BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

  1  

[G.R.  No.  127405.  October  4,  2000]  MARJORIE  TOCAO  and  WILLIAM  T.  BELO,  petitioners,  vs.  COURT  OF  APPEALS  and  NENITA  A.  ANAY,  respondents.    This   is   a   petition   for   review   of   the   Decision   of   the   Court   of   Appeals   in   CA-­‐G.R.   CV   No.  41616,[1]  affirming  the  Decision  of  the  Regional  Trial  Court  of  Makati,  Branch  140,  in  Civil  Case  No.  88-­‐509.[2]    Fresh   from   her   stint   as   marketing   adviser   of   Technolux   in   Bangkok,   Thailand,  private  respondent   Nenita   A.   Anay   met   petitioner   William   T.   Belo,   then   the   vice-­‐president   for  operations   of   Ultra   Clean   Water   Purifier,   through   her   former   employer   in   Bangkok.  Belo  introduced  Anay   to   petitioner  Marjorie   Tocao,  who   conveyed   her   desire   to   enter   into   a   joint  venture   with   her   for   the   importation   and   local   distribution   of   kitchen   cookwares.  Belo  volunteered  to  finance  the  joint  venture  and  assigned  to  Anay  the  job  of  marketing  the  product  considering   her   experience   and   established   relationship   with   West   Bend   Company,   a  manufacturer   of   kitchen   wares   in   Wisconsin,   U.S.A.  Under   the   joint   venture,   Belo   acted   as  capitalist,   Tocao   as   president   and   general   manager,   and   Anay   as   head   of   the   marketing  department   and   later,   vice-­‐president   for   sales.  Anay   organized   the   administrative   staff   and  sales  force  while  Tocao  hired  and  fired  employees,  determined  commissions  and/or  salaries  of  the  employees,  and  assigned   them  to  different  branches.  The  parties  agreed   that  Belo’s  name  should   not   appear   in   any   documents   relating   to   their   transactions   with   West   Bend  Company.  Instead,   they   agreed   to   use   Anay’s   name   in   securing   distributorship   of   cookware  from  that  company.  The  parties  agreed  further  that  Anay  would  be  entitled  to:  (1)  ten  percent  (10%)  of  the  annual  net  profits  of  the  business;  (2)  overriding  commission  of  six  percent  (6%)  of  the  overall  weekly  production;  (3)  thirty  percent  (30%)  of  the  sales  she  would  make;  and  (4)  two  percent  (2%)   for  her  demonstration  services.  The  agreement  was  not  reduced  to  writing  on  the  strength  of  Belo’s  assurances  that  he  was  sincere,  dependable  and  honest  when  it  came  to  financial  commitments.    Anay  having  secured  the  distributorship  of  cookware  products   from  the  West  Bend  Company  and   organized   the   administrative   staff   and   the   sales   force,   the   cookware   business   took   off  successfully.  They   operated   under   the   name   of   Geminesse   Enterprise,   a   sole   proprietorship  registered  in  Marjorie  Tocao’s  name,  with  office  at  712  Rufino  Building,  Ayala  Avenue,  Makati  City.  Belo  made  good  his  monetary   commitments   to  Anay.  Thereafter,  Roger  Muencheberg  of  West  Bend  Company  invited  Anay  to  the  distributor/dealer  meeting  in  West  Bend,  Wisconsin,  U.S.A.,   from  July  19  to  21,  1987  and  to  the  southwestern  regional  convention   in  Pismo  Beach,  California,   U.S.A.,   from   July   25-­‐26,   1987.  Anay   accepted   the   invitation   with   the   consent   of  Marjorie  Tocao  who,  as  president  and  general  manager  of  Geminesse  Enterprise,  even  wrote  a  letter  to  the  Visa  Section  of  the  U.S.  Embassy  in  Manila  on  July  13,  1987.  A  portion  of  the  letter  reads:    “Ms.  Nenita  D.  Anay  (sic),  who  has  been  patronizing  and  supporting  West  Bend  Co.  for  twenty  (20)   years   now,   acquired   the   distributorship   of   Royal   Queen   cookware   for   Geminesse  Enterprise,   is   the   Vice   President   Sales  Marketing   and  a  business  partner  of   our   company,   will  attend  in  response  to  the  invitation.”  (Italics  supplied.)[3]    Anay  arrived  from  the  U.S.A.  in  mid-­‐August  1987,  and  immediately  undertook  the  task  of  saving  the  business  on  account  of  the  unsatisfactory  sales  record  in  the  Makati  and  Cubao  offices.  On  August   31,   1987,   she   received   a   plaque   of   appreciation   from   the   administrative   and   sales  

people  through  Marjorie  Tocao[4]  for  her  excellent  job  performance.  On  October  7,  1987,  in  the  presence   of   Anay,   Belo   signed   a   memo[5]  entitling   her   to   a   thirty-­‐seven   percent   (37%)  commission  for  her  personal  sales  "up  Dec  31/87.”  Belo  explained  to  her  that  said  commission  was  apart   from  her   ten  percent  (10%)  share   in   the  profits.  On  October  9,  1987,  Anay   learned  that  Marjorie  Tocao  had  signed  a   letter[6]addressed  to  the  Cubao  sales  office  to  the  effect  that  she  was  no  longer  the  vice-­‐president  of  Geminesse  Enterprise.  The  following  day,  October  10,  she  received  a  note  from  Lina  T.  Cruz,  marketing  manager,  that  Marjorie  Tocao  had  barred  her  from  holding   office   and   conducting  demonstrations   in   both  Makati   and  Cubao  offices.[7]  Anay  attempted  to  contact  Belo.  She  wrote  him  twice  to  demand  her  overriding  commission  for  the  period  of  January  8,  1988  to  February  5,  1988  and  the  audit  of  the  company  to  determine  her  share  in  the  net  profits.  When  her  letters  were  not  answered,  Anay  consulted  her  lawyer,  who,  in  turn,  wrote  Belo  a  letter.  Still,  that  letter  was  not  answered.  Anay   still   received   her   five   percent   (5%)   overriding   commission   up   to   December   1987.  The  following  year,  1988,  she  did  not  receive  the  same  commission  although  the  company  netted  a  gross  sales  of  P13,300,360.00.    On  April  5,  1988,  Nenita  A.  Anay  filed  Civil  Case  No.  88-­‐509,  a  complaint  for  sum  of  money  with  damages[8]  against   Marjorie   D.   Tocao   and   William   Belo   before   the   Regional   Trial   Court   of  Makati,  Branch  140.    In  her  complaint,  Anay  prayed  that  defendants  be  ordered  to  pay  her,  jointly  and  severally,  the  following:  (1)  P32,00.00  as  unpaid  overriding  commission  from  January  8,  1988  to  February  5,  1988;   (2)   P100,000.00   as   moral   damages,   and   (3)   P100,000.00   as   exemplary   damages.   The  plaintiff  also  prayed  for  an  audit  of  the  finances  of  Geminesse  Enterprise  from  the  inception  of  its  business  operation  until   she  was  “illegally  dismissed”   to  determine  her   ten  percent  (10%)  share  in  the  net  profits.  She  further  prayed  that  she  be  paid  the  five  percent  (5%)  “overriding  commission“  on  the  remaining  150  West  Bend  cookware  sets  before  her  “dismissal.”  In   their   answer,[9]  Marjorie   Tocao   and   Belo   asserted   that   the   “alleged   agreement”  with   Anay  that   was   “neither   reduced   in   writing,   nor   ratified,”   was   “either   unenforceable   or   void   or  inexistent.”   As   far   as   Belo   was   concerned,   his   only   role   was   to   introduce   Anay   to   Marjorie  Tocao.  There  could  not  have  been  a  partnership  because,  as  Anay  herself  admitted,  Geminesse  Enterprise   was   the   sole   proprietorship   of   Marjorie   Tocao.   Because   Anay   merely   acted   as  marketing   demonstrator   of   Geminesse   Enterprise   for   an   agreed   remuneration,   and   her  complaint  referred  to  either  her  compensation  or  dismissal,  such  complaint  should  have  been  lodged  with  the  Department  of  Labor  and  not  with  the  regular  court.    Petitioners  (defendants  therein)  further  alleged  that  Anay  filed  the  complaint  on  account  of  “ill-­‐will  and  resentment”  because  Marjorie  Tocao  did  not  allow  her  to  “lord  it  over  in  the  Geminesse  Enterprise.”  Anay   had   acted   like   she   owned   the   enterprise   because   of   her   experience   and  expertise.  Hence,  petitioners  were  the  ones  who  suffered  actual  damages  “including  unreturned  and  unaccounted  stocks  of  Geminesse  Enterprise,”  and  “serious  anxiety,  besmirched  reputation  in  the  business  world,  and  various  damages  not  less  than  P500,000.00.”  They  also  alleged  that,  to  “vindicate  their  names,”  they  had  to  hire  counsel  for  a  fee  of  P23,000.00.    At  the  pre-­‐trial  conference,   the   issues  were   limited  to:  (a)  whether  or  not  the  plaintiff  was  an  employee  or  partner  of  Marjorie  Tocao  and  Belo,  and  (b)  whether  or  not  the  parties  are  entitled  to  damages.[10]    

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

  2  

In   their   defense,   Belo   denied   that   Anay  was   supposed   to   receive   a   share   in   the   profit   of   the  business.  He,   however,   admitted   that   the   two  had   agreed   that  Anay  would   receive   a   three   to  four  percent  (3-­‐4%)  share  in  the  gross  sales  of  the  cookware.  He  denied  contributing  capital  to  the  business  or  receiving  a  share  in  its  profits  as  he  merely  served  as  a  guarantor  of  Marjorie  Tocao,  who  was  new  in  the  business.  He  attended  and/or  presided  over  business  meetings  of  the   venture   in   his   capacity   as   a   guarantor   but   he   never   participated   in   decision-­‐making.   He  claimed  that  he  wrote  the  memo  granting  the  plaintiff  thirty-­‐seven  percent  (37%)  commission  upon  her   dismissal   from   the   business   venture   at   the   request   of   Tocao,   because  Anay   had  no  other  income.    For  her  part,  Marjorie  Tocao  denied  having  entered   into   an  oral  partnership  agreement  with  Anay.  However,   she   admitted   that   Anay  was   an   expert   in   the   cookware   business   and   hence,  they  agreed   to   grant  her   the   following   commissions:   thirty-­‐seven  percent   (37%)  on  personal  sales;  five  percent  (5%)  on  gross  sales;  two  percent  (2%)  on  product  demonstrations,  and  two  percent  (2%)  for  recruitment  of  personnel.  Marjorie  denied  that  they  agreed  on  a  ten  percent  (10%)  commission  on  the  net  profits.  Marjorie  claimed  that  she  got  the  capital  for  the  business  out   of   the   sale   of   the   sewing  machines   used   in   her   garments   business   and   from   Peter   Lo,   a  Singaporean  friend-­‐financier  who  loaned  her  the  funds  with  interest.  Because  she  treated  Anay  as  her  “co-­‐equal,”  Marjorie  received  the  same  amounts  of  commissions  as  her.  However,  Anay  failed  to  account  for  stocks  valued  at  P200,000.00.    On  April  22,  1993,  the  trial  court  rendered  a  decision  the  dispositive  part  of  which  is  as  follows:  “WHEREFORE,  in  view  of  the  foregoing,  judgment  is  hereby  rendered:  1.  Ordering  defendants  to  submit  to  the  Court  a  formal  account  as  to  the  partnership  affairs  for  the  years  1987  and  1988  pursuant  to  Art.  1809  of  the  Civil  Code  in  order  to  determine  the  ten  percent  (10%)  share  of  plaintiff  in  the  net  profits  of  the  cookware  business;  2.  Ordering   defendants   to   pay   five   percent   (5%)   overriding   commission   for   the   one   hundred  and  fifty  (150)  cookware  sets  available  for  disposition  when  plaintiff  was  wrongfully  excluded  from  the  partnership  by  defendants;  3.  Ordering  defendants  to  pay  plaintiff  overriding  commission  on  the  total  production  which  for  the  period  covering  January  8,  1988  to  February  5,  1988  amounted  to  P32,000.00;  4.  Ordering  defendants   to  pay  P100,000.00  as  moral  damages  and  P100,000.00  as   exemplary  damages,  and  5.  Ordering  defendants  to  pay  P50,000.00  as  attorney’s  fees  and  P20,000.00  as  costs  of  suit.  SO  ORDERED.”    The  trial  court  held  that  there  was  indeed  an  “oral  partnership  agreement  between  the  plaintiff  and  the  defendants,”  based  on  the  following:  (a)  there  was  an  intention  to  create  a  partnership;  (b)  a   common   fund  was  established   through  contributions   consisting  of  money  and   industry,  and   (c)   there  was   a   joint   interest   in   the   profits.   The   testimony   of   Elizabeth   Bantilan,   Anay’s  cousin  and  the  administrative  officer  of  Geminesse  Enterprise  from  August  21,  1986  until  it  was  absorbed  by  Royal  International,  Inc.,  buttressed  the  fact  that  a  partnership  existed  between  the  parties.  The   letter  of  Roger  Muencheberg  of  West  Bend  Company  stating  that  he  awarded  the  distributorship   to   Anay   and   Marjorie   Tocao   because   he   was   convinced   that   with   Marjorie’s  financial  contribution  and  Anay’s  experience,  the  combination  of  the  two  would  be  invaluable  to   the   partnership,   also   supported   that   conclusion.   Belo’s   claim   that   he   was   merely   a  “guarantor”   has   no   basis   since   there  was   no  written   evidence   thereof   as   required   by   Article  2055   of   the   Civil   Code.   Moreover,   his   acts   of   attending   and/or   presiding   over   meetings   of  

Geminesse  Enterprise  plus  his   issuance  of  a  memo  giving  Anay  37%  commission  on  personal  sales  belied  this.  On  the  contrary,  it  demonstrated  his  involvement  as  a  partner  in  the  business.  The  trial  court  further  held  that  the  payment  of  commissions  did  not  preclude  the  existence  of  the  partnership  inasmuch  as  such  practice  is  often  resorted  to  in  business  circles  as  an  impetus  to  bigger  sales  volume.  It  did  not  matter  that  the  agreement  was  not  in  writing  because  Article  1771  of   the  Civil  Code  provides  that  a  partnership  may  be  “constituted   in  any  form.”  The  fact  that   Geminesse   Enterprise   was   registered   in   Marjorie   Tocao’s   name   is   not   determinative   of  whether  or  not  the  business  was  managed  and  operated  by  a  sole  proprietor  or  a  partnership.  What  was  registered  with  the  Bureau  of  Domestic  Trade  was  merely  the  business  name  or  style  of  Geminesse  Enterprise.    The  trial  court  finally  held  that  a  partner  who  is  excluded  wrongfully  from  a  partnership  is  an  innocent  partner.  Hence,   the  guilty  partner  must  give  him  his  due  upon  the  dissolution  of   the  partnership  as  well  as  damages  or  share  in  the  profits  “realized  from  the  appropriation  of  the  partnership  business  and  goodwill.”  An  innocent  partner  thus  possesses  “pecuniary  interest  in  every  existing   contract   that  was   incomplete  and   in   the   trade  name  of   the   co-­‐partnership  and  assets  at  the  time  he  was  wrongfully  expelled.”    Petitioners’   appeal   to   the   Court   of   Appeals[11]  was   dismissed,   but   the   amount   of   damages  awarded  by  the  trial  court  were  reduced  to  P50,000.00  for  moral  damages  and  P50,000.00  as  exemplary  damages.  Their  Motion  for  Reconsideration  was  denied  by  the  Court  of  Appeals  for  lack  of  merit.[12]  Petitioners  Belo  and  Marjorie  Tocao  are  now  before  this  Court  on  a  petition  for  review   on  certiorari,   asserting   that   there   was   no   business   partnership   between   them   and  herein   private   respondent   Nenita   A.   Anay   who   is,   therefore,   not   entitled   to   the   damages  awarded  to  her  by  the  Court  of  Appeals.    Petitioners   Tocao   and   Belo   contend   that   the   Court   of   Appeals   erroneously   held   that   a  partnership  existed  between  them  and  private  respondent  Anay  because  Geminesse  Enterprise  “came  into  being”  exactly  a  year  before  the  “alleged  partnership”  was  formed,  and  that   it  was  very  unlikely  that  petitioner  Belo  would  invest  the  sum  of  P2,500,000.00  with  petitioner  Tocao  contributing   nothing,   without   any   “memorandum   whatsoever   regarding   the   alleged  partnership.”[13]    The   issue   of   whether   or   not   a   partnership   exists   is   a   factual   matter   which   are   within   the  exclusive   domain   of   both   the   trial   and   appellate   courts.   This   Court   cannot   set   aside   factual  findings  of  such  courts  absent  any  showing  that  there  is  no  evidence  to  support  the  conclusion  drawn  by  the  court  a  quo.[14]  In  this  case,  both  the  trial  court  and  the  Court  of  Appeals  are  one  in  ruling   that  petitioners  and  private   respondent  established  a  business  partnership.  This  Court  finds  no  reason  to  rule  otherwise.    To  be  considered  a  juridical  personality,  a  partnership  must  fulfill  these  requisites:  (1)  two  or  more  persons  bind   themselves   to  contribute  money,  property  or   industry   to  a  common   fund;  and  (2)  intention  on  the  part  of  the  partners  to  divide  the  profits  among  themselves.[15]  It  may  be  constituted  in  any  form;  a  public  instrument  is  necessary  only  where  immovable  property  or  real   rights   are   contributed   thereto.[16]  This   implies   that   since   a   contract   of   partnership   is  consensual,  an  oral  contract  of  partnership   is  as  good  as  a  written  one.  Where  no   immovable  property  or   real   rights  are   involved,  what  matters   is   that   the  parties  have   complied  with   the  requisites   of   a   partnership.  The   fact   that   there   appears   to   be   no   record   in   the   Securities   and  Exchange  Commission  of  a  public  instrument  embodying  the  partnership  agreement  pursuant  

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

  3  

to   Article   1772   of   the   Civil   Code[17]  did   not   cause   the   nullification   of   the   partnership.  The  pertinent  provision  of  the  Civil  Code  on  the  matter  states:    Art.  1768.  The  partnership  has  a  juridical  personality  separate  and  distinct  from  that  of  each  of  the   partners,   even   in   case   of   failure   to   comply   with   the   requirements   of   article   1772,   first  paragraph.    Petitioners   admit   that   private   respondent   had   the   expertise   to   engage   in   the   business   of  distributorship  of  cookware.  Private  respondent  contributed  such  expertise  to  the  partnership  and   hence,   under   the   law,   she   was   the   industrial   or   managing   partner.   It   was   through   her  reputation  with  the  West  Bend  Company  that  the  partnership  was  able  to  open  the  business  of  distributorship  of  that  company’s  cookware  products;  it  was  through  the  same  efforts  that  the  business   was   propelled   to   financial   success.   Petitioner   Tocao   herself   admitted   private  respondent’s   indispensable  role   in  putting  up   the  business  when,  upon  being  asked   if  private  respondent  held  the  positions  of  marketing  manager  and  vice-­‐president  for  sales,  she  testified  thus:    “A:  No,  sir  at  the  start  she  was  the  marketing  manager  because  there  were  no  one  to  sell  yet,  it’s  only  me   there   then  her  and   then   two  (2)  people,   so  about   four   (4).  Now,  after   that  when  she  recruited   already   Oscar   Abella   and   Lina   Torda-­‐Cruz   these   two   (2)   people   were   given   the  designation  of  marketing  managers  of  which  definitely  Nita  as  superior  to  them  would  be  the  Vice  President.”[18]    By  the  set-­‐up  of  the  business,  third  persons  were  made  to  believe  that  a  partnership  had  indeed  been  forged  between  petitioners  and  private  respondents.  Thus,  the  communication  dated  June  4,   1986  of  Missy   Jagler   of  West  Bend  Company   to  Roger  Muencheberg   of   the   same   company  states:    “Marge   Tocao   is   president   of   Geminesse   Enterprises.   Geminesse   will   finance   the   operations.  Marge  does  not  have  cookware  experience.  Nita  Anay  has  started  to  gather   former  managers,  Lina  Torda  and  Dory  Vista.  She  has  also  gathered  former  demonstrators,  Betty  Bantilan,  Eloisa  Lamela,   Menchu   Javier.   They   will   continue   to   gather   other   key   people   and   build   up   the  organization.  All  they  need  is  the  finance  and  the  products  to  sell.”[19]    On  the  other  hand,  petitioner  Belo’s  denial  that  he  financed  the  partnership  rings  hollow  in  the  face   of   the   established   fact   that   he   presided   over   meetings   regarding   matters   affecting   the  operation  of  the  business.  Moreover,  his  having  authorized  in  writing  on  October  7,  1987,  on  a  stationery   of   his   own   business   firm,  Wilcon   Builders   Supply,   that   private   respondent   should  receive   thirty-­‐seven   (37%)   of   the   proceeds   of   her   personal   sales,   could   not   be   interpreted  otherwise  than  that  he  had  a  proprietary  interest  in  the  business.  His  claim  that  he  was  merely  a  guarantor  is  belied  by  that  personal  act  of  proprietorship  in  the  business.  Moreover,  if  he  was  indeed   a   guarantor   of   future   debts   of   petitioner   Tocao   under   Article   2053   of   the   Civil  Code,[20]  he   should  have  presented  documentary   evidence   therefor.  While  Article  2055  of   the  Civil  Code  simply  provides  that  guaranty  must  be  “express,”  Article  1403,  the  Statute  of  Frauds,  requires  that  “a  special  promise  to  answer  for  the  debt,  default  or  miscarriage  of  another”  be  in  writing.[21]    Petitioner  Tocao,  a  former  ramp  model,[22]  was  also  a  capitalist  in  the  partnership.  She  claimed  that  she  herself  financed  the  business.  Her  and  petitioner  Belo’s  roles  as  both  capitalists  to  the  

partnership   with   private   respondent   are   buttressed   by   petitioner   Tocao’s   admissions   that  petitioner  Belo  was  her  boyfriend  and  that  the  partnership  was  not  their  only  business  venture  together.  They   also   established   a   firm   that   they   called   “Wiji,”   the   combination   of   petitioner  Belo’s   first   name,   William,   and   her   nickname,   Jiji.[23]  The   special   relationship   between   them  dovetails   with   petitioner   Belo’s   claim   that   he   was   acting   in   behalf   of   petitioner   Tocao.  Significantly,   in   the   early   stage   of   the   business   operation,   petitioners   requested   West   Bend  Company   to   allow   them   to   “utilize   their   banking   and   trading   facilities   in   Singapore”   in   the  matter   of   importation   and   payment   of   the   cookware   products.[24]  The   inevitable   conclusion,  therefore,  was  that  petitioners  merged  their  respective  capital  and  infused  the  amount  into  the  partnership  of  distributing  cookware  with  private  respondent  as  the  managing  partner.    The   business   venture   operated   under   Geminesse   Enterprise   did   not   result   in   an   employer-­‐employee   relationship   between   petitioners   and   private   respondent.  While   it   is   true   that   the  receipt  of  a  percentage  of  net  profits  constitutes  only  prima  facie  evidence  that  the  recipient  is  a  partner   in   the  business,[25]  the  evidence   in   the  case  at  bar  controverts  an  employer-­‐employee  relationship   between   the   parties.  In   the   first   place,   private   respondent   had   a   voice   in   the  management  of  the  affairs  of  the  cookware  distributorship,[26]including  selection  of  people  who  would   constitute   the   administrative   staff   and   the   sales   force.   Secondly,   petitioner   Tocao’s  admissions  militate  against  an  employer-­‐employee  relationship.  She  admitted  that,  like  her  who  owned   Geminesse   Enterprise,[27]  private   respondent   received   only   commissions   and  transportation   and   representation   allowances[28]and   not   a   fixed   salary.[29]  Petitioner   Tocao  testified:    “Q:  Of  course.  Now,  I  am  showing  to  you  certain  documents  already  marked  as  Exhs.  ‘X’  and  ‘Y.’  Please  go  over  this.  Exh.   ‘Y’   is  denominated  `Cubao  overrides’  8-­‐21-­‐87  with  ending  August  21,  1987,  will  you  please  go  over  this  and  tell  the  Honorable  Court  whether  you  ever  came  across  this  document  and  know  of  your  own  knowledge  the  amount  -­‐-­‐-­‐  A:  Yes,  sir  this  is  what  I  am  talking  about  earlier.  That’s  the  one  I  am  telling  you  earlier  a  certain  percentage  for  promotions,  advertising,  incentive.  Q:  I   see.  Now,   this  promotion,  advertising,   incentive,   there   is  a   figure  here  and  words  which   I  quote:   ‘Overrides   Marjorie   Ann   Tocao   P21,410.50’   this   means   that   you   have   received   this  amount?  A:  Oh  yes,  sir.  Q:  I   see.   And,   by   way   of   amplification   this   is   what   you   are   saying   as   one   representing  commission,  representation,  advertising  and  promotion?  A:  Yes,  sir.  Q:  I  see.  Below  your  name  is  the  words  and  figure  and  I  quote  ‘Nita  D.  Anay  P21,410.50’,  what  is  this?  A:  That’s  her  overriding  commission.  Q:  Overriding  commission,  I  see.  Of  course,  you  are  telling  this  Honorable  Court  that  there  being  the  same  P21,410.50  is  merely  by  coincidence?  A:  No,  sir,  I  made  it  a  point  that  we  were  equal  because  the  way  I  look  at  her  kasi,  you  know  in  a  sense  because  of  her  expertise  in  the  business  she  is  vital  to  my  business.  So,  as  part  of  the  incentive  I  offer  her  the  same  thing.  Q:  So,  in  short  you  are  saying  that  this  you  have  shared  together,  I  mean  having  gotten  from  the  company  P21,140.50  is  your  way  of  indicating  that  you  were  treating  her  as  an  equal?  A:  As  an  equal.  Q:  As  an  equal,  I  see.  You  were  treating  her  as  an  equal?  A:  Yes,  sir.  

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Q:  I  am  calling  again  your  attention  to  Exh.  ‘Y’  ‘Overrides  Makati  the  other  one  is  -­‐-­‐-­‐  A:  That  is  the  same  thing,  sir.  Q:  With   ending   August   21,   words   and   figure   ‘Overrides  Marjorie   Ann   Tocao   P15,314.25’   the  amount  there  you  will  acknowledge  you  have  received  that?  A:  Yes,  sir.  Q:  Again  in  concept  of  commission,  representation,  promotion,  etc.?  A:  Yes,  sir.  Q:  Okey.  Below  your  name  is  the  name  of  Nita  Anay  P15,314.25  that   is  also  an  indication  that  she  received  the  same  amount?  A:  Yes,  sir.  Q:  And,  as  in  your  previous  statement  it  is  not  by  coincidence  that  these  two  (2)  are  the  same?  A:  No,  sir.  Q:  It  is  again  in  concept  of  you  treating  Miss  Anay  as  your  equal?  A:  Yes,  sir.”  (Italics  supplied.)[30]    If  indeed  petitioner  Tocao  was  private  respondent’s  employer,  it  is  difficult  to  believe  that  they  shall  receive  the  same  income  in  the  business.  In  a  partnership,  each  partner  must  share  in  the  profits  and   losses  of   the  venture,  except   that   the   industrial  partner  shall  not  be   liable   for   the  losses.[31]  As   an   industrial   partner,   private   respondent   had   the   right   to   demand   for   a   formal  accounting  of  the  business  and  to  receive  her  share  in  the  net  profit.[32]    The   fact   that   the   cookware   distributorship   was   operated   under   the   name   of   Geminesse  Enterprise,   a   sole   proprietorship,   is   of   no  moment.  What   was   registered   with   the   Bureau   of  Domestic  Trade  on  August  19,  1987  was  merely  the  name  of  that  enterprise.[33]  While  it  is  true  that  in  her  undated  application  for  renewal  of  registration  of  that  firm  name,  petitioner  Tocao  indicated   that   it   would   be   engaged   in   retail   of   “kitchenwares,   cookwares,   utensils,  skillet,”[34]  she   also   admitted   that   the   enterprise   was   only   “60%   to   70%   for   the   cookware  business,”  while  20%  to  30%  of  its  business  activity  was  devoted  to  the  sale  of  water  sterilizer  or   purifier.[35]  Indubitably   then,   the   business   name   Geminesse   Enterprise   was   used   only   for  practical  reasons  -­‐  it  was  utilized  as  the  common  name  for  petitioner  Tocao’s  various  business  activities,  which  included  the  distributorship  of  cookware.    Petitioners  underscore  the  fact  that  the  Court  of  Appeals  did  not  return  the  “unaccounted  and  unremitted  stocks  of  Geminesse  Enterprise  amounting  to  P208,250.00.”[36]Obviously  a  ploy  to  offset  the  damages  awarded  to  private  respondent,  that  claim,  more  than  anything  else,  proves  the  existence  of  a  partnership  between  them.  In  Idos  v.  Court  of  Appeals,  this  Court  said:  “The  best  evidence  of  the  existence  of  the  partnership,  which  was  not  yet  terminated  (though  in  the   winding   up   stage),   were   the   unsold   goods   and   uncollected   receivables,   which   were  presented  to  the  trial  court.  Since  the  partnership  has  not  been  terminated,  the  petitioner  and  private  complainant  remained  as  co-­‐partners.  x  x  x.”[37]    It  is  not  surprising  then  that,  even  after  private  respondent  had  been  unceremoniously  booted  out   of   the   partnership   in   October   1987,   she   still   received   her   overriding   commission   until  December  1987.    Undoubtedly,  petitioner  Tocao  unilaterally  excluded  private   respondent   from  the  partnership  to  reap  for  herself  and/or  for  petitioner  Belo  financial  gains  resulting  from  private  respondent’s  efforts  to  make  the  business  venture  a  success.  Thus,  as  petitioner  Tocao  became  adept  in  the  business   operation,   she   started   to   assert   herself   to   the   extent   that   she  would   even   shout   at  

private   respondent   in   front  of  other  people.[38]  Her   instruction   to  Lina  Torda  Cruz,  marketing  manager,   not   to   allow   private   respondent   to   hold   office   in   both   the  Makati   and   Cubao   sales  offices  concretely  spoke  of  her  perception  that  private  respondent  was  no  longer  necessary  in  the   business   operation,[39]  and   resulted   in   a   falling   out   between   the   two.  However,   a   mere  falling  out  or  misunderstanding  between  partners  does  not  convert  the  partnership  into  a  sham  organization.[40]  The   partnership   exists   until   dissolved   under   the   law.  Since   the   partnership  created  by  petitioners  and  private  respondent  has  no  fixed  term  and  is  therefore  a  partnership  at   will   predicated   on   their   mutual   desire   and   consent,   it   may   be   dissolved   by   the   will   of   a  partner.  Thus:    “x   x   x.  The   right   to   choose   with   whom   a   person   wishes   to   associate   himself   is   the   very  foundation  and  essence  of  that  partnership.  Its  continued  existence  is,  in  turn,  dependent  on  the  constancy  of  that  mutual  resolve,  along  with  each  partner’s  capability  to  give  it,  and  the  absence  of  cause   for  dissolution  provided  by   the   law   itself.  Verily,  any  one  of   the  partners  may,  at  his  sole   pleasure,   dictate   a   dissolution   of   the   partnership   at  will.   He  must,   however,   act   in   good  faith,  not  that  the  attendance  of  bad  faith  can  prevent  the  dissolution  of  the  partnership  but  that  it  can  result  in  a  liability  for  damages.”[41]    An  unjustified  dissolution  by  a  partner  can  subject  him  to  action   for  damages  because  by   the  mutual  agency  that  arises  in  a  partnership,  the  doctrine  of  delectus  personae  allows  the  partners  to  have  the  power,  although  not  necessarily  the  right  to  dissolve  the  partnership.[42]    In  this  case,  petitioner  Tocao’s  unilateral  exclusion  of  private  respondent  from  the  partnership  is   shown  by  her  memo   to   the  Cubao   office   plainly   stating   that   private   respondent  was,   as   of  October   9,   1987,   no   longer   the   vice-­‐president   for   sales   of   Geminesse   Enterprise.[43]  By   that  memo,   petitioner   Tocao   effected   her   own   withdrawal   from   the   partnership   and   considered  herself   as   having   ceased   to   be   associated   with   the   partnership   in   the   carrying   on   of   the  business.   Nevertheless,   the   partnership   was   not   terminated   thereby;   it   continues   until   the  winding  up  of  the  business.[44]    The  winding  up  of  partnership  affairs  has  not  yet  been  undertaken  by  the  partnership.  This  is  manifest   in  petitioners’  claim   for  stocks   that  had  been  entrusted  to  private  respondent   in   the  pursuit  of  the  partnership  business.    The   determination   of   the   amount   of   damages   commensurate   with   the   factual   findings   upon  which  it  is  based  is  primarily  the  task  of  the  trial  court.[45]  The  Court  of  Appeals  may  modify  that  amount  only  when  its  factual  findings  are  diametrically  opposed  to  that  of  the  lower  court,[46]  or  the   award   is   palpably   or   scandalously   and   unreasonably   excessive.[47]  However,   exemplary  damages  that  are  awarded  “by  way  of  example  or  correction  for  the  public  good,”[48]  should  be  reduced  to  P50,000.00,  the  amount  correctly  awarded  by  the  Court  of  Appeals.  Concomitantly,  the  award  of  moral  damages  of  P100,000.00  was  excessive  and  should  be  likewise  reduced  to  P50,000.00.  Similarly,   attorney’s   fees   that   should   be   granted   on   account   of   the   award   of  exemplary   damages   and   petitioners’   evident   bad   faith   in   refusing   to   satisfy   private  respondent’s   plainly   valid,   just   and   demandable   claims,[49]  appear   to   have   been   excessively  granted  by  the  trial  court  and  should  therefore  be  reduced  to  P25,000.00.    WHEREFORE,   the   instant  petition   for  review  on  certiorari  is  DENIED.  The  partnership  among  petitioners  and  private  respondent   is  ordered  dissolved,  and  the  parties  are  ordered  to  effect  the  winding  up  and   liquidation  of   the  partnership  pursuant  to  the  pertinent  provisions  of   the  

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Civil  Code.  This  case  is  remanded  to  the  Regional  Trial  Court  for  proper  proceedings  relative  to  said  dissolution.  The  appealed  decisions  of   the  Regional  Trial  Court   and   the  Court   of  Appeals  are  AFFIRMED  with  MODIFICATIONS,  as  follows  -­‐-­‐-­‐    1.  Petitioners   are   ordered   to   submit   to   the   Regional   Trial   Court   a   formal   account   of   the  partnership  affairs  for  the  years  1987  and  1988,  pursuant  to  Article  1809  of  the  Civil  Code,  in  order   to   determine   private   respondent’s   ten   percent   (10%)   share   in   the   net   profits   of   the  partnership;    2.  Petitioners   are   ordered,   jointly   and   severally,   to   pay   private   respondent   five   percent   (5%)  overriding   commission   for   the   one   hundred   and   fifty   (150)   cookware   sets   available   for  disposition  since  the  time  private  respondent  was  wrongfully  excluded  from  the  partnership  by  petitioners;    3.  Petitioners   are   ordered,   jointly   and   severally,   to   pay   private   respondent   overriding  commission  on  the  total  production  which,  for  the  period  covering  January  8,  1988  to  February  5,  1988,  amounted  to  P32,000.00;    4.  Petitioners   are  ordered,   jointly   and   severally,   to  pay  private   respondent  moral   damages   in  the  amount  of  P50,000.00,  exemplary  damages  in  the  amount  of  P50,000.00  and  attorney’s  fees  in  the  amount  of  P25,000.00.    SO  ORDERED.  Davide,  Jr.,  C.J.,  (Chairman),  Puno,  Kapunan,  and  Pardo,  JJ.,  concur.                                                  

                                                                                               

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J.  M.   TUASON  &   CO.,   INC.,   represented   by   it  Managing   PARTNER,   GREGORIA  ARANETA,  INC.,  vs.  QUIRINO  BOLAÑOS,      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:    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  Bolaños,"  defendant  later  changed  his  lawyer  and  also   his   theory   and   tried   to   prove   that   the   land   in   dispute   was   not   covered   by   plaintiff's  

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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.    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.  (Soroñgon  vs.  Makalintal,1  45  Off.  Gaz.,  3819.)  Nor  could  title  to  that  land  in  derogation  of  that  of  plaintiff,  the  registered  owner,  be   acquired   by   prescription   or   adverse   possession.   (Section   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.      ALFREDO  N.  AGUILA,  JR,  ,  vs.  HONORABLE  COURT  OF  APPEALS  and  FELICIDAD  S.  VDA.  DE  ABROGAR,      This   is   a   petition   for   review   on  certiorari  of   the   decision[1]  of   the   Court   of   Appeals,   dated  November   29,   1990,   which   reversed   the   decision   of   the   Regional   Trial   Court,   Branch   273,  Marikina,   Metro   Manila,   dated   April   11,   1995.    The   trial   court   dismissed   the   petition   for  declaration  of  nullity  of  a  deed  of  sale  filed  by  private  respondent  Felicidad  S.  Vda.  de  Abrogar  against  petitioner  Alfredo  N.  Aguila,  Jr.  The  facts  are  as  follows:    Petitioner   is   the   manager   of   A.C.   Aguila   &   Sons,   Co.,   a   partnership   engaged   in   lending  activities.    Private   respondent   and   her   late   husband,   Ruben   M.   Abrogar,   were   the   registered  owners   of   a   house   and   lot,   covered   by   Transfer   Certificate   of   Title   No.   195101,   in  Marikina,  Metro  Manila.    On  April  18,  1991,  private  respondent,  with  the  consent  of  her  late  husband,  and  A.C.  Aguila  &  Sons,  Co.,  represented  by  petitioner,  entered  into  a  Memorandum  of  Agreement,  which  provided:    (1)    That  the  SECOND  PARTY  [A.C.  Aguila  &  Sons,  Co.]  shall  buy  the  above-­‐described  property  from  the  FIRST  PARTY  [Felicidad  S.  Vda.  de  Abrogar],  and  pursuant  to  this  agreement,  a  Deed  of  Absolute   Sale   shall   be   executed   by   the   FIRST   PARTY   conveying   the   property   to   the   SECOND  PARTY   for   and   in   consideration   of   the   sum  of   Two  Hundred  Thousand  Pesos   (P200,000.00),  Philippine  Currency;    (2)    The  FIRST  PARTY  is  hereby  given  by  the  SECOND  PARTY  the  option  to  repurchase  the  said  property   within   a   period   of   ninety   (90)   days   from   the   execution   of   this   memorandum   of  agreement   effective   April   18,   1991,   for   the   amount   of   TWO   HUNDRED   THIRTY   THOUSAND  PESOS  (P230,000.00);    (3)    In   the   event   that   the   FIRST   PARTY   fail   to   exercise   her   option   to   repurchase   the   said  property  within  a  period  of  ninety  (90)  days,  the  FIRST  PARTY  is  obliged  to  deliver  peacefully  the   possession   of   the   property   to   the   SECOND   PARTY   within   fifteen   (15)   days   after   the  expiration  of  the  said  90  day  grace  period;    (4)    During  the  said  grace  period,  the  FIRST  PARTY  obliges  herself  not  to  file  any  lis  pendens  or  whatever  claims  on  the  property  nor  shall  be  cause  the  annotation  of  say  claim  at  the  back  of  the  title  to  the  said  property;  

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 (5)    With  the  execution  of  the  deed  of  absolute  sale,  the  FIRST  PARTY  warrants  her  ownership  of  the  property  and  shall  defend  the  rights  of  the  SECOND  PARTY  against  any  party  whom  may  have  any  interests  over  the  property;    (6)    All   expenses   for  documentation  and  other   incidental  expenses  shall  be   for   the  account  of  the  FIRST  PARTY;    (7)    Should  the  FIRST  PARTY  fail  to  deliver  peaceful  possession  of  the  property  to  the  SECOND  PARTY  after   the  expiration  of   the  15-­‐day  grace  period  given   in  paragraph  3  above,   the  FIRST  PARTY   shall   pay   an   amount   equivalent   to   Five   Percent   of   the   principal   amount   of   TWO  HUNDRED  PESOS  (P200.00)  or  P10,000.00  per  month  of  delay  as  and  for  rentals  and  liquidated  damages;    (8)  Should  the  FIRST  PARTY  fail  to  exercise  her  option  to  repurchase  the  property  within  ninety  (90)  days  period  above-­‐mentioned,  this  memorandum  of  agreement  shall  be  deemed  cancelled  and  the  Deed  of  Absolute  Sale,  executed  by  the  parties  shall  be  the  final  contract  considered  as  entered  between  the  parties  and  the  SECOND  PARTY  shall  proceed  to  transfer  ownership  of  the  property  above  described  to  its  name  free  from  lines  and  encumbrances.[2]    On  the  same  day,  April  18,  1991,  the  parties  likewise  executed  a  deed  of  absolute  sale,[3]  dated  June   11,   1991,   wherein   private   respondent,   with   the   consent   of   her   late   husband,   sold   the  subject   property   to   A.C.   Aguila   &   Sons,   Co.,   represented   by   petitioner,   for   P200,000.00.    In   a  special  power  of  attorney  dated   the   same  day,  April  18,  1991,  private   respondent  authorized  petitioner  to  cause  the  cancellation  of  TCT  No.  195101  and  the  issuance  of  a  new  certificate  of  title   in   the   name   of   A.C.   Aguila   and   Sons,   Co.,   in   the   event   she   failed   to   redeem   the   subject  property  as  provided  in  the  Memorandum  of  Agreement.[4]    Private  respondent  failed  to  redeem  the  property  within  the  90-­‐day  period  as  provided  in  the  Memorandum   of   Agreement.    Hence,   pursuant   to   the   special   power   of   attorney   mentioned  above,   petitioner   caused   the   cancellation   of   TCT   No.   195101   and   the   issuance   of   a   new  certificate  of  title  in  the  name  of  A.C.  Aguila  and  Sons,  Co.[5]    Private   respondent   then   received   a   letter   dated   August   10,   1991   from   Atty.   Lamberto   C.  Nanquil,  counsel  for  A.C.  Aguila  &  Sons,  Co.,  demanding  that  she  vacate  the  premises  within  15  days   after   receipt   of   the   letter   and   surrender   its   possession  peacefully   to  A.C.  Aguila  &   Sons,  Co.    Otherwise,  the  latter  would  bring  the  appropriate  action  in  court.[6]    Upon  the  refusal  of  private  respondent  to  vacate  the  subject  premises,  A.C.  Aguila  &  Sons,  Co.  filed  an  ejectment  case  against  her  in  the  Metropolitan  Trial  Court,  Branch  76,  Marikina,  Metro  Manila.    In   a  decision,   dated  April   3,   1992,   the  Metropolitan  Trial   Court   ruled   in   favor  of  A.C.  Aguila  &  Sons,  Co.  on  the  ground  that  private  respondent  did  not  redeem  the  subject  property  before  the  expiration  of  the  90-­‐day  period  provided  in  the  Memorandum  of  Agreement.    Private  respondent  appealed  first  to  the  Regional  Trial  Court,  Branch  163,  Pasig,  Metro  Manila,  then  to  the  Court  of  Appeals,  and  later  to  this  Court,  but  she  lost  in  all  the  cases.    Private   respondent   then   filed   a   petition   for   declaration   of   nullity   of   a   deed   of   sale   with   the  Regional   Trial   Court,   Branch   273,  Marikina,  Metro  Manila   on  December   4,   1993.    She   alleged  

that   the   signature   of   her   husband  on   the  deed  of   sale  was   a   forgery   because  he  was   already  dead  when  the  deed  was  supposed  to  have  been  executed  on  June  11,  1991.    It   appears,   however,   that   private   respondent   had   filed   a   criminal   complaint   for   falsification  against  petitioner  with   the  Office  of   the  Prosecutor  of  Quezon  City  which  was  dismissed   in   a  resolution,  dated  February  14,  1994.    On  April  11,  1995,  Branch  273  of  RTC-­‐Marikina  rendered  its  decision:  Plaintiff’s   claim   therefore   that   the  Deed   of   Absolute   Sale   is   a   forgery   because   they   could   not  personally   appear   before   Notary   Public   Lamberto   C.   Nanquil   on   June   11,   1991   because   her  husband,  Ruben  Abrogar,  died  on  May  8,  1991  or  one  month  and  2  days  before  the  execution  of  the   Deed   of   Absolute   Sale,   while   the   plaintiff   was   still   in   the   Quezon   City   Medical   Center  recuperating  from  wounds  which  she  suffered  at  the  same  vehicular  accident  on  May  8,  1991,  cannot   be   sustained.    The   Court   is   convinced   that   the   three   required   documents,   to   wit:    the  Memorandum  of  Agreement,  the  Special  Power  of  Attorney,  and  the  Deed  of  Absolute  Sale  were  all   signed   by   the   parties   on   the   same   date   on   April   18,   1991.    It   is   a   common   and   accepted  business  practice  of   those  engaged   in  money   lending   to  prepare  an  undated  absolute  deed  of  sale   in   loans   of   money   secured   by   real   estate   for   various   reasons,   foremost   of   which   is   the  evasion   of   taxes   and   surcharges.    The   plaintiff   never   questioned   receiving   the   sum   of  P200,000.00   representing   her   loan   from   the   defendant.    Common   sense   dictates   that   an  established  lending  and  realty  firm  like  the  Aguila  &  Sons,  Co.  would  not  part  with  P200,000.00  to   the   Abrogar   spouses,   who   are   virtual   strangers   to   it,   without   the   simultaneous  accomplishment   and   signing   of   all   the   required   documents,   more   particularly   the   Deed   of  Absolute  Sale,  to  protect  its  interest.  .  .  .  .  WHEREFORE,   foregoing   premises   considered,   the   case   in   caption   is   hereby   ORDERED  DISMISSED,  with  costs  against  the  plaintiff.    On  appeal,  the  Court  of  Appeals  reversed.    It  held:    The   facts   and   evidence   show   that   the   transaction   between  plaintiff-­‐appellant   and  defendant-­‐appellee  is  indubitably  an  equitable  mortgage.    Article  1602  of  the  New  Civil  Code  finds  strong  application  in  the  case  at  bar  in  the  light  of  the  following  circumstances.    First:    The  purchase  price  for  the  alleged  sale  with  right  to  repurchase  is  unusually  inadequate.  The   property   is   a   two   hundred   forty   (240)   sq.   m.   lot.    On   said   lot,   the   residential   house   of  plaintiff-­‐appellant   stands.    The   property   is   inside   a   subdivision/village.    The   property   is  situated  in  Marikina  which  is  already  part  of  Metro  Manila.    The  alleged  sale  took  place  in  1991  when  the  value  of  the  land  had  considerably  increased.    For   this  property,  defendant-­‐appellee  pays  only  a  measly  P200,000.00  or  P833.33  per  square  meter  for  both  the  land  and  for  the  house.    Second:    The  disputed  Memorandum  of  Agreement  specifically  provides  that  plaintiff-­‐appellant  is   obliged   to   deliver   peacefully   the   possession   of   the   property   to   the   SECOND  PARTY  within  fifteen  (15)  days  after  the  expiration  of  the  said  ninety  (90)  day  grace  period.    Otherwise  stated,  plaintiff-­‐appellant  is  to  retain  physical  possession  of  the  thing  allegedly  sold.    

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

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In   fact,   plaintiff-­‐appellant   retained   possession   of   the   property   “sold”   as   if   they  were   still   the  absolute  owners.    There  was  no  provision  for  maintenance  or  expenses,  much  less  for  payment  of  rent.    Third:    The  apparent  vendor,  plaintiff-­‐appellant  herein,  continued  to  pay  taxes  on  the  property  “sold”.    It   is  well-­‐known   that   payment   of   taxes   accompanied   by   actual   possession   of   the   land  covered  by  the  tax  declaration,  constitute  evidence  of  great  weight  that  a  person  under  whose  name  the  real  taxes  were  declared  has  a  claim  of  right  over  the  land.    It  is  well-­‐settled  that  the  presence  of  even  one  of  the  circumstances  in  Article  1602  of  the  New  Civil   Code   is   sufficient   to   declare   a   contract   of   sale   with   right   to   repurchase   an   equitable  mortgage.    Considering  that  plaintiff-­‐appellant,  as  vendor,  was  paid  a  price  which  is  unusually  inadequate,  has  retained  possession  of  the  subject  property  and  has  continued  paying  the  realty  taxes  over  the   subject  property,   (circumstances  mentioned   in  par.   (1)   (2)   and   (5)  of  Article  1602  of   the  New   Civil   Code),   it   must   be   conclusively   presumed   that   the   transaction   the   parties   actually  entered  into  is  an  equitable  mortgage,  not  a  sale  with  right  to  repurchase.    The  factors  cited  are  in   support   to   the   finding   that   the   Deed   of   Sale/Memorandum   of   Agreement   with   right   to  repurchase  is  in  actuality  an  equitable  mortgage.  Moreover,   it   is   undisputed   that   the   deed   of   sale   with   right   of   repurchase   was   executed   by  reason  of   the   loan  extended  by  defendant-­‐appellee   to  plaintiff-­‐appellant.    The  amount  of   loan  being  the  same  with  the  amount  of  the  purchase  price.    Since   the   real   intention   of   the   party   is   to   secure   the   payment   of   debt,   now   deemed   to   be  repurchase  price:    the  transaction  shall  then  be  considered  to  be  an  equitable  mortgage.    Being   a   mortgage,   the   transaction   entered   into   by   the   parties   is   in   the   nature   of   a   pactum  commissorium  which  is  clearly  prohibited  by  Article  2088  of  the  New  Civil  Code.    Article  2088  of  the  New  Civil  Code  reads:    ART.  2088.    The  creditor  cannot  appropriate  the  things  given  by  way  of  pledge  or  mortgage,  or  dispose  of  them.    Any  stipulation  to  the  contrary  is  null  and  void.    The  aforequoted  provision  furnishes  the  two  elements  for  pactum  commissorium  to  exist:    (1)  that  there  should  be  a  pledge  or  mortgage  wherein  a  property  is  pledged  or  mortgaged  by  way  of  security  for  the  payment  of  principal  obligation;  and  (2)  that  there  should  be  a  stipulation  for  an  automatic  appropriation  by  the  creditor  of  the  thing  pledged  and  mortgaged  in  the  event  of  non-­‐payment  of  the  principal  obligation  within  the  stipulated  period.    In   this   case,   defendant-­‐appellee   in   reality   extended   a   P200,000.00   loan   to   plaintiff-­‐appellant  secured   by   a   mortgage   on   the   property   of   plaintiff-­‐appellant.    The   loan   was   payable   within  ninety   (90)   days,   the   period   within   which   plaintiff-­‐appellant   can   repurchase   the  property.    Plaintiff-­‐appellant  will  pay  P230,000.00  and  not  P200,000.00,  the  P30,000.00  excess  is  the  interest  for  the  loan  extended.    Failure  of  plaintiff-­‐appellee  to  pay  the  P230,000,00  within  the  ninety  (90)  days  period,   the  property  shall  automatically  belong  to  defendant-­‐appellee  by  virtue  of  the  deed  of  sale  executed.    

Clearly,   the   agreement   entered   into   by   the   parties   is   in   the   nature   of   pactum  commissorium.    Therefore,  the  deed  of  sale  should  be  declared  void  as  we  hereby  so  declare  to  be  invalid,  for  being  violative  of  law.    WHEREFORE,   foregoing   considered,   the   appealed   decision   is   hereby   REVERSED   and   SET  ASIDE.    The  questioned  Deed  of  Sale  and  the  cancellation  of  the  TCT  No.  195101  issued  in  favor  of  plaintiff-­‐appellant  and  the  issuance  of  TCT  No.  267073  issued  in  favor  of  defendant-­‐appellee  pursuant   to   the   questioned   Deed   of   Sale   is   hereby   declared   VOID   and   is   hereby  ANNULLED.  Transfer   Certificate   of   Title   No.   195101   of   the   Registry   of   Marikina   is   hereby  ordered  REINSTATED.    The  loan  in  the  amount  of  P230,000.00  shall  be  paid  within  ninety  (90)  days  from  the  finality  of  this  decision.    In  case  of  failure  to  pay  the  amount  of  P230,000.00  from  the  period   therein  stated,   the  property  shall  be  sold  at  public  auction   to  satisfy   the  mortgage  debt  and  costs  and  if  there  is  an  excess,  the  same  is  to  be  given  to  the  owner.    Petitioner   now   contends   that:    (1)    he   is   not   the   real   party   in   interest   but   A.C.   Aguila   &   Co.,  against  which  this  case  should  have  been  brought;  (2)    the  judgment  in  the  ejectment  case  is  a  bar  to  the  filing  of  the  complaint  for  declaration  of  nullity  of  a  deed  of  sale  in  this  case;  and  (3)  the  contract  between  A.C.  Aguila  &  Sons,  Co.  and  private  respondent  is  a  pacto  de  retro  sale  and  not  an  equitable  mortgage  as  held  by  the  appellate  court.    The  petition  is  meritorious.  Rule   3,   §2   of   the   Rules   of   Court   of   1964,   under   which   the   complaint   in   this   case   was   filed,  provided  that  “every  action  must  be  prosecuted  and  defended  in  the  name  of  the  real  party  in  interest.”  A  real  party  in  interest  is  one  who  would  be  benefited  or  injured  by  the  judgment,  or  who  is  entitled  to  the  avails  of  the  suit.[7]  This  ruling  is  now  embodied  in  Rule  3,  §2  of  the  1997  Revised   Rules   of   Civil   Procedure.    Any   decision   rendered   against   a   person  who   is   not   a   real  party   in   interest   in   the   case   cannot   be   executed.[8]  Hence,   a   complaint   filed   against   such   a  person  should  be  dismissed  for  failure  to  state  a  cause  of  action.[9]    Under   Art.   1768   of   the   Civil   Code,   a   partnership   “has   a   juridical   personality   separate   and  distinct  from  that  of  each  of  the  partners.”  The  partners  cannot  be  held  liable  for  the  obligations  of  the  partnership  unless  it  is  shown  that  the  legal  fiction  of  a  different  juridical  personality  is  being  used  for  fraudulent,  unfair,  or  illegal  purposes.[10]  In  this  case,  private  respondent  has  not  shown  that  A.C.  Aguila  &  Sons,  Co.,  as  a  separate   juridical  entity,   is  being  used   for   fraudulent,  unfair,   or   illegal   purposes.    Moreover,   the   title   to   the   subject   property   is   in   the   name   of   A.C.  Aguila   &   Sons,   Co.   and   the   Memorandum   of   Agreement   was   executed   between   private  respondent,  with  the  consent  of  her  late  husband,  and  A.  C.  Aguila  &  Sons,  Co.,  represented  by  petitioner.    Hence,  it  is  the  partnership,  not  its  officers  or  agents,  which  should  be  impleaded  in  any  litigation  involving  property  registered  in  its  name.    A  violation  of  this  rule  will  result  in  the  dismissal  of  the  complaint.[11]We  cannot  understand  why  both  the  Regional  Trial  Court  and  the  Court  of  Appeals  sidestepped  this  issue  when  it  was  squarely  raised  before  them  by  petitioner.  Our  conclusion  that  petitioner  is  not  the  real  party  in  interest  against  whom  this  action  should  be  prosecuted  makes  it  unnecessary  to  discuss  the  other  issues  raised  by  him  in  this  appeal.    WHEREFORE,   the   decision   of   the   Court   of   Appeals   is   hereby   REVERSED   and   the   complaint  against  petitioner  is  DISMISSED.  SO  ORDERED.    

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

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 MARIANO   P.   PASCUAL   and   RENATO   P.   DRAGON,  petitioners,    vs.  THE  COMMISSIONER  OF  INTERNAL  REVENUE  and  COURT  OF  TAX  APPEALS,  respondents.      The   distinction   between   co-­‐ownership   and   an   unregistered   partnership   or   joint   venture   for  income  tax  purposes  is  the  issue  in  this  petition.    On   June  22,  1965,  petitioners  bought   two  (2)  parcels  of   land   from  Santiago  Bernardino,  et  al.  and  on  May  28,  1966,  they  bought  another  three  (3)  parcels  of  land  from  Juan  Roque.  The  first  two   parcels   of   land   were   sold   by   petitioners   in   1968   toMarenir   Development   Corporation,  while  the  three  parcels  of  land  were  sold  by  petitioners  to  Erlinda  Reyes  and  Maria  Samson  on  March   19,1970.   Petitioners   realized   a   net   profit   in   the   sale   made   in   1968   in   the   amount   of  P165,224.70,   while   they   realized   a   net   profit   of   P60,000.00   in   the   sale   made   in   1970.   The  corresponding  capital  gains  taxes  were  paid  by  petitioners  in  1973  and  1974  by  availing  of  the  tax  amnesties  granted  in  the  said  years.    However,   in   a   letter   dated  March   31,   1979   of   then   Acting   BIR   Commissioner   Efren   I.   Plana,  petitioners   were   assessed   and   required   to   pay   a   total   amount   of   P107,101.70   as   alleged  deficiency  corporate  income  taxes  for  the  years  1968  and  1970.  Petitioners  protested   the  said  assessment   in  a   letter  of   June  26,  1979  asserting   that   they  had  availed  of  tax  amnesties  way  back  in  1974.    In  a  reply  of  August  22,  1979,  respondent  Commissioner  informed  petitioners  that  in  the  years  1968  and  1970,  petitioners  as  co-­‐owners  in  the  real  estate  transactions  formed  an  unregistered  partnership  or   joint  venture  taxable  as  a  corporation  under  Section  20(b)  and  its   income  was  subject   to   the   taxes   prescribed   under   Section   24,   both   of   the   National   Internal   Revenue  Code  1  that  the  unregistered  partnership  was  subject  to  corporate  income  tax  as  distinguished  from  profits  derived   from  the  partnership  by   them  which   is   subject   to   individual   income   tax;  and   that   the  availment  of   tax  amnesty  under  P.D.  No.  23,  as  amended,  by  petitioners  relieved  petitioners   of   their   individual   income   tax   liabilities   but   did   not   relieve   them   from   the   tax  liability   of   the   unregistered   partnership.   Hence,   the   petitioners   were   required   to   pay   the  deficiency  income  tax  assessed.    Petitioners   filed   a   petition   for   review  with   the   respondent  Court   of   Tax  Appeals   docketed   as  CTA  Case  No.   3045.   In  due   course,   the   respondent   court   by   a  majority  decision  of  March  30,  1987,  2  affirmed  the  decision  and  action  taken  by  respondent  commissioner  with  costs  against  petitioners.    It   ruled   that   on   the   basis   of   the   principle   enunciated   in  Evangelista  3  an   unregistered  partnership  was  in  fact  formed  by  petitioners  which  like  a  corporation  was  subject  to  corporate  income  tax  distinct  from  that  imposed  on  the  partners.    In  a  separate  dissenting  opinion,  Associate  Judge  Constante  Roaquin  stated  that  considering  the  circumstances   of   this   case,   although   there   might   in   fact   be   a   co-­‐ownership   between   the  petitioners,   there   was   no   adequate   basis   for   the   conclusion   that   they   thereby   formed   an  unregistered  partnership  which  made  "hem  liable  for  corporate  income  tax  under  the  Tax  Code.  Hence,  this  petition  wherein  petitioners  invoke  as  basis  thereof  the  following  alleged  errors  of  the  respondent  court:  

 A.   IN  HOLDING  AS  PRESUMPTIVELY  CORRECT  THE  DETERMINATION  OF  THE  RESPONDENT  COMMISSIONER,   TO   THE   EFFECT   THAT   PETITIONERS   FORMED   AN   UNREGISTERED  PARTNERSHIP  SUBJECT  TO  CORPORATE  INCOME  TAX,  AND  THAT  THE  BURDEN  OF  OFFERING  EVIDENCE  IN  OPPOSITION  THERETO  RESTS  UPON  THE  PETITIONERS.    B.   IN  MAKING  A  FINDING,  SOLELY  ON  THE  BASIS  OF  ISOLATED  SALE  TRANSACTIONS,  THAT  AN   UNREGISTERED   PARTNERSHIP   EXISTED   THUS   IGNORING   THE   REQUIREMENTS   LAID  DOWN   BY   LAW   THAT   WOULD   WARRANT   THE   PRESUMPTION/CONCLUSION   THAT   A  PARTNERSHIP  EXISTS.    C.   IN   FINDING   THAT   THE   INSTANT   CASE   IS   SIMILAR   TO   THE   EVANGELISTA   CASE   AND  THEREFORE  SHOULD  BE  DECIDED  ALONGSIDE  THE  EVANGELISTA  CASE.  D.   IN   RULING   THAT   THE   TAX   AMNESTY   DID   NOT   RELIEVE   THE   PETITIONERS   FROM  PAYMENT   OF   OTHER   TAXES   FOR   THE   PERIOD   COVERED   BY   SUCH   AMNESTY.   (pp.   12-­‐13,  Rollo.)    The  petition  is  meritorious.    The   basis   of   the   subject   decision   of   the   respondent   court   is   the   ruling   of   this   Court  in  Evangelista.  4    In   the  said  case,  petitioners  borrowed  a  sum  of  money   from  their   father  which   together  with  their   own   personal   funds   they   used   in   buying   several   real   properties.   They   appointed   their  brother   to  manage   their   properties  with   full   power   to   lease,   collect,   rent,   issue   receipts,   etc.  They   had   the   real   properties   rented   or   leased   to   various   tenants   for   several   years   and   they  gained  net  profits   from   the   rental   income.  Thus,   the  Collector  of   Internal  Revenue  demanded  the  payment  of  income  tax  on  a  corporation,  among  others,  from  them.    In  resolving  the  issue,  this  Court  held  as  follows:    The  issue  in  this  case  is  whether  petitioners  are  subject  to  the  tax  on  corporations  provided  for  in  section  24  of  Commonwealth  Act  No.  466,  otherwise  known  as  the  National  Internal  Revenue  Code,  as  well  as  to  the  residence  tax  for  corporations  and  the  real  estate  dealers'  fixed  tax.  With  respect   to   the   tax  on  corporations,   the   issue  hinges  on   the  meaning  of   the   terms  corporation  and  partnership  as  used  in  sections  24  and  84  of  said  Code,  the  pertinent  parts  of  which  read:  Sec.   24.  Rate   of   the   tax   on   corporations.—There   shall   be   levied,   assessed,   collected,   and   paid  annually  upon  the  total  net  income  received  in  the  preceding  taxable  year  from  all  sources  by  every   corporation  organized   in,   or   existing  under   the   laws  of   the  Philippines,   no  matter  how  created   or   organized   but   not   including   duly   registered   general   co-­‐partnerships   (companies  collectives),  a  tax  upon  such  income  equal  to  the  sum  of  the  following:  ...  Sec.  84(b).  The  term  "corporation"  includes  partnerships,  no  matter  how  created  or  organized,  joint-­‐stock   companies,   joint   accounts   (cuentas   en   participation),   associations   or   insurance  companies,   but   does   not   include   duly   registered   general   co-­‐partnerships   (companies  colectivas).    Article  1767  of  the  Civil  Code  of  the  Philippines  provides:    

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By   the   contract   of   partnership   two   or   more   persons   bind   themselves   to   contribute   money,  property,   or   industry   to   a   common   fund,   with   the   intention   of   dividing   the   profits   among  themselves.    Pursuant  to  this  article,  the  essential  elements  of  a  partnership  are  two,  namely:  (a)  an  agreement  to  contribute  money,  property  or  industry  to  a  common  fund;  and  (b)  intent  to  divide  the  profits  among  the  contracting  parties.  The  first  element  is  undoubtedly  present  in  the  case  at  bar,  for,  admittedly,  petitioners  have  agreed  to,  and  did,  contribute  money  and  property   to  a  common  fund.  Hence,  the  issue  narrows  down  to  their  intent  in  acting  as  they  did.  Upon  consideration  of  all  the  facts  and  circumstances  surrounding  the  case,  we  are  fully  satisfied  that  their  purpose  was  to   engage   in   real   estate   transactions   for   monetary   gain   and   then   divide   the   same   among  themselves,  because:    1.  Said  common  fund  was  not  something  they   found  already   in  existence.   It  was  not   a   property  inherited  by  them  pro  indiviso.  They  created  it  purposely.  What  is  more  they  jointly  borrowed  a  substantial  portion  thereof  in  order  to  establish  said  common  fund.    2.   They  invested   the   same,   not   merely   in   one   transaction,   but   in   a   series   of   transactions.   On  February  2,  1943,  they  bought  a  lot  for  P100,000.00.  On  April  3,  1944,  they  purchased  21  lots  for  P18,000.00.  This  was   soon   followed,  on  April  23,  1944,  by   the  acquisition  of   another   real  estate   for   P108,825.00.   Five   (5)   days   later   (April   28,   1944),   they   got   a   fourth   lot   for  P237,234.14.  The  number  of  lots  (24)  acquired  and  transcations  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  petitioners  in  February,  1943.  In   other   words,   one   cannot   but   perceive   a   character   of   habituality   peculiar   to   business  transactions  engaged  in  for  purposes  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  Evangelists,  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  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  Evangelists  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.  5    In   the   present   case,   there   is   no   evidence   that   petitioners   entered   into   an   agreement   to  contribute  money,  property  or  industry  to  a  common  fund,  and  that  they  intended  to  divide  the  profits  among  themselves.  Respondent  commissioner  and/  or  his  representative  just  assumed  these  conditions  to  be  present  on  the  basis  of  the  fact  that  petitioners  purchased  certain  parcels  of  land  and  became  co-­‐owners  thereof.    In   Evangelists,  there  was  a   series   of   transactions  where  petitioners   purchased   twenty-­‐four   (24)  lots  showing   that   the   purpose   was   not   limited   to   the   conservation   or   preservation   of   the  common  fund  or  even  the  properties  acquired  by  them.  The  character  of  habituality  peculiar  to  business  transactions  engaged  in  for  the  purpose  of  gain  was  present.    In   the   instant   case,   petitioners   bought   two   (2)   parcels   of   land   in   1965.   They   did   not   sell   the  same  nor  make  any  improvements  thereon.  In  1966,  they  bought  another  three  (3)  parcels  of  land  from  one  seller.   It  was  only  1968  when  they  sold  the  two  (2)  parcels  of   land  after  which  they  did  not  make  any  additional  or  new  purchase.  The  remaining  three  (3)  parcels  were  sold  by   them   in   1970.   The   transactions   were   isolated.   The   character   of   habituality   peculiar   to  business  transactions  for  the  purpose  of  gain  was  not  present.    In  Evangelista,   the  properties  were   leased  out   to   tenants   for   several   years.   The  business  was  under  the  management  of  one  of  the  partners.  Such  condition  existed  for  over  fifteen  (15)  years.  None  of  the  circumstances  are  present  in  the  case  at  bar.  The  co-­‐ownership  started  only  in  1965  and  ended  in  1970.    Thus,  in  the  concurring  opinion  of  Mr.  Justice  Angelo  Bautista  in  Evangelista  he  said:  I  wish  however  to  make  the  following  observation  Article  1769  of  the  new  Civil  Code  lays  down  the   rule   for   determining   when   a   transaction   should   be   deemed   a   partnership   or   a   co-­‐ownership.  Said  article  paragraphs  2  and  3,  provides;  (2)   Co-­‐ownership   or   co-­‐possession   does   not   itself   establish   a   partnership,   whether   such   co-­‐owners  or  co-­‐possessors  do  or  do  not  share  any  profits  made  by  the  use  of  the  property;  (3)  The  sharing  of  gross  returns  does  not  of   itself  establish  a  partnership,  whether  or  not  the  persons  sharing  them  have  a  joint  or  common  right  or  interest  in  any  property  from  which  the  returns  are  derived;    From  the  above  it  appears  that  the  fact  that  those  who  agree  to  form  a  co-­‐  ownership  share  or  do  not   share   any   profits   made   by   the   use   of   the   property   held   in   common   does   not   convert   their  venture   into   a   partnership.   Or   the   sharing   of   the   gross   returns   does   not   of   itself   establish   a  partnership  whether  or  not  the  persons  sharing  therein  have  a  joint  or  common  right  or  interest  in  the  property.  This  only  means   that,   aside   from   the   circumstance  of  profit,   the  presence  of   other  elements  constituting  partnership  is  necessary,  such  as  the  clear  intent  to  form  a  partnership,  the  existence  of  a  juridical  personality  different  from  that  of  the  individual  partners,  and  the  freedom  to   transfer  or  assign  any   interest   in   the  property  by  one  with   the  consent  of   the  others  (Padilla,  Civil  Code  of  the  Philippines  Annotated,  Vol.  I,  1953  ed.,  pp.  635-­‐636)    

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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  Flord  D.  Mechem  2nd  Ed.,  section  83,  p.  74.)    A   joint  purchase  of   land,  by   two,  does  not   constitute  a   co-­‐partnership   in   respect   thereto;  nor  does  an  agreement  to  share  the  profits  and  losses  on  the  sale  of  land  create  a  partnership;  the  parties   are   only   tenants   in   common.   (Clark   vs.   Sideway,   142   U.S.   682,12   Ct.   327,   35   L.   Ed.,  1157.)    Where  plaintiff,  his  brother,  and  another  agreed   to  become  owners  of  a   single   tract  of   realty,  holding  as  tenants  in  common,  and  to  divide  the  profits  of  disposing  of  it,  the  brother  and  the  other  not  being  entitled   to   share   in  plaintiffs   commission,  no  partnership  existed  as  between  the  three  parties,  whatever  their  relation  may  have  been  as  to  third  parties.  (Magee  vs.  Magee  123  N.E.  673,  233  Mass.  341.)  In  order  to  constitute  a  partnership  inter  sese  there  must  be:  (a)  An  intent  to  form  the  same;  (b)  generally  participating  in  both  profits  and  losses;  (c)  and  such  a  community  of  interest,  as  far  as  third  persons  are   concerned  as   enables   each  party   to  make   contract,  manage   the  business,   and  dispose  of  the  whole  property.-­‐Municipal  Paving  Co.  vs.  Herring  150  P.  1067,  50  III  470.)    The  common  ownership  of  property  does  not   itself  create  a  partnership  between  the  owners,  though   they   may   use   it   for   the   purpose   of   making   gains;   and   they   may,   without   becoming  partners,   agree   among   themselves   as   to   the  management,   and   use   of   such   property   and   the  application  of  the  proceeds  therefrom.  (Spurlock  vs.  Wilson,  142  S.W.  363,160  No.  App.  14.)  6    The   sharing   of   returns   does   not   in   itself   establish   a   partnership  whether   or   not   the   persons  sharing  therein  have  a  joint  or  common  right  or  interest  in  the  property.  There  must  be  a  clear  intent   to   form   a   partnership,   the   existence   of   a   juridical   personality   different   from   the  individual  partners,  and  the  freedom  of  each  party  to  transfer  or  assign  the  whole  property.    In  the  present  case,  there  is  clear  evidence  of  co-­‐ownership  between  the  petitioners.  There  is  no  adequate   basis   to   support   the   proposition   that   they   thereby   formed   an   unregistered  partnership.   The   two   isolated   transactions   whereby   they   purchased   properties   and   sold   the  same   a   few   years   thereafter   did   not   thereby  make   them   partners.   They   shared   in   the   gross  profits  as  co-­‐  owners  and  paid  their  capital  gains  taxes  on  their  net  profits  and  availed  of  the  tax  amnesty   thereby.   Under   the   circumstances,   they   cannot   be   considered   to   have   formed   an  unregistered  partnership,  which   is   thereby   liable   for  corporate   income  tax,  as   the  respondent  commissioner  proposes.    And   even   assuming   for   the   sake   of   argument   that   such   unregistered   partnership   appears   to  have   been   formed,   since   there   is   no   such   existing   unregistered   partnership   with   a   distinct  personality  nor  with  assets  that  can  be  held  liable  for  said  deficiency  corporate  income  tax,  then  petitioners   can   be   held   individually   liable   as   partners   for   this   unpaid   obligation   of   the  

partnership   p.  7  However,   as   petitioners   have   availed   of   the   benefits   of   tax   amnesty   as  individual  taxpayers  in  these  transactions,  they  are  thereby  relieved  of  any  further  tax  liability  arising  therefrom.    WHEREFROM,  the  petition  is  hereby  GRANTED  and  the  decision  of  the  respondent  Court  of  Tax  Appeals  of  March  30,  1987  is  hereby  REVERSED  and  SET  ASIDE  and  another  decision  is  hereby  rendered   relieving   petitioners   of   the   corporate   income   tax   liability   in   this   case,   without  pronouncement  as  to  costs.  SO  ORDERED.      LORENZO  T.  OÑA  and  HEIRS  OF  JULIA  BUÑALES,  namely:  RODOLFO  B.  OÑA,  MARIANO  B.  OÑA,   LUZ   B.   OÑA,   VIRGINIA   B.   OÑA   and   LORENZO   B.   OÑA,   JR.,  petitioners,    vs.  THE  COMMISSIONER  OF  INTERNAL  REVENUE,  respondent.    Petition   for  review  of   the  decision  of   the  Court  of  Tax  Appeals   in  CTA  Case  No.  617,  similarly  entitled   as   above,   holding   that   petitioners   have   constituted   an   unregistered   partnership   and  are,  therefore,  subject  to  the  payment  of  the  deficiency  corporate  income  taxes  assessed  against  them  by  respondent  Commissioner  of  Internal  Revenue  for  the  years  1955  and  1956  in  the  total  sum   of   P21,891.00,   plus   5%   surcharge   and   1%   monthly   interest   from   December   15,   1958,  subject   to   the   provisions   of   Section   51   (e)   (2)   of   the   Internal   Revenue   Code,   as   amended   by  Section  8  of  Republic  Act  No.  2343  and  the  costs  of  the  suit,  1  as  well  as  the  resolution  of  said  court  denying  petitioners'  motion  for  reconsideration  of  said  decision.    The  facts  are  stated  in  the  decision  of  the  Tax  Court  as  follows:    Julia  Buñales  died  on  March  23,  1944,  leaving  as  heirs  her  surviving  spouse,  Lorenzo  T.  Oña  and  her   five  children.   In  1948,  Civil  Case  No.  4519  was   instituted   in   the  Court  of  First   Instance  of  Manila   for   the   settlement   of   her   estate.   Later,   Lorenzo   T.   Oña   the   surviving   spouse   was  appointed  administrator  of  the  estate  of  said  deceased  (Exhibit  3,  pp.  34-­‐41,  BIR  rec.).  On  April  14,   1949,   the   administrator   submitted   the   project   of   partition,   which   was   approved   by   the  Court   on  May  16,   1949   (See  Exhibit  K).   Because   three   of   the   heirs,   namely   Luz,   Virginia   and  Lorenzo,   Jr.,  all   surnamed  Oña,  were  still  minors  when   the  project  of  partition  was  approved,  Lorenzo  T.  Oña,   their   father   and   administrator   of   the   estate,   filed   a   petition   in  Civil   Case  No.  9637  of   the  Court  of  First   Instance  of  Manila   for  appointment  as  guardian  of   said  minors.  On  November   14,   1949,   the   Court   appointed   him   guardian   of   the   persons   and   property   of   the  aforenamed  minors  (See  p.  3,  BIR  rec.).    The   project   of   partition   (Exhibit   K;   see   also   pp.   77-­‐70,   BIR   rec.)   shows   that   the   heirs   have  undivided   one-­‐half   (1/2)   interest   in   ten   parcels   of   land   with   a   total   assessed   value   of  P87,860.00,  six  houses  with  a  total  assessed  value  of  P17,590.00  and  an  undetermined  amount  to  be  collected  from  the  War  Damage  Commission.  Later,  they  received  from  said  Commission  the   amount   of   P50,000.00,  more   or   less.   This   amount  was   not   divided   among   them   but  was  used   in   the   rehabilitation   of   properties   owned   by   them   in   common   (t.s.n.,   p.   46).   Of   the   ten  parcels  of  land  aforementioned,  two  were  acquired  after  the  death  of  the  decedent  with  money  borrowed  from  the  Philippine  Trust  Company  in  the  amount  of  P72,173.00  (t.s.n.,  p.  24;  Exhibit  3,  pp.  31-­‐34  BIR  rec.).    

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The   project   of   partition   also   shows   that   the   estate   shares   equally   with   Lorenzo   T.   Oña,   the  administrator   thereof,   in   the   obligation   of   P94,973.00,   consisting   of   loans   contracted   by   the  latter  with  the  approval  of  the  Court  (see  p.  3  of  Exhibit  K;  or  see  p.  74,  BIR  rec.).    Although  the  project  of  partition  was  approved  by  the  Court  on  May  16,  1949,  no  attempt  was  made   to   divide   the   properties   therein   listed.   Instead,   the   properties   remained   under   the  management  of  Lorenzo  T.  Oña  who  used  said  properties  in  business  by  leasing  or  selling  them  and   investing   the   income   derived   therefrom   and   the   proceeds   from   the   sales   thereof   in   real  properties   and   securities.   As   a   result,   petitioners'   properties   and   investments   gradually  increased   from   P105,450.00   in   1949   to   P480,005.20   in   1956   as   can   be   gleaned   from   the  following  year-­‐end  balances:  

Year   Investment   Land   Building  

    Account   Account   Account  

1949   —   P87,860.00   P17,590.00  

1950   P24,657.65   128,566.72   96,076.26  

1951   51,301.31   120,349.28   110,605.11  

1952   67,927.52   87,065.28   152,674.39  

1953   61,258.27   84,925.68   161,463.83  

1954   63,623.37   99,001.20   167,962.04  

1955   100,786.00   120,249.78   169,262.52  

1956   175,028.68   135,714.68   169,262.52  

(See  Exhibits  3  &  K  t.s.n.,  pp.  22,  25-­‐26,  40,  50,  102-­‐104)    From   said   investments   and   properties   petitioners   derived   such   incomes   as   profits   from  installment  sales  of  subdivided  lots,  profits  from  sales  of  stocks,  dividends,  rentals  and  interests  (see  p.   3   of  Exhibit   3;   p.   32,  BIR   rec.;   t.s.n.,   pp.   37-­‐38).  The   said   incomes   are   recorded   in   the  books  of  account  kept  by  Lorenzo  T.  Oña  where  the  corresponding  shares  of  the  petitioners  in  the   net   income   for   the   year   are   also   known.   Every   year,   petitioners   returned   for   income   tax  purposes   their   shares   in   the   net   income   derived   from   said   properties   and   securities   and/or  from  transactions   involving  them  (Exhibit  3,  supra;   t.s.n.,  pp.  25-­‐26).  However,  petitioners  did  not  actually  receive  their  shares  in  the  yearly  income.  (t.s.n.,  pp.  25-­‐26,  40,  98,  100).  The  income  was  always  left  in  the  hands  of  Lorenzo  T.  Oña  who,  as  heretofore  pointed  out,  invested  them  in  real  properties  and  securities.  (See  Exhibit  3,  t.s.n.,  pp.  50,  102-­‐104).  

 On   the   basis   of   the   foregoing   facts,   respondent   (Commissioner   of   Internal   Revenue)   decided  that   petitioners   formed   an   unregistered   partnership   and   therefore,   subject   to   the   corporate  income  tax,  pursuant  to  Section  24,  in  relation  to  Section  84(b),  of  the  Tax  Code.  Accordingly,  he  assessed  against  the  petitioners  the  amounts  of  P8,092.00  and  P13,899.00  as  corporate  income  taxes  for  1955  and  1956,  respectively.  (See  Exhibit  5,  amended  by  Exhibit  17,  pp.  50  and  86,  BIR  rec.).  Petitioners  protested  against  the  assessment  and  asked  for  reconsideration  of  the  ruling  of   respondent   that   they   have   formed   an   unregistered   partnership.   Finding   no   merit   in  petitioners'   request,   respondent   denied   it   (See   Exhibit   17,   p.   86,   BIR   rec.).   (See   pp.   1-­‐4,  Memorandum  for  Respondent,  June  12,  1961).  The  original  assessment  was  as  follows:  1955  Net   income   as   per   investigation   ................  P40,209.89    Income   tax   due   thereon   ...............................   8,042.00  25%   surcharge   ..............................................   2,010.50  Compromise   for   non-­‐filing   ..........................  50.00  Total  ...............................................................  P10,102.50  1956  Net  income  as  per  investigation  ................  P69,245.23  Income   tax   due   thereon   ...............................   13,849.00  25%   surcharge   ..............................................   3,462.25  Compromise   for   non-­‐filing   ..........................  50.00  Total  ...............................................................  P17,361.25  (See  Exhibit  13,  page  50,  BIR  records)    Upon   further   consideration   of   the   case,   the   25%   surcharge   was   eliminated   in   line   with   the  ruling  of  the  Supreme  Court  in  Collector  v.  Batangas  Transportation  Co.,  G.R.  No.  L-­‐9692,  Jan.  6,  1958,   so   that   the  questioned  assessment   refers   solely   to   the   income   tax  proper   for   the  years  1955  and  1956  and  the  "Compromise  for  non-­‐filing,"  the  latter  item  obviously  referring  to  the  compromise  in  lieu  of  the  criminal  liability  for  failure  of  petitioners  to  file  the  corporate  income  tax  returns  for  said  years.  (See  Exh.  17,  page  86,  BIR  records).  (Pp.  1-­‐3,  Annex  C  to  Petition)  Petitioners  have  assigned  the  following  as  alleged  errors  of  the  Tax  Court:    I.   THE  COURT  OF  TAX  APPEALS  ERRED   IN  HOLDING  THAT  THE  PETITIONERS   FORMED  AN  UNREGISTERED  PARTNERSHIP;  II.  THE  COURT  OF  TAX  APPEALS  ERRED  IN  NOT  HOLDING  THAT  THE  PETITIONERS  WERE  CO-­‐OWNERS   OF   THE   PROPERTIES   INHERITED   AND   (THE)   PROFITS   DERIVED   FROM  TRANSACTIONS  THEREFROM  (sic);  III.  THE  COURT  OF  TAX  APPEALS  ERRED  IN  HOLDING  THAT  PETITIONERS  WERE  LIABLE  FOR  CORPORATE  INCOME  TAXES  FOR  1955  AND  1956  AS  AN  UNREGISTERED  PARTNERSHIP;  IV.   ON   THE   ASSUMPTION   THAT   THE   PETITIONERS   CONSTITUTED   AN   UNREGISTERED  PARTNERSHIP,   THE   COURT   OF   TAX   APPEALS   ERRED   IN   NOT   HOLDING   THAT   THE  PETITIONERS  WERE  AN  UNREGISTERED  PARTNERSHIP  TO  THE  EXTENT  ONLY  THAT  THEY  INVESTED   THE   PROFITS   FROM   THE   PROPERTIES   OWNED   IN   COMMON   AND   THE   LOANS  RECEIVED  USING  THE  INHERITED  PROPERTIES  AS  COLLATERALS;  V  .  ON  THE  ASSUMPTION  THAT  THERE  WAS  AN  UNREGISTERED  PARTNERSHIP,  THE  COURT  OF   TAX   APPEALS   ERRED   IN   NOT   DEDUCTING   THE   VARIOUS   AMOUNTS   PAID   BY   THE  PETITIONERS  AS  INDIVIDUAL  INCOME  TAX  ON  THEIR  RESPECTIVE  SHARES  OF  THE  PROFITS  

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ACCRUING   FROM   THE   PROPERTIES   OWNED   IN   COMMON,   FROM   THE   DEFICIENCY   TAX   OF  THE  UNREGISTERED  PARTNERSHIP.    In  other  words,  petitioners  pose  for  our  resolution  the  following  questions:  (1)  Under  the  facts  found   by   the   Court   of   Tax   Appeals,   should   petitioners   be   considered   as   co-­‐owners   of   the  properties   inherited   by   them   from   the   deceased   Julia   Buñales   and   the   profits   derived   from  transactions   involving   the   same,   or,   must   they   be   deemed   to   have   formed   an   unregistered  partnership  subject  to  tax  under  Sections  24  and  84(b)  of  the  National  Internal  Revenue  Code?  (2)   Assuming   they   have   formed   an   unregistered   partnership,   should   this   not   be   only   in   the  sense  that  they  invested  as  a  common  fund  the  profits  earned  by  the  properties  owned  by  them  in   common  and   the   loans   granted   to   them  upon   the   security   of   the   said  properties,  with   the  result  that  as  far  as  their  respective  shares   in  the  inheritance  are  concerned,  the  total   income  thereof  should  be  considered  as  that  of  co-­‐owners  and  not  of  the  unregistered  partnership?  And  (3)  assuming  again  that  they  are  taxable  as  an  unregistered  partnership,  should  not  the  various  amounts  already  paid  by  them  for  the  same  years  1955  and  1956  as  individual  income  taxes  on  their  respective  shares  of   the  profits  accruing   from  the  properties   they  owned   in  common  be  deducted   from   the   deficiency   corporate   taxes,   herein   involved,   assessed   against   such  unregistered  partnership  by  the  respondent  Commissioner?  Pondering   on   these   questions,   the   first   thing   that   has   struck   the   Court   is   that   whereas  petitioners'   predecessor   in   interest   died   way   back   on   March   23,   1944   and   the   project   of  partition   of   her   estate   was   judicially   approved   as   early   as   May   16,   1949,   and   presumably  petitioners   have   been   holding   their   respective   shares   in   their   inheritance   since   those   dates  admittedly  under  the  administration  or  management  of  the  head  of  the  family,  the  widower  and  father  Lorenzo  T.  Oña,  the  assessment  in  question  refers  to  the  later  years  1955  and  1956.  We  believe  this  point  to  be  important  because,  apparently,  at  the  start,  or  in  the  years  1944  to  1954,  the  respondent  Commissioner  of  Internal  Revenue  did  treat  petitioners  as  co-­‐owners,  not  liable  to   corporate   tax,   and   it   was   only   from   1955   that   he   considered   them   as   having   formed   an  unregistered   partnership.   At   least,   there   is   nothing   in   the   record   indicating   that   an   earlier  assessment  had  already  been  made.  Such  being  the  case,  and  We  see  no  reason  how  it  could  be  otherwise,  it  is  easily  understandable  why  petitioners'  position  that  they  are  co-­‐owners  and  not  unregistered   co-­‐partners,   for   the   purposes   of   the   impugned   assessment,   cannot   be   upheld.  Truth  to   tell,  petitioners  should   find  comfort   in   the   fact   that   they  were  not  similarly  assessed  earlier  by  the  Bureau  of  Internal  Revenue.    The   Tax   Court   found   that   instead   of   actually   distributing   the   estate   of   the   deceased   among  themselves   pursuant   to   the   project   of   partition   approved   in   1949,   "the   properties   remained  under   the  management  of  Lorenzo  T.  Oña  who  used  said  properties   in  business  by   leasing  or  selling   them   and   investing   the   income   derived   therefrom   and   the   proceed   from   the   sales  thereof  in  real  properties  and  securities,"  as  a  result  of  which  said  properties  and  investments  steadily   increased   yearly   from   P87,860.00   in   "land   account"   and   P17,590.00   in   "building  account"   in  1949   to  P175,028.68   in   "investment  account,"  P135.714.68   in   "land  account"  and  P169,262.52  in  "building  account"  in  1956.  And  all  these  became  possible  because,  admittedly,  petitioners  never  actually  received  any  share  of  the  income  or  profits  from  Lorenzo  T.  Oña  and  instead,   they  allowed  him  to  continue  using  said  shares  as  part  of   the  common  fund   for   their  ventures,   even   as   they   paid   the   corresponding   income   taxes   on   the   basis   of   their   respective  shares  of  the  profits  of  their  common  business  as  reported  by  the  said  Lorenzo  T.  Oña.    It   is   thus   incontrovertible   that   petitioners   did   not,   contrary   to   their   contention,  merely   limit  themselves  to  holding  the  properties   inherited  by  them.  Indeed,   it   is  admitted  that  during  the  

material   years   herein   involved,   some   of   the   said   properties  were   sold   at   considerable   profit,  and  that  with  said  profit,  petitioners  engaged,  thru  Lorenzo  T.  Oña,  in  the  purchase  and  sale  of  corporate   securities.   It   is   likewise   admitted   that   all   the   profits   from   these   ventures   were  divided   among   petitioners   proportionately   in   accordance  with   their   respective   shares   in   the  inheritance.  In  these  circumstances,  it  is  Our  considered  view  that  from  the  moment  petitioners  allowed   not   only   the   incomes   from   their   respective   shares   of   the   inheritance   but   even   the  inherited  properties  themselves  to  be  used  by  Lorenzo  T.  Oña  as  a  common  fund  in  undertaking  several  transactions  or   in  business,  with  the  intention  of  deriving  profit  to  be  shared  by  them  proportionally,   such   act  was   tantamonut   to   actually   contributing   such   incomes   to   a   common  fund  and,  in  effect,  they  thereby  formed  an  unregistered  partnership  within  the  purview  of  the  above-­‐mentioned  provisions  of  the  Tax  Code.    It   is   but   logical   that   in   cases   of   inheritance,   there   should   be   a   period  when   the   heirs   can   be  considered  as  co-­‐owners  rather  than  unregistered  co-­‐partners  within  the  contemplation  of  our  corporate   tax   laws   aforementioned.   Before   the   partition   and   distribution   of   the   estate   of   the  deceased,  all  the  income  thereof  does  belong  commonly  to  all  the  heirs,  obviously,  without  them  becoming  thereby  unregistered  co-­‐partners,  but  it  does  not  necessarily  follow  that  such  status  as   co-­‐owners  continues  until   the   inheritance   is  actually  and  physically  distributed  among   the  heirs,  for  it  is  easily  conceivable  that  after  knowing  their  respective  shares  in  the  partition,  they  might   decide   to   continue   holding   said   shares   under   the   common   management   of   the  administrator  or  executor  or  of  anyone  chosen  by  them  and  engage   in  business  on  that  basis.  Withal,   if   this  were  to  be  allowed,   it  would  be  the  easiest  thing  for  heirs   in  any  inheritance  to  circumvent   and   render  meaningless   Sections   24   and   84(b)   of   the   National   Internal   Revenue  Code.    It   is   true   that   in  Evangelista  vs.  Collector,   102   Phil.   140,   it  was   stated,   among   the   reasons   for  holding   the   appellants   therein   to   be   unregistered   co-­‐partners   for   tax   purposes,   that   their  common   fund   "was   not   something   they   found   already   in   existence"   and   that   "it   was   not   a  property   inherited  by   them  pro  indiviso,"  but   it   is   certainly   far   fetched   to  argue   therefrom,  as  petitioners   are   doing   here,   that  ergo,   in   all   instances   where   an   inheritance   is   not   actually  divided,  there  can  be  no  unregistered  co-­‐partnership.  As  already  indicated,  for  tax  purposes,  the  co-­‐ownership   of   inherited   properties   is   automatically   converted   into   an   unregistered  partnership   the  moment   the   said   common  properties   and/or   the   incomes  derived   therefrom  are  used  as  a  common  fund  with   intent  to  produce  profits   for  the  heirs   in  proportion  to  their  respective  shares  in  the  inheritance  as  determined  in  a  project  partition  either  duly  executed  in  an  extrajudicial  settlement  or  approved  by  the  court   in  the  corresponding  testate  or   intestate  proceeding.   The   reason   for   this   is   simple.   From   the  moment   of   such   partition,   the   heirs   are  entitled   already   to   their   respective   definite   shares   of   the   estate   and   the   incomes   thereof,   for  each  of  them  to  manage  and  dispose  of  as  exclusively  his  own  without  the  intervention  of  the  other   heirs,   and,   accordingly   he   becomes   liable   individually   for   all   taxes   in   connection  therewith.   If   after   such  partition,  he  allows  his   share   to  be  held   in   common  with  his   co-­‐heirs  under  a  single  management  to  be  used  with  the  intent  of  making  profit  thereby  in  proportion  to  his  share,  there  can  be  no  doubt  that,  even  if  no  document  or  instrument  were  executed  for  the  purpose,  for  tax  purposes,  at  least,  an  unregistered  partnership  is  formed.  This  is  exactly  what  happened  to  petitioners  in  this  case.    In   this   connection,   petitioners'   reliance   on   Article   1769,   paragraph   (3),   of   the   Civil   Code,  providing  that:  "The  sharing  of  gross  returns  does  not  of  itself  establish  a  partnership,  whether  or  not  the  persons  sharing  them  have  a  joint  or  common  right  or  interest  in  any  property  from  

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which   the   returns   are   derived,"   and,   for   that  matter,   on   any   other   provision   of   said   code   on  partnerships  is  unavailing.  In  Evangelista,  supra,  this  Court  clearly  differentiated  the  concept  of  partnerships  under  the  Civil  Code  from  that  of  unregistered  partnerships  which  are  considered  as   "corporations"   under   Sections   24   and   84(b)   of   the   National   Internal   Revenue   Code.   Mr.  Justice  Roberto  Concepcion,  now  Chief  Justice,  elucidated  on  this  point  thus:    To  begin  with,  the  tax  in  question  is  one  imposed  upon  "corporations",  which,  strictly  speaking,  are   distinct   and   different   from   "partnerships".   When   our   Internal   Revenue   Code   includes  "partnerships"  among  the  entities  subject  to  the  tax  on  "corporations",  said  Code  must  allude,  therefore,   to   organizations  which   are  not  necessarily  "partnerships",   in   the   technical   sense   of  the  term.  Thus,  for  instance,  section  24  of  said  Code  exempts  from  the  aforementioned  tax  "duly  registered   general   partnerships,"  which   constitute   precisely   one   of   the  most   typical   forms   of  partnerships   in   this   jurisdiction.  Likewise,  as  defined   in  section  84(b)  of  said  Code,   "the   term  corporation   includes   partnerships,  no   matter   how   created   or   organized."   This   qualifying  expression  clearly  indicates  that  a  joint  venture  need  not  be  undertaken  in  any  of  the  standard  forms,  or   in  confirmity  with   the  usual   requirements  of   the   law  on  partnerships,   in  order   that  one  could  be  deemed  constituted  for  purposes  of  the  tax  on  corporation.  Again,  pursuant  to  said  section   84(b),the   term   "corporation"   includes,   among   others,   "joint   accounts,(cuentas   en  participacion)"  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  co-­‐partnerships"  —  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."  ....  xxx  xxx  xxx    Similarly,   the   American   Law...   provides  its   own   concept  of   a   partnership.   Under   the   term  "partnership"   it   includes   not   only   a   partnership   as   known   in   common   law   but,   as   well,   a  syndicate,  group,  pool,  joint  venture,  or  other  unincorporated  organization  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  ours.)    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  ours.)  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.    We   reiterated   this   view,   thru   Mr.   Justice   Fernando,   in  Reyes   vs.   Commissioner   of   Internal  Revenue,  G.  R.  Nos.  L-­‐24020-­‐21,  July  29,  1968,  24  SCRA  198,  wherein  the  Court  ruled  against  a  theory  of  co-­‐ownership  pursued  by  appellants  therein.    As  regards  the  second  question  raised  by  petitioners  about  the  segregation,  for  the  purposes  of  the   corporate   taxes   in   question,   of   their   inherited   properties   from   those   acquired   by   them  

subsequently,  We  consider  as   justified  the  following  ratiocination  of  the  Tax  Court   in  denying  their  motion  for  reconsideration:    In   connection   with   the   second   ground,   it   is   alleged   that,   if   there   was   an   unregistered  partnership,  the  holding  should  be  limited  to  the  business  engaged  in  apart  from  the  properties  inherited   by   petitioners.   In   other   words,   the   taxable   income   of   the   partnership   should   be  limited   to   the   income  derived   from   the   acquisition   and   sale   of   real   properties   and   corporate  securities   and   should   not   include   the   income   derived   from   the   inherited   properties.   It   is  admitted   that   the   inherited   properties   and   the   income   derived   therefrom   were   used   in   the  business  of  buying  and  selling  other  real  properties  and  corporate  securities.  Accordingly,  the  partnership   income  must   include  not  only   the   income  derived   from   the  purchase  and   sale  of  other  properties  but  also  the  income  of  the  inherited  properties.    Besides,   as   already   observed   earlier,   the   income   derived   from   inherited   properties   may   be  considered  as  individual  income  of  the  respective  heirs  only  so  long  as  the  inheritance  or  estate  is  not  distributed  or,   at   least,  partitioned,  but   the  moment   their   respective  known  shares  are  used  as  part  of  the  common  assets  of  the  heirs  to  be  used  in  making  profits,  it  is  but  proper  that  the   income   of   such   shares   should   be   considered   as   the   part   of   the   taxable   income   of   an  unregistered  partnership.  This,  We  hold,  is  the  clear  intent  of  the  law.  Likewise,  the  third  question  of  petitioners  appears  to  have  been  adequately  resolved  by  the  Tax  Court  in  the  aforementioned  resolution  denying  petitioners'  motion  for  reconsideration  of  the  decision  of  said  court.  Pertinently,  the  court  ruled  this  wise:    In  support  of  the  third  ground,  counsel  for  petitioners  alleges:  Even  if  we  were  to  yield  to  the  decision  of  this  Honorable  Court  that  the  herein  petitioners  have  formed   an   unregistered   partnership   and,   therefore,   have   to   be   taxed   as   such,   it   might   be  recalled  that  the  petitioners  in  their  individual  income  tax  returns  reported  their  shares  of  the  profits   of   the   unregistered   partnership.  We   think   it   only   fair   and   equitable   that   the   various  amounts   paid   by   the   individual   petitioners   as   income   tax   on   their   respective   shares   of   the  unregistered   partnership   should   be   deducted   from   the   deficiency   income   tax   found   by   this  Honorable  Court  against  the  unregistered  partnership.  (page  7,  Memorandum  for  the  Petitioner  in  Support  of  Their  Motion  for  Reconsideration,  Oct.  28,  1961.)    In  other  words,  it  is  the  position  of  petitioners  that  the  taxable  income  of  the  partnership  must  be  reduced  by  the  amounts  of   income  tax  paid  by  each  petitioner  on  his  share  of  partnership  profits.  This   is  not  correct;  rather,   it  should  be  the  other  way  around.  The  partnership  profits  distributable  to  the  partners  (petitioners  herein)  should  be  reduced  by  the  amounts  of  income  tax   assessed   against   the   partnership.   Consequently,   each   of   the   petitioners   in   his   individual  capacity   overpaid   his   income   tax   for   the   years   in   question,   but   the   income   tax   due   from   the  partnership   has   been   correctly   assessed.   Since   the   individual   income   tax   liabilities   of  petitioners  are  not   in   issue   in   this  proceeding,   it   is  not  proper   for   the  Court   to  pass  upon  the  same.    Petitioners  insist  that  it  was  error  for  the  Tax  Court  to  so  rule  that  whatever  excess  they  might  have  paid  as   individual   income  tax  cannot  be  credited  as  part  payment  of   the   taxes  herein   in  question.  It   is  argued  that  to  sanction  the  view  of  the  Tax  Court  is  to  oblige  petitioners  to  pay  double  income  tax  on  the  same  income,  and,  worse,  considering  the  time  that  has  lapsed  since  they   paid   their   individual   income   taxes,   they   may   already   be   barred   by   prescription   from  recovering  their  overpayments  in  a  separate  action.  We  do  not  agree.  As  We  see  it,  the  case  of  

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petitioners  as  regards  the  point  under  discussion  is  simply  that  of  a  taxpayer  who  has  paid  the  wrong  tax,  assuming  that  the  failure  to  pay  the  corporate  taxes  in  question  was  not  deliberate.  Of  course,  such  taxpayer  has  the  right  to  be  reimbursed  what  he  has  erroneously  paid,  but  the  law   is   very   clear   that   the   claim   and   action   for   such   reimbursement   are   subject   to   the   bar   of  prescription.  And   since   the  period   for   the   recovery   of   the   excess   income   taxes   in   the   case   of  herein   petitioners   has   already   lapsed,   it   would   not   seem   right   to   virtually   disregard  prescription   merely   upon   the   ground   that   the   reason   for   the   delay   is   precisely   because   the  taxpayers  failed  to  make  the  proper  return  and  payment  of  the  corporate  taxes  legally  due  from  them.  In  principle,  it  is  but  proper  not  to  allow  any  relaxation  of  the  tax  laws  in  favor  of  persons  who  are  not  exactly  above  suspicion  in  their  conduct  vis-­‐a-­‐vis  their  tax  obligation  to  the  State.  IN  VIEW  OF  ALL  THE  FOREGOING,  the  judgment  of  the  Court  of  Tax  Appeals  appealed  from  is  affirm  with  costs  against  petitioners.                                                                          

                                                                                                 

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ATTY.  MENDOZA  

  17  

GATCHALIAN  VS  CIR    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  ....................................................................................................   P0.18  

2.  Gregoria  Cristobal  ...............................................................................................   .18  

3.  Saturnina  Silva  ....................................................................................................   .08  

4.  Guillermo  Tapia  ...................................................................................................   .13  

5.  Jesus  Legaspi  ......................................................................................................   .15  

6.  Jose  Silva  .............................................................................................................   .07  

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   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)  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-­‐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   Gatchalian   &   Company   against   the  Philippine  National  Bank,  which  check  was  cashed  during  the  latter  part  of  December,  1934  by  Jose  Gatchalian  &  Company;  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  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;  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;  

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

  18  

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;  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.  

2.  Buenaventura  Guzman  ...............................   .13   -­‐  Do  -­‐  

3.  Maria  Santiago  ............................................   .17   -­‐  Do  -­‐  

4.  Gonzalo  Javier  ..............................................   .14   -­‐  Do  -­‐  

5.  Francisco  Cabral  ..........................................   .13   -­‐  Do  -­‐  

6.  Maria  C.  Legaspi  ..........................................   .16   -­‐  Do  -­‐  

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

8.  Julio  Gatchalian  ............................................   .13   -­‐  Do  -­‐  

9.  Jose  Silva  ......................................................   .07   -­‐  Do  -­‐  

10.  Tomasa  Mercado  .......................................   .08   -­‐  Do  -­‐  

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

12.  Guillermo  Tapia  ...........................................   .13   -­‐  Do  -­‐  

13.  Saturnina  Silva  ............................................   .08   -­‐  Do  -­‐  

14.  Gregoria  Cristobal  .......................................   .18   -­‐  Do  -­‐  

15.  Jose  Gatchalian  ............................................   .18   -­‐  Do  -­‐  

   

2.00   Total  cost  of  said  

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.  (Sgd.)  JOSE  GATCHALIAN  And  a  summary  of  Exhibits  D-­‐1  to  D-­‐15  is  inserted  in  the  bill  of  exceptions  as  follows:  RECAPITULATIONS   OF   15   INDIVIDUAL   INCOME   TAX   RETURNS   FOR   1934   ALL   DATED  JANUARY  19,  1935  SUBMITTED  TO  THE  COLLECTOR  OF  INTERNAL  REVENUE.  

Name   Exhibit    No.  

Purchase    Price  

Price    Won   Expenses   Net    

prize  

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

2.   Gregoria   Cristobal  ......................................   D-­‐2   .18   4,575   2,000   2,575  

3.   Saturnina   Silva  .............................................   D-­‐3   .08   1,875   360   1,515  

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ATTY.  MENDOZA  

  19  

4.   Guillermo   Tapia  ..........................................   D-­‐4   .13   3,325   360   2,965  

5.   Jesus   Legaspi   by   Maria  Cristobal  .........   D-­‐5   .15   3,825   720   3,105  

6.   Jose   Silva  ....................................................   D-­‐6   .08   1,875   360   1,515  

7.   Tomasa   Mercado  .......................................   D-­‐7   .07   1,875   360   1,515  

8.   Julio   Gatchalian   by  Beatriz  Guzman  .......   D-­‐8   .13   3,150   240   2,910  

9.   Emiliana   Santiago  ......................................   D-­‐9   .13   3,325   360   2,965  

10.   Maria   C.   Legaspi  ......................................   D-­‐10   .16   4,100   960   3,140  

11.   Francisco   Cabral  ......................................   D-­‐11   .13   3,325   360   2,965  

12.   Gonzalo   Javier  ..........................................   D-­‐12   .14   3,325   360   2,965  

13.   Maria   Santiago  ..........................................   D-­‐13   .17   4,350   360   3,990  

14.   Buenaventura   Guzman  ...........................   D-­‐14   .13   3,325   360   2,965  

15.   Mariano   Santos  ........................................   D-­‐15   .14   3,325   360   2,965  

   

2.00    

50,000      

The  legal  questions  raised  in  plaintiffs-­‐appellants'  five  assigned  errors  may  properly  be  reduced  to  the  two  following:  (1)  Whether  the  plaintiffs  formed  a  partnership,  or  merely  a  community  of  property  without  a  personality  of   its  own;   in   the   first  case   it   is  admitted  that   the  partnership  thus  formed  is  liable  for  the  payment  of  income  tax,  whereas  if  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  among  them  and  paid  individually.  

The  Collector   of   Internal  Revenue   collected   the   tax   under   section  10   of  Act  No.   2833,   as   last  amended  by  section  2  of  Act  No.  3761,  reading  as  follows:    SEC.   10.   (a)   There   shall   be   levied,   assessed,   collected,   and   paid   annually   upon   the   total   net  income   received   in   the  preceding   calendar   year   from  all   sources  by   every   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   (compañias   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   every   corporation,   joint-­‐stock   company,   partnership,   joint   account  (cuenta  en  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,  however,  That  nothing  in  this  section  shall  be  construed  as  permitting  the  taxation  of  the  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,   joint-­‐stock  company,  partnership,   joint  account  (cuenta  en  participacion),  association,  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  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),   association,   or  insurance   company   in   the   calendar   year   nineteen   hundred   and   twenty   and   in   each   year  thereafter.    There   is   no   doubt   that   if   the   plaintiffs  merely   formed   a   community   of   property   the   latter   is  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  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   prize,   the   office   issued   the   check   for   P50,000   in   favor   of   Jose  Gatchalian  and  company,  and  the  said  partner,  in  the  same  capacity,  collected  the  said  check.  All  these   circumstances   repel   the   idea   that   the   plaintiffs   organized   and   formed   a   community   of  property  only.    Having   organized   and   constituted   a   partnership   of   a   civil   nature,   the   said   entity   is   the   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   merit   in   plaintiff's  contention  that  the  tax  should  be  prorated  among  them  and  paid  individually,  resulting  in  their  exemption  from  the  tax.    In  view  of  the  foregoing,  the  appealed  decision  is  affirmed,  with  the  costs  of  this  instance  to  the  plaintiffs  appellants.  So  ordered.    

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OBILLOS  VS  CIR    This  case  is  about  the  income  tax  liability  of  four  brothers  and  sisters  who  sold  two  parcels  of  land  which  they  had  acquired  from  their  father.    On  March  2,  1973   Jose  Obillos,  Sr.   completed  payment   to  Ortigas  &  Co.,  Ltd.  on   two   lots  with  areas  of   1,124   and  963   square  meters   located   at  Greenhills,   San   Juan,  Rizal.   The  next  day  he  transferred   his   rights   to   his   four   children,   the   petitioners,   to   enable   them   to   build   their  residences.  The  company  sold  the  two  lots  to  petitioners  for  P178,708.12  on  March  13  (Exh.  A  and  B,  p.  44,  Rollo).  Presumably,  the  Torrens  titles  issued  to  them  would  show  that  they  were  co-­‐owners  of  the  two  lots.    In  1974,  or  after  having  held  the  two  lots  for  more  than  a  year,  the  petitioners  resold  them  to  the  Walled  City  Securities  Corporation  and  Olga  Cruz  Canda  for  the  total  sum  of  P313,050  (Exh.  C  and  D).  They  derived  from  the  sale  a  total  profit  of  P134,341.88  or  P33,584  for  each  of  them.  They   treated   the   profit   as   a   capital   gain   and   paid   an   income   tax   on   one-­‐half   thereof   or   of  P16,792.    In   April,   1980,   or   one   day   before   the   expiration   of   the   five-­‐year   prescriptive   period,   the  Commissioner  of  Internal  Revenue  required  the  four  petitioners  to  pay  corporate  income  tax  on  the   total   profit   of   P134,336   in   addition   to   individual   income   tax   on   their   shares   thereof   He  assessed  P37,018  as  corporate  income  tax,  P18,509  as  50%  fraud  surcharge  and  P15,547.56  as  42%  accumulated  interest,  or  a  total  of  P71,074.56.    Not  only  that.  He  considered  the  share  of  the  profits  of  each  petitioner  in  the  sum  of  P33,584  as  a   "   taxable   in   full   (not   a  mere   capital   gain   of  which  ½   is   taxable)   and   required   them   to   pay  deficiency   income   taxes   aggregating   P56,707.20   including   the   50%   fraud   surcharge   and   the  accumulated  interest.    Thus,   the  petitioners   are  being  held   liable   for  deficiency   income   taxes   and  penalties   totalling  P127,781.76  on  their  profit  of  P134,336,  in  addition  to  the  tax  on  capital  gains  already  paid  by  them.    The  Commissioner   acted   on   the   theory   that   the   four   petitioners   had   formed   an  unregistered  partnership  or   joint  venture  within   the  meaning  of   sections  24(a)  and  84(b)  of   the  Tax  Code  (Collector  of  Internal  Revenue  vs.  Batangas  Trans.  Co.,  102  Phil.  822).  The  petitioners   contested   the   assessments.   Two   Judges   of   the  Tax  Court   sustained   the   same.  Judge  Roaquin  dissented.  Hence,  the  instant  appeal.    We  hold  that  it  is  error  to  consider  the  petitioners  as  having  formed  a  partnership  under  article  1767  of   the  Civil  Code  simply  because  they  allegedly  contributed  P178,708.12  to  buy  the  two  lots,   resold   the   same   and   divided   the   profit   among   themselves.   To   regard   the   petitioners   as  having   formed   a   taxable   unregistered   partnership   would   result   in   oppressive   taxation   and  confirm  the  dictum  that  the  power  to  tax  involves  the  power  to  destroy.  That  eventuality  should  be  obviated.    As   testified   by   Jose   Obillos,   Jr.,   they   had   no   such   intention.   They   were   co-­‐owners   pure   and  simple.  To  consider  them  as  partners  would  obliterate  the  distinction  between  a  co-­‐ownership  

and   a   partnership.   The   petitioners   were   not   engaged   in   any   joint   venture   by   reason   of   that  isolated  transaction.    Their  original  purpose  was  to  divide  the  lots  for  residential  purposes.  If   later  on  they  found  it  not  feasible  to  build  their  residences  on  the  lots  because  of  the  high  cost  of  construction,  then  they  had  no  choice  but  to  resell  the  same  to  dissolve  the  co-­‐ownership.  The  division  of  the  profit  was  merely  incidental  to  the  dissolution  of  the  co-­‐ownership  which  was  in  the  nature  of  things  a  temporary  state.  It  had  to  be  terminated  sooner  or  later.  Castan  Tobeñas  says:    Como  establecer  el  deslinde  entre  la  comunidad  ordinaria  o  copropiedad  y  la  sociedad?  El  criterio  diferencial-­‐segun  la  doctrina  mas  generalizada-­‐esta:  por  razon  del  origen,  en  que  la  sociedad  presupone  necesariamente  la  convencion,  mentras  que  la  comunidad  puede  existir  y  existe   ordinariamente   sin   ela;   y   por   razon  del   fin   objecto,   en   que   el   objeto   de   la   sociedad   es  obtener  lucro,  mientras  que  el  de  la  indivision  es  solo  mantener  en  su  integridad  la  cosa  comun  y  favorecer  su  conservacion.  Reflejo  de  este  criterio  es  la  sentencia  de  15  de  Octubre  de  1940,  en  la  que  se  dice  que  si  en  nuestro  Derecho  positive  se  ofrecen  a  veces  dificultades  al  tratar  de  fijar   la   linea   divisoria   entre   comunidad   de   bienes   y   contrato   de   sociedad,   la   moderna  orientacion  de  la  doctrina  cientifica  señala  como  nota  fundamental  de  diferenciacion  aparte  del  origen   de   fuente   de   que   surgen,   no   siempre   uniforme,   la   finalidad   perseguida   por   los  interesados:  lucro  comun  partible  en   la  sociedad,  y  mera  conservacion  y  aprovechamiento  en   la  comunidad.  (Derecho  Civil  Espanol,  Vol.  2,  Part  1,  10  Ed.,  1971,  328-­‐  329).    Article  1769(3)  of   the  Civil  Code  provides  that  "the  sharing  of  gross  returns  does  not  of   itself  establish  a  partnership,  whether  or  not  the  persons  sharing  them  have  a  joint  or  common  right  or   interest   in   any   property   from   which   the   returns   are   derived".   There   must   be   an  unmistakable  intention  to  form  a  partnership  or  joint  venture.*    Such  intent  was  present  in  Gatchalian  vs.  Collector  of  Internal  Revenue,  67  Phil.  666,  where  15  persons   contributed   small   amounts   to   purchase   a   two-­‐peso   sweepstakes   ticket   with   the  agreement  that  they  would  divide  the  prize  The  ticket  won  the  third  prize  of  P50,000.  The  15  persons  were  held  liable  for  income  tax  as  an  unregistered  partnership.    The  instant  case  is  distinguishable  from  the  cases  where  the  parties  engaged  in  joint  ventures  for  profit.  Thus,  in  Oña  vs.  **  This  view  is  supported  by  the  following  rulings  of  respondent  Commissioner:  Co-­‐owership   distinguished   from   partnership.—We   find   that   the   case   at   bar   is   fundamentally  similar  to  the  De  Leon  case.  Thus,  like  the  De  Leon  heirs,  the  Longa  heirs  inherited  the  'hacienda'  in  questionpro-­‐indiviso  from   their   deceased   parents;   they   did   not   contribute   or   invest   additional   '  capital   to   increase   or   expand   the   inherited   properties;   they   merely   continued   dedicating   the  property  to  the  use  to  which  it  had  been  put  by  their  forebears;  they  individually  reported  in  their  tax   returns   their   corresponding   shares   in   the   income   and   expenses   of   the   'hacienda',   and   they  continued   for   many   years   the   status   of   co-­‐ownership   in   order,   as   conceded   by   respondent,   'to  preserve   its   (the   'hacienda')   value   and   to   continue   the   existing   contractual   relations   with   the  Central  Azucarera  de  Bais  for  milling  purposes.  Longa  vs.  Aranas,  CTA  Case  No.  653,  July  31,  1963).  All  co-­‐ownerships  are  not  deemed  unregistered  pratnership.—Co-­‐Ownership  who  own  properties  which   produce   income   should   not   automatically   be   considered   partners   of   an   unregistered  partnership,   or   a   corporation,  within   the   purview   of   the   income   tax   law.   To   hold   otherwise,  would   be   to   subject   the   income   of  all    co-­‐ownerships  of  inherited  properties  to  the  tax  on  corporations,  inasmuch  as  if  a  property  does  

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not  produce  an  income  at  all,  it  is  not  subject  to  any  kind  of  income  tax,  whether  the  income  tax  on   individuals   or   the   income   tax   on   corporation.   (De   Leon   vs.   CI   R,   CTA   Case   No.   738,  September  11,  1961,  cited  in  Arañas,  1977  Tax  Code  Annotated,  Vol.  1,  1979  Ed.,  pp.  77-­‐78).  Commissioner   of   Internal   Revenue,   L-­‐19342,   May   25,   1972,   45   SCRA   74,   where   after   an  extrajudicial  settlement  the  co-­‐heirs  used  the  inheritance  or  the  incomes  derived  therefrom  as  a  common   fund   to   produce   profits   for   themselves,   it   was   held   that   they   were   taxable   as   an  unregistered  partnership.    It   is   likewise   different   from  Reyes   vs.   Commissioner   of   Internal   Revenue,   24   SCRA   198,  where  father  and  son  purchased  a  lot  and  building,  entrusted  the  administration  of  the  building  to  an  administrator  and  divided  equally   the  net   income,  and   from  Evangelista  vs.  Collector  of  Internal  Revenue,  102  Phil.  140,  where  the  three  Evangelista  sisters  bought  four  pieces  of  real  property   which   they   leased   to   various   tenants   and   derived   rentals   therefrom.   Clearly,   the  petitioners  in  these  two  cases  had  formed  an  unregistered  partnership.    In   the   instant   case,  what   the   Commissioner   should   have   investigated   was   whether   the  father  donated  the  two  lots  to  the  petitioners  and  whether  he  paid  the  donor's  tax  (See  Art.  1448,  Civil  Code).  We  are  not  prejudging  this  matter.  It  might  have  already  prescribed.  WHEREFORE,   the   judgment   of   the   Tax   Court   is   reversed   and   set   aside.   The   assessments   are  cancelled.  No  costs.  SO  ORDERED.                                                          

                                                                                                 

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EVANGELISTA  VS  CIR    This  is  a  petition  filed  by  Eufemia  Evangelista,  Manuela  Evangelista  and  Francisca  Evangelista,  for  review  of  a  decision  of  the  Court  of  Tax  Appeals,  the  dispositive  part  of  which  reads:  FOR  ALL  THE  FOREGOING,  we  hold  that  the  petitioners  are  liable  for  the  income  tax,  real  estate  dealer's  tax  and  the  residence  tax  for  the  years  1945  to  1949,  inclusive,  in  accordance  with  the  respondent's   assessment   for   the   same   in   the   total   amount   of   P6,878.34,   which   is   hereby  affirmed  and  the  petition  for  review  filed  by  petitioner  is  hereby  dismissed  with  costs  against  petitioners.    It  appears  from  the  stipulation  submitted  by  the  parties:  1.   That   the   petitioners   borrowed   from   their   father   the   sum   of   P59,1400.00   which   amount  together   with   their   personal   monies   was   used   by   them   for   the   purpose   of   buying   real  properties,.  2.  That  on  February  2,   1943,   they  bought   from  Mrs.   Josefina  Florentino  a   lot  with   an   area  of  3,713.40   sq.  m.   including   improvements   thereon   from   the   sum  of  P100,000.00;   this  property  has  an  assessed  value  of  P57,517.00  as  of  1948;  3.   That   on   April   3,   1944   they   purchased   from  Mrs.   Josefa   Oppus   21   parcels   of   land  with   an  aggregate   area   of   3,718.40   sq.   m.   including   improvements   thereon   for   P130,000.00;   this  property  has  an  assessed  value  of  P82,255.00  as  of  1948;  4.  That  on  April  28,  1944  they  purchased  from  the  Insular  Investments  Inc.,  a  lot  of  4,353  sq.  m.  including   improvements   thereon   for   P108,825.00.   This   property   has   an   assessed   value   of  P4,983.00  as  of  1948;  5.  That  on  April  28,  1944  they  bought  form  Mrs.  Valentina  Afable  a  lot  of  8,371  sq.  m.  including  improvements  thereon  for  P237,234.34.  This  property  has  an  assessed  value  of  P59,140.00  as  of  1948;  6.  That  in  a  document  dated  August  16,  1945,  they  appointed  their  brother  Simeon  Evangelista  to   'manage   their   properties   with   full   power   to   lease;   to   collect   and   receive   rents;   to   issue  receipts   therefor;   in  default  of   such  payment,   to  bring   suits  against   the  defaulting   tenants;   to  sign  all  letters,  contracts,  etc.,  for  and  in  their  behalf,  and  to  endorse  and  deposit  all  notes  and  checks  for  them;  7.  That  after  having  bought  the  above-­‐mentioned  real  properties  the  petitioners  had  the  same  rented  or  leases  to  various  tenants;  8.  That   from  the  month  of  March,  1945  up   to  an   including  December,  1945,   the   total  amount  collected   as   rents   on   their   real   properties   was   P9,599.00   while   the   expenses   amounted   to  P3,650.00  thereby  leaving  them  a  net  rental  income  of  P5,948.33;  9.  That  on  1946,  they  realized  a  gross  rental  income  of  in  the  sum  of  P24,786.30,  out  of  which  amount  was  deducted  in  the  sum  of  P16,288.27  for  expenses  thereby  leaving  them  a  net  rental  income  of  P7,498.13;  10.  That   in  1948,   they  realized  a  gross   rental   income  of  P17,453.00  out  of   the  which  amount  was  deducted  the  sum  of  P4,837.65  as  expenses,   thereby   leaving  them  a  net  rental   income  of  P12,615.35.  It   further   appears   that   on   September   24,   1954   respondent   Collector   of   Internal   Revenue  demanded   the   payment   of   income   tax   on   corporations,   real   estate   dealer's   fixed   tax   and  corporation  residence   tax   for   the  years  1945-­‐1949,  computed,  according   to  assessment  made  by  said  officer,  as  follows:  

INCOME  TAXES  

1945   14.84  

1946   1,144.71  

1947   10.34  

1948   1,912.30  

1949   1,575.90  

Total  including  surcharge  and  compromise   P6,157.09  

REAL  ESTATE  DEALER'S  FIXED  TAX  

1946   P37.50  

1947   150.00  

1948   150.00  

1949   150.00  

Total  including  penalty   P527.00  

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RESIDENCE  TAXES  OF  CORPORATION  

1945   P38.75  

1946   38.75  

1947   38.75  

1948   38.75  

1949   38.75  

Total  including  surcharge   P193.75  

TOTAL  TAXES  DUE   P6,878.34.  

Said   letter   of   demand   and   corresponding   assessments   were   delivered   to   petitioners   on  December   3,   1954,  whereupon   they   instituted   the   present   case   in   the   Court   of   Tax   Appeals,  with   a   prayer   that   "the   decision   of   the   respondent   contained   in   his   letter   of   demand   dated  September  24,  1954"  be  reversed,  and  that  they  be  absolved  from  the  payment  of  the  taxes  in  question,  with  costs  against  the  respondent.  After  appropriate  proceedings,  the  Court  of  Tax  Appeals  the  above-­‐mentioned  decision  for  the  respondent,  and  a  petition  for  reconsideration  and  new  trial  having  been  subsequently  denied,  the  case  is  now  before  Us  for  review  at  the  instance  of  the  petitioners.    The  issue  in  this  case  whether  petitioners  are  subject  to  the  tax  on  corporations  provided  for  in  section  24  of  Commonwealth  Act.  No.  466,  otherwise  known  as  the  National  Internal  Revenue  Code,  as  well  as  to  the  residence  tax  for  corporations  and  the  real  estate  dealers  fixed  tax.  With  respect  to  the  tax  on  corporations,  the  issue  hinges  on  the  meaning  of  the  terms  "corporation"  and  "partnership,"  as  used  in  section  24  and  84  of  said  Code,  the  pertinent  parts  of  which  read:  SEC.   24.  Rate   of   tax   on   corporations.—There   shall   be   levied,   assessed,   collected,   and   paid  annually  upon  the  total  net  income  received  in  the  preceding  taxable  year  from  all  sources  by  every   corporation  organized   in,   or   existing  under   the   laws  of   the  Philippines,  no  matter  how  created   or   organized   but   not   including   duly   registered   general   co-­‐partnerships   (compañias  colectivas),  a  tax  upon  such  income  equal  to  the  sum  of  the  following:  .  .  .    

SEC.  84   (b).  The   term   'corporation'   includes  partnerships,   no  matter  how  created  or  organized,   joint-­‐stock   companies,   joint   accounts   (cuentas   en   participacion),  associations   or   insurance   companies,   but   does   not   include   duly   registered   general  copartnerships.  (compañias  colectivas).  Article  1767  of  the  Civil  Code  of  the  Philippines  provides:  By   the   contract   of   partnership   two   or   more   persons   bind   themselves   to   contribute  money,   properly,   or   industry   to   a   common   fund,   with   the   intention   of   dividing   the  profits  among  themselves.    

Pursuant   to   the  article,   the  essential  elements  of  a  partnership  are  two,  namely:  (a)  an  agreement  to  contribute  money,  property  or  industry  to  a  common  fund;  and  (b)  intent  to   divide   the   profits   among   the   contracting   parties.   The   first   element   is   undoubtedly  present  in  the  case  at  bar,  for,  admittedly,  petitioners  have  agreed  to,  and  did,  contribute  money  and  property  to  a  common  fund.  Hence,  the  issue  narrows  down  to  their  intent  in  acting  as  they  did.  Upon  consideration  of  all  the  facts  and  circumstances  surrounding  the  case,  we  are   fully  satisfied   that   their  purpose  was   to  engage   in  real  estate   transactions  for  monetary  gain  and  then  divide  the  same  among  themselves,  because:    1.  Said  common  fund  was  not  something  they   found  already   in  existence.   It  was  not  property  inherited  by  them  pro  indiviso.  They  created  it  purposely.  What  is  more  they  jointly  borrowed  a  substantial  portion  thereof  in  order  to  establish  said  common  fund.    2.   They   invested   the   same,   not   merely   not   merely   in   one   transaction,   but   in   a  series  of  transactions.  On  February  2,   1943,   they  bought   a   lot   for  P100,000.00.  On  April   3,   1944,   they  purchased  21  lots  for  P18,000.00.  This  was  soon  followed  on  April  23,  1944,  by  the  acquisition  of  another  real  estate  for  P108,825.00.  Five  (5)  days  later  (April  28,  1944),  they  got  a  fourth  lot  for  P237,234.14.  The  number  of  lots  (24)  acquired  and  transactions  undertaken,  as  well  as  the  brief  interregnum  between  each,  particularly  the  last  three  purchases,  is  strongly  indicative  of  a  pattern   or   common   design   that  was   not   limited   to   the   conservation   and   preservation   of   the  aforementioned  common  fund  or  even  of  the  property  acquired  by  the  petitioners  in  February,  1943.   In   other  words,   one   cannot   but   perceive   a   character   of   habitually   peculiar   to   business  transactions  engaged  in  the  purpose  of  gain.  3.   The   aforesaid   lots  were   not   devoted   to   residential   purposes,   or   to   other   personal   uses,   of  petitioners  herein.  The  properties  were  leased  separately  to  several  persons,  who,  from  1945  to  1948  inclusive,  paid  the  total  sum  of  P70,068.30  by  way  of  rentals.  Seemingly,  the  lots  are  still  being  so  let,  for  petitioners  do  not  even  suggest  that  there  has  been  any  change  in  the  utilization  thereof.    4.  Since  August,  1945,  the  properties  have  been  under  the  management  of  one  person,  namely  Simeon  Evangelista,  with  full  power  to  lease,  to  collect  rents,  to  issue  receipts,  to  bring  suits,  to  sign  letters  and  contracts,  and  to  indorse  and  deposit  notes  and  checks.  Thus,  the  affairs  relative  to  said  properties  have  been  handled  as  if  the  same  belonged  to  a  corporation  or  business  and  enterprise  operated  for  profit.    5.   The   foregoing   conditions   have   existed   for  more   than   ten   (10)   years,   or,   to   be   exact,   over  fifteen   (15)   years,   since   the   first   property   was   acquired,   and   over   twelve   (12)   years,   since  Simeon  Evangelista  became  the  manager.    

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6.  Petitioners  have  not  testified  or  introduced  any  evidence,  either  on  their  purpose  in  creating  the  set  up  already  adverted  to,  or  on  the  causes  for  its  continued  existence.  They  did  not  even  try  to  offer  an  explanation  therefor.    Although,   taken  singly,   they  might  not  suffice   to  establish  the   intent  necessary  to  constitute  a  partnership,  the  collective  effect  of  these  circumstances  is  such  as  to  leave  no  room  for  doubt  on  the   existence   of   said   intent   in   petitioners   herein.   Only   one   or   two   of   the   aforementioned  circumstances  were  present  in  the  cases  cited  by  petitioners  herein,  and,  hence,  those  cases  are  not  in  point.    Petitioners  insist,  however,  that  they  are  mere  co-­‐owners,  not  copartners,   for,   in  consequence  of   the   acts   performed   by   them,   a   legal   entity,   with   a   personality   independent   of   that   of   its  members,   did   not   come   into   existence,   and   some   of   the   characteristics   of   partnerships   are  lacking  in  the  case  at  bar.  This  pretense  was  correctly  rejected  by  the  Court  of  Tax  Appeals.    To  begin  with,  the  tax  in  question  is  one  imposed  upon  "corporations",  which,  strictly  speaking,  are   distinct   and   different   from   "partnerships".   When   our   Internal   Revenue   Code   includes  "partnerships"  among  the  entities  subject  to  the  tax  on  "corporations",  said  Code  must  allude,  therefore,   to  organizations  which  are  not  necessarily   "partnerships",   in   the   technical   sense  of  the  term.  Thus,  for  instance,  section  24  of  said  Code  exempts  from  the  aforementioned  tax  "duly  registered   general   partnerships   which   constitute   precisely   one   of   the   most   typical   forms   of  partnerships   in   this   jurisdiction.  Likewise,  as  defined   in  section  84(b)  of  said  Code,   "the   term  corporation   includes   partnerships,  no   matter   how   created   or   organized."   This   qualifying  expression  clearly  indicates  that  a  joint  venture  need  not  be  undertaken  in  any  of  the  standard  forms,  or   in  conformity  with  the  usual  requirements  of   the   law  on  partnerships,   in  order  that  one  could  be  deemed  constituted   for  purposes  of   the   tax  on  corporations.  Again,  pursuant   to  said   section   84(b),   the   term   "corporation"   includes,   among   other,   joint   accounts,   (cuentas  en  participation)"  and  "associations,"  none  of  which  has  a  legal  personality  of  its  own,  independent  of  that  of  its  members.  Accordingly,  the  lawmaker  could  not  have  regarded  that  personality  as  a  condition   essential   to   the   existence   of   the   partnerships   therein   referred   to.   In   fact,   as   above  stated,   "duly   registered   general   copartnerships"  —  which  are  possessed  of   the  aforementioned  personality  —   have   been   expressly   excluded   by   law   (sections   24   and   84   [b]   from   the  connotation  of  the  term  "corporation"  It  may  not  be  amiss  to  add  that  petitioners'  allegation  to  the  effect  that  their  liability  in  connection  with  the  leasing  of  the  lots  above  referred  to,  under  the   management   of   one   person   —   even   if   true,   on   which   we   express   no   opinion   —   tends  to  increase  the   similarity   between   the   nature   of   their   venture   and   that   corporations,   and   is,  therefore,  an  additional  argument  in  favor  of  the  imposition  of  said  tax  on  corporations.  Under  the  Internal  Revenue  Laws  of  the  United  States,  "corporations"  are  taxed  differently  from  "partnerships".   By   specific   provisions   of   said   laws,   such   "corporations"   include   "associations,  joint-­‐stock  companies  and  insurance  companies."  However,  the  term  "association"  is  not  used  in  the  aforementioned  laws.    .  .  .  in  any  narrow  or  technical  sense.  It  includes  any  organization,  created  for  the  transaction  of  designed   affairs,   or   the   attainment   of   some   object,   which   like   a   corporation,   continues  notwithstanding   that   its   members   or   participants   change,   and   the   affairs   of   which,   like  corporate   affairs,   are   conducted   by   a   single   individual,   a   committee,   a   board,   or   some   other  group,  acting  in  a  representative  capacity.  It  is  immaterial  whether  such  organization  is  created  by   an   agreement,   a   declaration   of   trust,   a   statute,   or   otherwise.   It   includes   a   voluntary  association,  a  joint-­‐stock  corporation  or  company,  a  'business'  trusts  a  'Massachusetts'  trust,  a  

'common  law'  trust,  and  'investment'  trust  (whether  of  the  fixed  or  the  management  type),  an  interinsuarance  exchange  operating  through  an  attorney  in  fact,  a  partnership  association,  and  any  other  type  of  organization  (by  whatever  name  known)  which  is  not,  within  the  meaning  of  the  Code,  a  trust  or  an  estate,  or  a  partnership.  (7A  Mertens  Law  of  Federal  Income  Taxation,  p.  788;  emphasis  supplied.).    Similarly,  the  American  Law.  

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

 The   term   'partnership'   includes   a   syndicate,   group,   pool,  joint   venture   or   other  unincorporated   organization,   through   or   by   means   of   which   any   business,   financial  operation,  or  venture  is  carried  on,   .   .   ..   (  8  Merten's  Law  of  Federal   Income  Taxation,  p.  562  Note  63;  emphasis  supplied.)  .    For   purposes   of   the   tax   on   corporations,  our   National   Internal   Revenue   Code,   includes   these  partnerships  —  with  the  exception  only  of  duly  registered  general  copartnerships  —  within  the  purview   of   the   term   "corporation."  It   is,   therefore,   clear   to   our   mind   that   petitioners   herein  constitute  a  partnership,  insofar  as  said  Code  is  concerned  and  are  subject  to  the  income  tax  for  corporations.    As   regards   the   residence   of   tax   for   corporations,   section   2   of   Commonwealth   Act   No.   465  provides  in  part:    Entities   liable   to   residence   tax.-­‐Every   corporation,   no   matter   how   created   or   organized,  whether  domestic  or  resident  foreign,  engaged  in  or  doing  business  in  the  Philippines  shall  pay  an  annual  residence  tax  of  five  pesos  and  an  annual  additional  tax  which  in  no  case,  shall  exceed  one  thousand  pesos,  in  accordance  with  the  following  schedule:  .  .  .  The   term   'corporation'   as   used   in   this   Act   includes   joint-­‐stock   company,  partnership,  joint   account   (cuentas   en   participacion),   association   or   insurance   company,  no   matter   how  created  or  organized.  (emphasis  supplied.)    Considering  that  the  pertinent  part  of  this  provision  is  analogous  to  that  of  section  24  and  84  (b)  of  our  National  Internal  Revenue  Code  (commonwealth  Act  No.  466),  and  that  the  latter  was  approved  on  June  15,  1939,  the  day  immediately  after  the  approval  of  said  Commonwealth  Act  No.  465  (June  14,  1939),  it  is  apparent  that  the  terms  "corporation"  and  "partnership"  are  used  in   both   statutes   with   substantially   the   same  meaning.   Consequently,   petitioners   are   subject,  also,  to  the  residence  tax  for  corporations.    Lastly,   the   records   show   that   petitioners   have   habitually   engaged   in   leasing   the   properties  above  mentioned   for   a   period   of   over   twelve   years,   and   that   the   yearly   gross   rentals   of   said  properties   from  June  1945  to  1948  ranged   from  P9,599  to  P17,453.  Thus,   they  are  subject   to  the   tax   provided   in   section   193   (q)   of   our   National   Internal   Revenue   Code,   for   "real   estate  dealers,"  inasmuch  as,  pursuant  to  section  194  (s)  thereof:  

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'Real   estate   dealer'   includes   any   person   engaged   in   the   business   of   buying,   selling,  exchanging,  leasing,  or  renting  property  or  his  own  account  as  principal  and  holding  himself  out  as  a  full  or  part  time  dealer  in  real  estate  or  as  an  owner  of  rental  property  or  properties  rented  or  offered  to  rent  for  an  aggregate  amount  of  three  thousand  pesos  or  more  a  year.  .  .  (emphasis  supplied.)  Wherefore,   the   appealed   decision   of   the   Court   of   Tax   appeals   is   hereby   affirmed  with   costs  against  the  petitioners  herein.  It  is  so  ordered.  Bengzon,  Paras,  C.J.,  Padilla,  Reyes,  A.,  Reyes,  J.B.L.,  Endencia  and  Felix,  JJ.,  concur.      BAUTISTA  ANGELO,  J.,  concurring:  I   agree  with   the  opinion   that  petitioners  have  actually   contributed  money   to  a   common   fund  with  express  purpose  of  engaging   in  real  estate  business   for  profit.  The  series  of   transactions  which  they  had  undertaken  attest  to  this.  This  appears  in  the  following  portion  of  the  decision:  2.   They   invested   the   same,   not  merely   in   one   transaction,   but   in   a   series   of   transactions.   On  February  2,  1943,   they  bought  a   lot   for  P100,000.  On  April  3,  1944,   they  purchase  21   lots   for  P18,000.  This  was  soon  followed  on  April  23,  1944,  by  the  acquisition  of  another  real  state  for  P108,825.   Five   (5)   days   later   (April   28,   1944),   they   got   a   fourth   lot   for   P237,234.14.   The  number   of   lots   (24)   acquired   and   transactions   undertaken,   as  well   as   the   brief   interregnum  between   each,   particularly   the   last   three   purchases,   is   strongly   indicative   of   a   pattern   or  common   design   that   was   not   limited   to   the   conservation   and   preservation   of   the  aforementioned  common  fund  or  even  of  the  property  acquired  by  the  petitioner  in  February,  1943,   In   other   words,   we   cannot   but   perceive   a   character   of  habitually  peculiar  to  business  transactions  engaged  in  for  purposes  of  gain.    I  wish  however  to  make  to  make  the  following  observation:  Article   1769   of   the   new   Civil   Code   lays   down   the   rule   for   determining   when   a   transaction  should  be  deemed  a  partnership  or  a  co-­‐ownership.  Said  article  paragraphs  2  and  3,  provides:  (2)  Co-­‐ownership  or  co-­‐possession  does  not  of  itself  establish  a  partnership,  whether  such  co-­‐owners  or  co-­‐possessors  do  or  do  not  share  any  profits  made  by  the  use  of  the  property;  (3)   The   sharing   of   gross   returns   does   not   of   itself   establish   partnership,  whether   or   not   the  person  sharing  them  have  a  joint  or  common  right  or  interest  in  any  property  from  which  the  returns  are  derived;  From  the  above  it  appears  that  the  fact  that  those  who  agree  to  form  a  co-­‐ownership  shared  or  do  not  share  any  profits  made  by   the  use  of  property  held   in  common  does  not  convert   their  venture   into   a   partnership.   Or   the   sharing   of   the   gross   returns   does   not   of   itself   establish   a  partnership   whether   or   not   the   persons   sharing   therein   have   a   joint   or   common   right   or  interest   in   the   property.   This   only   means   that,   aside   from   the   circumstance   of   profit,   the  presence   of   other   elements   constituting   partnership   is   necessary,   such   as   the   clear   intent   to  form  a  partnership,  the  existence  of  a   judicial  personality  different  from  that  of  the  individual  partners,   and   the   freedom   to   transfer   or   assign   any   interest   in   the  property   by   one  with   the  consent  of  the  others  (Padilla,  Civil  Code  of  the  Philippines  Annotated,  Vol.  I,  1953  ed.,  pp.  635-­‐  636).    It  is  evident  that  an  isolated  transaction  whereby  two  or  more  persons  contribute  funds  to  buy  certain  real  estate  for  profit  in  the  absence  of  other  circumstances  showing  a  contrary  intention  cannot  be  considered  a  partnership.    

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

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ATTY.  MENDOZA  

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AFISCO  INSURANCE  CORPORATION  VS.  CA    Pursuant  to  “reinsurance  treaties,”  a  number  of  local  insurance  firms  formed  themselves  into  a  “pool”   in   order   to   facilitate   the   handling   of   business   contracted   with   a   nonresident   foreign  reinsurance   company.    May   the   “clearing   house”   or   “insurance   pool”   so   formed   be   deemed   a  partnership   or   an   association   that   is   taxable   as   a   corporation   under   the   National   Internal  Revenue  Code  (NIRC)?    Should  the  pool’s  remittances  to  the  member  companies  and  to  the  said  foreign  firm  be  taxable  as  dividends?    Under  the  facts  of  this  case,  has  the  government’s  right  to  assess  and  collect  said  tax  prescribed?    

The  Case  These  are  the  main  questions  raised  in  the  Petition  for  Review  on  Certiorari  before  us,  assailing  the  October  11,  1993  Decision[1]  of  the  Court  of  Appeals[2]in  CA-­‐GR  SP  29502,  which  dismissed  petitioners’   appeal   of   the   October   19,   1992   Decision[3]  of   the   Court   of   Tax   Appeals[4]  (CTA)  which   had   previously   sustained   petitioners’   liability   for   deficiency   income   tax,   interest   and  withholding  tax.    The  Court  of  Appeals  ruled:    “WHEREFORE,  the  petition  is  DISMISSED,  with  costs  against  petitioners.”[5]  The   petition   also   challenges   the   November   15,   1993   Court   of   Appeals   (CA)  Resolution[6]  denying  reconsideration.    

The  Facts  The  antecedent  facts,[7]  as  found  by  the  Court  of  Appeals,  are  as  follows:  “The  petitioners  are  41  non-­‐life  insurance  corporations,  organized  and  existing  under  the  laws  of  the  Philippines.    Upon  issuance  by  them  of  Erection,  Machinery  Breakdown,  Boiler  Explosion  and  Contractors’    All  Risk   insurance  policies,   the  petitioners  on  August  1,  1965  entered   into  a  Quota   Share   Reinsurance   Treaty   and   a   Surplus   Reinsurance   Treaty   with   the   Munchener  Ruckversicherungs-­‐Gesselschaft   (hereafter   called   Munich),   a   non-­‐resident   foreign   insurance  corporation.    The  reinsurance  treaties  required  petitioners  to  form  a  [p]ool.    Accordingly,  a  pool  composed  of  the  petitioners  was  formed  on  the  same  day.    “On  April  14,  1976,  the  pool  of  machinery  insurers  submitted  a  financial  statement  and  filed  an  “Information  Return  of  Organization  Exempt  from  Income  Tax”  for  the  year  ending  in  1975,  on  the   basis   of   which   it   was   assessed   by   the   Commissioner   of   Internal   Revenue   deficiency  corporate   taxes   in   the   amount   of  P1,843,273.60,   and   withholding   taxes   in   the   amount  of  P1,768,799.39   andP89,438.68   on   dividends   paid   to   Munich   and   to   the   petitioners,  respectively.    These  assessments  were  protested  by  the  petitioners  through  its  auditors  Sycip,  Gorres,  Velayo  and  Co.  “On   January  27,  1986,   the  Commissioner  of   Internal  Revenue  denied   the  protest  and  ordered  the  petitioners,  assessed  as  “Pool  of  Machinery  Insurers,”  to  pay  deficiency  income  tax,  interest,  and  with[h]olding    tax,  itemized  as  follows:  Net  income  per  information                            return                                                                                                      P3,737,370.00                                                                                                                                                                                            ===========  Income  tax  due  thereon                                                                      P1,298,080.00  Add:  14%  Int.  fr.  4/15/76                            to  4/15/79                                                                                                      545,193.60  TOTAL  AMOUNT  DUE  &                                                      P1,843,273.60                            COLLECTIBLE                                                                      ===========  

Dividend  paid  to  Munich                            Reinsurance  Company                                                      P3,728,412.00                                                                                                                                                                                            ===========  35%  withholding  tax  at                            source  due  thereon                                                                P1,304,944.20  Add:  25%  surcharge                                                                                        326,236.05                            14%  interest  from                                1/25/76  to  1/25/79                                                                          137,019.14                            Compromise  penalty-­‐                                non-­‐filing  of  return                                                                                      300.00                                late  payment                                                                                                      300.00  TOTAL  AMOUNT  DUE  &                                                      P1,768,799.39                            COLLECTIBLE                                                                      ===========  Dividend  paid  to  Pool  Members                                              P      655,636.00                                                                                                                                                                                            ===========  10%  withholding  tax  at                            source  due  thereon                                                                P          65,563.60  Add:  25%  surcharge                                                                                            16,390.90  14%  interest  from                                1/25/76  to  1/25/79                                                                                  6,884.18                            Compromise  penalty-­‐                                non-­‐filing  of  return                                                                                    300.00                                late  payment                                                                                                    300.00  TOTAL  AMOUNT  DUE  &                                                      P        89,438.68                            COLLECTIBLE                                                                      ===========“[8]  The  CA  ruled   in   the  main   that   the  pool  of  machinery   insurers  was  a  partnership   taxable  as  a  corporation,  and  that   the   latter’s  collection  of  premiums  on  behalf  of   its  members,   the  ceding  companies,  was  taxable   income.    It  added  that  prescription  did  not  bar   the  Bureau  of   Internal  Revenue   (BIR)   from   collecting   the   taxes   due,   because   “the   taxpayer   cannot   be   located   at   the  address  given  in  the  information  return  filed.”    Hence,  this  Petition  for  Review  before  us.[9]  The  Issues  Before  this  Court,  petitioners  raise  the  following  issues:  “1.Whether   or   not   the   Clearing   House,   acting   as   a   mere   agent   and   performing   strictly  administrative  functions,  and  which  did  not  insure  or  assume  any  risk  in  its  own  name,  was  a  partnership  or  association  subject  to  tax  as  a  corporation;  “2.Whether  or  not  the  remittances  to  petitioners  and  MUNICHRE  of  their  respective  shares  of  reinsurance   premiums,   pertaining   to   their   individual   and   separate   contracts   of   reinsurance,  were  “dividends”  subject  to  tax;  and  “3.Whether   or   not   the   respondent   Commissioner’s   right   to   assess   the   Clearing   House   had  already  prescribed.”[10]  The  Court’s  Ruling  The  petition   is  devoid  of  merit.    We  sustain   the  ruling  of   the  Court  of  Appeals   that   the  pool   is  taxable  as  a  corporation,  and  that  the  government’s  right  to  assess  and  collect  the  taxes  had  not  prescribed.    First  Issue:  Pool  Taxable  as  a  Corporation  Petitioners  contend  that   the  Court  of  Appeals  erred   in   finding  that   the  pool  or  clearing  house  was  an   informal  partnership,  which  was  taxable  as  a  corporation  under  the  NIRC.    They  point  out  that  the  reinsurance  policies  were  written  by  them  “individually  and  separately,”  and  that  

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

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their   liability   was   limited   to   the   extent   of   their   allocated   share   in   the   original   risks   thus  reinsured.[11]  Hence,  the  pool  did  not  act  or  earn  income  as  a  reinsurer.[12]    Its  role  was  limited  to   its   principal   function   of   “allocating   and   distributing   the   risk(s)   arising   from   the   original  insurance  among  the  signatories  to  the  treaty  or  the  members  of  the  pool  based  on  their  ability  to   absorb   the   risk(s)   ceded[;]   as   well   as   the   performance   of   incidental   functions,   such   as  records,  maintenance,  collection  and  custody  of  funds,  etc.”[13]    Petitioners  belie  the  existence  of  a  partnership  in  this  case,  because    (1)  they,  the  reinsurers,  did  not   share   the   same   risk   or   solidary   liability;[14]  (2)    there   was   no   common   fund;[15]    (3)    the  executive  board  of   the  pool  did  not  exercise   control   and  management  of   its   funds,  unlike   the  board  of  directors  of  a  corporation;[16]  and    (4)    the  pool  or  clearing  house  “was  not  and  could  not   possibly   have   engaged   in   the   business   of   reinsurance   from  which   it   could   have   derived  income  for  itself.”[17]    The  Court  is  not  persuaded.    The  opinion  or  ruling  of  the  Commission  of  Internal  Revenue,  the  agency   tasked  with   the  enforcement  of    tax    laws,      is  accorded  much  weight  and  even   finality,  when   there   is   no   showing   that   it   is   patently   wrong,[18]  particularly   in   this   case   where   the  findings  and  conclusions  of  the  internal  revenue  commissioner  were  subsequently  affirmed  by  the  CTA,  a   specialized  body  created   for   the  exclusive  purpose  of   reviewing   tax  cases,  and   the  Court  of  Appeals.[19]    Indeed,  “[I]t  has  been  the  long  standing  policy  and  practice  of  this  Court  to  respect  the  conclusions  of  quasi-­‐judicial  agencies,  such  as  the  Court  of  Tax  Appeals  which,  by  the  nature  of  its  functions,  is  dedicated   exclusively   to   the   study   and   consideration   of   tax   problems   and   has   necessarily  developed  an  expertise  on  the  subject,  unless  there  has  been  an  abuse  or  improvident  exercise  of  its  authority.”[20]    This  Court  rules  that  the  Court  of  Appeals,  in  affirming  the  CTA  which  had  previously  sustained  the  internal  revenue  commissioner,  committed  no  reversible  error.    Section  24  of  the  NIRC,  as  worded  in  the  year  ending  1975,  provides:  

“SEC.  24.    Rate  of  tax  on  corporations.    -­‐-­‐    (a)    Tax  on  domestic  corporations.    -­‐-­‐    A   tax  is  hereby   imposed  upon   the   taxable  net   income  received  during  each   taxable  year  from  all   sources    by   every   corporation   organized   in,   or   existing   under   the    laws   of  the   Philippines,   no   matter   how   created   or  organized,      but    not    including      duly    registered      general      co-­‐partnership  (compañias   colectivas),   general   professional   partnerships,   private   educational  institutions,  and  building  and  loan  associations  xxx.”  

 Ineludibly,  the  Philippine  legislature  included  in  the  concept  of  corporations  those  entities  that  resembled   them   such   as   unregistered   partnerships   and   associations.    Parenthetically,   the  NLRC’s  inclusion  of  such  entities  in  the  tax  on  corporations  was  made  even  clearer  by  the  Tax  Reform  Act  of  1997,[21]  which  amended  the  Tax  Code.    Pertinent  provisions  of  the  new  law  read  as  follows:  

“SEC.  27.    Rates  of  Income  Tax  on  Domestic  Corporations.    -­‐-­‐    (A)    In   General.    -­‐-­‐    Except   as   otherwise   provided   in   this   Code,   an   income   tax   of  

thirty-­‐five   percent   (35%)   is   hereby   imposed   upon   the   taxable   income   derived   during   each  taxable   year   from   all   sources   within   and   without   the   Philippines   by   every   corporation,   as  defined  in  Section  22  (B)  of  this  Code,  and  taxable  under  this  Title  as  a  corporation  xxx.”  

“SEC.  22.    -­‐-­‐    Definition.    -­‐-­‐    When  used  in  this  Title:  xxx    xxx                                                                        xxx  

(B)    The   term  ‘corporation’  shall   include   partnerships,   no   matter   how   created   or   organized,  joint-­‐stock   companies,   joint   accounts   (cuentas   en   participacion),   associations,   or   insurance  companies,   but   does   not   include   general   professional   partnerships   [or]   a   joint   venture   or  consortium   formed   for   the   purpose   of   undertaking   construction   projects   or   engaging   in  petroleum,   coal,   geothermal   and   other   energy   operations   pursuant   to   an   operating   or  consortium   agreement   under   a   service   contract   without   the   Government.    ‘General  professional   partnerships’   are   partnerships   formed   by   persons   for   the   sole   purpose   of  exercising  their  common  profession,  no  part  of  the  income  of  which  is  derived  from  engaging  in  any  trade  or  business.  xxx    xxx                                                                        xxx."    Thus,   the   Court   in  Evangelista  v.  Collector  of   Internal  Revenue[22]  held   that   Section   24   covered  these   unregistered   partnerships   and   even   associations   or   joint   accounts,   which   had   no   legal  personalities   apart   from   their   individual   members.[23]  The   Court   of   Appeals   astutely  applied  Evangelista:[24]    “xxx  Accordingly,  a  pool  of  individual  real  property  owners  dealing  in  real  estate  business  was  considered   a   corporation   for   purposes   of   the   tax   in   sec.   24   of   the   Tax   Code   in  Evangelista  v.  Collector  of  Internal  Revenue,  supra.    The  Supreme  Court  said:  ‘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)’”    Article  1767  of  the  Civil  Code  recognizes  the  creation  of  a  contract  of  partnership  when  “two  or  more  persons  bind   themselves   to  contribute  money,  property,  or   industry   to  a  common   fund,   with   the   intention   of   dividing   the   profits   among   themselves.”[25]  Its  requisites  are:    “(1)    mutual  contribution  to  a  common  stock,  and    (2)    a   joint   interest   in  the  profits.”[26]  In  other  words,  a  partnership  is  formed  when  persons  contract  “to  devote  to  a  common  purpose  either  money,  property,  or  labor  with  the  intention  of  dividing  the  profits  between  themselves.”[27]  Meanwhile,  an  association  implies  associates  who  enter  into  a  “joint  enterprise  x  x  x  for  the  transaction  of  business.”[28]    In   the   case   before   us,   the   ceding   companies   entered   into   a   Pool   Agreement[29]  or   an  association[30]  that  would  handle  all  the  insurance  businesses  covered  under  their  quota-­‐share   reinsurance   treaty[31]  and   surplus   reinsurance   treaty[32]with   Munich.    The  following  unmistakably  indicates  a  partnership  or  an  association  covered  by  Section  24  of  the  NIRC:  (1)    The   pool   has   a   common   fund,   consisting   of   money   and   other   valuables   that   are  deposited   in   the   name   and   credit   of   the   pool.[33]  This   common   fund   pays   for   the  administration  and  operation  expenses  of  the  pool.[34]  (2)    The   pool   functions   through   an   executive   board,   which   resembles   the   board   of  directors   of   a   corporation,   composed   of   one   representative   for   each   of   the   ceding  companies.[35]  (3)    True,   the   pool   itself   is   not   a   reinsurer   and   does   not   issue   any   insurance   policy;  however,  its  work  is  indispensable,  beneficial  and  economically  useful  to  the  business  of  the  ceding  companies  and  Munich,  because  without  it  they  would  not  have  received  their  premiums.    The   ceding   companies   share   “in   the  business   ceded   to   the  pool”   and   in   the  “expenses”   according   to   a   “Rules   of   Distribution”   annexed   to   the   Pool  

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Agreement.[36]    Profit   motive   or   business   is,   therefore,   the   primordial   reason   for   the  pool’s  formation.    As  aptly  found  by  the  CTA:  “xxx   The   fact   that   the   pool   does   not   retain   any   profit   or   income   does   not   obliterate   an  antecedent   fact,   that   of   the   pool   being   used   in   the   transaction   of   business   for   profit.    It   is  apparent,   and  petitioners  admit,   that   their   association  or   coaction  was   indispensable   [to]   the  transaction  of   the  business.    x   x   x   If   together   they  have   conducted  business,   profit  must  have  been   the  object   as,   indeed,  profit  was  earned.    Though   the  profit  was  apportioned  among   the  members,  this  is  only  a  matter  of  consequence,  as  it  implies  that  profit  actually  resulted.”[37]  The  petitioners’  reliance  on  Pascual  v.  Commissioner[38]  is  misplaced,  because  the  facts  obtaining  therein   are   not   on   all   fours   with   the   present   case.    In  Pascual,  there   was   no   unregistered  partnership,  but  merely  a  co-­‐ownership  which  took  up  only  two  isolated  transactions.[39]    The  Court  of  Appeals  did  not  err  in  applying  Evangelista,  which  involved  a  partnership  that  engaged  in  a  series  of  transactions  spanning  more  than  ten  years,  as  in  the  case  before  us.    Second  Issue:  Pool’s  Remittances  Are  Taxable    Petitioners   further   contend   that   the   remittances   of   the   pool   to   the   ceding   companies   and  Munich  are  not  dividends   subject   to   tax.    They   insist   that   taxing   such   remittances   contravene  Sections  24   (b)   (I)   and  263  of   the  1977  NIRC  and   “would  be   tantamount   to  an   illegal  double  taxation,  as  it  would  result  in  taxing  the  same  premium  income  twice  in  the  hands  of  the  same  taxpayer.”[40]Moreover,   petitioners   argue   that   since   Munich   was   not   a   signatory   to   the   Pool  Agreement,  the  remittances  it  received  from  the  pool  cannot  be  deemed  dividends.[41]  They  add  that  even   if  such  remittances  were  treated  as  dividends,   they  would  have  been  exempt  under  the   previously   mentioned   sections   of   the   1977   NIRC,[42]  as   well   as   Article   7   of   paragraph  1[43]  and  Article  5  of  paragraph  5[44]  of  the  RP-­‐West  German  Tax  Treaty.[45]    Petitioners   are   clutching   at   straws.    Double   taxation   means   taxing   the   same   property   twice  when   it   should   be   taxed   only   once.    That   is,   “xxx   taxing   the   same   person   twice   by   the   same  jurisdiction  for  the  same  thing.”[46]  In  the  instant  case,  the  pool  is  a  taxable  entity  distinct  from  the   individual   corporate   entities   of   the   ceding   companies.    The   tax   on   its  income  is   obviously  different   from   the   tax   on   the  dividends  received   by   the   said   companies.    Clearly,   there   is   no  double  taxation  here.    The   tax  exemptions  claimed  by  petitioners  cannot  be  granted,   since   their  entitlement   thereto  remains  unproven  and  unsubstantiated.    It  is  axiomatic  in  the  law  of  taxation  that  taxes  are  the  lifeblood  of  the  nation.    Hence,  “exemptions  therefrom  are  highly  disfavored  in  law  and  he  who  claims   tax   exemption  must   be   able   to   justify   his   claim  or   right.”[47]    Petitioners   have   failed   to  discharge  this  burden  of  proof.    The  sections  of  the  1977  NIRC  which  they  cite  are  inapplicable,  because   these   were   not   yet   in   effect   when   the   income   was   earned   and   when   the   subject  information  return  for  the  year  ending  1975  was  filed.      Referring   to   the   1975   version   of   the   counterpart   sections   of   the  NIRC,   the   Court   still   cannot  justify   the   exemptions   claimed.    Section   255   provides   that   no   tax   shall   “xxx   be   paid   upon  reinsurance  by  any  company  that  has  already  paid  the  tax  xxx.”    This  cannot  be  applied  to  the  present   case   because,   as   previously   discussed,   the   pool   is   a   taxable   entity   distinct   from   the  ceding   companies;   therefore,   the   latter   cannot   individually   claim   the   income   tax   paid   by   the  former  as  their  own.      

On  the  other  hand,  Section  24  (b)  (1)[48]  pertains  to  tax  on  foreign  corporations;  hence,  it  cannot  be   claimed   by   the   ceding   companies   which   are   domestic   corporations.    Nor   can   Munich,   a  foreign   corporation,   be   granted   exemption   based   solely   on   this   provision   of   the   Tax   Code,  because  the  same  subsection  specifically  taxes  dividends,  the  type  of  remittances  forwarded  to  it  by  the  pool.    Although  not  a  signatory  to  the  Pool  Agreement,  Munich  is  patently  an  associate  of  the   ceding   companies   in   the   entity   formed,   pursuant   to   their   reinsurance   treaties   which  required  the  creation  of  said  pool.    Under   its   pool   arrangement   with   the   ceding   companies,   Munich   shared   in   their   income   and  loss.    This  is  manifest  from  a  reading  of  Articles  3[49]  and  10[50]  of  the  Quota  Share  Reinsurance  Treaty   and   Articles   3[51]  and   10[52]  of   the   Surplus   Reinsurance   Treaty.    The   foregoing  interpretation  of   Section  24   (b)   (1)   is   in   line  with   the  doctrine   that   a   tax  exemption  must  be  construedstrictissimi   juris,  and   the   statutory   exemption   claimed   must   be   expressed   in   a  language  too  plain  to  be  mistaken.[53]    Finally,   the   petitioners’   claim   that   Munich   is   tax-­‐exempt   based   on   the   RP-­‐West   German   Tax  Treaty  is  likewise  unpersuasive,  because  the  internal  revenue  commissioner  assessed  the  pool  for  corporate  taxes  on  the  basis  of  the  information  return  it  had  submitted  for  the  year  ending  1975,  a  taxable  year  when  said  treaty  was  not  yet  in  effect.[54]  Although  petitioners  omitted  in  their  pleadings   the  date  of  effectivity  of   the   treaty,   the  Court   takes   judicial  notice   that   it   took  effect  only  later,  on  December  14,  1984.[55]    Third  Issue:  Prescription    Petitioners   also   argue   that   the   government’s   right   to   assess   and   collect   the   subject   tax   had  prescribed.    They  claim   that   the  subject   information  return  was   filed  by   the  pool  on  April  14,  1976.  On  the  basis  of  this  return,  the  BIR  telephoned  petitioners  on  November  11,  1981,  to  give  them  notice  of  its  letter  of  assessment  dated  March  27,  1981.    Thus,  the  petitioners  contend  that  the  five-­‐year  statute  of  limitations  then  provided  in  the  NIRC  had  already  lapsed,  and  that  the  internal   revenue   commissioner   was   already   barred   by   prescription   from   making   an  assessment.[56]    We   cannot   sustain   the   petitioners.    The   CA   and   the   CTA   categorically   found   that   the  prescriptive   period   was   tolled   under   then    Section   333   of   the   NIRC,[57]  because   “the  taxpayer  cannot  be  located  at  the  address  given  in  the  information  return  filed  and  for  which   reason   there   was   delay   in   sending   the   assessment.”[58]  Indeed,   whether   the  government’s  right  to  collect  and  assess  the  tax  has  prescribed  involves  facts  which  have  been   ruled   upon   by   the   lower   courts.    It   is   axiomatic   that   in   the   absence   of   a   clear  showing  of  palpable  error  or  grave  abuse  of  discretion,  as   in   this  case,   this  Court  must  not  overturn  the  factual  findings  of  the  CA  and  the  CTA.      Furthermore,   petitioners   admitted   in   their   Motion   for   Reconsideration   before   the   Court   of  Appeals   that   the  pool   changed   its   address,    for   they   stated   that   the  pool’s   information   return  filed  in  1980  indicated  therein  its  “present  address.”    The  Court  finds  that  this  falls  short  of  the  requirement  of  Section  333  of  the  NIRC  for  the  suspension  of  the  prescriptive  period.    The  law  clearly   states   that   the   said   period   will   be   suspended   only   “if   the   taxpayer   informs   the  Commissioner  of  Internal  Revenue  of  any  change  in  the  address.”    WHEREFORE,   the  petition   is  DENIED.    The  Resolutions  of   the  Court  of  Appeals  dated  October  11,  1993  and  November  15,  1993  are  hereby  AFFIRMED.    Costs  against  petitioners.  

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LIM  TONG  LIM  vs.  PHILIPPINE  FISHING  GEAR  INDUSTRIES,  INC    A  partnership  may  be  deemed  to  exist  among  parties  who  agree  to  borrow  money  to  pursue  a  business  and   to  divide   the  profits  or   losses   that  may  arise   therefrom,  even   if   it   is   shown  that  they  have  not  contributed  any  capital  of  their  own  to  a  "common  fund."  Their  contribution  may  be   in  the   form  of  credit  or   industry,  not  necessarily  cash  or   fixed  assets.    Being  partners,   they  are  all   liable  for  debts   incurred  by  or  on  behalf  of  the  partnership.    The  liability  for  a  contract  entered  into  on  behalf  of  an  unincorporated  association  or  ostensible  corporation  may  lie  in  a  person   who   may   not   have   directly   transacted   on   its   behalf,   but   reaped   benefits   from   that  contract.    The  Case    In  the  Petition  for  Review  on  Certiorari  before  us,  Lim  Tong  Lim  assails  the  November  26,  1998  Decision  of  the  Court  of  Appeals  in  CA-­‐GR  CV  41477,[1]  which  disposed  as  follows:  “WHEREFORE,   [there  being]  no  reversible  error   in   the  appealed  decision,   the  same   is  hereby  affirmed.”[2]  The  decretal  portion  of  the  Quezon  City  Regional  Trial  Court  (RTC)  ruling,  which  was  affirmed  by  the  CA,  reads  as  follows:  “WHEREFORE,  the  Court  rules:  1.    That   plaintiff   is   entitled   to   the   writ   of   preliminary   attachment   issued   by   this   Court   on  September  20,  1990;  2.    That   defendants   are   jointly   liable   to   plaintiff   for   the   following   amounts,   subject   to   the  modifications  as  hereinafter  made  by  reason  of  the  special  and  unique  facts  and  circumstances  and  the  proceedings  that  transpired  during  the  trial  of  this  case;  a.    P532,045.00   representing   [the]   unpaid   purchase   price   of   the   fishing   nets   covered   by   the  Agreement   plus  P68,000.00   representing   the   unpaid   price   of   the   floats   not   covered   by   said  Agreement;  b.    12%   interest   per   annum   counted   from   date   of   plaintiff’s   invoices   and   computed   on   their  respective  amounts  as  follows:  i.    Accrued   interest   of  P73,221.00   on   Invoice   No.   14407   for  P385,377.80   dated   February   9,  1990;  ii.    Accrued   interest   of  P27,904.02   on   Invoice   No.   14413   for  P146,868.00   dated   February   13,  1990;  iii.    Accrued   interest   of  P12,920.00   on   Invoice   No.   14426   for  P68,000.00   dated   February   19,  1990;  c.    P50,000.00  as  and   for  attorney’s   fees,  plus  P8,500.00  representing  P500.00  per  appearance  in  court;  d.    P65,000.00  representing  P5,000.00  monthly  rental   for  storage  charges  on  the  nets  counted  from  September  20,  1990  (date  of  attachment)  to  September  12,  1991  (date  of  auction  sale);  e.    Cost  of  suit.    “With  respect   to   the   joint   liability  of  defendants   for   the  principal  obligation  or   for   the  unpaid  price  of  nets  and   floats   in   the  amount  of  P532,045.00  and  P68,000.00,   respectively,  or   for   the  total  amount  of  P600,045.00,  this  Court  noted  that  these  items  were  attached  to  guarantee  any  judgment  that  may  be  rendered  in  favor  of  the  plaintiff  but,  upon  agreement  of  the  parties,  and,  to  avoid  further  deterioration  of  the  nets  during  the  pendency  of  this  case,  it  was  ordered  sold  at  public  auction  for  not  less  than  P900,000.00  for  which  the  plaintiff  was  the  sole  and  winning  bidder.    The   proceeds   of   the   sale   paid   for   by   plaintiff   was   deposited   in   court.    In   effect,   the  

amount   of  P900,000.00   replaced   the   attached   property   as   a   guaranty   for   any   judgment   that  plaintiff  may  be  able  to  secure  in  this  case  with  the  ownership  and  possession  of  the  nets  and  floats   awarded   and   delivered   by   the   sheriff   to   plaintiff   as   the   highest   bidder   in   the   public  auction  sale.    It  has  also  been  noted  that  ownership  of   the  nets   [was]  retained  by  the  plaintiff  until   full   payment   [was]   made   as   stipulated   in   the   invoices;   hence,   in   effect,   the   plaintiff  attached   its   own   properties.    It   [was]   for   this   reason   also   that   this   Court   earlier   ordered   the  attachment  bond   filed  by  plaintiff   to  guaranty  damages   to  defendants   to  be  cancelled  and   for  the  P900,000.00  cash  bidded  and  paid  for  by  plaintiff  to  serve  as  its  bond  in  favor  of  defendants.  “From   the   foregoing,   it  would   appear   therefore   that  whatever   judgment   the   plaintiff  may   be  entitled  to  in  this  case  will  have  to  be  satisfied  from  the  amount  of  P900,000.00  as  this  amount  replaced  the  attached  nets  and  floats.    Considering,  however,  that  the  total  judgment  obligation  as   computed   above   would   amount   to   only  P840,216.92,   it   would   be   inequitable,   unfair   and  unjust  to  award  the  excess  to  the  defendants  who  are  not  entitled  to  damages  and  who  did  not  put  up  a  single  centavo  to  raise  the  amount  of  P900,000.00  aside  from  the  fact  that  they  are  not  the  owners  of  the  nets  and  floats.    For  this  reason,  the  defendants  are  hereby  relieved  from  any  and   all   liabilities   arising   from   the  monetary   judgment   obligation   enumerated   above   and   for  plaintiff  to  retain  possession  and  ownership  of  the  nets  and  floats  and  for  the  reimbursement  of  the  P900,000.00  deposited  by  it  with  the  Clerk  of  Court.  SO  ORDERED.”  [3]    The  Facts    On   behalf   of   "Ocean  Quest   Fishing   Corporation,"   Antonio   Chua   and   Peter   Yao   entered   into   a  Contract   dated   February   7,   1990,   for   the   purchase   of   fishing   nets   of   various   sizes   from   the  Philippine   Fishing   Gear   Industries,   Inc.   (herein   respondent).    They   claimed   that   they   were  engaged  in  a  business  venture  with  Petitioner  Lim  Tong  Lim,  who  however  was  not  a  signatory  to   the   agreement.    The   total   price   of   the  nets   amounted   to  P532,045.    Four  hundred  pieces   of  floats  worth  P68,000  were  also  sold  to  the  Corporation.[4]  The  buyers,  however,  failed  to  pay  for  the  fishing  nets  and  the  floats;  hence,  private  respondent  filed  a  collection  suit  against  Chua,  Yao  and  Petitioner  Lim  Tong  Lim  with  a  prayer  for  a  writ  of  preliminary  attachment.    The  suit  was  brought  against   the   three   in   their  capacities  as  general  partners,   on   the   allegation   that   “Ocean   Quest   Fishing   Corporation”   was   a   nonexistent  corporation   as   shown   by   a   Certification   from   the   Securities   and   Exchange   Commission.[5]  On  September  20,  1990,  the  lower  court  issued  a  Writ  of  Preliminary  Attachment,  which  the  sheriff  enforced   by   attaching   the   fishing   nets   on   board  F/B   Lourdes  which   was   then   docked   at   the  Fisheries  Port,  Navotas,  Metro  Manila.    Instead   of   answering   the   Complaint,   Chua   filed   a   Manifestation   admitting   his   liability   and  requesting  a  reasonable  time  within  which  to  pay.    He  also  turned  over  to  respondent  some  of  the  nets  which  were  in  his  possession.    Peter  Yao  filed  an  Answer,  after  which  he  was  deemed  to  have   waived   his   right   to   cross-­‐examine   witnesses   and   to   present   evidence   on   his   behalf,  because  of  his  failure  to  appear  in  subsequent  hearings.    Lim  Tong  Lim,  on  the  other  hand,  filed  an   Answer   with   Counterclaim   and   Crossclaim   and   moved   for   the   lifting   of   the   Writ   of  Attachment.[6]  The   trial   court   maintained   the   Writ,   and   upon   motion   of   private   respondent,  ordered  the  sale  of  the  fishing  nets  at  a  public  auction.    Philippine  Fishing  Gear  Industries  won  the  bidding  and  deposited  with  the  said  court  the  sales  proceeds  of  P900,000.[7]  On  November  18,  1992,  the  trial  court  rendered  its  Decision,  ruling  that  Philippine  Fishing  Gear  Industries   was   entitled   to   the   Writ   of   Attachment   and   that   Chua,   Yao   and   Lim,   as   general  partners,  were  jointly  liable  to  pay  respondent.[8]  

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The   trial   court   ruled   that   a   partnership   among   Lim,   Chua   and   Yao   existed   based   (1)   on   the  testimonies  of   the  witnesses  presented  and  (2)  on  a  Compromise  Agreement  executed  by   the  three[9]in  Civil  Case  No.  1492-­‐MN  which  Chua  and  Yao  had  brought  against  Lim  in  the  RTC  of  Malabon,  Branch  72,  for  (a)  a  declaration  of  nullity  of  commercial  documents;  (b)  a  reformation  of   contracts;   (c)   a   declaration   of   ownership   of   fishing   boats;   (d)   an   injunction   and   (e)  damages.[10]  The  Compromise  Agreement  provided:  “a)                        That  the  parties  plaintiffs  &  Lim  Tong  Lim  agree  to  have  the  four  (4)  vessels  sold  in  the  amount  of  P5,750,000.00   including   the   fishing  net.    This  P5,750,000.00  shall  be  applied  as   full  payment  for  P3,250,000.00  in  favor  of  JL  Holdings  Corporation  and/or  Lim  Tong  Lim;  “b)                        If   the   four   (4)   vessel[s]   and   the   fishing   net   will   be   sold   at   a   higher   price  than  P5,750,000.00  whatever  will  be  the  excess  will  be  divided  into  3:    1/3  Lim  Tong  Lim;  1/3  Antonio  Chua;  1/3  Peter  Yao;  “c)                        If   the   proceeds   of   the   sale   the   vessels  will   be   less   than  P5,750,000.00  whatever   the  deficiency  shall  be  shouldered  and  paid   to   JL  Holding  Corporation  by  1/3  Lim  Tong  Lim;  1/3  Antonio  Chua;  1/3  Peter  Yao.”[11]  The   trial   court   noted   that   the   Compromise   Agreement   was   silent   as   to   the   nature   of   their  obligations,  but  that   joint   liability  could  be  presumed  from  the  equal  distribution  of  the  profit  and  loss.[12]  Lim  appealed  to  the  Court  of  Appeals  (CA)  which,  as  already  stated,  affirmed  the  RTC.  Ruling  of  the  Court  of  Appeals  In   affirming   the   trial   court,   the   CA   held   that   petitioner   was   a   partner   of   Chua   and   Yao   in   a  fishing  business  and  may  thus  be  held  liable  as  a  such  for  the  fishing  nets  and  floats  purchased  by  and  for  the  use  of  the  partnership.    The  appellate  court  ruled:  “The   evidence   establishes   that   all   the   defendants   including   herein   appellant   Lim   Tong   Lim  undertook   a   partnership   for   a   specific   undertaking,   that   is   for   commercial   fishing   x   x  x.    Obviously,   the   ultimate   undertaking   of   the   defendants   was   to   divide   the   profits   among  themselves  which  is  what  a  partnership  essentially  is  x  x  x.    By  a  contract  of  partnership,  two  or  more  persons  bind   themselves   to   contribute  money,   property   or   industry   to   a   common   fund  with  the  intention  of  dividing  the  profits  among  themselves  (Article  1767,  New  Civil  Code).”[13]  Hence,  petitioner  brought  this  recourse  before  this  Court.[14]  The  Issues  In  his  Petition  and  Memorandum,  Lim  asks   this  Court   to  reverse   the  assailed  Decision  on   the  following  grounds:  “I                  THE  COURT  OF  APPEALS  ERRED  IN  HOLDING,  BASED  ON  A  COMPROMISE  AGREEMENT  THAT   CHUA,   YAO   AND   PETITIONER   LIM   ENTERED   INTO   IN   A   SEPARATE   CASE,   THAT   A  PARTNERSHIP  AGREEMENT  EXISTED  AMONG  THEM.  “II                SINCE   IT  WAS   ONLY   CHUA  WHO   REPRESENTED   THAT   HE  WAS   ACTING   FOR   OCEAN  QUEST   FISHING   CORPORATION  WHEN   HE   BOUGHT   THE   NETS   FROM   PHILIPPINE   FISHING,  THE  COURT  OF  APPEALS  WAS  UNJUSTIFIED  IN  IMPUTING  LIABILITY  TO  PETITIONER  LIM  AS  WELL.  “III              THE   TRIAL   COURT   IMPROPERLY   ORDERED   THE   SEIZURE   AND   ATTACHMENT   OF  PETITIONER  LIM’S  GOODS.”  In  determining  whether  petitioner  may  be  held  liable  for  the  fishing  nets  and  floats  purchased  from  respondent,   the  Court  must  resolve  this  key  issue:    whether  by  their  acts,  Lim,  Chua  and  Yao  could  be  deemed  to  have  entered  into  a  partnership.    This  Court’s  Ruling:  The  Petition  is  devoid  of  merit.      

First  and  Second  Issues:    Existence  of  a  Partnership  and  Petitioner's  Liability  In   arguing   that   he   should   not   be   held   liable   for   the   equipment   purchased   from   respondent,  petitioner   controverts   the   CA   finding   that   a   partnership   existed   between   him,   Peter   Yao   and  Antonio   Chua.    He   asserts   that   the   CA   based   its   finding   on   the   Compromise   Agreement  alone.    Furthermore,  he  disclaims  any  direct  participation  in  the  purchase  of  the  nets,  alleging  that  the  negotiations  were  conducted  by  Chua  and  Yao  only,  and  that  he  has  not  even  met  the  representatives  of  the  respondent  company.    Petitioner  further  argues  that  he  was  a  lessor,  not  a  partner,  of  Chua  and  Yao,  for  the  "Contract  of  Lease"  dated  February  1,  1990,  showed  that  he  had  merely  leased  to  the  two  the  main  asset  of  the  purported  partnership  -­‐-­‐  the  fishing  boat  F/B  Lourdes.    The  lease  was  for  six  months,  with  a  monthly  rental  of  P37,500  plus  25  percent  of  the  gross  catch  of  the  boat.  We   are   not   persuaded   by   the   arguments   of   petitioner.    The   facts   as   found   by   the   two   lower  courts  clearly  showed  that  there  existed  a  partnership  among  Chua,  Yao  and  him,  pursuant  to  Article  1767  of  the  Civil  Code  which  provides:  “Article   1767   -­‐   By   the   contract   of   partnership,   two   or   more   persons   bind   themselves   to  contribute  money,  property,  or   industry  to  a  common  fund,  with  the  intention  of  dividing  the  profits  among  themselves.”  Specifically,  both   lower  courts  ruled   that  a  partnership  among  the   three  existed  based  on   the  following  factual  findings:[15]  (1)    That  Petitioner  Lim  Tong  Lim  requested  Peter  Yao  who  was  engaged  in  commercial  fishing  to  join  him,  while  Antonio  Chua  was  already  Yao’s  partner;  (2)    That   after   convening   for   a   few   times,   Lim   Chua,   and   Yao   verbally   agreed   to   acquire   two  fishing  boats,  the  FB  Lourdes  and  the  FB  Nelson  for  the  sum  of  P3.35  million;  (3)    That   they  borrowed  P3.25  million   from  Jesus  Lim,  brother  of  Petitioner  Lim  Tong  Lim,   to  finance  the  venture.  (4)    That  they  bought  the  boats  from  CMF  Fishing  Corporation,  which  executed  a  Deed  of  Sale  over  these  two  (2)  boats   in  favor  of  Petitioner  Lim  Tong  Lim  only  to  serve  as  security  for  the  loan  extended  by  Jesus  Lim;  (5)    That  Lim,  Chua  and  Yao  agreed  that  the  refurbishing  ,  re-­‐equipping,  repairing,  dry  docking  and  other  expenses  for  the  boats  would  be  shouldered  by  Chua  and  Yao;  (6)    That   because   of   the   “unavailability   of   funds,”   Jesus   Lim   again   extended   a   loan   to   the  partnership   in   the  amount  of  P1  million  secured  by  a   check,  because  of  which,  Yao  and  Chua  entrusted   the   ownership   papers   of   two   other   boats,   Chua’s  FB   Lady   Anne   Mel  and   Yao’s  FB  Tracy  to  Lim  Tong  Lim.  (7)    That  in  pursuance  of  the  business  agreement,  Peter  Yao  and  Antonio  Chua  bought  nets  from  Respondent   Philippine   Fishing   Gear,   in   behalf   of   "Ocean   Quest   Fishing   Corporation,"   their  purported  business  name.  (8)    That   subsequently,   Civil   Case  No.   1492-­‐MN  was   filed   in   the  Malabon   RTC,   Branch   72   by  Antonio  Chua  and  Peter  Yao  against  Lim  Tong  Lim  for  (a)  declaration  of  nullity  of  commercial  documents;   (b)   reformation   of   contracts;   (c)   declaration   of   ownership   of   fishing   boats;   (4)  injunction;  and  (e)  damages.  (9)    That   the   case  was   amicably   settled   through   a  Compromise  Agreement   executed  between  the  parties-­‐litigants  the  terms  of  which  are  already  enumerated  above.    From  the  factual  findings  of  both  lower  courts,  it  is  clear  that  Chua,  Yao  and  Lim  had  decided  to  engage  in  a  fishing  business,  which  they  started  by  buying  boats  worth  P3.35  million,  financed  by   a   loan   secured   from   Jesus   Lim   who   was   petitioner’s   brother.    In   their   Compromise  Agreement,  they  subsequently  revealed  their  intention  to  pay  the  loan  with  the  proceeds  of  the  sale   of   the   boats,   and   to   divide   equally   among   them   the   excess   or   loss.    These   boats,   the  

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purchase   and   the   repair   of   which  were   financed  with   borrowed  money,   fell   under   the   term  “common   fund”  under  Article  1767.    The   contribution   to   such   fund  need  not  be   cash  or   fixed  assets;  it  could  be  an  intangible  like  credit  or  industry.    That  the  parties  agreed  that  any  loss  or  profit   from   the   sale   and   operation   of   the   boats   would   be   divided   equally   among   them   also  shows  that  they  had  indeed  formed  a  partnership.    Moreover,  it  is  clear  that  the  partnership  extended  not  only  to  the  purchase  of  the  boat,  but  also  to  that  of  the  nets  and  the  floats.    The  fishing  nets  and  the  floats,  both  essential  to  fishing,  were  obviously  acquired  in  furtherance  of  their  business.    It  would  have  been  inconceivable  for  Lim  to   involve   himself   so   much   in   buying   the   boat   but   not   in   the   acquisition   of   the   aforesaid  equipment,  without  which  the  business  could  not  have  proceeded.    Given   the   preceding   facts,   it   is   clear   that   there   was,   among   petitioner,   Chua   and   Yao,   a  partnership  engaged  in  the  fishing  business.    They  purchased  the  boats,  which  constituted  the  main  assets  of  the  partnership,  and  they  agreed  that  the  proceeds  from  the  sales  and  operations  thereof  would  be  divided  among  them.    We  stress   that  under  Rule  45,   a  petition   for   review   like   the  present   case   should   involve  only  questions  of  law.    Thus,  the  foregoing  factual  findings  of  the  RTC  and  the  CA  are  binding  on  this  Court,  absent  any  cogent  proof  that  the  present  action  is  embraced  by  one  of  the  exceptions  to  the  rule.[16]  In  assailing  the  factual  findings  of  the  two  lower  courts,  petitioner  effectively  goes  beyond  the  bounds  of  a  petition  for  review  under  Rule  45.    Compromise  Agreement  Not  the  Sole  Basis  of  Partnership    Petitioner   argues   that   the   appellate   court’s   sole   basis   for   assuming   the   existence   of   a  partnership  was   the  Compromise  Agreement.    He  also  claims   that   the  settlement  was  entered  into   only   to   end   the   dispute   among   them,   but   not   to   adjudicate   their   preexisting   rights   and  obligations.    His   arguments   are   baseless.    The   Agreement   was   but   an   embodiment   of   the  relationship  extant  among  the  parties  prior  to  its  execution.    A   proper   adjudication  of   claimants’   rights  mandates   that   courts  must   review  and   thoroughly  appraise   all   relevant   facts.    Both   lower   courts   have   done   so   and   have   found,   correctly,   a  preexisting  partnership  among  the  parties.    In  implying  that  the  lower  courts  have  decided  on  the  basis  of  one  piece  of  document  alone,  petitioner  fails  to  appreciate  that  the  CA  and  the  RTC  delved   into   the   history   of   the   document   and   explored   all   the   possible   consequential  combinations   in   harmony   with   law,   logic   and   fairness.    Verily,   the   two   lower   courts’   factual  findings  mentioned   above   nullified   petitioner’s   argument   that   the   existence   of   a   partnership  was  based  only  on  the  Compromise  Agreement.    Petitioner  Was  a  Partner,  Not  a  Lessor    We  are  not   convinced  by  petitioner’s  argument   that  he  was  merely   the   lessor  of   the  boats   to  Chua  and  Yao,  not  a  partner  in  the  fishing  venture.    His  argument  allegedly  finds  support  in  the  Contract   of   Lease   and   the   registration   papers   showing   that   he   was   the   owner   of   the   boats,  including  F/B  Lourdes  where  the  nets  were  found.    His  allegation  defies  logic.    In  effect,  he  would  like  this  Court  to  believe  that  he  consented  to  the  sale   of  his   own  boats   to   pay   a   debt   of  Chua   and   Yao,   with   the   excess   of   the   proceeds   to   be  

divided  among  the  three  of  them.    No  lessor  would  do  what  petitioner  did.    Indeed,  his  consent  to  the  sale  proved  that  there  was  a  preexisting  partnership  among  all  three.    Verily,   as   found  by   the   lower  courts,  petitioner  entered   into  a  business  agreement  with  Chua  and  Yao,  in  which  debts  were  undertaken  in  order  to  finance  the  acquisition  and  the  upgrading  of  the  vessels  which  would  be  used  in  their  fishing  business.    The  sale  of  the  boats,  as  well  as  the  division   among   the   three   of   the   balance   remaining   after   the   payment   of   their   loans,   proves  beyond  cavil  that  F/B  Lourdes,  though  registered  in  his  name,  was  not  his  own  property  but  an  asset  of  the  partnership.    It  is  not  uncommon  to  register  the  properties  acquired  from  a  loan  in  the  name  of  the  person  the  lender  trusts,  who  in  this  case  is  the  petitioner  himself.    After  all,  he  is  the  brother  of  the  creditor,  Jesus  Lim.    We  stress  that   it   is  unreasonable  –   indeed,   it   is  absurd  -­‐-­‐   for  petitioner  to  sell  his  property  to  pay   a   debt   he   did   not   incur,   if   the   relationship   among   the   three   of   them  was  merely   that   of  lessor-­‐lessee,  instead  of  partners.    Corporation  by  Estoppel    Petitioner  argues   that  under   the  doctrine  of  corporation  by  estoppel,   liability  can  be   imputed  only  to  Chua  and  Yao,  and  not  to  him.    Again,  we  disagree.    Section  21  of  the  Corporation  Code  of  the  Philippines  provides:  “Sec.  21.    Corporation  by  estoppel.  -­‐  All  persons  who  assume  to  act  as  a  corporation  knowing  it  to  be  without   authority   to   do   so   shall   be   liable   as   general   partners   for   all   debts,   liabilities   and  damages   incurred   or   arising   as   a   result   thereof:    Provided   however,  That   when   any   such  ostensible  corporation  is  sued  on  any  transaction  entered  by  it  as  a  corporation  or  on  any  tort  committed   by   it   as   such,   it   shall   not   be   allowed   to   use   as   a   defense   its   lack   of   corporate  personality.    “One   who   assumes   an   obligation   to   an   ostensible   corporation   as   such,   cannot   resist  performance  thereof  on  the  ground  that  there  was  in  fact  no  corporation.”    Thus,  even  if  the  ostensible  corporate  entity  is  proven  to  be  legally  nonexistent,  a  party  may  be  estopped  from  denying  its  corporate  existence.  “The  reason  behind  this  doctrine  is  obvious  -­‐  an  unincorporated   association   has   no   personality   and   would   be   incompetent   to   act   and  appropriate   for   itself   the  power  and  attributes  of  a  corporation  as  provided  by   law;   it  cannot  create  agents  or  confer  authority  on  another  to  act  in  its  behalf;  thus,  those  who  act  or  purport  to  act  as  its  representatives  or  agents  do  so  without  authority  and  at  their  own  risk.    And  as  it  is  an  elementary  principle  of  law  that  a  person  who  acts  as  an  agent  without  authority  or  without  a  principal  is  himself  regarded  as  the  principal,  possessed  of  all  the  right  and  subject  to  all  the  liabilities  of  a  principal,  a  person  acting  or  purporting  to  act  on  behalf  of  a  corporation  which  has  no  valid  existence  assumes  such  privileges  and  obligations  and  becomes  personally   liable  for  contracts  entered  into  or  for  other  acts  performed  as  such  agent.”[17]    The   doctrine   of   corporation   by   estoppel  may   apply   to   the   alleged   corporation   and   to   a   third  party.    In   the   first   instance,   an   unincorporated   association,   which   represented   itself   to   be   a  corporation,  will  be  estopped  from  denying  its  corporate  capacity  in  a  suit  against  it  by  a  third  person  who  relied  in  good  faith  on  such  representation.    It  cannot  allege  lack  of  personality  to  

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be   sued   to   evade   its   responsibility   for   a   contract   it   entered   into   and   by   virtue   of   which  it    received  advantages  and  benefits.    On  the  other  hand,  a  third  party  who,  knowing  an  association  to  be  unincorporated,  nonetheless  treated  it  as  a  corporation  and  received  benefits  from  it,  may  be  barred  from  denying  its  corporate  existence  in  a  suit  brought  against  the  alleged  corporation.    In  such  case,  all  those  who  benefited  from  the  transaction  made  by  the  ostensible  corporation,  despite  knowledge  of  its  legal  defects,  may  be  held  liable  for  contracts  they  impliedly  assented  to  or  took  advantage  of.    There   is   no   dispute   that   the   respondent,   Philippine   Fishing   Gear   Industries,   is   entitled   to   be  paid   for   the   nets   it   sold.    The   only   question   here   is   whether   petitioner   should   be   held  jointly[18]  liable  with  Chua  and  Yao.    Petitioner  contests  such   liability,   insisting   that  only   those  who  dealt  in  the  name  of  the  ostensible  corporation  should  be  held  liable.    Since  his  name  does  not  appear  on  any  of  the  contracts  and  since  he  never  directly  transacted  with  the  respondent  corporation,  ergo,  he  cannot  be  held  liable.    Unquestionably,  petitioner  benefited  from  the  use  of  the  nets  found  inside  F/B  Lourdes,  the  boat  which   has   earlier   been   proven   to   be   an   asset   of   the   partnership.    He   in   fact   questions   the  attachment  of  the  nets,  because  the  Writ  has  effectively  stopped  his  use  of  the  fishing  vessel.  It   is   difficult   to   disagree  with   the  RTC   and   the  CA   that   Lim,   Chua   and  Yao  decided   to   form  a  corporation.    Although   it  was  never   legally   formed   for  unknown   reasons,   this   fact   alone  does  not   preclude   the   liabilities   of   the   three   as   contracting  parties   in   representation  of   it.    Clearly,  under   the   law  on  estoppel,   those  acting  on  behalf   of   a   corporation  and   those  benefited  by   it,  knowing  it  to  be  without  valid  existence,  are  held  liable  as  general  partners.    Technically,  it  is  true  that  petitioner  did  not  directly  act  on  behalf  of  the  corporation.    However,  having  reaped  the  benefits  of  the  contract  entered  into  by  persons  with  whom  he  previously  had  an  existing  relationship,  he  is  deemed  to  be  part  of  said  association  and  is  covered  by  the  scope  of  the   doctrine   of   corporation   by   estoppel.    We   reiterate   the   ruling   of   the   Court   in  Alonso   v.  Villamor:[19]    “A  litigation  is  not  a  game  of  technicalities  in  which  one,  more  deeply  schooled  and  skilled  in  the  subtle  art  of  movement  and  position  ,  entraps  and  destroys  the  other.    It  is,  rather,  a  contest  in  which  each  contending  party   fully  and   fairly   lays  before   the  court   the   facts   in   issue  and  then,  brushing   aside   as  wholly   trivial   and   indecisive   all   imperfections  of   form  and   technicalities   of  procedure,  asks  that  justice  be  done  upon  the  merits.    Lawsuits,  unlike  duels,  are  not  to  be  won  by   a   rapier’s   thrust.    Technicality,   when   it   deserts   its   proper   office   as   an   aid   to   justice   and  becomes  its  great  hindrance  and  chief  enemy,  deserves  scant  consideration  from  courts.    There  should  be  no  vested  rights  in  technicalities.”    Third  Issue:    Validity  of  Attachment    Finally,   petitioner   claims   that   the   Writ   of   Attachment   was   improperly   issued   against   the  nets.    We   agree   with   the   Court   of   Appeals   that   this   issue   is   now   moot   and   academic.    As  previously  discussed,  F/B  Lourdes  was  an  asset  of  the  partnership  and  that  it  was  placed  in  the  name  of  petitioner,  only  to  assure  payment  of  the  debt  he  and  his  partners  owed.    The  nets  and  the   floats  were  specifically  manufactured  and   tailor-­‐made  according   to   their  own  design,  and  were  bought  and  used  in  the  fishing  venture  they  agreed  upon.    Hence,  the  issuance  of  the  Writ  to   assure   the   payment   of   the   price   stipulated   in   the   invoices   is   proper.    Besides,   by   specific  

agreement,  ownership  of  the  nets  remained  with  Respondent  Philippine  Fishing  Gear,  until  full  payment   thereof.   WHEREFORE,   the   Petition   is  DENIED  and   the   assailed  Decision  AFFIRMED.    Costs  against  petitioner.  SO  ORDERED.                                                                                            

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AGAD  VS  MABATO  AND  AGAD  CO.    In  this  appeal,  taken  by  plaintiff  Mauricio  Agad,  from  an  order  of  dismissal  of  the  Court  of  First  Instance  of  Davao,  we  are  called  upon  to  determine  the  applicability  of  Article  1773  of  our  Civil  Code  to  the  contract  of  partnership  on  which  the  complaint  herein  is  based.    Alleging  that  he  and  defendant  Severino  Mabato  are  —  pursuant  to  a  public  instrument  dated  August   29,   1952,   copy   of   which   is   attached   to   the   complaint   as   Annex   "A"  —   partners   in   a  fishpond  business,   to   the   capital   of  which  Agad   contributed  P1,000,  with   the   right   to   receive  50%   of   the   profits;   that   from   1952   up   to   and   including   1956,   Mabato   who   handled   the  partnership  funds,  had  yearly  rendered  accounts  of  the  operations  of  the  partnership;  and  that,  despite   repeated   demands,   Mabato   had   failed   and   refused   to   render   accounts   for   the   years  1957  to  1963,  Agad  prayed  in  his  complaint  against  Mabato  and  Mabato  &  Agad  Company,  filed  on  June  9,  1964,  that   judgment  be  rendered  sentencing  Mabato  to  pay  him  (Agad)  the  sum  of  P14,000,   as   his   share   in   the   profits   of   the   partnership   for   the   period   from   1957   to   1963,   in  addition  to  P1,000  as  attorney's  fees,  and  ordering  the  dissolution  of  the  partnership,  as  well  as  the  winding  up  of  its  affairs  by  a  receiver  to  be  appointed  therefor.    In   his   answer,   Mabato   admitted   the   formal   allegations   of   the   complaint   and   denied   the  existence   of   said   partnership,   upon   the   ground   that   the   contract   therefor   had   not   been  perfected,   despite   the   execution   of   Annex   "A",   because   Agad   had   allegedly   failed   to   give   his  P1,000  contribution  to  the  partnership  capital.  Mabato  prayed,  therefore,  that  the  complaint  be  dismissed;  that  Annex  "A"  be  declared  void  ab  initio;  and  that  Agad  be  sentenced  to  pay  actual,  moral  and  exemplary  damages,  as  well  as  attorney's  fees.    Subsequently,  Mabato  filed  a  motion  to  dismiss,  upon  the  ground  that  the  complaint  states  no  cause  of  action  and  that  the  lower  court  had  no  jurisdiction  over  the  subject  matter  of  the  case,  because  it  involves  principally  the  determination  of  rights  over  public  lands.  After  due  hearing,  the   court   issued   the   order   appealed   from,   granting   the  motion   to   dismiss   the   complaint   for  failure   to   state   a   cause   of   action.   This   conclusion   was   predicated   upon   the   theory   that   the  contract   of   partnership,   Annex   "A",   is   null   and   void,   pursuant   to  Art.   1773   of   our   Civil   Code,  because  an  inventory  of  the  fishpond  referred  in  said  instrument  had  not  been  attached  thereto.  A  reconsideration  of  this  order  having  been  denied,  Agad  brought  the  matter  to  us  for  review  by  record  on  appeal.  Articles  1771  and  1773  of  said  Code  provide:  Art.  1771.  A  partnership  may  be  constituted  in  any  form,  except  where  immovable  property  or  real  rights  are  contributed  thereto,  in  which  case  a  public  instrument  shall  be  necessary.  Art.   1773.   A   contract   of   partnership   is   void,   whenever   immovable   property   is   contributed  thereto,   if   inventory   of   said   property   is   not  made,   signed  by   the  parties;   and   attached   to   the  public  instrument.  The   issue   before   us   hinges   on   whether   or   not   "immovable   property   or   real   rights"   have  been  contributed  to   the  partnership  under   consideration.  Mabato   alleged   and   the   lower   court  held   that   the   answer   should   be   in   the   affirmative,   because   "it   is   really   inconceivable   how   a  partnership  engaged  in  the  fishpond  business  could  exist  without  said  fishpond  property  (being)  contributed   to   the  partnership."   It   should  be  noted,  however,   that,  as  stated   in  Annex  "A"   the  partnership   was   established   "to  operate  a   fishpond",   not   to   "engage   in   a   fishpond   business".  Moreover,  none  of   the  partners   contributed  either  a   fishpond  or  a   real   right   to  any   fishpond.  Their  contributions  were  limited  to  the  sum  of  P1,000  each.  Indeed,  Paragraph  4  of  Annex  "A"  provides:  

That   the   capital   of   the   said   partnership   is   Two   Thousand   (P2,000.00)   Pesos   Philippine  Currency,  of  which  One  Thousand  (P1,000.00)  pesos  has  been  contributed  by  Severino  Mabato  and  One  Thousand  (P1,000.00)  Pesos  has  been  contributed  by  Mauricio  Agad.  x  x  x                      x  x  x                      x  x  x  The   operation   of   the   fishpond  mentioned   in   Annex   "A"   was   the   purpose   of   the   partnership.  Neither   said   fishpond  nor   a   real   right   thereto  was   contributed   to   the   partnership   or   became  part  of   the   capital   thereof,   even   if   a   fishpond  or   a   real   right   thereto   could  become  part  of   its  assets.  WHEREFORE,  we  find  that  said  Article  1773  of  the  Civil  Code  is  not  in  point  and  that,  the  order  appealed  from  should  be,  as  it  is  hereby  set  aside  and  the  case  remanded  to  the  lower  court  for  further   proceedings,   with   the   costs   of   this   instance   against   defendant-­‐appellee,   Severino  Mabato.  It  is  so  ordered.      BENJAMIN  YU  VS.  NLRC    Petitioner  Benjamin  Yu  was   formerly   the  Assistant  General  Manager  of   the  marble  quarrying  and  export  business  operated  by  a  registered  partnership  with  the  firm  name  of  "Jade  Mountain  Products  Company  Limited"  ("Jade  Mountain").  The  partnership  was  originally  organized  on  28  June  1984  with  Lea  Bendal  and  Rhodora  Bendal  as  general  partners  and  Chin  Shian  Jeng,  Chen  Ho-­‐Fu   and   Yu   Chang,   all   citizens   of   the   Republic   of   China   (Taiwan),   as   limited   partners.   The  partnership  business  consisted  of  exploiting  a  marble  deposit  found  on  land  owned  by  the  Sps.  Ricardo   and  Guillerma   Cruz,   situated   in   Bulacan   Province,   under   a  Memorandum  Agreement  dated   26   June   1984   with   the   Cruz   spouses.  1  The   partnership   had   its   main   office   in   Makati,  Metropolitan  Manila.    Benjamin  Yu  was  hired  by  virtue  of  a  Partnership  Resolution  dated  14  March  1985,  as  Assistant  General  Manager  with  a  monthly  salary  of  P4,000.00.  According  to  petitioner  Yu,  however,  he  actually  received  only  half  of  his  stipulated  monthly  salary,  since  he  had  accepted  the  promise  of   the   partners   that   the   balance  would   be   paid  when   the   firm   shall   have   secured   additional  operating  funds  from  abroad.  Benjamin  Yu  actually  managed  the  operations  and  finances  of  the  business;  he  had  overall  supervision  of  the  workers  at  the  marble  quarry  in  Bulacan  and  took  charge  of  the  preparation  of  papers  relating  to  the  exportation  of  the  firm's  products.    Sometime  in  1988,  without  the  knowledge  of  Benjamin  Yu,  the  general  partners  Lea  Bendal  and  Rhodora  Bendal   sold  and   transferred   their   interests   in   the  partnership   to  private  respondent  Willy   Co   and   to   one   Emmanuel   Zapanta.   Mr.   Yu   Chang,   a   limited   partner,   also   sold   and  transferred   his   interest   in   the   partnership   to  Willy   Co.   Between  Mr.   Emmanuel   Zapanta   and  himself,   private   respondent  Willy  Co  acquired   the  great  bulk  of   the  partnership   interest.  The  partnership  now  constituted  solely  by  Willy  Co  and  Emmanuel  Zapanta  continued  to  use  the  old  firm   name   of   Jade   Mountain,   though   they   moved   the   firm's   main   office   from   Makati   to  Mandaluyong,  Metropolitan  Manila.  A  Supplement  to  the  Memorandum  Agreement  relating  to  the   operation   of   the   marble   quarry   was   entered   into   with   the   Cruz   spouses   in   February   of  1988.  2  The  actual  operations  of  the  business  enterprise  continued  as  before.  All  the  employees  of   the   partnership   continued  working   in   the   business,   all,   save   petitioner   Benjamin   Yu   as   it  turned  out.    

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On  16  November  1987,  having  learned  of  the  transfer  of  the  firm's  main  office  from  Makati  to  Mandaluyong,  petitioner  Benjamin  Yu  reported  to  the  Mandaluyong  office   for  work  and  there  met  private  respondent  Willy  Co  for  the  first  time.  Petitioner  was  informed  by  Willy  Co  that  the  latter   had   bought   the   business   from   the   original   partners   and   that   it   was   for   him   to   decide  whether   or   not   he   was   responsible   for   the   obligations   of   the   old   partnership,   including  petitioner's   unpaid   salaries.   Petitioner  was   in   fact   not   allowed   to  work   anymore   in   the   Jade  Mountain  business  enterprise.  His  unpaid  salaries  remained  unpaid.  3    On   21   December   1988.   Benjamin   Yu   filed   a   complaint   for   illegal   dismissal   and   recovery   of  unpaid  salaries  accruing  from  November  1984  to  October  1988,  moral  and  exemplary  damages  and  attorney's  fees,  against  Jade  Mountain,  Mr.  Willy  Co  and  the  other  private  respondents.  The  partnership  and  Willy  Co  denied  petitioner's  charges,  contending  in  the  main  that  Benjamin  Yu  was  never  hired  as  an  employee  by  the  present  or  new  partnership.  4    In  due  time,  Labor  Arbiter  Nieves  Vivar-­‐De  Castro  rendered  a  decision  holding  that  petitioner  had  been  illegally  dismissed.  The  Labor  Arbiter  decreed  his  reinstatement  and  awarded  him  his  claim  for  unpaid  salaries,  backwages  and  attorney's  fees.  5    On   appeal,   the   National   Labor   Relations   Commission   ("NLRC")   reversed   the   decision   of   the  Labor  Arbiter  and  dismissed  petitioner's  complaint   in  a  Resolution  dated  29  November  1990.  The  NLRC  held   that  a  new  partnership  consisting  of  Mr.  Willy  Co  and  Mr.  Emmanuel  Zapanta  had  bought  the   Jade  Mountain  business,   that   the  new  partnership  had  not  retained  petitioner  Yu   in  his  original  position  as  Assistant  General  Manager,  and  that   there  was  no   law  requiring  the  new  partnership   to  absorb   the  employees  of   the  old  partnership.  Benjamin  Yu,   therefore,  had  not  been   illegally  dismissed  by   the  new  partnership  which  had  simply  declined   to   retain  him   in   his   former   managerial   position   or   any   other   position.   Finally,   the   NLRC   held   that  Benjamin  Yu's  claim  for  unpaid  wages  should  be  asserted  against  the  original  members  of  the  preceding   partnership,   but   these   though   impleaded   had,   apparently,   not   been   served   with  summons  in  the  proceedings  before  the  Labor  Arbiter.  6    Petitioner   Benjamin   Yu   is   now   before   the   Court   on   a   Petition   for  Certiorari,   asking   us   to   set  aside  and  annul  the  Resolution  of  the  NLRC  as  a  product  of  grave  abuse  of  discretion  amounting  to  lack  or  excess  of  jurisdiction.    The   basic   contention   of   petitioner   is   that   the   NLRC   has   overlooked   the   principle   that   a  partnership  has  a  juridical  personality  separate  and  distinct  from  that  of  each  of  its  members.  Such  independent  legal  personality  subsists,  petitioner  claims,  notwithstanding  changes  in  the  identities   of   the  partners.   Consequently,   the   employment   contract   between  Benjamin  Yu   and  the   partnership   Jade   Mountain   could   not   have   been   affected   by   changes   in   the   latter's  membership.  7  Two  (2)  main   issues  are   thus  posed   for  our  consideration   in   the  case  at  bar:   (1)  whether   the  partnership  which  had  hired  petitioner  Yu  as  Assistant  General  Manager  had  been  extinguished  and  replaced  by  a  new  partnerships  composed  of  Willy  Co  and  Emmanuel  Zapanta;  and  (2)   if  indeed   a   new  partnership   had   come   into   existence,  whether   petitioner   Yu   could   nonetheless  assert  his  rights  under  his  employment  contract  as  against  the  new  partnership.  In  respect  of  the  first  issue,  we  agree  with  the  result  reached  by  the  NLRC,  that  is,  that  the  legal  effect   of   the   changes   in   the   membership   of   the   partnership   was   the   dissolution   of   the   old  partnership  which  had  hired  petitioner  in  1984  and  the  emergence  of  a  new  firm  composed  of  Willy  Co  and  Emmanuel  Zapanta  in  1987.  

The  applicable  law  in  this  connection  —  of  which  the  NLRC  seemed  quite  unaware  —  is  found  in  the  Civil  Code  provisions  relating  to  partnerships.  Article  1828  of  the  Civil  Code  provides  as  follows:  Art.  1828.  The  dissolution  of  a  partnership  is  the  change  in  the  relation  of  the  partners  caused  by   any   partner   ceasing   to   be   associated   in   the   carrying   on  as   distinguished   from   the   winding  up  of  the  business.  (Emphasis  supplied)  Article  1830  of  the  same  Code  must  also  be  noted:  Art.  1830.  Dissolution  is  caused:  (1)  without  violation  of  the  agreement  between  the  partners;  xxx  xxx  xxx  (b)   by   the   express   will   of   any   partner,   who   must   act   in   good   faith,   when   no   definite   term   or  particular  undertaking  is  specified;  xxx  xxx  xxx  (2)   in  contravention  of   the  agreement  between  the  partners,  where   the  circumstances  do  not  permit  a  dissolution  under  any  other  provision  of  this  article,  by  the  express  will  of  any  partner  at  any  time;  xxx  xxx  xxx  (Emphasis  supplied)    In  the  case  at  bar,  just  about  all  of  the  partners  had  sold  their  partnership  interests  (amounting  to  82%  of   the   total  partnership   interest)   to  Mr.  Willy  Co  and  Emmanuel  Zapanta.  The   record  does  not  show  what  happened  to  the  remaining  18%  of  the  original  partnership  interest.  The  acquisition  of  82%  of  the  partnership  interest  by  new  partners,  coupled  with  the  retirement  or  withdrawal   of   the   partners   who   had   originally   owned   such   82%   interest,   was   enough   to  constitute  a  new  partnership.    The   occurrence   of   events   which   precipitate   the   legal   consequence   of   dissolution   of   a  partnership  do  not,  however,  automatically  result  in  the  termination  of  the  legal  personality  of  the  old  partnership.  Article  1829  of  the  Civil  Code  states  that:  [o]n   dissolution   the   partnership   is   not   terminated,   but   continues   until   the   winding   up   of  partnership  affairs  is  completed.    In   the  ordinary  course  of  events,   the   legal  personality  of   the  expiring  partnership  persists   for  the   limited  purpose  of  winding  up  and  closing  of   the  affairs  of   the  partnership.   In   the  case  at  bar,   it   is   important  to  underscore  the  fact  that  the  business  of  the  old  partnership  was  simply  continued  by  the  new  partners,  without  the  old  partnership  undergoing  the  procedures  relating  to   dissolution   and   winding   up   of   its   business   affairs.   In   other   words,   the   new   partnership  simply  took  over  the  business  enterprise  owned  by  the  preceeding  partnership,  and  continued  using   the   old   name   of   Jade   Mountain   Products   Company   Limited,   without   winding   up   the  business  affairs  of  the  old  partnership,  paying  off   its  debts,   liquidating  and  distributing  its  net  assets,   and   then   re-­‐assembling   the   said   assets   or  most   of   them   and   opening   a   new   business  enterprise.  There  were,  no  doubt,  powerful  tax  considerations  which  underlay  such  an  informal  approach  to  business  on  the  part  of  the  retiring  and  the  incoming  partners.  It  is  not,  however,  necessary  to  inquire  into  such  matters.  What   is   important   for  present  purposes   is   that,  under   the  above  described  situation,  not  only  the  retiring  partners  (Rhodora  Bendal,  et  al.)  but  also  the  new  partnership  itself  which  continued  the   business  of   the   old,   dissolved,   one,   are   liable   for   the   debts   of   the   preceding   partnership.  In  Singson,  et  al.  v.  Isabela  Saw  Mill,  et  al,  8  the  Court  held  that  under  facts  very  similar  to  those  in   the   case   at   bar,   a  withdrawing   partner   remains   liable   to   a   third   party   creditor   of   the   old  

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partnership.  9  The   liability   of   the   new   partnership,   upon   the   other   hand,   in   the   set   of  circumstances  obtaining  in  the  case  at  bar,  is  established  in  Article  1840  of  the  Civil  Code  which  reads  as  follows:    Art.   1840.   In   the   following   cases  creditors  of   the  dissolved  partnership  are  also  creditors  of   the  person  or  partnership  continuing  the  business:  (1)  When  any  new  partner  is  admitted  into  an  existing  partnership,  or  when  any  partner  retires  and   assigns   (or   the   representative   of   the   deceased  partner   assigns)   his   rights   in   partnership  property   to   two  or  more  of   the  partners,  or   to  one  or  more  of   the  partners  and  one  or  more  third  persons,  if  the  business  is  continued  without  liquidation  of  the  partnership  affairs;  (2)  When   all   but   one   partner   retire   and   assign   (or   the   representative   of   a   deceased   partner  assigns)   their   rights   in   partnership   property   to   the   remaining   partner,   who  continues   the  business  without  liquidation  of  partnership  affairs,  either  alone  or  with  others;  (3)  When  any  Partner  retires  or  dies  and  the  business  of  the  dissolved  partnership  is  continued  as  set   forth   in   Nos.   1   and   2   of   this   Article,   with   the   consent   of   the   retired   partners   or   the  representative  of  the  deceased  partner,  but  without  any  assignment  of  his  right  in  partnership  property;  (4)  When  all   the  partners  or   their  representatives  assign  their  rights   in  partnership  property   to  one  or  more   third  persons  who  promise   to   pay   the   debts   and  who  continue   the  business  of   the  dissolved  partnership;  (5)   When   any   partner   wrongfully   causes   a   dissolution   and   remaining   partners   continue   the  businessunder   the   provisions   of   article   1837,   second   paragraph,   No.   2,  either   alone   or   with  others,  and  without  liquidation  of  the  partnership  affairs;  (6)  When  a  partner  is  expelled  and  the  remaining  partners  continue  the  business  either  alone  or  with  others  without  liquidation  of  the  partnership  affairs;  The   liability  of  a   third  person  becoming  a  partner   in  the  partnership  continuing  the  business,  under   this   article,   to   the   creditors   of   the   dissolved   partnership   shall   be   satisfied   out   of   the  partnership  property  only,  unless  there  is  a  stipulation  to  the  contrary.  When   the   business   of   a   partnership   after   dissolution   is   continued   under   any   conditions   set  forth  in  this  article  the  creditors  of  the  retiring  or  deceased  partner  or  the  representative  of  the  deceased  partner,  have  a  prior  right  to  any  claim  of  the  retired  partner  or  the  representative  of  the  deceased  partner  against  the  person  or  partnership  continuing  the  business  on  account  of  the   retired   or   deceased   partner's   interest   in   the   dissolved   partnership   or   on   account   of   any  consideration  promised  for  such  interest  or  for  his  right  in  partnership  property.  Nothing   in   this   article   shall   be   held   to   modify   any   right   of   creditors   to   set   assignment   on   the  ground  of  fraud.  xxx  xxx  xxx  (Emphasis  supplied)    Under  Article  1840  above,  creditors  of  the  old  Jade  Mountain  are  also  creditors  of  the  new  Jade  Mountain  which  continued   the  business  of   the  old  one  without   liquidation  of   the  partnership  affairs.  Indeed,  a  creditor  of  the  old  Jade  Mountain,  like  petitioner  Benjamin  Yu  in  respect  of  his  claim   for   unpaid   wages,   is   entitled   to   priority  vis-­‐a-­‐vis  any   claim   of   any   retired   or   previous  partner  insofar  as  such  retired  partner's  interest  in  the  dissolved  partnership  is  concerned.  It  is  not   necessary   for   the   Court   to   determine   under   which   one   or   mare   of   the   above   six   (6)  paragraphs,  the  case  at  bar  would  fall,  if  only  because  the  facts  on  record  are  not  detailed  with  sufficient  precision  to  permit  such  determination.  It   is,  however,  clear  to  the  Court  that  under  Article  1840  above,  Benjamin  Yu  is  entitled  to  enforce  his  claim  for  unpaid  salaries,  as  well  as  other   claims   relating   to  his   employment  with   the  previous  partnership,   against   the  new   Jade  Mountain.  

 It  is  at  the  same  time  also  evident  to  the  Court  that  the  new  partnership  was  entitled  to  appoint  and   hire   a   new   general   or   assistant   general   manager   to   run   the   affairs   of   the   business  enterprise   take   over.   An   assistant   general   manager   belongs   to   the   most   senior   ranks   of  management  and  a  new  partnership  is  entitled  to  appoint  a  top  manager  of  its  own  choice  and  confidence.  The  non-­‐retention  of  Benjamin  Yu  as  Assistant  General  Manager  did  not  therefore  constitute  unlawful  termination,  or  termination  without  just  or  authorized  cause.  We  think  that  the   precise   authorized   cause   for   termination   in   the   case   at   bar   was  redundancy.  10  The   new  partnership   had   its   own   new   General   Manager,   apparently   Mr.   Willy   Co,   the   principal   new  owner  himself,  who  personally  ran  the  business  of  Jade  Mountain.  Benjamin  Yu's  old  position  as  Assistant  General  Manager  thus  became  superfluous  or  redundant.  11  It  follows  that  petitioner  Benjamin  Yu  is  entitled  to  separation  pay  at  the  rate  of  one  month's  pay  for  each  year  of  service  that   he   had   rendered   to   the   old   partnership,   a   fraction   of   at   least   six   (6)   months   being  considered  as  a  whole  year.    While   the   new   Jade  Mountain  was   entitled   to   decline   to   retain   petitioner   Benjamin   Yu   in   its  employ,  we  consider  that  Benjamin  Yu  was  very  shabbily  treated  by  the  new  partnership.  The  old  partnership  certainly  benefitted  from  the  services  of  Benjamin  Yu  who,  as  noted,  previously  ran   the   whole   marble   quarrying,   processing   and   exporting   enterprise.   His   work   constituted  value-­‐added  to  the  business  itself  and  therefore,  the  new  partnership  similarly  benefitted  from  the  labors  of  Benjamin  Yu.  It  is  worthy  of  note  that  the  new  partnership  did  not  try  to  suggest  that  there  was  any  cause  consisting  of  some  blameworthy  act  or  omission  on  the  part  of  Mr.  Yu  which   compelled   the   new   partnership   to   terminate   his   services.   Nonetheless,   the   new   Jade  Mountain  did  not  notify  him  of   the  change   in  ownership  of   the  business,   the  relocation  of   the  main  office  of  Jade  Mountain  from  Makati  to  Mandaluyong  and  the  assumption  by  Mr.  Willy  Co  of   control   of   operations.   The   treatment   (including   the   refusal   to   honor   his   claim   for   unpaid  wages)  accorded  to  Assistant  General  Manager  Benjamin  Yu  was  so  summary  and  cavalier  as  to  amount  to  arbitrary,  bad  faith  treatment,  for  which  the  new  Jade  Mountain  may  legitimately  be  required  to  respond  by  paying  moral  damages.  This  Court,  exercising  its  discretion  and  in  view  of   all   the   circumstances   of   this   case,   believes   that   an   indemnity   for   moral   damages   in   the  amount  of  P20,000.00  is  proper  and  reasonable.    In  addition,  we  consider  that  petitioner  Benjamin  Yu  is  entitled  to  interest  at  the  legal  rate  of  six  percent  (6%)  per  annum  on  the  amount  of  unpaid  wages,  and  of  his  separation  pay,  computed  from  the  date  of  promulgation  of  the  award  of  the  Labor  Arbiter.  Finally,  because  the  new  Jade  Mountain  compelled  Benjamin  Yu  to  resort  to  litigation  to  protect  his  rights  in  the  premises,  he  is  entitled  to  attorney's  fees  in  the  amount  of  ten  percent  (10%)  of  the  total  amount  due  from  private  respondent  Jade  Mountain.    WHEREFORE,   for   all   the   foregoing,   the   Petition   for  Certiorari  is   GRANTED   DUE   COURSE,   the  Comment  filed  by  private  respondents  is  treated  as  their  Answer  to  the  Petition  for  Certiorari,  and  the  Decision  of  the  NLRC  dated  29  November  1990  is  hereby  NULLIFIED  and  SET  ASIDE.  A  new   Decision   is   hereby   ENTERED   requiring   private   respondent   Jade   Mountain   Products  Company  Limited  to  pay  to  petitioner  Benjamin  Yu  the  following  amounts:  (a)   for   unpaid  wages  which,   as   found   by   the   Labor  Arbiter,   shall   be   computed   at   the   rate   of  P2,000.00  per  month  multiplied  by  thirty-­‐six  (36)  months  (November  1984  to  December  1987)  in  the  total  amount  of  P72,000.00;  (b)  separation  pay  computed  at  the  rate  of  P4,000.00  monthly  pay  multiplied  by  three  (3)  years  of  service  or  a  total  of  P12,000.00;  

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(c)  indemnity  for  moral  damages  in  the  amount  of  P20,000.00;  (d)   six   percent   (6%)  per   annum  legal   interest   computed   on   items   (a)   and   (b)   above,  commencing  on  26  December  1989  and  until  fully  paid;  and  (e)   ten  percent   (10%)   attorney's   fees   on   the   total   amount  due   from  private   respondent   Jade  Mountain.  Costs  against  private  respondents.  SO  ORDERED.                                                                                      

                                                                                                 

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ROJAS  VS  MAGLANA    This   is   a   direct   appeal   to   this   Court   from  a  decision    **   of   the   then  Court   of   First   Instance   of  Davao,   Seventh   Judicial   District,   Branch   III,   in   Civil   Case   No.   3518,   dismissing   appellant's  complaint.    As  found  by  the  trial  court,  the  antecedent  facts  of  the  case  are  as  follows:    On  January  14,  1955,  Maglana  and  Rojas  executed  their  Articles  of  Co-­‐Partnership  (Exhibit  "A")  called   Eastcoast  Development   Enterprises   (EDE)  with   only   the   two   of   them   as   partners.   The  partnership  EDE  with  an  indefinite  term  of  existence  was  duly  registered  on  January  21,  1955  with  the  Securities  and  Exchange  Commission.    One  of  the  purposes  of  the  duly-­‐registered  partnership  was  to  "apply  or  secure  timber  and/or  minor  forests  products  licenses  and  concessions  over  public  and/or  private  forest  lands  and  to  operate,  develop  and  promote  such  forests  rights  and  concessions."  (Rollo,  p.  114).    A  duly  registered  Articles  of  Co-­‐Partnership  was  filed  together  with  an  application  for  a  timber  concession  covering  the  area  located  at  Cateel  and  Baganga,  Davao  with  the  Bureau  of  Forestry  which  was  approved  and  Timber  License  No.  35-­‐56  was  duly   issued  and  became   the  basis  of  subsequent  renewals  made  for  and  in  behalf  of  the  duly  registered  partnership  EDE.    Under  the  said  Articles  of  Co-­‐Partnership,  appellee  Maglana  shall  manage  the  business  affairs  of  the  partnership,  including  marketing  and  handling  of  cash  and  is  authorized  to  sign  all  papers  and   instruments   relating   to   the   partnership,   while   appellant   Rojas   shall   be   the   logging  superintendent  and  shall  manage  the  logging  operations  of  the  partnership.  It  is  also  provided  in   the   said   articles   of   co-­‐partnership   that   all   profits   and   losses   of   the   partnership   shall   be  divided  share  and  share  alike  between  the  partners.    During   the   period   from   January   14,   1955   to   April   30,   1956,   there   was   no   operation   of   said  partnership  (Record  on  Appeal  [R.A.]  p.  946).    Because  of   the  difficulties  encountered,  Rojas  and  Maglana  decided   to  avail  of   the   services  of  Pahamotang  as  industrial  partner.    On   March   4,   1956,   Maglana,   Rojas   and   Agustin   Pahamotang   executed   their   Articles   of   Co-­‐Partnership   (Exhibit   "B"   and   Exhibit   "C")   under   the   firm   name   EASTCOAST   DEVELOPMENT  ENTERPRISES  (EDE).  Aside  from  the  slight  difference  in  the  purpose  of  the  second  partnership  which  is  to  hold  and  secure  renewal  of  timber  license  instead  of  to  secure  the  license  as  in  the  first  partnership  and  the  term  of  the  second  partnership  is  fixed  to  thirty  (30)  years,  everything  else  is  the  same.    The  partnership  formed  by  Maglana,  Pahamotang  and  Rojas  started  operation  on  May  1,  1956,  and  was  able  to  ship  logs  and  realize  profits.  An  income  was  derived  from  the  proceeds  of  the  logs  in  the  sum  of  P643,633.07  (Decision,  R.A.  919).    On   October   25,   1956,   Pahamotang,   Maglana   and   Rojas   executed   a   document   entitled  "CONDITIONAL   SALE   OF   INTEREST   IN   THE   PARTNERSHIP,   EASTCOAST   DEVELOPMENT  ENTERPRISE"  (Exhibits  "C"  and  "D")  agreeing  among  themselves  that  Maglana  and  Rojas  shall  

purchase  the  interest,  share  and  participation  in  the  Partnership  of  Pahamotang  assessed  in  the  amount  of  P31,501.12.  It  was  also  agreed  in  the  said  instrument  that  after  payment  of  the  sum  of  P31,501.12  to  Pahamotang  including  the  amount  of  loan  secured  by  Pahamotang  in  favor  of  the   partnership,   the   two   (Maglana   and   Rojas)   shall   become   the   owners   of   all   equipment  contributed  by  Pahamotang  and  the  EASTCOAST  DEVELOPMENT  ENTERPRISES,  the  name  also  given  to  the  second  partnership,  be  dissolved.  Pahamotang  was  paid  in  fun  on  August  31,  1957.  No  other  rights  and  obligations  accrued  in  the  name  of  the  second  partnership  (R.A.  921).    After   the   withdrawal   of   Pahamotang,   the   partnership   was   continued   by   Maglana   and   Rojas  without   the   benefit   of   any   written   agreement   or   reconstitution   of   their   written   Articles   of  Partnership  (Decision,  R.A.  948).    On   January   28,   1957,   Rojas   entered   into   a   management   contract   with   another   logging  enterprise,  the  CMS  Estate,  Inc.  He  left  and  abandoned  the  partnership  (Decision,  R.A.  947).  On  February  4,  1957,  Rojas  withdrew  his  equipment  from  the  partnership  for  use  in  the  newly  acquired  area  (Decision,  R.A.  948).    The   equipment  withdrawn  were  his   supposed   contributions   to   the   first   partnership   and  was  transferred  to  CMS  Estate,  Inc.  by  way  of  chattel  mortgage  (Decision,  R.A.  p.  948).    On  March  17,  1957,  Maglana  wrote  Rojas  reminding   the   latter  of  his  obligation   to  contribute,  either   in   cash   or   in   equipment,   to   the   capital   investments   of   the   partnership   as   well   as   his  obligation  to  perform  his  duties  as  logging  superintendent.    Two  weeks  after  March  17,  1957,  Rojas  told  Maglana  that  he  will  not  be  able  to  comply  with  the  promised   contributions   and   he   will   not   work   as   logging   superintendent.   Maglana   then   told  Rojas  that  the  latter's  share  will  just  be  20%  of  the  net  profits.  Such  was  the  sharing  from  1957  to  1959  without  complaint  or  dispute  (Decision,  R.A.  949).:  nad    Meanwhile,  Rojas  took  funds  from  the  partnership  more  than  his  contribution.  Thus,  in  a  letter  dated   February   21,   1961   (Exhibit   "10")   Maglana   notified   Rojas   that   he   dissolved   the  partnership  (R.A.  949).  On   April   7,   1961,   Rojas   filed   an   action   before   the   Court   of   First   Instance   of   Davao   against  Maglana  for  the  recovery  of  properties,  accounting,  receivership  and  damages,  docketed  as  Civil  Case  No.  3518  (Record  on  Appeal,  pp.  1-­‐26).    Rojas'  petition  for  appointment  of  a  receiver  was  denied  (R.A.  894).    Upon  motion  of  Rojas  on  May  23,  1961,  Judge  Romero  appointed  commissioners  to  examine  the  long  and  voluminous  accounts  of  the  Eastcoast  Development  Enterprises  (Ibid.,  pp.  894-­‐895).  The  motion  to  dismiss  the  complaint  filed  by  Maglana  on  June  21,  1961  (Ibid.,  pp.  102-­‐114)  was  denied   by   Judge   Romero   for   want   of   merit   (Ibid.,   p.   125).   Judge   Romero   also   required   the  inclusion  of  the  entire  year  1961  in  the  report  to  be  submitted  by  the  commissioners  (Ibid.,  pp.  138-­‐143).   Accordingly,   the   commissioners   started   examining   the   records   and   supporting  papers  of  the  partnership  as  well  as  the  information  furnished  them  by  the  parties,  which  were  compiled  in  three  (3)  volumes.    

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ATTY.  MENDOZA  

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On   May   11,   1964,   Maglana   filed   his   motion   for   leave   of   court   to   amend   his   answer   with  counterclaim,  attaching  thereto  the  amended  answer  (Ibid.,  pp.  26-­‐336),  which  was  granted  on  May  22,  1964  (Ibid.,  p.  336).    On  May  27,   1964,   Judge  M.G.  Reyes   approved   the   submitted  Commissioners'  Report   (Ibid.,   p.  337).      On  June  29,  1965,  Rojas   filed  his  motion  for  reconsideration  of   the  order  dated  May  27,  1964  approving  the  report  of  the  commissioners  which  was  opposed  by  the  appellee.  On  September  19,  1964,  appellant's  motion  for  reconsideration  was  denied  (Ibid.,  pp.  446-­‐451).  A  mandatory   pre-­‐trial   was   conducted   on   September   8   and   9,   1964   and   the   following   issues  were  agreed  upon  to  be  submitted  to  the  trial  court:    (a)  The  nature  of  partnership  and  the  legal  relations  of  Maglana  and  Rojas  after  the  dissolution  of  the  second  partnership;  (b)  Their  sharing  basis:  whether  in  proportion  to  their  contribution  or  share  and  share  alike;  (c)  The  ownership  of  properties  bought  by  Maglana  in  his  wife's  name;  (d)  The  damages  suffered  and  who  should  be  liable  for  them;  and  (e)  The  legal  effect  of  the  letter  dated  February  23,  1961  of  Maglana  dissolving  the  partnership  (Decision,  R.A.  pp.  895-­‐896).-­‐  nad    After  trial,  the  lower  court  rendered  its  decision  on  March  11,  1968,  the  dispositive  portion  of  which  reads  as  follows:    "WHEREFORE,  the  above  facts  and  issues  duly  considered,  judgment  is  hereby  rendered  by  the  Court  declaring  that:  "1.  The  nature  of  the  partnership  and  the  legal  relations  of  Maglana  and  Rojas  after  Pahamotang  retired   from   the   second   partnership,   that   is,   after   August   31,   1957,   when   Pahamotang   was  finally  paid  his  share  —  the  partnership  of  the  defendant  and  the  plaintiff   is  one  of  a  de  facto  and  at  will;  "2.  Whether  the  sharing  of  partnership  profits  should  be  on  the  basis  of  computation,  that  is  the  ratio  and  proportion  of  their  respective  contributions,  or  on  the  basis  of  share  and  share  alike  —   this   covered  by  actual   contributions  of   the  plaintiff   and   the  defendant  and  by   their  verbal  agreement;   that   the   sharing   of   profits   and   losses   is   on   the   basis   of   actual   contributions;   that  from   1957   to   1959,   the   sharing   is   on   the   basis   of   80%   for   the   defendant   and   20%   for   the  plaintiff   of   the   profits,   but   from   1960   to   the   date   of   dissolution,   February   23,   1961,   the  plaintiff's  share  will  be  on  the  basis  of  his  actual  contribution  and,  considering  his  indebtedness  to  the  partnership,  the  plaintiff  is  not  entitled  to  any  share  in  the  profits  of  the  said  partnership;  "3.  As  to  whether  the  properties  which  were  bought  by  the  defendant  and  placed  in  his  or  in  his  wife's  name  were  acquired  with  partnership   funds  or  with   funds  of   the  defendant  and  —  the  Court  declares  that  there  is  no  evidence  that  these  properties  were  acquired  by  the  partnership  funds,  and  therefore  the  same  should  not  belong  to  the  partnership;  "4.  As  to  whether  damages  were  suffered  and,  if  so,  how  much,  and  who  caused  them  and  who  should  be  liable  for  them  —  the  Court  declares  that  neither  parties  is  entitled  to  damages,  for  as  already  stated  above  it   is  not  a  wise  policy  to  place  a  price  on  the  right  of  a  person  to   litigate  and/or  to  come  to  Court  for  the  assertion  of  the  rights  they  believe  they  are  entitled  to;  "5.  As   to  what   is   the   legal   effect  of   the   letter  of  defendant   to   the  plaintiff   dated  February  23,  1961;   did   it   dissolve   the   partnership   or   not   —   the   Court   declares   that   the   letter   of   the  defendant  to  the  plaintiff  dated  February  23,  1961,  in  effect  dissolved  the  partnership;  

"6.   Further,   the   Court   relative   to   the   canteen,   which   sells   foodstuffs,   supplies,   and   other  merchandise  to  the   laborers  and  employees  of   the  Eastcoast  Development  Enterprises,  —  the  COURT  DECLARES  THE  SAME  AS  NOT  BELONGING  TO  THE  PARTNERSHIP;  "7.  That  the  alleged  sale  of  forest  concession  Exhibit  9-­‐B,  executed  by  Pablo  Angeles  David  —  is  VALID   AND   BINDING   UPON   THE   PARTIES   AND   SHOULD   BE   CONSIDERED   AS   PART   OF  MAGLANA'S  CONTRIBUTION  TO  THE  PARTNERSHIP;  "8.  Further,  the  Court  orders  and  directs  plaintiff  Rojas  to  pay  or  turn  over  to  the  partnership  the  amount  of  P69,000.00  the  profits  he  received  from  the  CMS  Estate,  Inc.  operated  by  him;  "9.  The  claim  that  plaintiff  Rojas  should  be  ordered  to  pay  the  further  sum  of  P85,000.00  which  according   to   him   he   is   still   entitled   to   receive   from   the   CMS   Estate,   Inc.   is   hereby   denied  considering  that   it  has  not  yet  been  actually  received,  and  further  the  receipt   is  merely  based  upon  an  expectancy  and/or  still  speculative;  "10.  The  Court  also  directs  and  orders  plaintiff  Rojas  to  pay  the  sum  of  P62,988.19  his  personal  account  to  the  partnership;  "11.  The  Court  also  credits  the  defendant  the  amount  of  P85,000.00  the  amount  he  should  have  received   as   logging   superintendent,   and   which   was   not   paid   to   him,   and   this   should   be  considered  as  part  of  Maglana's  contribution  likewise  to  the  partnership;  and  "12.  The  complaint  is  hereby  dismissed  with  costs  against  the  plaintiff.:  rd  "SO  ORDERED."  Decision,  Record  on  Appeal,  pp.  985-­‐989).    Rojas  interposed  the  instant  appeal.    The  main  issue  in  this  case  is  the  nature  of  the  partnership  and  legal  relationship  of  the  Maglana-­‐Rojas  after  Pahamotang  retired  from  the  second  partnership.    The  lower  court   is  of  the  view  that  the  second  partnership  superseded  the  first,  so  that  when  the   second  partnership  was  dissolved   there  was  no  written   contract  of   co-­‐partnership;   there  was   no   reconstitution   as   provided   for   in   the   Maglana,   Rojas   and   Pahamotang   partnership  contract.   Hence,   the   partnership   which   was   carried   on   by   Rojas   and   Maglana   after   the  dissolution  of  the  second  partnership  was  a  de  facto  partnership  and  at  will.  It  was  considered  as   a  partnership   at  will   because   there  was  no   term,   express  or   implied;  no  period  was   fixed,  expressly  or  impliedly  (Decision,  R.A.  pp.  962-­‐963).    On   the   other   hand,   Rojas   insists   that   the   registered   partnership   under   the   firm   name   of  Eastcoast   Development   Enterprises   (EDE)   evidenced   by   the   Articles   of   Co-­‐Partnership   dated  January   14,   1955   (Exhibit   "A")   has   not   been   novated,   superseded   and/or   dissolved   by   the  unregistered  articles  of   co-­‐partnership   among  appellant  Rojas,   appellee  Maglana  and  Agustin  Pahamotang,  dated  March  4,  1956  (Exhibit  "C")  and  accordingly,  the  terms  and  stipulations  of  said   registered   Articles   of   Co-­‐Partnership   (Exhibit   "A")   should   govern   the   relations   between  him  and  Maglana.  Upon  withdrawal  of  Agustin  Pahamotang  from  the  unregistered  partnership  (Exhibit   "C"),   the   legally   constituted   partnership   EDE   (Exhibit   "A")   continues   to   govern   the  relations  between  them  and  it  was  legal  error  to  consider  a  de  facto  partnership  between  said  two  partners  or  a  partnership  at  will.  Hence,  the  letter  of  appellee  Maglana  dated  February  23,  1961,  did  not  legally  dissolve  the  registered  partnership  between  them,  being  in  contravention  of   the   partnership   agreement   agreed   upon   and   stipulated   in   their   Articles   of   Co-­‐Partnership  (Exhibit  "A").  Rather,  appellant  is  entitled  to  the  rights  enumerated  in  Article  1837  of  the  Civil  Code  and   to   the   sharing  profits  between   them  of   "share  and   share  alike"   as   stipulated   in   the  registered  Articles  of  Co-­‐Partnership  (Exhibit  "A").    

BUSORG  CASES  1  FOR  NOVEMBER  18,  2014  

ATTY.  MENDOZA  

  39  

After   a   careful   study  of   the   records   as   against   the   conflicting   claims  of  Rojas   and  Maglana,   it  appears  evident   that   it  was  not   the   intention  of   the  partners   to  dissolve   the   first  partnership,  upon   the   constitution   of   the   second   one,   which   they   unmistakably   called   an   "Additional  Agreement"   (Exhibit   "9-­‐B")   (Brief   for  Defendant-­‐Appellee,  pp.  24-­‐25).  Except   for   the   fact   that  they  took  in  one  industrial  partner;  gave  him  an  equal  share  in  the  profits  and  fixed  the  term  of  the  second  partnership  to  thirty  (30)  years,  everything  else  was  the  same.  Thus,  they  adopted  the  same  name,  EASTCOAST  DEVELOPMENT  ENTERPRISES,   they  pursued   the  same  purposes  and   the  capital   contributions  of  Rojas  and  Maglana  as  stipulated   in  both  partnerships  call   for  the  same  amounts.  Just  as  important  is  the  fact  that  all  subsequent  renewals  of  Timber  License  No.  35-­‐36  were  secured  in  favor  of  the  First  Partnership,  the  original  licensee.  To  all  intents  and  purposes   therefore,   the   First   Articles   of   Partnership   were   only   amended,   in   the   form   of  Supplementary  Articles  of  Co-­‐Partnership   (Exhibit   "C")  which  was  never   registered   (Brief   for  Plaintiff-­‐Appellant,  p.  5).  Otherwise  stated,  even  during  the  existence  of  the  second  partnership,  all  business   transactions  were  carried  out  under   the  duly  registered  articles.  As   found  by   the  trial  court,  it  is  an  admitted  fact  that  even  up  to  now,  there  are  still  subsisting  obligations  and  contracts   of   the   latter   (Decision,   R.A.   pp.   950-­‐957).   No   rights   and   obligations   accrued   in   the  name  of  the  second  partnership  except  in  favor  of  Pahamotang  which  was  fully  paid  by  the  duly  registered  partnership  (Decision,  R.A.,  pp.  919-­‐921).    On  the  other  hand,  there  is  no  dispute  that  the  second  partnership  was  dissolved  by  common  consent.   Said   dissolution   did   not   affect   the   first   partnership   which   continued   to   exist.  Significantly,  Maglana  and  Rojas  agreed  to  purchase  the  interest,  share  and  participation  in  the  second  partnership  of  Pahamotang   and   that   thereafter,   the   two   (Maglana   and  Rojas)   became  the   owners   of   equipment   contributed  by  Pahamotang.   Even  more   convincing,   is   the   fact   that  Maglana  on  March  17,  1957,  wrote  Rojas,   reminding   the   latter  of  his  obligation   to   contribute  either   in   cash   or   in   equipment,   to   the   capital   investment   of   the   partnership   as   well   as   his  obligation  to  perform  his  duties  as   logging  superintendent.  This  reminder  cannot  refer  to  any  other  but  to  the  provisions  of  the  duly  registered  Articles  of  Co-­‐Partnership.  As  earlier  stated,  Rojas  replied  that  he  will  not  be  able  to  comply  with  the  promised  contributions  and  he  will  not  work  as  logging  superintendent.  By  such  statements,  it  is  obvious  that  Roxas  understood  what  Maglana  was  referring  to  and  left  no  room  for  doubt  that  both  considered  themselves  governed  by  the  articles  of  the  duly  registered  partnership.  Under   the   circumstances,   the   relationship   of   Rojas   and   Maglana   after   the   withdrawal   of  Pahamotang  can  neither  be  considered  as  a  De  Facto  Partnership,  nor  a  Partnership  at  Will,  for  as  stressed,  there  is  an  existing  partnership,  duly  registered.  As   to   the  question  of  whether  or  not  Maglana  can  unilaterally  dissolve   the  partnership   in   the  case  at  bar,  the  answer  is  in  the  affirmative.  Hence,   as   there   are   only   two   parties   when   Maglana   notified   Rojas   that   he   dissolved   the  partnership,  it  is  in  effect  a  notice  of  withdrawal.  Under  Article  1830,  par.  2  of   the  Civil  Code,  even   if   there   is  a  specified  term,  one  partner  can  cause  its  dissolution  by  expressly  withdrawing  even  before  the  expiration  of  the  period,  with  or  without   justifiable   cause.   Of   course,   if   the   cause   is   not   justified   or   no   cause   was   given,   the  withdrawing  partner  is  liable  for  damages  but  in  no  case  can  he  be  compelled  to  remain  in  the  firm.  With  his  withdrawal,  the  number  of  members  is  decreased,  hence,  the  dissolution.  And  in  whatever  way  he  may  view  the  situation,   the  conclusion   is   inevitable   that  Rojas  and  Maglana  shall   be   guided   in   the   liquidation   of   the   partnership   by   the   provisions   of   its   duly   registered  Articles   of   Co-­‐Partnership;   that   is,   all   profits   and   losses   of   the   partnership   shall   be   divided  "share  and  share  alike"  between  the  partners.    

But   an   accounting  must   first   be  made   and  which   in   fact   was   ordered   by   the   trial   court   and  accomplished  by  the  commissioners  appointed  for  the  purpose.  On  the  basis  of  the  Commissioners'  Report,  the  corresponding  contribution  of  the  partners  from  1956-­‐1961   are   as   follows:   Eufracio   Rojas   who   should   have   contributed   P158,158.00,  contributed   only   P18,750.00   while   Maglana   who   should   have   contributed   P160,984.00,  contributed  P267,541.44  (Decision,  R.A.  p.  976).  It  is  a  settled  rule  that  when  a  partner  who  has  undertaken  to  contribute  a  sum  of  money  fails  to  do  so,  he  becomes  a  debtor  of  the  partnership  for  whatever  he  may  have  promised   to  contribute  (Article  1786,  Civil  Code)  and   for   interests  and   damages   from   the   time   he   should   have   complied  with   his   obligation   (Article   1788,   Civil  Code)   (Moran,   Jr.   v.   Court   of  Appeals,   133   SCRA  94   [1984]).   Being   a   contract   of   partnership,  each   partner   must   share   in   the   profits   and   losses   of   the   venture.   That   is   the   essence   of   a  partnership  (Ibid.,  p.  95).    Thus,   as   reported   in   the   Commissioners'   Report,   Rojas   is   not   entitled   to   any   profits.   In   their  voluminous  reports  which  was  approved  by  the  trial  court,  they  showed  that  on  50-­‐50%  basis,  Rojas  will  be  liable  in  the  amount  of  P131,166.00;  on  80-­‐20%,  he  will  be  liable  for  P40,092.96  and  finally  on  the  basis  of  actual  capital  contribution,  he  will  be  liable  for  P52,040.31.    Consequently,   except   as   to   the   legal   relationship   of   the   partners   after   the   withdrawal   of  Pahamotang  which  is  unquestionably  a  continuation  of  the  duly  registered  partnership  and  the  sharing  of  profits  and  losses  which  should  be  on  the  basis  of  share  and  share  alike  as  provided  for   in   the   duly   registered   Articles   of   Co-­‐Partnership,   no   plausible   reason   could   be   found   to  disturb  the  findings  and  conclusions  of  the  trial  court.:  nad    As  to  whether  Maglana  is  liable  for  damages  because  of  such  withdrawal,  it  will  be  recalled  that  after   the  withdrawal  of  Pahamotang,  Rojas  entered   into  a  management  contract  with  another  logging   enterprise,   the   CMS   Estate,   Inc.,   a   company   engaged   in   the   same   business   as   the  partnership.  He  withdrew  his  equipment,  refused  to  contribute  either  in  cash  or  in  equipment  to  the  capital  investment  and  to  perform  his  duties  as  logging  superintendent,  as  stipulated  in  their   partnership   agreement.   The   records   also   show   that   Rojas   not   only   abandoned   the  partnership   but   also   took   funds   in   an   amount  more   than   his   contribution   (Decision,   R.A.,   p.  949).  In  the  given  situation  Maglana  cannot  be  said  to  be  in  bad  faith  nor  can  he  be  liable  for  damages.  PREMISES  CONSIDERED,   the  assailed  decision  of   the  Court  of  First   Instance  of  Davao,  Branch  III,   is   hereby   MODIFIED   in   the   sense   that   the   duly   registered   partnership   of   Eastcoast  Development  Enterprises   continued   to  exist  until   liquidated  and   that   the   sharing  basis  of   the  partners   should  be   on   share   and   share   alike   as   provided   for   in   its  Articles   of   Partnership,   in  accordance  with  the  computation  of  the  commissioners.  We  also  hereby  AFFIRM  the  decision  of  the  trial  court  in  all  other  respects.:  SO  ORDERED.