a sum of money, the amount of
which he is unable to state, for the purchase of a casco to be used in the plaintiff's and
defendant's business. Antonio Angulo also testifies, but the defendant claims that the
fact that Angulo was a partner of the plaintiff rendered him incompetent as a witness
under the provisions of article 643 of the then Code of Civil Procedure, and without
deciding whether this point is well taken, we have discarded his testimony altogether in
considering the case. The defendant admits the receipt of 300 pesos from Antonio
Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he
sets up the claim that the 825 pesos which he received from the plaintiff in March were
furnished toward the purchase of casco No. 1515, thereby virtually admitting that casco
was purchased in company with the plaintiff. We discover nothing in the evidence to
support the claim that the 300 pesos received in January was a loan, unless it may be
the fact that the defendant had on previous occasions borrowed money from the
bakery firm. We think all the probabilities of the case point to the truth of the evidence
of Antonio Fernandez as to this transaction, and we find the fact to be that the sum in
question was furnished by the plaintiff toward the purchase for joint ownership of casco
No. 1515, and that the defendant received it with the understanding that it was to be
used for this purposed. We also find that the plaintiff furnished some further sums of
money for the repair of casco.
(4) The balance of the purchase price of each of the two cascoes over and above the
amount contributed by the plaintiff was furnished by the defendant.
(5) We are unable to find upon the evidence before us that there was any specific
verbal agreement of partnership, except such as may be implied from the fact as to the
purchase of the casco.
(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more
probable than otherwise that no attempt was made to agree upon articles of
partnership till about the middle of the April following the purchase of the cascoes.
(7) At some time subsequently to the failure of the attempt to agree upon partnership
articles and after the defendant had been operating the cascoes for some time, the
defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and
one of 825 pesos. The only evidence in the record as to the circumstances under which
the plaintiff received these sums is contained in his answer to the interrogatories
proposed to him by the defendant, and the whole of his statement on this point may
properly be considered in determining the fact as being in the nature of an indivisible
admission. He states that both sums were received with an express reservation on his
part of all his rights as a partner. We find this to be the fact.
Two questions of law are raised by the foregoing facts: (1) Did a partnership exist
between the parties? (2) If such partnership existed, was it terminated as a result of the
act of the defendant in receiving back the 1,125 pesos?
(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership relation
results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 1695.)
9
We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the
cascoes in question. This establishes the first element of the contract, namely, mutual
contribution to a common stock. The second element, namely, the intention to share
profits, appears to be an unavoidable deduction from the fact of the purchase of the
cascoes in common, in the absence of any other explanation of the object of the
parties in making the purchase in that form, and, it may be added, in view of the
admitted fact that prior to the purchase of the first casco the formation of a partnership
had been a subject of negotiation between them.
Under other circumstances the relation of joint ownership, a relation distinct though
perhaps not essentially different in its practical consequence from that of partnership,
might have been the result of the joint purchase. If, for instance, it were shown that the
object of the parties in purchasing in company had been to make a more favorable
bargain for the two cascoes that they could have done by purchasing them separately,
and that they had no ulterior object except to effect a division of the common property
when once they had acquired it, the affectio societatiswould be lacking and the
parties would have become joint tenants only; but, as nothing of this sort appears in the
case, we must assume that the object of the purchase was active use and profit and
not mere passive ownership in common.
It is thus apparent that a complete and perfect contract of partnership was entered
into by the parties. This contract, it is true, might have been subject to a suspensive
condition, postponing its operation until an agreement was reached as to the
respective participation of the partners in the profits, the character of the partnership as
collective or en comandita, and other details, but although it is asserted by counsel for
the defendant that such was the case, there is little or nothing in the record to support
this claim, and that fact that the defendant did actually go on and purchase the boat,
as it would seem, before any attempt had been made to formulate partnership articles,
strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership as a civil contract, the contributions of the partners not
having been in the form of immovables or rights in immovables. (Civil Code, art. 1667.)
The special provision cited, requiring the execution of a public writing in the single case
mentioned and dispensing with all formal requirements in other cases, renders
inapplicable to this species of contract the general provisions of article 1280 of the Civil
Code.
(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of
the money returned to him by the defendant after the definitive failure of the attempt
to agree upon partnership articles. The amount returned fell short, in our view of the
facts, of that which the plaintiff had contributed to the capital of the partnership, since
it did not include the sum which he had furnished for the repairs of casco No. 1515.
Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been
realized from the business during the period in which the defendant have been
administering it prior to the return of the money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the money by the plaintiff did not have the
effect of terminating the legal existence of the partnership by converting it into
a societas leonina, as claimed by counsel for the defendant.
Did the defendant waive his right to such interest as remained to him in the partnership
property by receiving the money? Did he by so doing waive his right to an accounting
of the profits already realized, if any, and a participation in them in proportion to the
amount he had originally contributed to the common fund? Was the partnership
dissolved by the "will or withdrawal of one of the partners" under article 1705 of the Civil
Code? We think these questions must be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money to relinquish
his rights as a partner, nor is there any evidence that by anything that he said or by
anything that he omitted to say he gave the defendant any ground whatever to
believe that he intended to relinquish them. On the contrary he notified the defendant
that he waived none of his rights in the partnership. Nor was the acceptance of the
money an act which was in itself inconsistent with the continuance of the partnership
relation, as would have been the case had the plaintiff withdrawn his entire interest in
the partnership. There is, therefore, nothing upon which a waiver, either express or
implied, can be predicated. The defendant might have himself terminated the
partnership relation at any time, if he had chosen to do so, by recognizing the plaintiff's
right in the partnership property and in the profits. Having failed to do this he can not be
permitted to force a dissolution upon his co-partner upon terms which the latter is
unwilling to accept. We see nothing in the case which can give the transaction in
question any other aspect than that of the withdrawal by one partner with the consent
of the other of a portion of the common capital.
The result is that we hold and declare that a partnership was formed between the
parties in January, 1900, the existence of which the defendant is bound to recognize;
that cascoes No. 1515 and 2089 constitute partnership property, and that the plaintiff is
entitled to an accounting of the defendant's administration of such property, and of the
profits derived therefrom. This declaration does not involve an adjudication as to any
disputed items of the partnership account.
The judgment of the court below will be reversed without costs, and the record returned
for the execution of the judgment now rendered. So ordered.
Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.
Willard, J., dissenting.
ON MOTION FOR A REHEARING.
MAPA, J.:
10
This case has been decided on appeal in favor of the plaintiff, and the defendant has
moved for a rehearing upon the following grounds:
1. Because that part of the decision which refers to the existence of the partnership
which is the object of the complaint is not based upon clear and decisive legal
grounds; and
2. Because, upon the supposition of the existence of the partnership, the decision does
not clearly determine whether the juridical relation between the partners suffered any
modification in consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos
from the funds of the partnership, or if it continued as before, the parties being thereby
deprived, he alleges, of one of the principal bases for determining with exactness the
amount due to each.
With respect to the first point, the appellant cites the fifth conclusion of the decision,
which is as follows: "We are unable to find from the evidence before us that there was
any specific verbal agreement of partnership, except such as may be implied from the
facts as to the purchase of the cascoes."
Discussing this part of the decision, the defendant says that, in the judgment of the
court, if on the one hand there is no direct evidence of a contract, on the other its
existence can only be inferred from certain facts, and the defendant adds that the
possibility of an inference is not sufficient ground upon which to consider as existing
what may be inferred to exist, and still less as sufficient ground for declaring its efficacy
to produce legal effects.
This reasoning rests upon a false basis. We have not taken into consideration the mere
possibility of an inference, as the appellant gratuitously stated, for the purpose of
arriving at a conclusion that a contract of partnership was entered into between him
and the plaintiff, but have considered the proof which is derived from the facts
connected with the purchase of the cascoes. It is stated in the decision that with the
exception of this evidence we find no other which shows the making of the contract.
But this does not mean (for it says exactly the contrary) that this fact is not absolutely
proven, as the defendant erroneously appears to think. From this data we infer a fact
which to our mind is certain and positive, and not a mere possibility; we infer not that it is
possible that the contract may have existed, but that it actually did exist. The proofs
constituted by the facts referred to, although it is the only evidence, and in spite of the
fact that it is not direct, we consider, however, sufficient to produce such a conviction,
which may certainly be founded upon any of the various classes of evidence which the
law admits. There is all the more reason for its being so in this case, because a civil
partnership may be constituted in any form, according to article 1667 of the Civil Code,
unless real property or real rights are contributed to it the only case of exception in
which it is necessary that the agreement be recorded in a public instrument.
It is of no importance that the parties have failed to reach an agreement with respect
to the minor details of contract. These details pertain to the accidental and not to the
essential part of the contract. We have already stated in the opinion what are the
essential requisites of a contract of partnership, according to the definition of article
1665. Considering as a whole the probatory facts which appears from the record, we
have reached the conclusion that the plaintiff and the defendant agreed to the
essential parts of that contract, and did in fact constitute a partnership, with the funds
of which were purchased the cascoes with which this litigation deals, although it is true
that they did not take the precaution to precisely establish and determine from the
beginning the conditions with respect to the participation of each partner in the profits
or losses of the partnership. The disagreements subsequently arising between them,
when endeavoring to fix these conditions, should not and can not produce the effect of
destroying that which has been done, to the prejudice of one of the partners, nor could
it divest his rights under the partnership which had accrued by the actual contribution of
capital which followed the agreement to enter into a partnership, together with the
transactions effected with partnership funds. The law has foreseen the possibility of the
constitution of a partnership without an express stipulation by the partners upon those
conditions, and has established rules which may serve as a basis for the distribution of
profits and losses among the partners. (Art. 1689 of the Civil Code. ) We consider that
the partnership entered into by the plaintiff and the defendant falls within the provisions
of this article.

With respect to the second point, it is obvious that upon declaring the existence of a
partnership and the right of the plaintiff to demand from the defendant an itemized
accounting of his management thereof, it was impossible at the same time to
determine the effects which might have been produced with respect to the interest of
the partnership by the withdrawal by the plaintiff of the sum of 1,125 pesos. This could
only be determined after a liquidation of the partnership. Then, and only then, can it be
known if this sum is to be charged to the capital contributed by the plaintiff, or to his
share of the profits, or to both. It might well be that the partnership has earned profits,
and that the plaintiff's participation therein is equivalent to or exceeds the sum
mentioned. In this case it is evident that, notwithstanding that payment, his interest in
the partnership would still continue. This is one case. It would be easy to imagine many
others, as the possible results of a liquidation are innumerable. The liquidation will finally
determine the condition of the legal relations of the partners inter se at the time of the
withdrawal of the sum mentioned. It was not, nor is it possible to determine this status a
priori without prejudging the result, as yet unknown, of the litigation. Therefore it is that in
the decision no direct statement has been made upon this point. It is for the same
reason that it was expressly stated in the decision that it "does not involve an
adjudication as to any disputed item of the partnership account."

The contentions advanced by the moving party are so evidently unfounded that we
can not see the necessity or convenience of granting the rehearing prayed for, and the
motion is therefore denied.

11
G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA,
INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
REYES, J.:
This is an action originally brought in the Court of First Instance of Rizal, Quezon City
Branch, to recover possesion of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to the extent and
description of the land sought to be recovered. The original complaint described the
land as a portion of a lot registered in plaintiff's name under Transfer Certificate of Title
No. 37686 of the land record of Rizal Province and as containing an area of 13 hectares
more or less. But the complaint was amended by reducing the area of 6 hectares, more
or less, after the defendant had indicated the plaintiff's surveyors the portion of land
claimed and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the area was
embraced in another certificate of title, which was plaintiff's Transfer Certificate of Title
No. 37677. And still later, in the course of trial, after defendant's surveyor and witness,
Quirino Feria, had testified that the area occupied and claimed by defendant was
about 13 hectares, as shown in his Exhibit 1, plaintiff again, with the leave of court,
amended its complaint to make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his predecessor in interest"
from "time in-memorial". The answer further alleges that registration of the land in dispute
was obtained by plaintiff or its predecessors in interest thru "fraud or error and without
knowledge (of) or interest either personal or thru publication to defendant and/or
predecessors in interest." The answer therefore prays that the complaint be dismissed
with costs and plaintiff required to reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be
without any right to the land in question and ordering him to restore possession thereof
to plaintiff and to pay the latter a monthly rent of P132.62 from January, 1940, until he
vacates the land, and also to pay the costs.
Appealing directly to this court because of the value of the property involved,
defendant makes the following assignment or errors:
12
I. The trial court erred in not dismissing the case on the ground that the case was not
brought by the real property in interest.
II. The trial court erred in admitting the third amended complaint.
III. The trial court erred in denying defendant's motion to strike.
IV. The trial court erred in including in its decision land not involved in the litigation.
V. The trial court erred in holding that the land in dispute is covered by transfer
certificates of Title Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the defendant is the true and lawful owner of
the land.
VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the
amount of P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to
the defendant.
As to the first assigned error, there is nothing to the contention that the present action is
not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the
Rules of Court require is that an action be brought in the name of, but not
necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for an
attorney-at-law to bring the action, that is to file the complaint, in the name of the
plaintiff. That practice appears to have been followed in this case, since the complaint
is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It is true that
the complaint also states that the plaintiff is "represented herein by its Managing Partner
Gregorio Araneta, Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff
on the theory that it is illegal for two corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another where the nature
of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil
Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is
nothing in the record to indicate that the venture in which plaintiff is represented by
Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business
of either of them.
Errors II, III, and IV, referring to the admission of the third amended complaint, may be
answered by mere reference to section 4 of Rule 17, Rules of Court, which sanctions
such amendment. It reads:
Sec. 4. Amendment to conform to evidence. When issues not raised by the pleadings
are tried by express or implied consent of the parties, they shall be treated in all
respects, as if they had been raised in the pleadings. Such amendment of the pleadings
as may be necessary to cause them to conform to the evidence and to raise these
issues may be made upon motion of any party at my time, even of the trial of these
issues. If evidence is objected to at the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the pleadings to be amended and shall
be so freely when the presentation of the merits of the action will be subserved thereby
and the objecting party fails to satisfy the court that the admission of such evidence
would prejudice him in maintaining his action or defense upon the merits. The court may
grant a continuance to enable the objecting party to meet such evidence.
Under this provision amendment is not even necessary for the purpose of rendering
judgment on issues proved though not alleged. Thus, commenting on the provision,
Chief Justice Moran says in this Rules of Court:
Under this section, American courts have, under the New Federal Rules of Civil
Procedure, ruled that where the facts shown entitled plaintiff to relief other than that
asked for, no amendment to the complaint is necessary, especially where defendant
has himself raised the point on which recovery is based, and that the appellate court
treat the pleadings as amended to conform to the evidence, although the pleadings
were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage
of the trial, that the land in dispute "is that described or represented in Exhibit A and in
Exhibit B enclosed in red pencil with the name Quirino Bolaos," defendant later
changed his lawyer and also his theory and tried to prove that the land in dispute was
not covered by plaintiff's certificate of title. The evidence, however, is against
defendant, for it clearly establishes that plaintiff is the registered owner of lot No. 4-B-3-
C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters,
more or less, covered by transfer certificate of title No. 37686 of the land records of Rizal
province, and of lot No. 4-B-4, situated in the same barrio, having an area of 74,789
square meters, more or less, covered by transfer certificate of title No. 37677 of the land
records of the same province, both lots having been originally registered on July 8, 1914
under original certificate of title No. 735. The identity of the lots was established by the
testimony of Antonio Manahan and Magno Faustino, witnesses for plaintiff, and the
identity of the portion thereof claimed by defendant was established by the testimony
of his own witness, Quirico Feria. The combined testimony of these three witnesses
clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C
and major on portion of lot 4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears admitted in defendant's
answer to the third amended complaint.
13
As the land in dispute is covered by plaintiff's Torrens certificate of title and was
registered in 1914, the decree of registration can no longer be impugned on the ground
of fraud, error or lack of notice to defendant, as more than one year has already
elapsed from the issuance and entry of the decree. Neither court the decree be
collaterally attacked by any person claiming title to, or interest in, the land prior to the
registration proceedings. (Sorogon vs. Makalintal,1 45 Off. Gaz., 3819.) Nor could title to
that land in derogation of that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No. 496.) Adverse, notorious and
continuous possession under claim of ownership for the period fixed by law is ineffective
against a Torrens title. (Valiente vs. Judge of CFI of Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p.
43.) And it is likewise settled that the right to secure possession under a decree of
registration does not prescribed. (Francisco vs. Cruz, 43 Off. Gaz., 5105, 5109-5110.) A
recent decision of this Court on this point is that rendered in the case of Jose Alcantara
et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to sustain the finding that
defendant should be sentenced to pay plaintiff P132.62 monthly from January, 1940,
until he vacates the premises.' But it appears from the record that that reasonable
compensation for the use and occupation of the premises, as stipulated at the hearing
was P10 a month for each hectare and that the area occupied by defendant was
13.2619 hectares. The total rent to be paid for the area occupied should therefore be
P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been filed against
defendant. And it cannot be supposed that defendant has been paying rents, for he
has been asserting all along that the premises in question 'have always been since time
immemorial in open, continuous, exclusive and public and notorious possession and
under claim of ownership adverse to the entire world by defendant and his
predecessors in interest.' This assignment of error is thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged and needs for further
consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a
motion to dismiss alleging that there is pending before the Court of First Instance of Rizal
another action between the same parties and for the same cause and seeking to
sustain that allegation with a copy of the complaint filed in said action. But an
examination of that complaint reveals that appellant's allegation is not correct, for the
pretended identity of parties and cause of action in the two suits does not appear. That
other case is one for recovery of ownership, while the present one is for recovery of
possession. And while appellant claims that he is also involved in that order action
because it is a class suit, the complaint does not show that such is really the case. On
the contrary, it appears that the action seeks relief for each individual plaintiff and not
relief for and on behalf of others. The motion for dismissal is clearly without merit.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.
14
G.R. No. L-9692 January 6, 1958
COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
BATANGAS TRANSPORTATION COMPANY and LAGUNA-TAYABAS BUS
COMPANY, respondents.
Office of the Solicitor General Ambrosio Padilla, Solicitor Conrado T. Limcaoco and Zoilo
R. Zandoval for petitioner.
Ozaeta, Lichauco and Picazo for respondents.
MONTEMAYOR, J.:
This is an appeal from the decision of the Court of Tax Appeals (C.T.A.), which reversed
the assessment and decision of petitioner Collector of Internal Revenue, later referred to
as Collector, assessing and demanding from the respondents Batangas Transportation
Company, later referred to as Batangas Transportation, and Laguna-Tayabas Bus
Company, later referred to as Laguna Bus, the amount of P54,143.54, supposed to
represent the deficiency income tax and compromise for the years 1946 to 1949,
inclusive, which amount, pending appeal in the C.T.A., but before the Collector filed his
answer in said court, was increased to P148,890.14.
The following facts are undisputed: Respondent companies are two distinct and
separate corporations engaged in the business of land transportation by means of
motor buses, and operating distinct and separate lines. Batangas Transportation was
organized in 1918, while Laguna Bus was organized in 1928. Each company now has a
fully paid up capital of Pl,000,000. Before the last war, each company maintained
separate head offices, that of Batangas Transportation in Batangas, Batangas, while the
Laguna Bus had its head office in San Pablo Laguna. Each company also kept and
maintained separate books, fleets of buses, management, personnel, maintenance
and repair shops, and other facilities. Joseph Benedict managed the Batangas
Transportation, while Martin Olson was the manager of the Laguna Bus. To show the
connection and close relation between the two companies, it should be stated that
Max Blouse was the President of both corporations and owned about 30 per cent of the
stock in each company. During the war, the American officials of these two
corporations were interned in Santo Tomas, and said companies ceased operations.
They also lost their respective properties and equipment. After Liberation, sometime in
April, 1945, the two companies were able to acquire 56 auto buses from the United
States Army, and the two companies diveded said equipment equally between
themselves,registering the same separately in their respective names. In March, 1947,
after the resignation of Martin Olson as Manager of the Laguna Bus, Joseph Benedict,
who was then managing the Batangas Transportation, was appointed Manager of both
companies by their respective Board of Directors. The head office of the Laguna Bus in
San Pablo City was made the main office of both corporations. The placing of the two
companies under one sole mangement was made by Max Blouse, President of both
companies, by virtue of the authority granted him by resolution of the Board of Directors
15
of the Laguna Bus on August 10, 1945, and ratified by the Boards of the two companies
in their respective resolutions of October 27, 1947.
According to the testimony of joint Manager Joseph Benedict, the purpose of the joint
management, which was called, "Joint Emergency Operation", was to economize in
overhead expenses; that by means of said joint operation, both companies had been
able to save the salaries of one manager, one assistant manager, fifteen inspectors,
special agents, and one set of office of clerical force, the savings in one year
amounting to about P200,000 or about P100,000 for each company. At the end of each
calendar year, all gross receipts and expenses of both companies were determined
and the net profits were divided fifty-fifty, and transferred to the book of accounts of
each company, and each company "then prepared its own income tax return from this
fifty per centum of the gross receipts and expenditures, assets and liabilities thus
transferred to it from the `Joint Emergency Operation' and paid the corresponding
income taxes thereon separately".
Under the theory that the two companies had pooled their resources in the
establishment of the Joint Emergency Operation, thereby forming a joint venture, the
Collector wrote the bus companies that there was due from them the amount of
P422,210.89 as deficiency income tax and compromise for the years 1946 to 1949,
inclusive. Since the Collector caused to be restrained, seized, and advertized for sale all
the rolling stock of the two corporations, respondent companies had to file a surety
bond in the same amount of P422,210.89 to guarantee the payment of the income tax
assessed by him.
After some exchange of communications between the parties, the Collector, on
January 8, 1955, informed the respondents "that after crediting the overpayment made
by them of their alleged income tax liabilities for the aforesaid years, pursuant to the
doctrine of equitable recoupment, the income tax due from the `Joint Emergency
Operation' for the years 1946 to 1949, inclusive, is in the total amount of P54,143.54." The
respondent companies appealed from said assessment of P54,143.54 to the Court of Tax
Appeals, but before filing his answer, the Collector set aside his original assessment of
P54,143.54 and reassessed the alleged income tax liability of respondents of
P148,890.14, claiming that he had later discovered that said companies had been
"erroneously credited in the last assessment with 100 per cent of their income taxes paid
when they should in fact have been credited with only 75 per cent thereof, since under
Section 24 of the Tax Code dividends received by them from the Joint Operation as a
domestic corporation are returnable to the extent of 25 per cent". That corrected and
increased reassessment was embodied in the answer filed by the Collector with the
Court of Tax Appeals.
The theory of the Collector is the Joint Emergency Operation was a corporation distinct
from the two respondent companies, as defined in section 84 (b), and so liable to
income tax under section 24, both of the National Internal Revenue Code. After
hearing, the C.T.A. found and held, citing authorities, that the Joint Emergency
Operation or joint management of the two companies "is not a corporation within the
contemplation of section 84 (b) of the National Internal Revenue Code much less a
partnership, association or insurance company", and therefore was not subject to the
income tax under the provisions of section 24 of the same Code, separately and
independently of respondent companies; so, it reversed the decision of the Collector
assessing and demanding from the two companies the payment of the amount of
P54,143.54 and/or the amount of P148,890.14. The Tax Court did not pass upon the
question of whether or not in the appeal taken to it by respondent companies, the
Collector could change his original assessment by increasing the same from P54,143.14
to P148,890.14, to correct an error committed by him in having credited the Joint
Emergency Operation, totally or 100 per cent of the income taxes paid by the
respondent companies for the years 1946 to 1949, inclusive, by reason of the principle
of equitable recoupment, instead of only 75 per cent.
The two main and most important questions involved in the present appeal are: (1)
whether the two transportation companies herein involved are liable to the payment of
income tax as a corporation on the theory that the Joint Emergency Operation
organized and operated by them is a corporation within the meaning of Section 84 of
the Revised Internal Revenue Code, and (2) whether the Collector of Internal Revenue,
after the appeal from his decision has been perfected, and after the Court of Tax
Appeals has acquired jurisdiction over the same, but before said Collector has filed his
answer with that court, may still modify his assessment subject of the appeal by
increasing the same, on the ground that he had committed error in good faith in
making said appealed assessment.
The first question has already been passed upon and determined by this Tribunal in the
case of Eufemia Evangelista et al., vs. Collector of Internal Revenue et al.,* G.R. No. L-
9996, promulgated on October 15, 1957. Considering the views and rulings embodied in
our decision in that case penned by Mr. Justice Roberto Concepcion, we deem it
unnecessary to extensively discuss the point. Briefly, the facts in that case are as follows:
The three Evangelista sisters borrowed from their father about P59,000 and adding
thereto their own personal funds, bought real properties, such as a lot with
improvements for the sum of P100,000 in 1943, parcels of land with a total area of almost
P4,000 square meters with improvements thereon for P18,000 in 1944, another lot for
P108,000 in the same year, and still another lot for P237,000 in the same year. The
relatively large amounts invested may be explained by the fact that purchases were
made during the Japanese occupation, apparently in Japanese military notes. In 1945,
the sisters appointed their brother to manage their properties, with full power to lease, to
collect and receive rents, on default of such payment, to bring suits against the
defaulting tenants, to sign all letters and contracts, etc. The properties therein involved
were rented to various tenants, and the sisters, through their brother as manager,
realized a net rental income of P5,948 in 1945, P7,498 in 1946, and P12,615 in 1948.
In 1954, the Collector of Internal Revenue demanded of them among other things,
payment of income tax on corporations from the year 1945 to 1949, in the total amount
of P6,157, including surcharge and compromise. Dissatisfied with the said assessment,
the three sisters appealed to the Court of Tax Appeals, which court decided in favor of
16
the Collector of Internal Revenue. On appeal to us, we affirmed the decision of the Tax
Court. We found and held that considering all the facts and circumstances sorrounding
the case, the three sisters had the purpose to engage in real estate transactions for
monetary gain and then divide the same among themselves; that they contributed to a
common fund which they invested in a series of transactions; that the properties bought
with this common fund had been under the management of one person with full power
to lease, to collect rents, issue receipts, bring suits, sign letters and contracts, etc., in
such a manner that the affairs relative to said properties have been handled as if the
same belonged to a corporation or business enterprise operated for profit; and that the
said sisters had the intention to constitute a partnership within the meaning of the tax
law. Said sisters in their appeal insisted that they were mere co-owners, not co-partners,
for the reason that their acts did not create a personality independent of them, and
that some of the characteristics of partnerships were absent, but we held that when the
Tax Code includes "partnerships" among the entities subject to the tax on corporations,
it must refer to organizations which are not necessarily partnerships in the technical
sense of the term, and that furthermore, said law defined the term "corporation" as
including partnerships no matter how created or organized, thereby indicating that "a
joint venture need not be undertaken in any of the standard forms, or in conformity with
the usual requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations"; that besides, said section 84 (b)
provides that the term "corporation" includes "joint accounts" (cuentas en participacion)
and "associations", none of which has a legal personality independent of that of its
members. The decision cites 7A Merten's Law of Federal Income Taxation.
In the present case, the two companies contributed money to a common fund to pay
the sole general manager, the accounts and office personnel attached to the office of
said manager, as well as for the maintenance and operation of a common
maintenance and repair shop. Said common fund was also used to buy spare parts,
and equipment for both companies, including tires. Said common fund was also used to
pay all the salaries of the personnel of both companies, such as drivers, conductors,
helpers and mechanics, and at the end of each year, the gross income or receipts of
both companies were merged, and after deducting therefrom the gross expenses of
the two companies, also merged, the net income was determined and divided equally
between them, wholly and utterly disregarding the expenses incurred in the
maintenance and operation of each company and of the individual income of said
companies.
From the standpoint of the income tax law, this procedure and practice of determining
the net income of each company was arbitrary and unwarranted, disregarding as it did
the real facts in the case. There can be no question that the receipts and gross
expenses of two, distinct and separate companies operating different lines and in some
cases, different territories, and different equipment and personnel at least in value and
in the amount of salaries, can at the end of each year be equal or even approach
equality. Those familiar with the operation of the business of land transportation can
readily see that there are many factors that enter into said operation. Much depends
upon the number of lines operated and the length of each line, including the number of
trips made each day. Some lines are profitable, others break above even, while still
others are operated at a loss, at least for a time, depending, of course, upon the
volume of traffic, both passenger and freight. In some lines, the operator may enjoy a
more or less exclusive exclusive operation, while in others, the competition is intense,
sometimes even what they call "cutthroat competition". Sometimes, the operator is
involved in litigation, not only as the result of money claims based on physical injuries ar
deaths occassioned by accidents or collisions, but litigations before the Public Service
Commission, initiated by the operator itself to acquire new lines or additional service
and equipment on the lines already existing, or litigations forced upon said operator by
its competitors. Said litigation causes expense to the operator. At other times, operator is
denounced by competitors before the Public Service Commission for violation of its
franchise or franchises, for making unauthorized trips, for temporary abandonement of
said lines or of scheduled trips, etc. In view of this, and considering that the Batangas
Transportation and the Laguna Bus operated different lines, sometimes in different
provinces or territories, under different franchises, with different equipment and
personnel, it cannot possibly be true and correct to say that the end of each year, the
gross receipts and income in the gross expenses of two companies are exactly the
same for purposes of the payment of income tax. What was actually done in this case
was that, although no legal personality may have been created by the Joint
Emergency Operation, nevertheless, said Joint Emergency Operation joint venture, or
joint management operated the business affairs of the two companies as though they
constituted a single entity, company or partnership, thereby obtaining substantial
economy and profits in the operation.
For the foregoing reasons, and in the light of our ruling in the Evangelista vs. Collector of
Internal Revenue case, supra, we believe and hold that the Joint Emergency Operation
or sole management or joint venture in this case falls under the provisions of section 84
(b) of the Internal Revenue Code, and consequently, it is liable to income tax provided
for in section 24 of the same code.
The second important question to determine is whether or not the Collector of Internal
Revenue, after appeal from his decision to the Court of Tax Appeals has been
perfected, and after the Tax Court Appeals has acquired jurisdiction over the appeal,
but before the Collector has filed his answer with the court, may still modify his
assessment, subject of the appeal, by increasing the same. This legal point, interesting
and vital to the interests of both the Government and the taxpayer, provoked
considerable discussion among the members of this Tribunal, a minority of which the
writer of this opinion forms part, maintaining that for the information and guidance of
the taxpayer, there should be a definite and final assessment on which he can base his
decision whether or not to appeal; that when the assessment is appealed by the
taxpayer to the Court of Tax Appeals, the collector loses control and jurisdiction over the
same, the jurisdiction being transferred automatically to the Tax Court, which has
exclusive appellate jurisdiction over the same; that the jurisdiction of the Tax Court is not
revisory but only appellate, and therefore, it can act only upon the amount of
assessment subject of the appeal to determine whether it is valid and correct from the
standpoint of the taxpayer-appellant; that the Tax Court may only correct errors
17
committed by the Collector against the taxpayer, but not those committed in his favor,
unless the Government itself is also an appellant; and that unless this be the rule, the
Collector of Internal Revenue and his agents may not exercise due care, prudence and
pay too much attention in making tax assessments, knowing that they can at any time
correct any error committed by them even when due to negligence, carelessness or
gross mistake in the interpretation or application of the tax law, by increasing the
assessment, naturally to the prejudice of the taxpayer who would not know when his tax
liability has been completely and definitely met and complied with, this knowledge
being necessary for the wise and proper conduct and operation of his business; and
that lastly, while in the United States of America, on appeal from the decision of the
Commissioner of Internal Revenue to the Board or Court of Tax Appeals, the
Commissioner may still amend or modify his assessment, even increasing the same the
law in that jurisdiction expressly authorizes the Board or Court of Tax Appeals
to redetermine and revise the assessment appealed to it.
The majority, however, holds, not without valid arguments and reasons, that the
Government is not bound by the errors committed by its agents and tax collectors in
making tax assessments, specially when due to a misinterpretation or application of the
tax laws, more so when done in good faith; that the tax laws provide for a prescriptive
period within which the tax collectors may make assessments and reassessments in
order to collect all the taxes due to the Government, and that if the Collector of Internal
Revenue is not allowed to amend his assessment before the Court of Tax Appeals, and
since he may make a subsequent reassessment to collect additional sums within the
same subject of his original assessment, provided it is done within the prescriptive period,
that would lead to multiplicity of suits which the law does not encourage; that since the
Collector of Internal Revenue, in modifying his assessment, may not only increase the
same, but may also reduce it, if he finds that he has committed an error against the
taxpayer, and may even make refunds of amounts erroneously and illegally collected,
the taxpayer is not prejudiced; that the hearing before the Court of Tax Appeals
partakes of a trial de novoand the Tax Court is authorized to receive evidence, summon
witnesses, and give both parties, the Government and the taxpayer, opportunity to
present and argue their sides, so that the true and correct amount of the tax to be
collected, may be determined and decided, whether resulting in the increase or
reduction of the assessment appealed to it. The result is that the ruling and doctrine now
being laid by this Court is, that pending appeal before the Court of Tax Appeals, the
Collector of Internal Revenue may still amend his appealed assessment, as he has done
in the present case.
There is a third question raised in the appeal before the Tax Court and before this
Tribunal, namely, the liability of the two respondent transportation companies for 25 per
cent surcharge due to their failure to file an income tax return for the Joint Emergency
Operation, which we hold to be a corporation within the meaning of the Tax Code. We
understand that said 25 per cent surcharge is included in the assessment of P148,890.14.
The surcharge is being imposed by the Collector under the provisions of Section 72 of
the Tax Code, which read as follows:
The Collector of Internal Revenue shall assess all income taxes. In case of willful neglect
to file the return or list within the time prescribed by law, or in case a false or fraudulent
return or list is willfully made the collector of internal revenue shall add to the tax or to
the deficiency tax, in case any payment has been made on the basis of such return
before the discovery of the falsity or fraud, a surcharge of fifty per centum of the
amount of such tax or deficiency tax. In case of any failure to make and file a return list
within the time prescribed by law or by the Collector or other internal revenue officer,
not due to willful neglect, the Collector, shall add to the tax twenty-five per centum of
its amount, except that, when the return is voluntarily and without notice from the
Collector or other officer filed after such time, it is shown that the failure was due to a
reasonable cause, no such addition shall be made to the tax. The amount so added to
any tax shall be collected at the same time in the same manner and as part of the tax
unless the tax has been paid before the discovery of the neglect, falsity, or fraud, in
which case the amount so added shall be collected in the same manner as the tax.

We are satisfied that the failure to file an income tax return for the Joint Emergency
Operation was due to a reasonable cause, the honest belief of respondent companies
that there was no such corporation within the meaning of the Tax Code, and that their
separate income tax return was sufficient compliance with the law. That this belief was
not entirely without foundation and that it was entertained in good faith, is shown by the
fact that the Court of Tax Appeals itself subscribed to the idea that the Joint Emergency
Operation was not a corporation, and so sustained the contention of respondents.
Furthermore, there are authorities to the effect that belief in good faith, on advice of
reputable tax accountants and attorneys, that a corporation was not a personal
holding company taxable as such constitutes "reasonable cause" for failure to file
holding company surtax returns, and that in such a case, the imposition of penalties for
failure to file holding company surtax returns, and that in such a case, the imposition of
penalties for failure to file return is not warranted1

In view of the foregoing, and with the reversal of the appealed decision of the Court of
Tax Appeals, judgment is hereby rendered, holding that the Joint Emergency Operation
involved in the present is a corporation within the meaning of section 84 (b) of the
Internal Revenue Code, and so is liable to incom tax under section 24 of the code; that
pending appeal in the Court of Tax Appeals of an assessment made by the Collector of
Internal Revenue, the Collector, pending hearing before said court, may amend his
appealed assessment and include the amendment in his answer before the court, and
the latter may on the basis of the evidence presented before it, redetermine the
assessment; that where the failure to file an income tax return for and in behalf of an
entity which is later found to be a corporation within the meaning of section 84 (b) of
the Tax Code was due to a reasonable cause, such as an honest belief based on the
advice of its attorneys and accountants, a penalty in the form of a surcharge should not
be imposed and collected. The respondents are therefore ordered to pay the amount
of the reassessment made by the Collector of Internal Revenue before the Tax Court,
minus the amount of 25 per cent surcharge. No costs.

18
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B.
LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, 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.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.
GUTIERREZ, JR., J.:
These consolidated petitions seek the review of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated
June 5, 1986, of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares Manufacturing Corporation
(Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3)
directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3)
nominees; that, on the other hand, the Filipino stockholders can nominate only six (6)
candidates and in the event they cannot agree on the six (6) nominees, they shall vote
only among themselves to determine who the six (6) nominees will be, with cumulative
voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
19
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin
Young went abroad to look for foreign partners, European or American who could help
in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in
Delaware, United States entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to participate in the ownership of
an enterprise which would engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and sanitary wares. The parties
agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which
shall consist of nine individuals. As long as American-Standard shall own at least 30% of
the outstanding stock of the Corporation, three of the nine directors shall be designated
by American-Standard, and the other six shall be designated by the other stockholders
of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a
minority group, including the grant of veto powers over a number of corporate acts and
the right to designate certain officers, such as a member of the Executive Committee
whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition
that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and the American
corporation prospered. Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between the two groups. According to
the Filipino group, a basic disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders' meeting was held. The
meeting was presided by Baldwin Young. The minutes were taken by the Secretary,
Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders
then proceeded to the election of the members of the board of directors. The ASI group
nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr.,
Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr.
Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr.
Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of
order on the basis of section 5 (a) of the Agreement, the consistent practice of the
parties during the past annual stockholders' meetings to nominate only nine persons as
nominees for the nine-member board of directors, and the legal advice of Saniwares'
legal counsel. The following events then, transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders
present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely,
Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested
the decision of the Chairman and announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for
the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote.
Luciano E. Salazar and other proxy holders announced that all the votes owned by and
or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being
voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI
nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The
Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin,
David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to
recess the meeting which was duly seconded. There was also a motion to adjourn (p.
28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman,
Baldwin Young, who announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were registered and having been
ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned
but only recessed and that the meeting would be reconvened in the next room. The
Chairman then threatened to have the stockholders who did not agree to the decision
of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of
20
Saniwares, decided to continue the meeting at the elevator lobby of the American
Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier
in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself,
thus the said five directors were certified as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there was a tie among the other six (6)
nominees for the four (4) remaining positions of directors and that the body decided not
to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the
Securities and Exchange Commission (SEC). The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto
R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and
Charles Chamsay. The case was denominated as SEC Case No. 2417. The second
petition was for quo warranto and application for receivership by Wolfgang Aurbach,
John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the
group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz.
The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino
Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered
a decision upholding the election of the Lagdameo Group and dismissing the quo
warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as
AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its
decision ordered the remand of the case to the Securities and Exchange Commission
with the directive that a new stockholders' meeting of Saniwares be ordered convoked
as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the
appellate court (Court of Appeals) rendered the questioned amended decision.
Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay
in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT
THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS
WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the
following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property
rights of stockholders without due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a continuing monopoly of the
control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY
ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS
HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year
1983 during its annual stockholders' meeting held on March 8, 1983. To answer this
question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2)
whether or not the ASI Group may vote their additional 10% equity during elections of
Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established
among themselves a joint venture or some other relation depends upon their actual
intention which is determined in accordance with the rules governing the interpretation
and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
21
MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128
P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual
intention of the parties should be viewed strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the parties' intention was to form a corporation
and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR
No. 75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young
Group on the ground that it contravenes the parol evidence rule under section 7, Rule
130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group
never pleaded in their pleading that the "Agreement" failed to express the true intent of
the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been reduced
to writing, it is to be considered as containing all such terms, and therefore, there can
be, between the parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent
and agreement of the parties or the validity of the agreement is put in issue by the
pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply
and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express
the true intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two distinct
groups of stockholders in Saniwares one of which (the Philippine Investors) shall
constitute the majority, and the other ASI shall constitute the minority stockholder. In any
event, the evident intention of the Philippine Investors and ASI in entering into the
Agreement is to enter into ajoint venture enterprise, and if some words in the
Agreement appear to be contrary to the evident intention of the parties, the latter shall
prevail over the former (Art. 1370, New Civil Code). The various stipulations of a contract
shall be interpreted together attributing to the doubtful ones that sense which may
result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to
judge the intention of the contracting parties, their contemporaneous and subsequent
acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records,
SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question whether they
intended by their agreement to create a joint adventure, or to assume some other
relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S
653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96
33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as
the testimonial evidence presented by the Lagdameo and Young Group shows that the
parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy
making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to
accept the role of minority vis-a-vis the Philippine National group of investors, on the
condition that the Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is
required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI
is contractually entitled to designate a member of the Executive Committee and the
vote of this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to
designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides
that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13
(a)] and that Saniwares should not export "Standard" products otherwise than through
ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to
provide technology and know-how to Saniwares and the latter paid royalties for the
same. (At p. 2).
xxx xxx xxx
22
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of
the board of directors for certain actions, in effect gave ASI (which designates 3
directors under the Agreement) an effective veto power. Furthermore, the grant to ASI
of the right to designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most significantly to the
issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the
other stockholders shall designate the other 6, clearly indicate that there are two distinct
groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine
National stockholders who own the balance of 60%, and that 2) ASI is given certain
protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or
"elected" in the selection of the nine directors on a six to three ratio. Each group is
assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained
shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the
enterprise being treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm
in exchange for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such arrangements. The foreign
group may, from the start, intend to establish its own sole or monopolistic operations
and merely uses the joint venture arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges
its operations and becomes profitable, the foreign group undermines the local majority
ownership and actively tries to completely or predominantly take over the entire
company. This undermining of joint ventures is not consistent with fair dealing to say the
least. To the extent that such subversive actions can be lawfully prevented, the courts
should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any voting rights, the shares held by them
shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because it
has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the
disputed stockholders meeting, these 95 stockholders are not separate from each other
but are divisible into groups representing a single Identifiable interest. For example, ASI,
its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family
count for another 13 stockholders, the Chamsay family for 8 stockholders, the Santos
family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one
family and/or business or interest group are considered as one (which, it is respectfully
submitted, they should be for purposes of determining how closely held Saniwares is
there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please
refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because
it has more than 20 stockholders, the undeniable fact is that it is a close-
held corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less emphasis
on the ordinary rules of law usually applied to corporate entities and with more
consideration given to the nature of the agreement between the joint venturers (Please
see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v.
Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line
Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v.
Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S.
262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958).
These American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture corporations should
control, and the courts ruled that substantial justice lay with those litigants who relied on
the joint venture agreement rather than the litigants who relied on the orthodox
principles of corporation law.
As correctly held by the SEC Hearing Officer:
23
It is said that participants in a joint venture, in organizing the joint venture deviate from
the traditional pattern of corporation management. A noted authority has pointed out
that just as in close corporations, shareholders' agreements in joint venture corporations
often contain provisions which do one or more of the following: (1) require greater than
majority vote for shareholder and director action; (2) give certain shareholders or groups
of shareholders power to select a specified number of directors; (3) give to the
shareholders control over the selection and retention of employees; and (4) set up a
procedure for the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that
agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as
defined by the Code? Suppose that a corporation has twenty five stockholders, and
therefore cannot qualify as a close corporation under section 96, can some of them
enter into an agreement to vote as a unit in the election of directors? It is submitted that
there is no reason for denying stockholders of corporations other than close ones the
right to enter into not voting or pooling agreements to protect their interests, as long as
they do not intend to commit any wrong, or fraud on the other stockholders not parties
to the agreement. Of course, voting or pooling agreements are perhaps more useful
and more often resorted to in close corporations. But they may also be found necessary
even in widely held corporations. Moreover, since the Code limits the legal meaning of
close corporations to those which comply with the requisites laid down by section 96, it
is entirely possible that a corporation which is in fact a close corporation will not come
within the definition. In such case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are otherwise valid. (Campos &
Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and binding
upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional
equity during elections of Saniwares' board of directors, the Court of Appeals correctly
stated:
As in other joint venture companies, the extent of ASI's participation in the management
of the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of
the nine directors shall be designated by ASI and the remaining six by the other
stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations thereunder.
Appellants seem to contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may interfere with the
stockholder's rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement which curtails in
any way cumulative voting should be struck down, even if such agreement has been
freely entered into by experienced businessmen and do not prejudice those who are
not parties thereto. It may well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders who enter into
special relationships with each other to pursue and implement specific purposes, as in
joint venture relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on
this question. Rather, all that needs to be done is to give life and effect to the particular
contractual rights and obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first.
Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino stockholder
can cumulate his votes. ASI, however, should not be allowed to interfere in the voting
within the Filipino group. Otherwise, ASI would be able to designate more than the three
directors it is allowed to designate under the Agreement, and may even be able to get
a majority of the board seats, a result which is clearly contrary to the contractual intent
of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or circumvention
of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to nominate more than
three directors. (Rollo-75875, pp. 38-39)
24
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has
the right to vote their additional equity pursuant to Section 24 of the Corporation Code
which gives the stockholders of a corporation the right to cumulate their votes in
electing directors. Petitioner Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act
108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or
governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in the
capital of such entities. (amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation
Code. The point of query, however, is whether or not that provision is applicable to a
joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The
main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be governed by
the law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others.
(At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts
generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43
NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the
question of whether or not the ASI Group may vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties
as regards the allocation of director seats under Section 5 (a) of the "Agreement," and
the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the
"Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election
of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino
director who would be beholden to them would obliterate their minority status as
agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or circumvention
of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to nominate more than
three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the
consideration as regards the possible domination by the foreign investors of the
enterprise in violation of the nationalization requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is
that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to
their share in the capital of the entity. It is to be noted, however, that the same law also
limits the election of aliens as members of the board of directors in proportion to their
allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six to three board seats should always be
maintained as long as the joint venture agreement exists considering that in limiting 3
board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the
minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
25
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951)
object to a cumulative voting during the election of the board of directors of the
enterprise as ruled by the appellate court and submits that the six (6) directors allotted
the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of
the Agreement which uses the word "designate" meaning "nominate, delegate or
appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if
the Filipino stockholders are allowed to select their nominees separately and not as a
common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of
board directors should not be interpreted in isolation. This should be construed in relation
to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative voting while section 5(a)
relates to the manner of nominating the members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn
its legality.
The insinuation that the ASI Group may be able to control the enterprise under the
cumulative voting procedure cannot, however, be ignored. The validity of the
cumulative voting procedure is dependent on the directors thus elected being genuine
members of the Filipino group, not voters whose interest is to increase the ASI share in
the management of Saniwares. The joint venture character of the enterprise must
always be taken into account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to enable ASI to achieve
stealthily or indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority status of the
Filipino investors as well as to maintain the minority status of the foreign investors group
as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and
the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of
Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham
Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of
Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the
questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and
G.R. No. 75875.
G.R. No. L-35469 March 17, 1932 the option, with the understanding in both cases that, in case the option should be
exercised, the amounts thus paid should be credited as part of the first payment. The
E. S. LYONS, plaintiff-appellant, amounts paid for this option and its extension were supplied by Elser entirely from his
vs. own funds. In the end he was able from his own means, and with the assistance which
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant- he obtained from others, to acquire said estate. The amount required for the first
appellee. payment was P150,000, and as Elser had available only about P120,000, including the
P20,000 advanced upon the option, it was necessary to raise the remainder by
Harvey & O'Brien for appellant. obtaining a loan for P50,000. This amount was finally obtained from a Chinese merchant
DeWitt, Perkins & Brandy for appellee. of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the
lender; and in order to get the money it was necessary for Elser not only to give a
STREET, J.: personal note signed by himself and his two associates in the projected enterprise, but
also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by
This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons
Uy Siuliong on June 24, 1920. With this money and what he already had in bank Elser
against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased,
purchased the San Juan Estate on or about June 28, 1920. For the purpose of the further
consequent upon the taking of an appeal by the executor from the allowance of the
development of the property a limited partnership had, about this time, been organized
claim sued upon by the committee on claims in said estate. The purpose of the action is
by Elser and three associates, under the name of J. K. Pickering & Company; and when
to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering &
the transfer of the property was effected the deed was made directly to this company.
Co., Ltd., together with the sum of about P125,000, representing the dividends which
As Elser was the principal capitalist in the enterprise he received by far the greater
accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing the
number of the shares issued, his portion amount in the beginning to 3,290 shares.
cause the trial court absolved the defendant executor from the complaint, and the
plaintiff appealed. While these negotiations were coming to a head, Elser contemplated and hoped that
Lyons might be induced to come in with him and supply part of the means necessary to
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of
carry the enterprise through. In this connection it appears that on May 20, 1920, Elser
Manila where he was engaged during the years with which we are here concerned in
wrote Lyons a letter, informing him that he had made an offer for a big subdivision and
buying, selling, and administering real estate. In several ventures which he had made in
that, if it should be acquired and Lyons would come in, the two would be well fixed.
buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him, the
(Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled
profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular
Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to
vocation was that of a missionary, or missionary agent, of the Methodist Episcopal
resign (Exhibit M-13), meaning that he should resign his position with the mission board in
Church, went on leave to the United States and was gone for nearly a year and a half,
New York. On the same date he wrote Lyons a letter explaining some details of the
returning on September 21, 1920. On the eve of his departure Elser made a written
purchase, and added "have advised in my cable that you resign and I hope you can
statements showing that Lyons was, at that time, half owner with Elser of three particular
do so immediately and will come and join me on the lines we have so often spoken
pieces of real property. Concurrently with this act Lyons execute in favor of Elser a
about. . . . There is plenty of business for us all now and I believe we have started
general power of attorney empowering him to manage and dispose of said properties
something that will keep us going for some time." In one or more communications prior
at will and to represent Lyons fully and amply, to the mutual advantage of both. During
to this, Elser had sought to impress Lyons with the idea that he should raise all the money
the absence of Lyons two of the pieces of property above referred to were sold by Elser,
he could for the purpose of giving the necessary assistance in future deals in real estate.
leaving in his hands a single piece of property located at 616-618 Carried Street, in the
City of Manila, containing about 282 square meters of land, with the improvements The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and
thereon. found him averse from joining in the purchase of the San Juan Estate. In fact upon this
visit of Lyons to the United States a grave doubt had arisen as to whether he would ever
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing
return to Manila, and it was only in the summer of 1920 that the board of missions of his
about 1,500,000 square meters, near the City of Manila, and he discerned therein a fine
church prevailed upon him to return to Manila and resume his position as managing
opportunity for the promotion and development of a suburban improvement. This
treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from
property, which will be herein referred to as the San Juan Estate, was offered by its
New York thanking Elser for his offer to take Lyons into his new project and adding that
owners for P570,000. To afford a little time for maturing his plans, Elser purchased an
from the standpoint of making money, he had passed up a good thing.
option on this property for P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000 more for an extension of

26
One source of embarrassment which had operated on Lyson to bring him to the
resolution to stay out of this venture, was that the board of mission was averse to his
engaging in business activities other than those in which the church was concerned;
and some of Lyons' missionary associates had apparently been criticizing his
independent commercial activities. This fact was dwelt upon in the letter above-
mentioned. Upon receipt of this letter Elser was of course informed that it would be out
of the question to expect assistance from Lyons in carrying out the San Juan project. No
further efforts to this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San Juan Estate, his
book showed that he was indebted to Lyons to the extent of, possibly, P11,669.72, which
had accrued to Lyons from profits and earnings derived from other properties; and
when the J. K. Pickering & Company was organized and stock issued, Elser indorsed to
Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be
one of his associates in the deal. It will be noted that the par value of these 200 shares
was more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and
when the latter returned to the Philippine Islands, he accepted these shares and sold
them for his own benefit. It seems to be supposed in the appellant's brief that the
transfer of these shares to Lyons by Elser supplies some sort of basis for the present
action, or at least strengthens the considerations involved in a feature of the case to be
presently explained. This view is manifestly untenable, since the ratification of the
transaction by Lyons and the appropriation by him of the shares which were issued to
him leaves no ground whatever for treating the transaction as a source of further
equitable rights in Lyons. We should perhaps add that after Lyons' return to the
Philippine Islands he acted for a time as one of the members of the board of directors of
the J. K. Pickering & Company, his qualification for this office being derived precisely
from the ownership of these shares.
We now turn to the incident which supplies the main basis of this action. It will be
remembered that, when Elser obtained the loan of P50,000 to complete the amount
needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted that
he should procure the signature of the Fidelity & Surety Co. on the note to be given for
said loan. But before signing the note with Elser and his associates, the Fidelity & Surety
Co. insisted upon having security for the liability thus assumed by it. To meet this
requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in
the property owned by himself and Lyons on Carriedo Street. This mortgage was
executed on June 30, 1920, at which time Elser expected that Lyons would come in on
the purchase of the San Juan Estate. But when he learned from the letter from Lyons of
July 21, 1920, that the latter had determined not to come into this deal, Elser began to
cast around for means to relieve the Carriedo property of the encumbrance which he
had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the
Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at
644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in
lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the
proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety
Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000
27
shares of J. K. Pickering & Company, to said company. The latter thereupon in turn
executed a cancellation of the mortgage on the Carriedo property and delivered it to
Elser. But notwithstanding the fact that these documents were executed and delivered,
the new mortgage and the release of the old were never registered; and on September
25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo
property and took back from the Fidelity & Surety Co. the new mortgage on the M. H.
del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which
he had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact that
Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the course
of a conversation with Elser told him to let the Carriedo mortgage remain on the
property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in
which Lyons used the words above quoted, and as that conversation supplies the most
reasonable explanation of Elser's recession from his purpose of relieving the Carriedo
property, the trial court was, in our opinion, well justified in accepting as a proven fact
the consent of Lyons for the mortgage to remain on the Carriedo property. This
concession was not only reasonable under the circumstances, in view of the abundant
solvency of Elser, but in view of the further fact that Elser had given to Lyons 200 shares
of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the
indebtedness which Elser had owed to Lyons upon statement of account. The trial court
found in effect that the excess value of these shares over Elser's actual indebtedness
was conceded by Elser to Lyons in consideration of the assistance that had been
derived from the mortgage placed upon Lyon's interest in the Carriedo property.
Whether the agreement was reached exactly upon this precise line of thought is of little
moment, but the relations of the parties had been such that it was to be expected that
Elser would be generous; and he could scarcely have failed to take account of the use
he had made of the joint property of the two.
As the development of the San Juan Estate was a success from the start, Elser paid the
note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more
than five months later. It will thus be seen that the mortgaging of the Carriedo property
never resulted in damage to Lyons to the extent of a single cent; and although the
court refused to allow the defendant to prove the Elser was solvent at this time in an
amount much greater than the entire encumbrance placed upon the property, it is
evident that the risk imposed upon Lyons was negligible. It is also plain that no money
actually deriving from this mortgage was ever applied to the purchase of the San Juan
Estate. What really happened was the Elser merely subjected the property to a
contingent liability, and no actual liability ever resulted therefrom. The financing of the
purchase of the San Juan Estate, apart from the modest financial participation of his
three associates in the San Juan deal, was the work of Elser accomplished entirely upon
his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon
the equity of redemption in the Carriedo property, Lyons, as half owner of said property,
became, as it were, involuntarily the owner of an undivided interest in the property
acquired partly by that money; and it is insisted for him that, in consideration of this fact,
he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering &
Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money obtained from
Uy Siuliong in the manner already explained had been used to held finance the
purchase of the San Juan Estate. He seems to have supposed that the Carried property
had been mortgaged to aid in putting through another deal, namely, the purchase of a
property referred to in the correspondence as the "Ronquillo property"; and in this
connection a letter of Elser of the latter part of May, 1920, can be quoted in which he
uses this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use
part of the money for Ronquillo buy (P60,000) if the owner comes through.
Other correspondence shows that Elser had apparently been trying to buy the Ronquillo
property, and Lyons leads us to infer that he thought that the money obtained by
mortgaging the Carriedo property had been used in the purchase of this property. It
doubtedless appeared so to him in the retrospect, but certain consideration show that
he was inattentive to the contents of the quotation from the letter above given. He had
already been informed that, although Elser was angling for the Ronquillo property, its
price had gone up, thus introducing a doubt as to whether he could get it; and the
quotation above given shows that the intended use of the money obtained by
mortgaging the Carriedo property was that only part of the P50,000 thus obtained
would be used in this way, if the deal went through. Naturally, upon the arrival of Lyons
in September, 1920, one of his first inquiries would have been, if he did not know before,
what was the status of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons
something to this effect;: "I have mortgaged the property on Carriedo Street, secured
by my personal note. You are amply protected. I wish you to join me in the San Juan
Subdivision. Borrow all money you can." Lyons says that no such cablegram was
received by him, and we consider this point of fact of little moment, since the proof
shows that Lyons knew that the Carriedo mortgage had been executed, and after his
arrival in Manila he consented for the mortgage to remain on the property until it was
paid off, as shortly occurred. It may well be that Lyons did not at first clearly understand
all the ramifications of the situation, but he knew enough, we think, to apprise him of the
material factors in the situation, and we concur in the conclusion of the trial court that
Elser did not act in bad faith and was guilty of no fraud.
Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of
partnership had existed in the money used, the case might be difference; and much
emphasis is laid in the appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of partnership, under article
1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting
for any partnership composed of himself and Lyons, and the law cannot be distorted
into a proposition which would make Lyons a participant in this deal contrary to his
express determination.
It seems to be supposed that the doctrines of equity worked out in the jurisprudence of
England and the United States with reference to trust supply a basis for this action. The
doctrines referred to operate, however, only where money belonging to one person is
used by another for the acquisition of property which should belong to both; and it
takes but little discernment to see that the situation here involved is not one for the
application of that doctrine, for no money belonging to Lyons or any partnership
composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan
Estate. Of course, if any damage had been caused to Lyons by the placing of the
mortgage upon the equity of redemption in the Carriedo property, Elser's estate would
be liable for such damage. But it is evident that Lyons was not prejudice by that act.
The appellee insist that the trial court committed error in admitting the testimony of
Lyons upon matters that passed between him and Elser while the latter was still alive.
While the admission of this testimony was of questionable propriety, any error made by
the trial court on this point was error without injury, and the determination of the
question is not necessary to this decision. We therefore pass the point without further
discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs against the
appellant.

In the purely legal aspect of the case, the position of the appellant is, in our opinion,
untenable. If Elser had used any money actually belonging to Lyons in this deal, he
would under article 1724 of the Civil Code and article 264 of the Code of Commerce,
be obligated to pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with respect to property
acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1

28
G.R. Nos. L-32347-53 December 26, 1973
AGUSTIN ABONG, petitioner,
vs.
THE WORKMEN'S COMPENSATION COMMISSION, NELLY BALLARES, ANACORITA DAHIL-
DAHIL, MANUEL LAHAO-LAHAO, CONCHITA MONTEROYO, SHIRLEY LOZADA and ROSARIO
ALOVA, respondents.
Pelaez, Jalandoni and Jamir for petitioner.
Pagano C. Villavieja for respondent Workmen Compensation Commission.
Labaton and Labaton for private respondents.
ESGUERRA, J.:
I. STATEMENT OF THE CASE
Appeal by certiorari from the decision of the Workmen's Compensation Commission,
awarding compensation to private respondents.
II. FACTS OF THE CASE
The undisputed facts as borne out by the record are follows:
Aladino Dionson, Filomeno Umbria, Noel Lahao-lahao, Juanita Monteroyo and Wilfredo
Monteroyo and Demetrio Escoreal, all decent were members of a fishing outfit, the
"IWAG" or more popularly called the "ALEX", owned by petitioner herein, Dr. Agustino R.
Abong.
On May 15, 1966, this fishing outfit set out to sea somewhat off the coast of Northern
Negros. The decedents were among the 70 crew members who were loaded on two
big bancas, 8 small fishing boats locally known as "lawagan" and one towing
motorboat. While they were, thus, fishing, typhoon "IRMA" passed along their way,
scattering the boats and blowing them far out into the open sea. The tragedy netted
eight (8) dead while some sixty (60) men survived the disaster.1
As a consequence of the incident seven (7) notices and claims for death compensation
were filed with the Bacolod Sub-Regional Office (or Regional Office No. VII) of the
Department of Labor by herein private respondents on June 1, 1966. A copy of the
notices and claims were sent to petitioner Dr. Agustino R. Abong by registered mail at
his place of business, but the envelopes containing said notices and claims were
returned unclaimed, although petitioner was personally notified thrice. Thereafter,
counsel for private respondents on July 6, 1966, and July 14, 1966, respectively, filed
an ex-parte motion with the Bacolod Sub-Regional Office of the Workmen's
29
Compensation Commission to declare petitioner in default, which motion was granted.
Thereupon, claimants were allowed to present their evidence. Finding the claims of the
private respondents to be allied in nature, the cases were consolidated.2
After due hearing before Acting Referee, Bertito D. Dadivas, he rendered on August 1,
1966, a decision granting the claims, the pertinent portions of which are quoted as
follows:
In the light of the testimonies of herein claimants and their principal witness, Filomeno
Pason, who is a survivor of that unfortunate tragedy and who personally witnessed the
deaths of all eight (8) deceased workers of respondent, there is no doubt at all that their
deaths arose out of and in the course of their employment as "washing" or helpers and
light tenders of respondent Dr. Agustino R. Abong. Under Sections 2 and 8 of the
Workmen's Compensation Act, as amended, the deaths of above deceased persons
are, therefore, compensable.
In granting this award it should be considered that two of the eight deceased
workers Noel Lahao-lahao and Wilfredo Monteroyo were minors at the time of
employment. Respondent herein has also failed to submit a report of this accident "as
soon as possible after the occurence of an injury resulting in absence from work for a
day or more"; nor registered himself or his business enterprise in accordance with
Sections 37 and 56 of the Workmen's Compensation Act, otherwise known as Republic
Act No. 3428.
Section 4-A of the Workmen's Compensation Act provides for payment of an additional
compensation equal to fifty per centum of the compensation to be awarded, in case
of failure of the employer to comply with any order, rule or regulation of the Workmen's
Compensation Act in the event of the death of the employee or employees
concerned.
Wherefore, under the law, the claimants are entitled to compensation and respondent
is hereby ordered:
1. To pay to claimant, ANACORITA DAHIL-DAHIL the sum of SIX THOUSAND PESOS
(P6,000.00), plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00), plus the
further sum of TWO HUNDRED PESOS as burial expenses, through this Office;
2. To pay to claimant, NELLY BALLARES, the sum of SIX THOUSAND PESOS (P6,000.00) plus
50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE
THOUSAND PESOS (P9,000.00) plus the further sum of TWO HUNDRED PESOS (P200.00), as
burial expenses through this Office;
3. To pay to claimant, MANUEL LAHAO-LAHAO, the sum of TWO THOUSAND SIX
HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE
HUNDRED PESOS (P1,300.00), or the total sum of THREE THOUSAND NINE HUNDRED PESOS
(P3,900.00), plus burial expenses in the sum of TWO HUNDRED PESOS (P200.00), through
this Office;
4. To pay to claimant, SHIRLEY LOZADA, the sum of FIVE THOUSAND ONE HUNDRED
TWENTY PESOS (P5,120.00) plus 50% penalty in the sum of TWO THOUSAND FIVE HUNDRED
SIXTY PESOS (P2,560.00) or the total sum of SEVEN THOUSAND SIX HUNDRED EIGHTY PESOS
(P7,680.00), plus burial expenses of TWO HUNDRED PESOS (P200.00) through this Office;
5. To pay to claimant, ROSARIO ALOVA, the sum of SIX THOUSAND PESOS (P6,000.00) plus
50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00) or the total sum of NINE
THOUSAND PESOS (P9,000.00), plus the further sum of TWO HUNDRED PESOS (P200.00) for
burial expenses, through this Office;
6. To pay to claimant, CONCHITA MONTEROYO, the sum of SIX THOUSAND PESOS
(P6,000.00) plus 50% penalty in the sum of THREE THOUSAND PESOS (P3,000.00)
representing compensation for the death of her husband, Juanito; and TWO THOUSAND
SIX HUNDRED PESOS (P2,600.00) plus 50% penalty in the sum of ONE THOUSAND THREE
HUNDRED PESOS (P1,300.00) or the total sum of THREE THOUSAND NINE HUNDRED PESOS
(P3,900.00) representing compensation for the death of her son, Wilfredo; plus the
further sum of FOUR HUNDRED PESOS (P400.00) for burial expenses of Juanito and
Wilfredo Monteroyo; or a grand total for these two cases of THIRTEEN THOUSAND THREE
HUNDRED PESOS (P13,300.00), through this Office;
7. To pay to counsel for claimants, Atty. Angel F. Lobaton, Sr. the sum of TWO THOUSAND
SIX HUNDRED FORTY-FOUR PESOS (P2,644.00) as attorney's fees; and
8. To pay to the Workmen's Compensation Fund, through this Office, the sum of FIVE
HUNDRED TWENTY PESOS (P520.00), pursuant to Section 55 of the Workmen's
Compensation Act, as amended."3
On September 14, 1966, herein petitioner filed a (1) motion to set aside the order
declaring him in default and a (2) separate motion to set aside the Decision of the
Acting Referee, to which seasonable oppositions were interposed by private
respondents on September 26, 1966.4
On October 25, 1966, Acting Referee Bertito D. Dadivas issued an Order denying both
motions of petitioner.5 A motion for reconsideration was then filed by petitioner on
November 4, 1966, raising, inter alia, the fundamental question of jurisdiction and denial
of due process.6 An opposition thereto was interposed by private respondents on
November 10, 1966.7
On March 23, 1970, Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., of
the Workmen Compensation Commission rendered a decision affirming the earlier
decision of the referee.8
On April 17, 1970, petitioner sought the review of the decision of Associate (Medical)
Commission Castelo-Sotto by the respondent Workmen's Compensation Commission
sitting en banc, but the latter however affirmed the decision with the modification that
the 50% additional compensation earlier imposed as penalty was eliminated, in its
resolution of July 7, 1970.9
30
Dissatisfied with the verdict, petitioner came to this Court for reversal of the adverse
decision against him.
III. ISSUES OF THE CASE
In his brief before this Court the petitioner imputes five errors committed by respondent
Workmen's Compensation Commission, viz:
1. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION IN HOLDING THAT THERE WAS AN EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN THE PETITIONER AND THE DECEASED CREW MEMBERS OF THE "IWAG" FISHING
OUTFIT.
2. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION IN NOT DECLARING ITSELF WITHOUT JURISDICTION OVER THE CLAIMS FOR
DEATH BENEFITS.
3. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION IN FINDING THAT THE DEATH OF THE DECEASED CREW MEMBER IS
COMPENSABLE UNDER THE WORKMEN'S COMPENSATION ACT, AS AMENDED, IN FINDING
PETITIONER LIABLE FOR THE PAYMENT OF SUCH COMPENSATION.
4. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION IN DENYING PETITIONER HIS RIGHT TO BE HEARD.
5. THE RESPONDENT COMMISSION ERRED AND/OR ACTED WITH GRAVE ABUSE OF
DISCRETION, AMOUNTING TO LACK OF JURISDICTION, IN GRANTING EXCESSIVE AWARDS
TO THE CLAIMANTS.
The pivotal issue requiring determination is who is the statutory employer of the
decedents and who should be liable for their death compensation. Nevertheless, We
take up the merits of the points raised ad seriatim.
IV. DISCUSSION
As regards the first three interrelated assigned errors, there is a faint attempt by
petitioner Agustino R. Abong to evade liability by advancing the theory that he had
absolutely no voice or intervention in the choice, hiring, dismissing, control, supervision
and compensation of the fishermen-crew members, and that these matters, which are
the essence of employer-employee relationship, are the sole responsibility of the team
leader, Simplicio Panganiban, and the team-members or crew pursuant to their
Agreement (Exhibit "G"). 10
The contention of petitioner is devoid of merit. It should be pointed out that this case is
an appeal from the decision of the Workmen's Compensation Commission. And in this
class of proceedings, only questions of law should be raised, the findings of facts made
by the Commission being conclusive and binding upon this Court. 11 Although this Court
is authorized to inquire into the facts, it only does so when the conclusions therefrom are
not supported by the evidence. In the case at bar, however, this Court finds the findings
of fact made by Associate (Medical) Commissioner Herminia Castelo-Sotto, M.D., and
concurred in by the Commission en banc to be fully supported by the evidence on
record which clearly points out that petitioner Agustino R. Abong is the statutory
employer of the decedents. In ruling for the deceased workers, the Commission said:
... After a careful review of the evidence and the records, We are inclined to agree with
the proposition, advanced by the claimant's counsel that there existed an employer-
employee relationship between the respondent and the decedents. Not only that the
said deceased workers worked for and in the interest of the business of the herein
respondent. But that they were subject to the control, supervision, and dismissal of the
respondent, thru its agent, Simplicio Panganiban, the alleged "partner" of herein
respondent. And while these workers were paid in kind, or by "pakiao basis" still that fact
did not alter the character of their relationship with the respondent as employees of the
latter. The intervention of Simplicio Panganiban, in this case, is merely that of an agent
or intermediary between the owner of the fishing boat and the members of its crew. In
short, Panganiban is merely the person charged by Dr. Abong to recruit the said
fishermen to work for and for the enforcement of the business venture of herein
respondent.
The proposition, on the other hand, of the respondent's counsel, that Dr. Abong was not
the employer of the decedents, simply because of an alleged partnership agreement,
executed on March 23, 1962, between the respondent, Dr. Agustino R. Abong, as
"Financier" and Simplicio Panganiban, as his "Team leader", is intended certainly as a
very clever device designed primarily to exempt the employer from answering any
liability under the provisions of the Workmen's Compensation Act, as amended.
The said contract of partnership while it may be considered as valid and lawful,
between the signatories thereto, the respondent Dr. Abong and his "partner" or agent,
Simplicio Panganiban, nowhere in that said agreement did the decedents or their heirs
in interests take any participation or manifested their conformity to the said covenant.
Thus, even if we consider this contract as valid and enforceable between them, it
cannot bind the non-signatories thereto, like the deceased fishermen.
The case invoked by the respondent (Pajarillo, et al., vs. Social Security System, G.R. No.
L-21930, August 31, 1966) can not be legally applied in the instant case, for the simple
reason that the facts in that aforesaid case are not the same as those in the case at
bar. Moreover, we are of the view, that the said Pajarillo case may be good only as far
as the Social Security System, for purposes of membership thereat, is concerned and is
not readily applicable to cases involving Workmen's Compensation claims as the one at
bar. For here, the contract of partnership, if valid, only binds the parties thereto, and the
decedents in this case, as the records will show, were never a party signatory thereto.
How then can we tie them to that partnership agreement when it only holds the two-
party, Abong and Panganiban, as the sole partners in that agreement?
31
Furthermore, even if Panganiban will be considered as an independent contractor,
which he is not, his position as such will not relieve the employer, respondent Abong,
from his liability under the Act. It is well-defined in the Act, that an employer includes
every person or association of persons, incorporated or not, public or private, and the
legal representatives of the deceased employer. It includes the owner or manager of
the business carried on in the establishment or place of work but who, for the reason
that there is an independent contractor in the same, or for any other reason, is not the
direct employer of laborers employed there. (Section 39, paragraph[s], Workmen's
Compensation Act, as amended).
xxx xxx xxx 12
As pointed out by the Commission's findings, the fundamental bases showing that
petitioner, Dr. Agustino R. Abong, is the employer, are present, namely, the selection
and engagement of the employee; the payment of wages; the power of dismissal and
the employer's power to control the employees' conduct. 13 These powers were lodged
in petitioner Abong, thru his agent, Simplicio Panganiban, whom he alleges to be his
"partner". On this score alone, the petitioner for review must fail. It is well-settled that
employer-employee relationship involves findings of fact which are conclusive and
binding and not subject to review by this Court. 14
Petitioner also argues that he was denied his right to heard. 15 It is contended that
petitioner was not properly notified of the proceedings against him.
The assigned error merits scant consideration. Proper notices and claims for
compensation together with a formal letter to accomplish WCC Form No. 3
Employer's Report Accident or Sickness were duly served upon petitioner at his place
of business in Sagay, Negros Occidental. 16 His failure to claim his mail and to answer the
claims or controvert the same and to accomplish WCC Form No. 3, are fatal errors
which cannot be repaired at this time. It needs no argument to show that service by
registered mail is deemed completed upon petitioner's failure to claim his mail from the
post office within five (5) days from the first notice sent by the postmaster. 17 The further
contention that the "notices" should have been sent his place of residence in Bacolod
City is of no moment either. Section 26 of Republic Act No. 3428, as amended, provides:
SEC. 26. Delivery of notice and claim ... . The notices shall be served by personal delivery
or by sending it by registered letter addressed to the employer at his last known
residence or at his place of business. (Emphasis supplied)
Clearly, there was no error in sending petitioner's mails to his place of business at Sagay,
Negros Occidental.
And now We come to the last point. It is contended that respondent Commission erred
in granting excessive awards the claimants.
We find this contention incorrect. The Commission's findings relative to the wages of the
decedents are findings facts which are not open to review by this Court as the same
are supported by substantial evidence on record. 18We, therefore, find no cogent
reason to disturb the Commission's findings on this point.

V. CONCLUSION

Under the circumstances, private respondents' claim should be upheld not only
because they are supported by the evidence on record, but also because the
Workmen's Compensation Act is a social legislation designed to give relief to the
workman who has been the victim of an accident in the pursuit of his employment, and
the law must be liberally construed to attain the purpose for which it was
enacted. 19 Moreover, this Tribunal finds no reason in this case to depart from the rule
which limits its appellate jurisdiction to the review of errors of law only, accepting as
conclusive the factual findings of the Workmen's Compensation Commission which in
this case are supported by substantial evidence.

VI. JUDGMENT

ACCORDINGLY, the assailed decision is hereby fully affirmed.

Costs against the petitioner.

32
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.
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
33
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.
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.
34
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 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, 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:
35
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.
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
36
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 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
37
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
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.
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."
38
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.
The appellant wrote on January 4, 1951 a last letter19 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
39
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 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.

40
G.R. No. 5837 September 15, 1911
CATALINO GALLEMIT, plaintiff-appellant,
vs.
CEFERINO TABILIRAN, defendant-appellee.
Troadio Galicano, for appellant.
Emilio Pineda, for appellee.
TORRES, J.:
This is an appeal raised by the plaintiff from the judgment rendered by the Honorable
Judge Ramon Avancea.
On March, 10, 1908, the plaintiff filed a written complaint, twice amended with the
permission of the court, wherein, after its second amendment, he alleged that the
plaintiff and the defendant, while residents of the municipality of Dapitan, had
acquired, in joint tenancy, in or about the month of January, 1904, a parcel of land from
its original owner, Lui Ganong, under a verbal, civil contract of partnership, for the price
of P44; that it was stipulated that each of the said purchasers should pay one-half of the
price, or P22, and that an equal division should be made between them of the land thus
purchased, situate in the place called Tangian, of the barrio of Dohinob, municipality of
Dapitan, sub-district of the same name, Moro Province, and bounded on the north and
east by the Tangian river, on the south and west by government forests, and containing
19.968 square meters, approximately, planted with 200 abaca plants; that,
notwithstanding the demands he had repeatedly made upon the defendant to divide
the said land, the latter, after having promised him on several occasions that he would
make such partition, finally refused, without good reason, and still continued to refuse to
divide the land and, moreover, without the knowledge and consent of the plaintiff,
gathered the abaca crops of the years 1904, 1905 and 1906, produced on the land in
question, and extracted the hemp therefrom in the amount of about 12 arrobas to
each crop, he being the sole beneficiary of the fiber obtained; that the plaintiff, relying
upon the several promises made him by the defendant to divide the said land, took to
the latter 1,500 seeds to be planted in the part thereof which would have fallen to the
plaintiff in the division, all of which seeds died, as an indirect result of the defendant's
never having made the partition he offered to make; and, that since the year 1904, up
to the time of the complaint, he alone had been paying the taxes on the land, without
the defendant's having contributed to their payment. There fore the plaintiff petitioned
the court render judgment in his favor by ordering a partition to be made of the said
land through the mediation of commissioners appointed for the purpose, and by
sentencing the defendant to pay to the plaintiff, as damages, the total value of the
seed lost, amounting to P50, to restore to him one-half of the abaca harvested or the
value thereof, and to the payment of the costs of the case. Defendant's counsel
received a copy of this amended complaint.
41
The defendant, Ceferino Tabiliran, having been notified and summoned, in his answer to
the preceding amended complaint denied each and all of the facts alleged in each
and all of the paragraphs thereof and asked that he be absolved from the complaint,
with the costs against the plaintiff.
After the hearing of the case and the production of oral evidence by the parties
thereto, the court, on the 10th of the same month, rendered judgment by absolving the
defendant from the complaint, with the costs against the plaintiff. Counsel for the latter
excepted to this judgment and by a written motion asked for its annulment, and the
holding of a new trial on the ground that the findings of the court were contrary to law.
This motion was denied by an order of March 11, 1909, excepted to by the plaintiff's
counsel, and the proper bill of exceptions having been duly filed, the same was certified
and forwarded to the clerk of this court.
This suit concerns the partition of a piece of land held pro indiviso which the plaintiff and
the defendant had acquired in common from its original owner. By the refusal of the
defendant to divide the property, the plaintiff was compelled to bring the proper action
for the enforcement of partition, referred to in section 181 and following of the Code of
Civil Procedure.
The record shows it to have been duly proved that Catalino Gallemit and Ceferino
Tabiliran by mutual agreement acquired by purchase the land concerned, situate in
Tangian, municipality of Dapitan, from its original owner, Luis Ganong, for the sum of
P44. It was stipulated between the purchasers that they each should pay one-half of the
price and that the property should be divided equally between them. The vendor
testified under oath that the plaintiff Gallemit paid him the sum of P22, one-half of the
price that it was incumbent upon him to pay, and that four months afterwards the
defendant paid his part of the price, although, owing to the refusal of the defendant,
who was then the justice of the peace of the pueblo, to comply with the stipulation
made, the deed of sale was not executed, nor was a partition effected of the land
which they had acquired. The defendant, instead of delivering to the plaintiff the share
that belonged to the latter, the proportionate price for which the plaintiff had already
paid, kept all the land which belonged to them in common, in violation of the
stipulations agreed upon, notwithstanding that he paid the vendor only one-half of the
price thereof.
There is community of property when the ownership of a thing belongs to different
persons undividedly. (Art. 392, Civil Code.) No coownership shall be obliged to remain a
party to the community. Each of them may ask at any time the division of the thing
owned in common. (Art. 400 of the same code.)
Considering the terms of the claim made by the plaintiff and those of the defendant's
answer, and the relation of facts contained in the judgment appealed from, it does not
appear that any contract of partnership whatever was made between them for the
purposes expressed in article 1665 of the Civil Code, for the sole transaction performed
by them was the acquisition jointly by mutual agreement of the land in question, since it
was undivided, under the condition that they each should pay one-half of the price
thereof and that the property so acquired should be divided between the two
purchasers; and as, under this title, the plaintiff and the defendant are the coowners of
the said land, the partition or division of such property held in joint tenancy must of
course be allowed, and the present possessor of the land has no right to deny the
plaintiff's claim on grounds or reasons unsupported by proof.
The circumstance of the plaintiff's to present any document whatever to prove that he
and the defendant did actually purchase jointly the land in litigation can not be a
successful defense in the action for partition, notwithstanding the provision contained in
paragraph 5 of section 335 of the Code of Civil Procedure, inasmuch as the trial record
discloses that testimony was adduced, unobjected to on the part of the defendant, to
prove that the purchase was actually made by both litigants of the land in question
from its original owner, Luis Ganong; furthermore, it was proved that after the contract
was made the deed of sale was not drawn up on account of the opposition of the
defendant, Tabiliran, to this being done, with the indubitable purpose, as has been
seen, of his keeping the whole of the land purchased, though he paid but one-half of its
price.
In the decision rendered in the case of Conlu et al. vs. Araneta and Guanko (15 Phil.
Rep., 387), the following appears in the syllabus:
The decision in the case of Thunga Chui vs. Que Bentec (1 Phil. Rep., 561) and Couto vs.
Cortes (8 Phil. Rep., 459) followed to the extent of holding that "an oral contract for the
sale of real estate, made prior to the enactment of the Code of Civil Procedure in Civil
Actions, is binding between the parties thereto." The contract exists and is valid though it
may not be clothed with the necessary form, and the effect of a noncompliance with
the provisions of the statute (sec. 335 of the Code of Civil Procedure in Civil Actions) is
simply complied with; but a failure to except to the evidence because it does not
conform with the statute, is a waiver of the provisions of the law. If the parties to the
action, during the trial, made no objection to the admissibility of oral evidence to
support the contract of sale of real property, thus permitting the contract to be proved,
it will be just as binding upon the parties as if it had been reduced to writing.
So that, once it has been proven by the testimony of witnesses that the purchase of a
piece of real estate was made by a verbal contract between the interested parties, if
the oral evidence was taken at the petition of one of them without opposition on the
part of the other, such proven verbal contract, as the one herein concerned, must be
held to be valid. On these premises it is, therefore, not indispensable that a written
instrument be presented in order to prove a contract of purchase and sale of real
estate; neither it is necessary that the record show proof of a contract of partnership, in
order that a demand may be made for the division of a real property acquired jointly
and undividedly by two or more interested parties, inasmuch as the land was acquired
by the two purchasers, not for the purpose of undertaking any business, nor for its
cultivation in partnership, but solely to divide it equally between themselves. Therefore, it
is sufficient to show proof of the fact that a real property was actually purchased by
42
them jointly, in order to insure a successful issue of an action brought to enforce
partition, in accordance with the provisions of sections 181 to 196 of the Code of Civil
Procedure in Civil Actions, since the plaintiff is really a coowner of the undivided land.
It is neither just nor permissible for the defendant to violate a contract made, even
though verbally, with the plaintiff, and to keep without good reason, for his exclusive
benefit and to the prejudice only of his coowner, the plaintiff, the whole of the land
belonging to both of them in common, because each paid a half of the value thereof.
"Contracts shall be binding," prescribes article 1278 of the Civil Code, "whatever may be
the form in which they may have been executed, provided the essential conditions
required for their validity exist." These conditions are enumerated in article 1261 of the
same code, and they are also requisite in a verbal contract that has been proved.
As the plaintiff suffered damage through the loss of the seed which could not be
planted in the part of the land belonging to him, on account of the refusal of the
defendant to accede to division of the property, in accordance with the agreement
made, it is right and just that the latter be compelled to make indemnity for the amount
of the damage occasioned through his fault.
With respect to the abaca obtained by the defendant, to his exclusive benefit, from the
land of joint ownership: inasmuch as the amount and value of the fiber gathered is not
shown in the trial record, there are no means available in law whereby a proper
determination may be reached in the matter.
Therefore, we are of opinion that the judgment appealed from should be, as it is hereby,
reversed. It is held to be proper to effect the partition of the land in question, and the
judge of the Court of First Instance is directed to decree, through the proceedings
prescribed by law, the division of the said land in conformity with the petition made by
the plaintiff, and an indemnity, in behalf of the latter, in the sum of P50, the value of the
seed lost. The delivery to the plaintiff of one-half of the abaca harvested on the land, or
the value thereof, can not be ordered, on account of the lack of proof in the premises.
No special finding is made as to costs. So ordered.
G.R. No. L-45425 April 29, 1939
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under protest
by way of income tax. They appealed from the decision rendered in the case on
October 23, 1936 by the Court of First Instance of the City of Manila, which dismissed the
action with the costs against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this Honorable Court
the case upon the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that
defendant is the Collector of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one
sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the amounts
as follows:
1. Jose Gatchalian ....................................................................................................
2. Gregoria Cristobal ...............................................................................................
3. Saturnina Silva ....................................................................................................
4. Guillermo Tapia ...................................................................................................
5. Jesus Legaspi ......................................................................................................
6. Jose Silva .............................................................................................................
7. Tomasa Mercado ................................................................................................ .08
8. Julio Gatchalian ................................................................................................... .13
9. Emiliana Santiago ................................................................................................ .13
10. Maria C. Legaspi ............................................................................................... .16
11. Francisco Cabral ............................................................................................... .13
12. Gonzalo Javier .................................................................................................... .14
13. Maria Santiago ................................................................................................... .17
14. Buenaventura Guzman ...................................................................................... .13
15. Mariano Santos ................................................................................................. .14
Total ........................................................................................................ 2.00
3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in
P0.18 the ordinary course of business, from one of the duly authorized agents of the National
Charity Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2)
.18 and that the said ticket was registered in the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-
.08 mentioned ticket bearing No. 178637 won one of the third prizes in the amount of
P50,000 and that the corresponding check covering the above-mentioned prize of
P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose
.13 Gatchalian & Company against the Philippine National Bank, which check was cashed
during the latter part of December, 1934 by Jose Gatchalian & Company;
.15
5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner
Alfredo David to file the corresponding income tax return covering the prize won by
.07 Jose Gatchalian & Company and that on December 29, 1934, the said return was
signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit A and made a
part hereof;
43
6. That on January 8, 1935, the defendant made an assessment against Jose
Gatchalian & Company requesting the payment of the sum of P1,499.94 to the deputy
provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian & Company until
January 20, 1935 within which to pay the said amount of P1,499.94, a copy of which
letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a
reply, a copy of which marked Exhibit C is attached and made a part hereof,
requesting exemption from payment of the income tax to which reply there were
enclosed fifteen (15) separate individual income tax returns filed separately by each
one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to D-
15, respectively, in order of their names listed in the caption of this case and made parts
hereof; a statement of sale signed by Jose Gatchalian showing the amount put up by
each of the plaintiffs to cover up the attached and marked as Exhibit E and made a
part hereof; and a copy of the affidavit signed by Jose Gatchalian dated December
29, 1934 is attached and marked Exhibit F and made part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked
Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935, for exemption from
the payment of tax and reiterated his demand for the payment of the sum of P1,499.94
as income tax and gave plaintiffs until February 10, 1935 within which to pay the said
tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the
defendant, notwithstanding subsequent demand made by defendant upon the
plaintiffs through their attorney on March 23, 1935, a copy of which marked Exhibit H is
enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy against the
property of the plaintiffs, a copy of which warrant marked Exhibit I is enclosed and
made a part hereof;
10. That to avoid embarrassment arising from the embargo of the property of the
plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C.
Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of the tax and
penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt
No. 7454879 which is attached and marked Exhibit J and made a part hereof, and
requested defendant that plaintiffs be allowed to pay under protest the balance of the
tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted by
defendant subject to the condition that plaintiffs file the usual bond secured by two
solvent persons to guarantee prompt payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is
enclosed and made a part hereof, to guarantee the payment of the balance of the
alleged tax liability by monthly installments at the rate of P118.70 a month, the first
payment under protest to be effected on or before July 31, 1935;
44
13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the
sum of P602.51, a copy of which protest is attached and marked Exhibit L, but that
defendant in his letter dated August 1, 1935 overruled the protest and denied the
request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in
accordance with the terms and conditions of bond filed by them, the defendant in his
letter dated July 23, 1935, copy of which is attached and marked Exhibit M, ordered the
municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of
distraint and levy issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of their
property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia,
Maria Santiago and Emiliano Santiago, paid under protest to the municipal treasurer of
Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance of the income
tax and penalties demanded by defendant as evidenced by income tax receipt No.
35811 which is attached and marked Exhibit N and made a part hereof; and that on
September 3, 1936, the plaintiffs formally protested to the defendant against the
payment of said amount and requested the refund thereof, copy of which is attached
and marked Exhibit O and made part hereof; but that on September 4, 1936, the
defendant overruled the protest and denied the refund thereof; copy of which is
attached and marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one
thousand eight hundred and sixty three pesos and forty-four centavos (P1,863.44) paid
under protest by them but that defendant refused and still refuses to refund the said
amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and additional evidence if
necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on
the 11th day of August, 1934, I sold parts of my shares on ticket No. 178637 to the
persons and for the amount indicated below and the part of may share remaining is
also shown to wit:
Purchaser Amount Address
1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.
 (Sgd.) JOSE GATCHALIAN
2. Buenaventura Guzman ............................... .13 - Do -

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
3. Maria Santiago ............................................ .17 - Do -
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED
JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.
4. Gonzalo Javier .............................................. .14 - Do -
Exhibit Purchase Price Net
Name Expenses
5. Francisco Cabral .......................................... .13 - Do - No. Price Won prize

6. Maria C. Legaspi .......................................... .16 - Do - 1. Jose Gatchalian

D-1 P0.18 P4,425 P 480 3,945
..........................................

7. Emiliana Santiago ......................................... .13 - Do -

2. Gregoria Cristobal
D-2 .18 4,575 2,000 2,575
......................................
8. Julio Gatchalian ............................................ .13 - Do -

3. Saturnina Silva
D-3 .08 1,875 360 1,515
9. Jose Silva ...................................................... .07 - Do - .............................................

10. Tomasa Mercado ....................................... .08 - Do - 4. Guillermo Tapia

D-4 .13 3,325 360 2,965
..........................................

11. Jesus Legaspi ............................................. .15 - Do -

5. Jesus Legaspi by Maria
D-5 .15 3,825 720 3,105
Cristobal .........
12. Guillermo Tapia ........................................... .13 - Do -

6. Jose Silva
13. Saturnina Silva ............................................ .08 - Do - D-6 .08 1,875 360 1,515
....................................................

14. Gregoria Cristobal ....................................... .18 - Do - 7. Tomasa Mercado

D-7 .07 1,875 360 1,515
.......................................
15. Jose Gatchalian ............................................ .18 - Do -
8. Julio Gatchalian by Beatriz
D-8 .13 3,150 240 2,910
Guzman .......

2.00 Total cost of said

9. Emiliana Santiago
D-9 .13 3,325 360 2,965
......................................
ticket; and that, therefore, the persons named above are entitled to the parts of
whatever prize that might be won by said ticket.

Pulilan, Bulacan, P.I.

45
 every corporation, joint-stock company, partnership, joint account (cuenta en
10. Maria C. Legaspi
D-10 .16 4,100 960 3,140 participacion), association, or insurance company organized, authorized, or existing
......................................
under the laws of any foreign country, including interest on bonds, notes, or other
interest-bearing obligations of residents, corporate or otherwise: Provided,
11. Francisco Cabral however, That nothing in this section shall be construed as permitting the taxation of the
D-11 .13 3,325 360 2,965
...................................... income derived from dividends or net profits on which the normal tax has been paid.

The gain derived or loss sustained from the sale or other disposition by a corporation,
12. Gonzalo Javier joint-stock company, partnership, joint account (cuenta en participacion), association,
D-12 .14 3,325 360 2,965
.......................................... or insurance company, or property, real, personal, or mixed, shall be ascertained in
accordance with subsections (c) and (d) of section two of Act Numbered Two
thousand eight hundred and thirty-three, as amended by Act Numbered Twenty-nine
13. Maria Santiago
D-13 .17 4,350 360 3,990 hundred and twenty-six.
..........................................
The foregoing tax rate shall apply to the net income received by every taxable
corporation, joint-stock company, partnership, joint account (cuenta en participacion),
14. Buenaventura Guzman
D-14 .13 3,325 360 2,965 association, or insurance company in the calendar year nineteen hundred and twenty
...........................
and in each year thereafter.

15. Mariano Santos There is no doubt that if the plaintiffs merely formed a community of property the latter is
D-15 .14 3,325 360 2,965 exempt from the payment of income tax under the law. But according to the stipulation
........................................
facts the plaintiffs organized a partnership of a civil nature because each of them put
up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize
which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil
Code). The partnership was not only formed, but upon the organization thereof and the
2.00 50,000 winning of the prize, Jose Gatchalian personally appeared in the office of the
Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the
The legal questions raised in plaintiffs-appellants' five assigned errors may properly be prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company,
reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely and the said partner, in the same capacity, collected the said check. All these
a community of property without a personality of its own; in the first case it is admitted circumstances repel the idea that the plaintiffs organized and formed a community of
that the partnership thus formed is liable for the payment of income tax, whereas if property only.
there was merely a community of property, they are exempt from such payment; and
(2) whether they should pay the tax collectively or whether the latter should be prorated Having organized and constituted a partnership of a civil nature, the said entity is the
among them and paid individually. one bound to pay the income tax which the defendant collected under the aforesaid
section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as merit in plaintiff's contention that the tax should be prorated among them and paid
last amended by section 2 of Act No. 3761, reading as follows: individually, resulting in their exemption from the tax.

SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total In view of the foregoing, the appealed decision is affirmed, with the costs of this
net income received in the preceding calendar year from all sources by every instance to the plaintiffs appellants. So ordered.
corporation, joint-stock company, partnership, joint account (cuenta en participacion),
association or insurance company, organized in the Philippine Islands, no matter how
created or organized, but not including duly registered general copartnership
(compaias colectivas), a tax of three per centum upon such income; and a like tax
shall be levied, assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources within the Philippine Islands by

46
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,
vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A.
Tan, presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The
appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter
to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between
them to run and operate a theatre on the premises occupied by former Cine Oro at
Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao
Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in
advance within the first 15 days of each quarter, (2) that the partnership shall be for a
period of two years and six months, starting from July 1, 1945 to December 31, 1947, with
the condition that if the land is expropriated or rendered impracticable for the business,
or if the owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is
terminated by the owner, then the partnership shall be terminated even if the period for
which the partnership was agreed to be established has not yet expired; (3) that Mrs.
Yulo is authorized personally to conduct such business in the lobby of the building as is
ordinarily carried on in lobbies of theatres in operation, provided the said business may
not obstruct the free ingress and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the partnership shall belong to Mrs.
Yulo, but if the partnership agreement is terminated before the lapse of one and a half
years period under any of the causes mentioned in paragraph (2), then Yang Chiao
Seng shall have the right to remove and take away all improvements that the
partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a
partnership agreement establishing the "Yang & Company, Limited," which was to exist
from July 1, 1945 to December 31, 1947. It states that it will conduct and carry on the
business of operating a theatre for the exhibition of motion and talking pictures. The
capital is fixed at P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and
P20,000, by Mrs. Yulo. All gains and profits are to be distributed among the partners in
the same proportion as their capital contribution and the liability of Mrs. Yulo, in case of
loss, shall be limited to her capital contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending the partnership
for a period of three years beginning January 1, 1948 to December 31, 1950. The
47
benefits are to be divided between them at the rate of 50-50 and after December 31,
1950, the showhouse building shall belong exclusively to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from
Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it
was stipulated that the lease shall continue for an indefinite period of time, but that
after one year the lease may be cancelled by either party by written notice to the other
party at least 90 days before the date of cancellation. The last contract was executed
between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the attorney for
the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on
July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil
action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the
premises. On February 9, 1950, the Municipal Court of Manila rendered judgment
ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the
Court of First Instance, the two cases were afterwards heard jointly, and judgment was
rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the
contract of lease of the premises terminated as of July 31, 1949, and fixing the
reasonable monthly rentals of said premises at P100. Both parties appealed from said
decision and the Court of Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the
profits of the business. Yang answered the letter saying that upon the advice of his
counsel he had to suspend the payment (of the rentals) because of the pendency of
the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang alleges
that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to the lessors
the rentals from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted
this action on May 26, 1954, alleging the existence of a partnership between them and
that the defendant Yang Chiao Seng has refused to pay her share from December,
1949 to December, 1950; that after December 31, 1950 the partnership between Mrs.
Yulo and Yang terminated, as a result of which, plaintiff became the absolute owner of
the building occupied by the Cine Astor; that the reasonable rental that the defendant
should pay therefor from January, 1951 is P5,000; that the defendant has acted
maliciously and refuses to pay the participation of the plaintiff in the profits of the
business amounting to P35,000 from November, 1949 to October, 1950, and that as a
result of such bad faith and malice on the part of the defendant, Mrs. Yulo has suffered
damages in the amount of P160,000 and exemplary damages to the extent of P5,000.
The prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the
plaintiff and the defendant was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around the prohibition contained in the
contract of lease between the owners and the plaintiff against the sublease of the said
property. As to the other claims, he denies the same and alleges that the fair rental
value of the land is only P1,100. By way of counterclaim he alleges that by reason of an
attachment issued against the properties of the defendant the latter has suffered
damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The
court heard evidence of the plaintiff in the absence of the defendant and thereafter
rendered judgment ordering the defendant to pay to the plaintiff P41,000 for her
participation in the business up to December, 1950; P5,000 as monthly rental for the use
and occupation of the building from January 1, 1951 until defendant vacates the same,
and P3,000 for the use and occupation of the lobby from July 1, 1945 until defendant
vacates the property. This decision, however, was set aside on a motion for
reconsideration. In said motion it is claimed that defendant failed to appear at the
hearing because of his honest belief that a joint petition for postponement filed by both
parties, in view of a possible amicable settlement, would be granted; that in view of the
decision of the Court of Appeals in two previous cases between the owners of the land
and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged participation
in the profit of the business, etc. The court, finding the above motion, well-founded, set
aside its decision and a new trial was held. After trial the court rendered the decision
making the following findings: that it is not true that a partnership was created between
the plaintiff and the defendant because defendant has not actually contributed the
sum mentioned in the Articles of Partnership, or any other amount; that the real
agreement between the plaintiff and the defendant is not of the partnership but one of
the lease for the reason that under the agreement the plaintiff did not share either in
the profits or in the losses of the business as required by Article 1769 of the Civil Code;
and that the fact that plaintiff was granted a "guaranteed participation" in the profits
also belies the supposed existence of a partnership between them. It. therefore, denied
plaintiff's claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the
supposed lobby of the theatre, the court after ocular inspection found that the said
lobby was very narrow space leading to the balcony of the theatre which could not be
used for business purposes under existing ordinances of the City of Manila because it
would constitute a hazard and danger to the patrons of the theatre. The court,
therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on
the ground that the defendant failed to present sufficient evidence to sustain the same.
It is against this decision that the appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting aside its former
decision and allowing a new trial. This assignment of error is without merit. As that parties
agreed to postpone the trial because of a probable amicable settlement, the plaintiff
could not take advantage of defendant's absence at the time fixed for the hearing. The
lower court, therefore, did not err in setting aside its former judgment. The final result of
the hearing shown by the decision indicates that the setting aside of the previous
decision was in the interest of justice.
48
In the second assignment of error plaintiff-appellant claims that the lower court erred in
not striking out the evidence offered by the defendant-appellee to prove that the
relation between him and the plaintiff is one of the sublease and not of partnership. The
action of the lower court in admitting evidence is justified by the express allegation in
the defendant's answer that the agreement set forth in the complaint was one of lease
and not of partnership, and that the partnership formed was adopted in view of a
prohibition contained in plaintiff's lease against a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth assignment
of error, to the effect that the lower court erred in holding that the written contracts,
Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and not of
partnership. We have gone over the evidence and we fully agree with the conclusion of
the trial court that the agreement was a sublease, not a partnership. The following are
the requisites of partnership: (1) two or more persons who bind themselves to contribute
money, property, or industry to a common fund; (2) intention on the part of the partners
to divide the profits among themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In
the third place, it does not appear that she has ever demanded from defendant any
accounting of the expenses and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business was progressing, whether
the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that
she did was to receive her share of P3,000 a month, which can not be interpreted in any
manner than a payment for the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this
offer as the real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the
business from December, 1949. But the original letter of the defendant, Exh. "A",
expressly states that the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having
terminated in July, 1949 as found by the Court of Appeals, the partnership agreement or
the agreement for her to receive a participation of P3,000 automatically ceased as of
said date.
We find no error in the judgment of the court below and we affirm it in toto, with costs
against plaintiff-appellant.
G.R. No. L-2880 December 4, 1906
FRANK S. BOURNS, plaintiff-appellee,
vs.
D. M. CARMAN, ET AL., defendants-appellants.
W. A. Kincaid for appellants.
J. N. Wolfson for appellee.
MAPA, J.:
The plaintiff in this action seeks to recover the sum of $437.50, United Stated currency,
balance due on a contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim.
the contract relating to the said work was entered into by the said Lo-Chim-Lim, acting
as in his own name with the plaintiff, and it appears that the said Lo-Chim-Lim personally
agreed to pay for the work himself. The plaintiff, however, has brought this action
against Lo-Chim-Lim and his codefendants jointly, alleging that, at the time the contract
was made, they were the joint proprietors and operators of the said lumber yard
engaged in the purchase and sale of lumber under the name and style of Lo-Chim-Lim.
Apparently the plaintiff tries to show by the words above italicized that the other
defendants were the partners of Lo-Chim-Lim in the said lumber-yard
business.lawphil.net
The court below dismissed the action as to the defendants D. M. Carman and Fulgencio
Tan-Tongco on the ground that they were not the partners of Lo-Chim-Lim, and
rendered judgment against the other defendants for the amount claimed in the
complaint with the costs of proceedings. Vicente Palanca and Go-Tauco only
excepted to the said judgment, moved for a new trial, and have brought the case to
this court by bill of exceptions.
The evidence of record shows, according to the judgment of the court, "That Lo-Chim-
Lim had a certain lumber yard in Calle Lemery of the city of Manila, and that he was the
manager of the same, having ordered the plaintiff to do some work for him at his
sawmill in the city of Manila; and that Vicente Palanca was his partner, and had an
interest in the said business as well as in the profits and losses thereof . . .," and that Go-
Tuaco received part of the earnings of the lumber yard in the management of which he
was interested.
The court below accordingly found that "Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had
a lumber yard in Calle Lemmery of the city of Manila in the year 1904, and participated
in the profits and losses of business and that Lo-Chim-Lim was managing partner of the
said lumber yard." In other words, coparticipants with the said Lo-Chim-Lim in the
business in question.
49
Although the evidence upon this point as stated by the by the however, that is plainly
and manifestly in conflict with the above finding of that court. Such finding should
therefore be sustained.
The question thus raised is, therefore, purely one of law and reduces itself to determining
the real legal nature of the participation which the appellants had in Lo-Chim-Lim's
lumber yard, and consequently their liability toward the plaintiff, in connection with the
transaction which gave rise to the present suit.
It seems that the alleged partnership between Lo-Chim-Lim and the appellants was
formed by verbal agreement only. At least there is no evidence tending to show that
the said agreement was reduced to writing, or that it was ever recorded in a public
instrument.
Moreover, that partnership had no corporate name. The plaintiff himself alleges in his
complaint that the partnership was engaged in business under the name and style of
Lo-Chim-Lim only, which according to the evidence was the name of one of the
defendants. On the other hand, and this is very important, it does not appear that there
was any mutual agreement, between the parties, and if there were any, it has not been
shown what the agreement was. As far as the evidence shows it seems that the business
was conducted by Lo-Chim-Lim in his own name, although he gave to the appellants a
share was has been shown with certainty. The contracts made with the plaintiff were
made by Lo-Chim-Lim individually in his own name, and there is no evidence that the
partnership over contracted in any other form. Under such circumstances we find
nothing upon which to consider this partnership other than as a partnership of cuentas
en participacion. It may be that, as a matter of fact, it is something different, but a
simple business and scant evidence introduced by the partnership We see nothing,
according to the evidence, but a simple business conducted by Lo-Chim-Lim
exclusively, in his own name, the names of other persons interested in the profits and
losses of the business nowhere appearing. A partnership constituted in such a manner,
the existence of which was only known to those who had an interest in the same, being
no mutual agreements between the partners and without a corporate name indicating
to the public in some way that there were other people besides the one who ostensibly
managed and conducted the business, is exactly the accidental partnership of cuentas
en participacion defined in article 239 of the Code of Commerce.
Those who contract with the person under whose name the business of such partnership
of cuentas en participacion is conducted, shall have only a right of action against such
person and not against the other persons interested, and the latter, on the other hand,
shall have no right of action against the third person who contracted with the manager
unless such manager formally transfers his right to them. (Art 242 of the code Of
Commerce.) It follows, therefore that the plaintiff has no right to demand from the
appellants the payment of the amount claimed in the complaint, as Lo-Chim-Lim was
the only one who contracted with him. the action of the plaintiff lacks, therefore, a legal
foundation and should be accordingly dismissed.
The judgment appealed from this hereby reversed and the appellants are absolved of
the complaint without express provisions as to the costs of both instances. After the
expiration of twenty days let judgment be entered in accordance herewith, and ten
days thereafter the cause be remanded to the court below for execution. So ordered.

50
G.R. No. L-6252 January 28, 1911
GEORGE O. DIETRICH, plaintiff-appellee,
vs.
O.K. FREEMAN, JAMES L. PIERCE, and BURTON WHITCOMB, defendants.
BURTON WHITCOMB, appellant.
O'Brien and De Witt for appellant.
W. L. Wright for appellee.
TRENT, J.:
This action was brought against O.K. Freeman, James L. Pierce, and Burton Whitcomb,
as owners and operators of the Manila Steam Laundry, to recover the sum of P952
alleged to be the balance due the plaintiff for services performed during the period
from January 9, 1907, to December 31, 1908. Judgment was rendered in favor of the
plaintiff and against Freeman and Whitcomb, jointly and severally, for the sum of P752,
with interest at the rate of 6 per cent per annum from the 27th day of August, 1909, and
the costs of the cause. The complaint as to Pierce was dismissed, Whitcomb alone
appealing.
When the plaintiff was first employed on the 9th of January, 1907, this steam laundry was
owned and operated by Freeman and Pierce. Pierce, on the 18th of January, 1907, sold
all of his right, title, and interest in the said laundry to Whitcomb, who, together with
Freeman, then became the owners of this laundry and continued to operate the same
as long as the plaintiff was employed.
The trial court found that the balance due the plaintiff for services performed amounted
to the sum of P752. This finding is fully supported by the evidence of record.
Counsel for the appellant Whitcomb now insists
1. That the court erred in giving, jointly and severally, a judgment against Freeman and
Whitcomb for any sum whatever; and
2. That the court erred in holding the appellant Whitcomb liable.
It appears from the record that Whitcomb never knew the plaintiff, never had anything
to do with personally, and that the plaintiff's contract was with Freeman, the managing
partner of the laundry. It further appears from the record that Pierce, after he sold his
interest in this laundry to Whitcomb, continued to look after Whitcomb's interest by
authority of the latter.
Articles 17 and 119 of the Code of Commerce provide:
51
Art. 17. The record in the commercial registry shall be optional for private merchants
and compulsory for associations established in accordance with this code or with
special laws, and for vessels.
Art. 119 Every commercial association before beginning business shall be obliged to
record its establishment, agreements, and conditions in a public instrument, which shall
be presented for record in the commercial registry, in accordance with the provisions of
article 17.
Additional instrument which modify or alter in any manner whatsoever the original
contracts of the association are subject to the same formalities, in accordance with the
provisions of article 25.
Partners can not make private agreements, but all must appear in the articles of
copartnership.
In the organization of this partnership by Freeman and Whitcomb the above provisions
of law were not complied with; that is, no formal partnership was ever entered into by
them, notwithstanding the fact that they were engaged in the operation of this laundry.
The purpose for which this partnership was entered into by Freeman and Whitcomb
show clearly that such partnership was not a commercial one; hence the provisions of
the Civil Code and not the Code of Commerce must govern in determining the liability
of the partners. (Manresa, vol. 1, p. 184; Aramburo, Civil Capacity, 407, 432; Prautch vs.
Hernandez, 1 Phil. Rep., 705; and Co Pitco vs. Yulo, 8 Phil. Rep., 544.)
In support of the second assignment of error our attention has been called to the cases
of Hung-Man-Yoc vs. Kieng-Chiong-Seng (6 Phil. Rep., 498); Ang Quian Cieg vs. Te
Chico (12 Phil. Rep., 533); Bourns vs. Carman (7 Phil. Rep., 117). In the first of these cases
the partnership was a mercantile one, as it was engaged in the importation of goods for
sale at a profit. This was also true in the second case. In neither of these cases were the
provisions of articles 17 and 119 of the Code of Commerce complied with. Those
partnerships, although commercial, were not organized in accordance with the
provisions of the Code of Commerce as expressed in those articles. In determining the
liability of the partners in these cases the court, after making the finding of facts, was
governed by the provisions of article 120 of the Commercial Code. In the last case cited
the partnership was one of cuentas en participacion. "A partnership," quoting from the
syllabus in this case, "constituted in such a manner that its existence was only known to
those who had an interest in the same, there being no mutual agreement between the
partners, and without a corporate name indicating to the public in some way that there
were other people besides the one who ostensibly managed and conducted the
business, is exactly the accidental partnership of cuentas en participacion defined in
article 239 of the Code of Commerce."
In a partnership of cuentas en participacion, under the provisions of article 242 of the
Code of Commerce, those who contract with the person in whose name the business of
such a partnership was conducted shall have only the right of action against such
person and not against other persons interested. So this case is easily distinguished from
the case at bar, in that the one did not have the corporate name while the other was
known as the Manila Steam Laundry.

The plaintiff was employed by and performed services for the Manila Steam Laundry
and was not employed by nor did he perform services for Freeman alone. The public
did not deal with Freeman and Whitcomb personally, but with the Manila Steam
Laundry. These two partners were doing business under this name and, as we have said,
it was not a commercial partnership. Therefore, by the express provisions of articles 1698
and 1137 of the Civil Code the partners are not liable individually for the entire amount
due the plaintiff. The liability is pro rata and in this case the appellant is responsible to
the plaintiff for only one-half of the debt.

For these reasons the judgment of the court below is reversed and judgment entered in
favor of the plaintiff and against the defendant Whitcomb for the sum of P376, with
interest as fixed by the court below. No costs will be allowed either party in this court.

A motion was filed on the 22nd of August, 1910, by O'Brien and De Witt, asking this court
to strike from the record certain allegations in the printed brief of counsel for the
appellee. These allegations are as follows: "Does the receipt bear the earmarks of newly
discovered evidence? Or of newly manufactured evidence?" These questions were
directed against O'Brien, one of the counsel for appellant in this case, and were
intended to have the court believe that O'Brien had manufactured the receipt referred
to. There is nothing in this record which shows that O'Brien did falsify or manufacture the
receipt. These questions are clearly impertinent. It is our duty to keep our records clean
and free from such unwarranted statements. It is, therefore, ordered that the same be
stricken from the record. So ordered.

52
G.R. No. L-9965 August 29, 1960
LUCINA BIGLANGAWA and LUCIA ESPIRITU, petitioners-appellees,
vs.
PASTOR B. CONSTANTINO, respondent-appellant.
Delgado, Flores and Macapagal for appellant.
Luis Meneses for appellee.
BARRERA, J.:
The only issue, which is of law, involved in this appeal, is the legality of the annotation
of lis pendens predicated on the complaint of respondent-appellant Pastor B.
Constantino.
On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First Instance
of Rizal an amended complaint (docketed as Civil Case No. 2138) against petitioners
Lucina Biglangawa and Lucia Espiritu, as follows:
AMENDED COMPLAINT
Plaintiff, by his undersigned counsel, alleges:
As First Cause of Action
1. Plaintiff and defendants are residents of Malabon, Rizal.
2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the owners of a
parcel of land in Marulas, Polo, Bulacan, more particularly described in "Transfer
Certificate of Title No. 5459 as follows: . . . .
3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of her co-
owner Lucia Espiritu, appointed plaintiff their exclusive agent to develop the area
described in paragraph 2 into subdivision lots and to sell them to prospective
homeowners; and as compensation for his services, defendants promised to pay him a
commission of 20% on the gross sales and a fee of 10% on the collections made by him
payable from "the first collections received from the purchasers in respect to each lot
sold . . . .
4. The power thus conferred by Lucina Biglangawa to plaintiff was confirmed in a
notarial document executed on March 3, 1950 by her and her co-defendants, who are
husband and wife, with the added stipulation that they could not revoke the contract
of agency without plaintiff's consent. . . .
5. Advancing all the expenses incurred in the development and administration of the
project, plaintiff caused the subdivision of said property into 203 lots and advertised
them for sale under the name "BBB MARULAS SUBDIVISION No. 3'; and up to October,
53
1951 plaintiff had disposed of more than half of the entire area at P10.00 and P12.00 per
square meter.
6. Although under the express terms of the contract of January 14, 1950 (Exhibit "A") the
commissions of plaintiff for making 37 3 those sales and his collection fees of 10% were to
be paid to him "from the first collections received from the purchasers in respect to
each lot sold", defendants, in contravention of that agreement, oppressively and in bad
faith adopted the practice of paying the latter's compensation out of 30% only of the
gross monthly collections from the sales, such that, as of October 15, 1951 when a
liquidation was made, there was still a balance on plaintiff's commissions in the amount
of P48,899.20.
7. Later, in October, 1951, defendants wantonly, oppressively, and in evident bad faith
terminated the agency contracts Exhibits "A" and "B" depriving plaintiff of his rights to
commission fees of 20% on the sale of the remaining lots and 10% fee on the cash
receipts of the business every month.
8. Defendants nevertheless, expressly acknowledge their liability to plaintiff in the sum of
P48,899.20 for unpaid commissions as of October 16, 1951; and they promised to pay
indebtedness to plaintiff in successive monthly installments beginning November, 1951,
as follows: . . . .
9. Plaintiff consented to the settlement of the balance of his commission in monthly
installments after the termination of the agency in consideration of defendant's
promises that they would compute and faithfully pay the percentage of monthly
installments on the basis of their monthly gross collections from the operation of "BBB
MARULAS SUBDIVISION No. 3", as stipulated in Exhibit "C", and shall follow that procedure
until their total indebtedness is fully settled.
10. From October 16, 1951 to March 31, 1953, defendants made a total monthly gross
collection of around P52,849.63 from the business, and out of these receipts plaintiff was
entitled to minimum payments of P8,711.13 pursuant to Exhibit "C"; but again defendant
wantonly, fraudulently, oppressively, and in evident bad faith paid plaintiff only the sum
of P6,204.13 or P2,507.00 short of what plaintiff should have received during the period.
11. Upon gaining information of the breach of the contract by defendants about the
end of March, 1953 and verifying the existence of such breach, plaintiff immediately
demanded of defendants the difference between the amounts due to him under the
contract Exhibit "C" and those actually paid by them, but defendants wantonly,
fraudulently, and without cause refused to make necessary settlement.
xxx xxx xxx
13. The balance of plaintiff's commissions remaining unpaid as of the filing of this
complaint, excluding the underpayments from November, 1951 to March, 1953, is
P39,534.62.
As to Second Cause of Action
1. Plaintiff reproduces paragraphs 1 to 13 of the first cause 3n 3 of action.
2. For defendants' gross and evident bad faith in refusing plaintiff's valid, just, and
demandable claim against them, plaintiff was forced to prosecute the present case
against them, and became liable for attorney's fees in the sum of P7,000.00.
WHEREFORE, plaintiff prays for judgment
(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is defendants'
underpayments from November, 1951 to March, 1953, with interest at the legal rate;
(b) Declaring defendants to have lost the right to pay plaintiff in monthly installments
and requiring them to pay plaintiff at once the balance of his commissions and fees in
the amount of P89,543.62, with interest at the legal rate from the filing of this complaint;
(c) Ordering defendants to pay plaintiff moral damages in the sum of P40,000.00,
exemplary damages in the sum of P30,000.00, and attorney's fees in the sum of
P7,000.00.
(d) Granting costs and such other reliefs as this court may deem just and equitable in
the premises.
To this complaint, petitioners filed their answer on August 25, 1953.
While said Civil Case No. 2138 was pending in said court, respondent, on April 5, 1955,
filed with the Office of the Register of deeds of Bulacan, the following notice of lis
pendens:
Please make of record the pendency of a complaint involving, among other things,
rights and interests and claims for services and damages on the following described
property, which has been converted into a subdivision as shown by the plan Psd-29964,
situated in Marulas, Polo, Bulacan, to wit: (Technical description of the real property
mentioned in the complaint) which property is more particularly described in Transfer
Certificate of Title No. 5459 of the Register of Deeds of Bulacan. A copy of the complaint
and amended complaint, marked Appendices A and A-1, are attached hereto and
made integral part hereof.
On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to surrender
their owner's copy of Transfer Certificate of Title No. 5459 for annotation of said notice
of lis pendens, but petitioners refused to do so. However, on May 17, 1955, when
petitioners registered the absolute deed of sale in favor of Carmelita L. Santos covering
some of the lots of the subdivision, said official without their knowledge and consent,
made the annotation of the lis pendens on petitioners' aforementioned title, as well as
on the title issued to Carmelita L. Santos.
54
Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of Bulacan, a
petition praying for the cancellation of said notice of lis pendens. To this petition,
respondent filed his answer on June 17, 1955, to which, petitioners filed their reply on
June 23, 1955. On June 24, 1955, respondent filed a rejoinder to said reply.
Acting on said petition, the court issued an order on July 19, 1955, which reads:
"ORDER
Upon consideration of the petition filed by Lucina Biglangawa and Lucia Espiritu dated
June 11, 1955 and the answer thereto, and it appearing from the amended complaint
of Pastor B. Constantino, plaintiff in Civil Case No. 2138 of the Court of First Instance of
Rizal (respondent herein) that said action is purely and clearly a claim for money
judgment which does not affect the title or the right of possession of real property
covered by Transfer Certificate of Title No. T-5459 and it being a settled rule in this
jurisdiction that a notice of lis pendensmay be invoked as a remedy in cases where the
very lis mota of the pending litigation concerns directly the possession of, or title to a
specific real property;
Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby ordered to cancel
Entry No. 28176 for lis pendens on Transfer Certificate of Title No. T-5459 of the petitioners
as well as the annotation of the same on Transfer Certificate of Title No. T-014480 of
Carmelita L. Santos.
So ordered.
Respondent, on August 8, 1955, filed a motion for reconsideration of the above order,
but the same was denied by the court on September 30, 1955. Hence, this appeal.
Respondent-appellant claims that the lower court erred in holding that his pending
action (Civil Case No. 2138) in the Court of First Instance of Rizal, is purely a claim for
money judgment which does not affect the title or right of possession of petitioners' real
property, covered by Transfer Certificate of Title No. T-5459. Instead, he contends that
the agreement whereby he was to be paid a commission of 20% on the gross sales and
a fee of 10% on the collections made by him, converted him into a partner and gave
him 1/5 participation in the property itself. Hence, he argues, his suit is one for the
settlement and adjustment of partnership interest or a partition action or proceeding.
Appellant's theory is neither supported by the allegations of his complaint, nor borne out
by the purpose of his action. There is no word or expression in the various paragraphs of
his amended complaint that suggests any idea of partnership. On the contrary,
appellant expressly averred that petitioners "appointed plaintiff (appellant)
their exclusive agent to develop the area described in paragraph 2 into subdivision lots
and to sell them to prospective homeowners; and as compensation for his services
defendants (appellees) promised to pay him a commission of 20% on the gross sales
and a fee of 10% on the collections made by him. . . ." (See paragraph 3 of amended
complaint.) Categorically, appellant referred to himself as an agent, not a partner;
entitled to compensation, not participation, in the form of commission or fee, not a
share.

It is true that in paragraph 5 of the amended complaint (supra) appellant claims to

have made advances for the expenses incurred in the development and administration
of the property. But again he never considered these as contributions to the business as
to make him a partner; otherwise, he would have so stated it in his complaint. In fact,
after a liquidation of these advances and the commissions due to appellant at the time
of the termination of the agency, the whole balance was considered as
appellees' indebtedness which appellant consented to be settled in monthly
installments (see paragraphs 6, 8, and 9 of the amended complaint).

While it is true again that the prayer in a complaint does not determine the nature of the
action, it not being a material part of the cause of action, still it logically indicates, as it
does in this case, the purpose of the actor. The four paragraphs of the prayer seeks the
recovery of fixed amounts of underpayments and commissions and fees; not liquidation
or accounting or partition as now insisted upon by appellant.

Appellants's amended complaint, not being "an action affecting the title or the right of
possession of real property",1nor one "to recover possession of real estate, or to quiet title
thereto, or to remove clouds upon the title thereof, or for partition or other proceeding
of any kind in court affecting the title to real estate or the use or occupation thereof or
the buildings thereon . . .",2 the same can not be the basis for annotating a notice of lis
pendens on the title of the petitioners-appellees.

Having reached the above conclusion, this Court finds it unnecessary to decide the
incidental matters raised by the parties during the pendency of this appeal.

Wherefore, finding no error in the appealed order of the court a quo, the same is
hereby affirmed, with costs against the respondent-appellant. So ordered.

55
[G.R. No. 2318. April 30, 1906. ] Clerk, Court of First Instance, City of Manila."cralaw virtua1aw library

THE UNITED STATES, Plaintiff-Appellee, v. AGO-CHI (alias GO-GAY-CHY), Defendant- The accused was found guilty of the crime of assassination as charged, and sentenced
Appellant. to death.

H. D. Terrell, for Appellant. Counsel for appellant contends that the trial court was without jurisdiction to try the
case because, as he alleges, the accused was deprived of his right to a preliminary trial.
Solicitor-General Araneta, for Appellee. It does not appear from the record that such preliminary trial was not in fact granted
the accused, and in the absence of affirmative proof to the contrary it must be
SYLLABUS presumed that the trial court proceeded according to law, and no objection having
been made at the trial, the accused must be taken to have waived his right to a
1. COMPLAINT; VERIFICATION; SIGNATURE OF DEPONENT. The signature of a person preliminary trial, if in fact he was not given the benefit thereof. (U. S. v. Cockrill. 1)
who swears to a complaint is not an essential requisite thereof, and its omission is at most
a mere defect of form and not of substance. Appellant also maintains that the complaint was insufficient because it was signed by
one C. R. Trowbridge and sworn to by one George W. Marshall, Section 4 of General
DECISION Orders, No. 58, dated at Manila, April 23, 1900, defines a complaint as "a sworn written
statement made to a court or magistrate that a person has been guilty of a designated
CARSON, J. : offense," and section 6 of said order provides that a complaint is sufficient if it shows

The complaint in this case is as follows:jgc:chanrobles.com.ph

"(1) The name of the defendant, or, if his name can not be discovered, that he is
described under a fictitious name, with a statement that his true name is unknown to
"The undersigned accuses Ago-Chi (alias Go-Gay-Chy) of the crime of assassination,
the informant or official signing the same. His true name may be inserted at any stag of
committed as follows:jgc:chanrobles.com.ph
the proceedings instituted against him, whenever ascertained.

"That on or about the 12th day of May, 1904, in the city of Manila, Philippine Islands, the
"(2) The designation of the crime or public offense charged.
said Ago-Chi (alias Cho-Gay-Chy) did willfully, unlawfully, and feloniously with malice
aforethought, with deliberate premeditation with treachery by employing means and
"(3) The acts of omissions complained of as constituting the crime or public offense in
methods and forms in the execution of said crime tending directly and especially to
ordinary and concise language, without repetition, not necessarily in the words of the
insure its execution without risk to the person of the said Ago-Chi (alias Go-Gay-Chy)
statute, but in such form as to enable a person of common understanding to know what
arising from any defense the injured party might make with vindictiveness, by
is intended, and the court to pronounce judgment according to right.
deliberately and inhumanely increasing the sufferings of the person attacked assault,
attack, beat, strike, cut, and stab one Chua-Chong with a dangerous and deadly
"(4) That the offense was committed within the jurisdiction of the court and is triable
weapon, to wit, a knife or bolo, inflicting upon the said Chua-Chong fatal wounds, from
therein.
which the said Chua-Chong then and there died. That in the commission of said crime
the following aggravating circumstances were present:jgc:chanrobles.com.ph
"(5) The names of the persons against whom, or against whose property, the offense was
committed, if known."cralaw virtua1aw library
"Advantage was taken of superior strength, and means were employed to weaken the
defense; the crime was committed in the nighttime. All contrary to the form of the
It thus appears that the signature of the person who swears to a complaint is not an
statute in such made and provided.
essential requisite thereof, and its omission is at most s mere defect of form and not of
substance. Section 10 of General Orders, No. 58, provides that
"C. R. TROWBRIDCE.

"No information or complaint is insufficient, nor can the trial, judgment, or other
"Subscribed and sworn to this 21st day of May, 1904, before me by George W. Marshall.
proceedings be affected by reason of a defect in matter of form which does not tend
to prejudice a substantial right of the defendant upon the merits."cralaw virtua1aw
"J. McMICKING,
library

56
The evidence of record proves beyond a reasonable doubt that the accused did
unlawfully kill the said Chua-Chong on the night of the 12th day of May, 1904 and in the
house of the said Chua Chong in the city of Manila.

No one except the accused and his victim was present at the commission of the crime,
and while the evidence strongly tends to sustain the findings of the trial court that it was
done with "deliberate premeditation, treachery, and vindictiveness," nevertheless we do
not think that the circumstantial evidence upon which the trial court based its
conclusions sustains these findings beyond a reasonable doubt.

In the absence of satisfactory proof that the commission of the crime was marked by
one or more of these qualifying circumstances, the judgment and sentence of the trial
court should be, and is hereby, reversed, and instead thereof we find the accused,
Ago-Chi (alias Go-Gay-Chy), guilty of the crime of homicide, as defined and penalized
in article 404 the Penal Code, and the commission of the offense having been marked
by two aggravating circumstances (Nos. 15 and 20 of art. 10 of the Penal Code) we
impose upon the said Ago-Chi (alias Go-Gay-Chy) the penalty of twenty years
imprisonment (reclusion temporal) in its maximum degree, the accessory penalties in
article 59 of the Penal Code, the cost of the trial in both instances, and the civil
indemnification of the heirs of the deceased in the sum of 1,000 pesos. After the
expiration of ten days from the date of final judgment let the record be remanded to
the court from the whence it came for proper action. So ordered.

57
G.R. No. L-2484 April 11, 1906
JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.
Hartigan, Rohde and Gutierrez, for appellants.
W. A. Kincaid, for appellee.
WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this
action to recover a balance due him as salary for the year 1902. He alleged that he was
entitled, as salary, to 5 per cent of the net profits of the business of the defendants for
said year. The complaint also contained a cause of action for the sum of 600 pesos,
money expended by plaintiff for the defendants during the year 1903. The court below,
in its judgment, found that the contract had been made as claimed by the plaintiff; that
5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68
pesos, Mexican currency; that the plaintiff had received on account of such salary
12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for
the sum 13,566.93 pesos, Mexican currency, with interest thereon from December 31,
1904. The court also ordered judgment against the defendants for the 600 pesos
mentioned in the complaint, and intereat thereon. The total judgment rendered against
the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to
P13,025.40. The defendants moved for a new trial, which was denied, and they have
brought the case here by bill of exceptions.
(1) The evidence is sufifcient to support the finding of the court below to the effect that
the plaintiff worked for the defendants during the year 1902 under a contract by which
he was to receive as compensation 5 per cent of the net profits of the business. The
contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the
provisions of the articles of partnership he was made one of the managers of the
company, with full power to transact all of the business thereof. As such manager he
had authority to make a contract of employment with the plaintiff.
(2) Before answering in the court below, the defendants presented a motion that the
complaint be made more definite and certain. This motion was denied. To the order
denying it the defendants excepted, and they have assigned as error such ruling of the
court below. There is nothing in the record to show that the defendants were in any way
prejudiced by this ruling of the court below. If it were error it was error without prejudice,
and not ground for reversal. (Sec. 503, Code of Civil Procedure.)
(3) It is claimed by the appellants that the contract alleged in the complaint made the
plaintiff a copartner of the defendants in the business which they were carrying on. This
contention can not bo sustained. It was a mere contract of employnent. The plaintiff
had no voice nor vote in the management of the affairs of the company. The fact that
the compensation received by him was to be determined with reference to the profits
58
made by the defendants in their business did not in any sense make by a partner
therein. The articles of partnership between the defendants provided that the profits
should be divided among the partners named in a certain proportion. The contract
made between the plaintiff and the then manager of the defendant partnership did
not in any way vary or modify this provision of the articles of partnership. The profits of
the business could not be determined until all of the expenses had been paid. A part of
the expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had
to be deducted before the net profits of the business, which were to be divided among
the partners, could be ascertained. It was undoubtedly necessary in order to determine
what the salary of the plaintiff was, to determine what the profits of the business were,
after paying all of the expenses except his, but that determination was not the final
determination of the net profits of the business. It was made for the purpose of fixing the
basis upon which his compensation should be determined.
(4) It was no necessary that the contract between the plaintiff and the defendants
should be made in writing. (Thunga Chui vs. Que Bentec,1 1 Off. Gaz., 818, October 8,
1903.)
(5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the
contract, had died prior to the trial of the action, and the defendants claim that by
reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure,
plaintiff could not be a witness at the trial. That paragraph provides that parties to an
action against an executor or aministrator upon a claim or demand against the estate
of a deceased person can not testify as to any matter of fact occurring before the
death of such deceased person. This action was not brought against the administrator
of Miguel Alonzo, nor was it brought upon a claim against his estate. It was brought
against a partnership which was in existence at the time of the trial of the action, and
which was juridical person. The fact that Miguel Alonzo had been a partner in this
company, and that his interest therein might be affected by the result of this suit, is not
sufficient to bring the case within the provisions of the section above cited.
(6) The plaintiff was allowed to testify against the objection and exception of the
defendants, that he had been paid as salary for the year 1900 a part of the profits of the
business. This evidence was competent for the purpose of corroborating the testimony
of the plaintiff as to the existence of the contract set out in the complaint.
(7) The plaintiff was allowed to testify as to the contents of a certain letter written by
Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo
Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not
necessary to inquire whether the court committed an error in admitting this evidence.
The case already made by the plaintiff was in itself sufficient to prove the contract
without reference to this letter. The error, if any there were, was not prejudicial, and is
not ground for revesal. (Sec. 503, Code of Civil Procedure.)
(8) For the purpose of proving what the profits of the defendants were for the year 1902,
the plaintiff presented in evidence the ledger of defendants, which contained an entry
made on the 31st of December, 1902, as follows:

Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades liquidas

obtenidas durante el ano y que abonamos conforme a la proporcion que hemos
establecido segun el convenio de sociedad.

The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of
the defendants, who testiffied, among other things, that there were no profits during the
year 1902, but, on the contrary, that the company suffered considerable loss during that
year. We do not think the evidence of this witnees sufficiently definite and certain to
overcome the positive evidence furnished by the books of the defendants themselves.

(9) In reference to the cause of action relating to the 600 pesos, it appears that the
plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their
request he went to Hongkong, and was there for about two months looking after the
business of the defendants in the matter of the repair of a certain steamship. The
appellants in their brief say that the plaintiff is entitled to no compensation for his
services thus rendered, because by the provisions of article 1711 of the Civil Code, in the
absence of an agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the amount of 600 pesos
not claimed as compensation for services but as a reimbursment for money expended
by the plaintiff in the business of the defendants. The article of the code that is
applicable is article 1728.

The judgment of the court below is affirmed, with the costs, of this instance against the
appellants. After the expiration of twenty days from the date of this decision let final
judgment be entered herein, and ten days thereafter let the case be remanded to the
lower court for execution. So ordered.

59