busorg general provisions.pdf

5/24/2018 BusOrg General Provisions.pdf

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BUS ORG GEN PROVISIONS 1

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P.DRAGON, petitioners,vs.THE COMMISSIONER OF INTERNAL REVENUE and COURTOF TAX APPEALS, respondents.

De la Cuesta, De las Alas and Callanta Law Offices forpetitioners.

The Solicitor General for respondents

GANCAYCO, J .:

The distinction between co-ownership and an unregisteredpartnership or joint venture for income tax purposes is the issuein this petition.

On June 22, 1965, petitioners bought two (2) parcels of landfrom Santiago Bernardino, et al. and on May 28, 1966, theybought another three (3) parcels of land from Juan Roque. Thefirst two parcels of land were sold by petitioners in 1968toMarenir Development Corporation, while the three parcels ofland were sold by petitioners to Erlinda Reyes and Maria

Samson on March 19,1970. Petitioners realized a net profit inthe sale made in 1968 in the amount of P165,224.70, while theyrealized a net profit of P60,000.00 in the sale made in 1970. Thecorresponding capital gains taxes were paid by petitioners in1973 and 1974 by availing of the tax amnesties granted in thesaid years.

However, in a letter dated March 31, 1979 of then Acting BIRCommissioner Efren I. Plana, petitioners were assessed and

required to pay a total amount of P107,101.70 as allegeddeficiency 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 backin 1974.

In a reply of August 22, 1979, respondent Commissionerinformed petitioners that in the years 1968 and 1970, petitionersas co-owners in the real estate transactions formed anunregistered partnership or joint venture taxable as acorporation under Section 20(b) and its income was subject tothe taxes prescribed under Section 24, both of the NationalInternal Revenue Code 1 that the unregistered partnership wassubject to corporate income tax as distinguished from profitsderived from the partnership by them which is subject toindividual income tax; and that the availment of tax amnesty

under P.D. No. 23, as amended, by petitioners relievedpetitioners of their individual income tax liabilities but did notrelieve them from the tax liability of the unregistered partnership.Hence, the petitioners were required to pay the deficiencyincome tax assessed.

Petitioners filed a petition for review with the respondent Courtof Tax Appeals docketed as CTA Case No. 3045. In due course,the respondent court by a majority decision of March 30,1987, 2affirmed the decision and action taken by respondent

commissioner with costs against petitioners.

It ruled that on the basis of the principle enunciatedin Evangelista3an unregistered partnership was in fact formedby petitioners which like a corporation was subject to corporateincome tax distinct from that imposed on the partners.

In a separate dissenting opinion, Associate Judge ConstanteRoaquin stated that considering the circumstances of this case,although there might in fact be a co-ownership between the


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petitioners, there was no adequate basis for the conclusion thatthey 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 thereofthe following alleged errors of the respondent court:

A. IN HOLDING AS PRESUMPTIVELYCORRECT THE DETERMINATION OF THERESPONDENT COMMISSIONER, TO THEEFFECT THAT PETITIONERS FORMED ANUNREGISTERED PARTNERSHIP SUBJECT TOCORPORATE INCOME TAX, AND THAT THEBURDEN OF OFFERING EVIDENCE INOPPOSITION THERETO RESTS UPON THEPETITIONERS.

B. IN MAKING A FINDING, SOLELY ON THEBASIS OF ISOLATED SALE TRANSACTIONS,THAT AN UNREGISTERED PARTNERSHIPEXISTED THUS IGNORING THEREQUIREMENTS LAID DOWN BY LAW THATWOULD WARRANT THEPRESUMPTION/CONCLUSION THAT APARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS

SIMILAR TO THE EVANGELISTA CASE ANDTHEREFORE SHOULD BE DECIDEDALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DIDNOT RELIEVE THE PETITIONERS FROMPAYMENT OF OTHER TAXES FOR THEPERIOD COVERED BY SUCH AMNESTY. (pp.12-13, Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is theruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money fromtheir father which together with their own personal funds they

used in buying several real properties. They appointed theirbrother to manage their properties with full power to lease,collect, rent, issue receipts, etc. They had the real propertiesrented or leased to various tenants for several years and theygained net profits from the rental income. Thus, the Collector ofInternal Revenue demanded the payment of income tax on acorporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners aresubject to the tax on corporations provided for insection 24 of Commonwealth Act No. 466,otherwise known as the National Internal RevenueCode, as well as to the residence tax forcorporations and the real estate dealers' fixed tax.With respect to the tax on corporations, the issuehinges on the meaning of the terms corporationand partnership as used in sections 24 and 84 ofsaid Code, the pertinent parts of which read:

Sec. 24. Rate of the tax on corporations.Thereshall be levied, assessed, collected, and paidannually upon the total net income received in thepreceding taxable year from all sources by everycorporation organized in, or existing under thelaws of the Philippines, no matter how created ororganized but not including duly registered generalco-partnerships (companies collectives), a tax


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upon such income equal to the sum of thefollowing: ...

Sec. 84(b). The term "corporation" includespartnerships, no matter how created or organized,joint-stock companies, joint accounts (cuentas enparticipation), associations or insurance

companies, but does not include duly registeredgeneral co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippinesprovides:

By the contract of partnership two or more personsbind themselves to contribute money, property, orindustry to a common fund, with the intention ofdividing the profits among themselves.

Pursuant to this article, the essential elements of apartnership are two, namely: (a) an agreement tocontribute money, property or industry to acommon fund; and (b) intent to divide the profitsamong the contracting parties. The first element isundoubtedly present in the case at bar, for,admittedly, petitioners have agreed to, and did,contribute money and property to a commonfund. Hence, the issue narrows down to their

intent in acting as they did. Upon consideration ofall the facts and circumstances surrounding thecase, we are fully satisfied that their purpose wasto engage in real estate transactions for monetarygain and then divide the same among themselves,because:

1. Said common fund was not something theyfound already in existence. It was not a propertyinherited by them pro indiviso. They created it

purposely. What is more they jointly borrowed asubstantial portion thereof in order to establishsaid common fund.

2. They invested the same, not merely in onetransaction, but in a series of transactions. OnFebruary 2, 1943, they bought a lot for

P100,000.00. On April 3, 1944, they purchased 21lots for P18,000.00. This was soon followed, onApril 23, 1944, by the acquisition of another realestate for P108,825.00. Five (5) days later (April28, 1944), they got a fourth lot forP237,234.14. The number of lots (24) acquiredand transcations undertaken, as well as the briefinterregnum between each, particularly the lastthree purchases, is strongly indicative of a patternor common design that was not limited to the

conservation and preservation of theaforementioned common fund or even of theproperty acquired by petitioners in February, 1943.In other words, one cannot but perceive acharacter of habituality peculiar to businesstransactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted toresidential purposes or to other personal uses, ofpetitioners herein. The properties were leased

separately to several persons, who, from 1945 to1948 inclusive, paid the total sum of P70,068.30by way of rentals. Seemingly, the lots are stillbeing so let, for petitioners do not even suggestthat there has been any change in the utilizationthereof.

4. Since August, 1945, the properties have beenunder the management of one person, namely,Simeon Evangelists, with full power to lease, to


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collect rents, to issue receipts, to bring suits, tosign letters and contracts, and to indorse anddeposit notes and checks. Thus, the affairsrelative to said properties have been handled as ifthe same belonged to a corporation or businessenterprise operated for profit.

5. The foregoing conditions have existed for morethan ten (10) years, or, to be exact, over fifteen(15) years, since the first property was acquired,and over twelve (12) years, since SimeonEvangelists became the manager.

6. Petitioners have not testified or introduced anyevidence, either on their purpose in creating theset up already adverted to, or on the causes for itscontinued existence. They did not even try to offer

an explanation therefor.

Although, taken singly, they might not suffice toestablish the intent necessary to constitute apartnership,the collective effect of thesecircumstances is such as to leave no room fordoubt on the existence of said intent in petitionersherein. Only one or two of the aforementionedcircumstances were present in the cases cited bypetitioners herein, and, hence, those cases are not

in point.5

In the present case, there is no evidence that petitionersentered into an agreement to contribute money, property orindustry to a common fund, and that they intended to divide theprofits among themselves. Respondent commissioner and/ orhis representative just assumed these conditions to be presenton the basis of the fact that petitioners purchased certainparcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions wherepetitioners purchased twenty-four (24) lotsshowing that thepurpose was not limited to the conservation or preservation ofthe common fund or even the properties acquired by them. Thecharacter of habituality peculiar to business transactionsengaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in1965. They did not sell the same nor make any improvementsthereon. In 1966, they bought another three (3) parcels of landfrom one seller. It was only 1968 when they sold the two (2)parcels of land after which they did not make any additional ornew purchase. The remaining three (3) parcels were sold bythem in 1970. The transactions were isolated. The character ofhabituality peculiar to business transactions for the purpose ofgain was not present.

In Evangelista, the properties were leased out to tenants forseveral years. The business was under the management of oneof 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 Bautistain Evangelistahe said:

I wish however to make the following observation

Article 1769 of the new Civil Code lays down therule for determining when a transaction should bedeemed a partnership or a co-ownership. Saidarticle paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itselfestablish a partnership, whether such co-ownersor co-possessors do or do not share any profitsmade by the use of the property;


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(3) The sharing of gross returns does not of itselfestablish a partnership, whether or not thepersons sharing them have a joint or commonright or interest in any property from which thereturns are derived;

From the above it appears that the fact that those

who agree to form a co- ownership share or do notshare any profits made by the use of the propertyheld in common does not convert their venture intoa partnership. Or the sharing of the gross returnsdoes not of itself establish a partnership whetheror not the persons sharing therein have a joint orcommon right or interest in the property. This onlymeans that, aside from the circumstance of profit,the presence of other elements constitutingpartnership is necessary, such as the clear intent

to form a partnership, the existence of a juridicalpersonality different from that of the individualpartners, and the freedom to transfer or assignany interest in the property by one with theconsent of the others (Padilla, Civil Code of thePhilippines Annotated, Vol. I, 1953 ed., pp. 635-636)

It is evident that an isolated transaction wherebytwo or more persons contribute funds to buy

certain real estate for profit in the absence of othercircumstances showing a contrary intention cannotbe considered a partnership.

Persons who contribute property or funds for acommon enterprise and agree to share the grossreturns of that enterprise in proportion to theircontribution, but who severally retain the title totheir respective contribution, are not therebyrendered partners. They have no common stock or

capital, and no community of interest as principalproprietors in the business itself which theproceeds derived. (Elements of the Law ofPartnership by Flord D. Mechem 2nd Ed., section83, p. 74.)

A joint purchase of land, by two, does not

constitute a co-partnership in respect thereto; nordoes an agreement to share the profits and losseson the sale of land create a partnership; theparties 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 tobecome owners of a single tract of realty, holdingas tenants in common, and to divide the profits of

disposing of it, the brother and the other not beingentitled to share in plaintiffs commission, nopartnership existed as between the three parties,whatever their relation may have been as to thirdparties. (Magee vs. Magee 123 N.E. 673, 233Mass. 341.)

In order to constitute a partnership inter sese theremust 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 asthird persons are concerned as enables eachparty to make contract, manage the business, anddispose of the whole property.-Municipal PavingCo. vs. Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itselfcreate a partnership between the owners, thoughthey may use it for the purpose of making gains;and they may, without becoming partners, agree


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among themselves as to the management, anduse of such property and the application of theproceeds therefrom. (Spurlock vs. Wilson, 142S.W. 363,160 No. App. 14.) 6

The sharing of returns does not in itself establish a partnershipwhether or not the persons sharing therein have a joint or

common right or interest in the property. There must be a clearintent to form a partnership, the existence of a juridicalpersonality different from the individual partners, and thefreedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownershipbetween the petitioners. There is no adequate basis to supportthe proposition that they thereby formed an unregisteredpartnership. The two isolated transactions whereby theypurchased properties and sold the same a few years thereafter

did not thereby make them partners. They shared in the grossprofits as co- owners and paid their capital gains taxes on theirnet profits and availed of the tax amnesty thereby. Under thecircumstances, they cannot be considered to have formed anunregistered partnership which is thereby liable for corporateincome tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that suchunregistered partnership appears to have been formed, sincethere is no such existing unregistered partnership with a distinct

personality nor with assets that can be held liable for saiddeficiency corporate income tax, then petitioners can be heldindividually liable as partners for this unpaid obligation of thepartnership p. 7However, as petitioners have availed of thebenefits of tax amnesty as individual taxpayers in thesetransactions, they are thereby relieved of any further tax liabilityarising therefrom.

WHEREFROM, the petition is hereby GRANTED and thedecision of the respondent Court of Tax Appeals of March 30,

1987 is hereby REVERSED and SET ASIDE and anotherdecision is hereby rendered relieving petitioners of the corporateincome tax liability in this case, without pronouncement as tocosts.

SO ORDERED.

G.R. No. L-49982 April 27, 1988

ELIGIO ESTANISLAO, JR., petitioner,vs.THE HONORABLE COURT OF APPEALS, REMEDIOSESTANISLAO, EMILIO and LEOCADIOSANTIAGO,respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

GANCAYCO, J .:

By this petition for certiorari the Court is asked to determine if apartnership exists between members of the same family arisingfrom their joint ownership of certain properties.

Petitioner and private respondents are brothers and sisters whoare co-owners of certain lots at the corner of Annapolis andAurora Blvd., QuezonCity which were then being leased to theShell Company of the Philippines Limited (SHELL). They agreedto open and operate a gas station thereat to be known asEstanislao Shell Service Station with an initial investment of P15,000.00 to be taken from the advance rentals due to themfrom SHELL for the occupancy of the said lots owned incommon by them. A joint affidavit was executed by them onApril 11, 1966 which was prepared byAtty. Democrito


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Angeles 1They agreed to help their brother, petitioner herein, byallowing him to operate and manage the gasoline service stationof the family. They negotiated with SHELL. For practicalpurposes and in order not to run counter to the company's policyof appointing only one dealer, it was agreed that petitionerwould apply for the dealership. Respondent Remedios helped inmanaging the bussiness with petitioner from May 3, 1966 up to

February 16, 1967.

On May 26, 1966, the parties herein entered into an AdditionalCash Pledge Agreement with SHELL wherein it was reiteratedthat the P 15,000.00 advance rental shall be deposited withSHELL to cover advances of fuel to petitioner as dealer with aproviso that said agreement "cancels and supersedes the JointAffidavit dated 11 April 1966 executed by the co-owners." 2

For sometime, the petitioner submitted financial statements

regarding the operation of the business to private respondents,but therafter petitioner failed to render subsequent accounting.Hence through Atty. Angeles, a demand was made on petitionerto render an accounting of the profits.

The financial report of December 31, 1968 shows that thebusiness was able to make a profit of P 87,293.79 and that bythe year ending 1969, a profit of P 150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint

in the Court of First Instance of Rizal against petitioner prayingamong others that the latter be ordered:

1. to execute a public document embodying all theprovisions of the partnership agreement enteredinto between plaintiffs and defendant as providedin Article 1771 of the New Civil Code;

2. to render a formal accounting of the businessoperation covering the period from May 6, 1966 up

to December 21, 1968 and from January 1, 1969up to the time the order is issued and that thesame be subject to proper audit;

3. to pay the plaintiffs their lawful shares andparticipation in the net profits of the business in anamount of no less than P l50,000.00 with interest

at the rate of 1% per month from date of demanduntil full payment thereof for the entire duration ofthe business; and

4. to pay the plaintiffs the amount of P 10,000.00as attorney's fees and costs of the suit (pp. 13-14Record on Appeal.)

After trial on the merits, on October 15, 1975, Hon. Lino Anoverwho was then the temporary presiding judge of Branch IV of the

trial court, rendered judgment dismissing the complaint andcounterclaim and ordering private respondents to pay petitionerP 3,000.00 attorney's fee and costs. Private respondent filed amotion for reconsideration of the decision. On December 10,1975, Hon. Ricardo Tensuan who was the newly appointedpresiding judge of the same branch, set aside the aforesaidderision and rendered another decision in favor of saidrespondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court datedOctober 14, 1975 is hereby reconsidered and anew judgment is hereby rendered in favor of theplaintiffs and as against the defendant:

(1) Ordering the defendant to execute a publicinstrument embodying all the provisions of thepartnership agreement entered into between


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plaintiffs and defendant as provided for in Article1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formalaccounting of the business operation from April1969 up to the time this order is issued, the sameto be subject to examination and audit by the

plaintiff,

(3) Ordering the defendant to pay plaintiffs theirlawful shares and participation in the net profits ofthe business in the amount of P 150,000.00, withinterest thereon at the rate of One (1%) Per Centper month from date of demand until full paymentthereof;

(4) Ordering the defendant to pay the plaintiffs the

sum of P 5,000.00 by way of attorney's fees ofplaintiffs' counsel; as well as the costs of suit. (pp.161-162. Record on Appeal).

Petitioner then interposed an appeal to the Court of Appealsenumerating seven (7) errors allegedly committed by the trialcourt. In due course, a decision was rendered by the Court ofAppeals on November 28,1978 affirming in totothe decision ofthe lower court with costs against petitioner. *

A motion for reconsideration of said decision f iled by petitionerwas denied on January 30, 1979. Not satisfied therewith, thepetitioner now comes to this court by way of this petition forcertiorari alleging that the respondent court erred:

1. In interpreting the legal import of the JointAffidavit (Exh. 'A') vis-a-vis the Additional CashPledge Agreement (Exhs. "B-2","6", and "L"); and

2. In declaring that a partnership was establishedby and among the petitioner and the privaterespondents as regards the ownership and oroperation of the gasoline service station business.

Petitioner relies heavily on the provisions of the Joint Affidavit ofApril 11, 1966 (Exhibit A) and the Additional Cash Pledge

Agreement of May 20, 1966 (Exhibit 6) which are hereinreproduced-

(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

(1) That we are the Lessors of two parcels of landfully describe in Transfer Certificates of Title Nos.45071 and 71244 of the Register of Deeds ofQuezon City, in favor of the LESSEE - SHELLCOMPANY OF THE PHILIPPINES LIMITED a

corporation duly licensed to do business in thePhilippines;

(2) That we have requested the said SHELLCOMPANY OF THE PHILIPPINE LIMITEDadvanced rentals in the total amount of FIFTEENTHOUSAND PESOS (P l5,000.00) PhilippineCurrency, so that we can use the said amount toaugment our capital investment in the operation ofthat gasoline station constructed ,by the said

company on our two lots aforesaid by virtue of anoutstanding Lease Agreement we have enteredinto with the said company;

(3) That the and SHELL COMPANY OF THEPHILIPPINE LIMITED out of its benevolence anddesire to help us in aumenting our capitalinvestment in the operation of the said gasolinestation, has agreed to give us the said amount of


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P 15,000.00, which amount will partake the natureof ADVANCED RENTALS;

(4) That we have freely and voluntarily agreed thatupon receipt of the said amount of FIFTEENTHOUSAND PESOS (P l6,000.00) from he SHELLCOMPANY OF THE PHILIPPINES LIMITED, the

said sum as ADVANCED RENTALS to us beapplied as monthly rentals for the sai two lotsunder our Lease Agreement starting on the 25th ofMay, 1966 until such time that the said of P15,000.00 be applicable, which time to ourestimate and one-half months from May 25, 1966or until the 10th of October, 1966 more or less;

(5) That we have likewise agreed amongourselves that the SHELL COMPANY OF THE

PHILIPPINES LIMITED execute an instrument forus to sign embodying our conformity that the saidamount that it will generously grant us asrequested be applied as ADVANCED RENTALS;and

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement of May 20,1966,Exhibit 6, is as follows:

WHEREAS, under the lease Agreement dated13th November, 1963 (identified as doc. Nos. 491& 1407, Page Nos. 99 & 66, Book Nos. V & III,Series of 1963 in the Notarial Registers ofNotaries Public Rosauro Marquez, and R.D.Liwanag, respectively) executed in favour ofSHELL by the herein CO-OWNERS and anotherLease Agreement dated 19th March 1964 . . . alsoexecuted in favour of SHELL by CO-OWNERS

Remedios and MARIA ESTANISLAO for the leaseof adjoining portions of two parcels of land atAurora Blvd./ Annapolis, Quezon City, the COOWNERS RECEIVE a total monthly rental ofPESOS THREE THOUSAND THREE HUNDREDEIGHTY TWO AND 29/100 (P 3,382.29),Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao Jr. isthe Dealer of the Shell Station constructed on theleased land, and as Dealer under the Cash PledgeAgreement dated llth May 1966, he deposited toSHELL in cash the amount of PESOS TENTHOUSAND (P 10,000), Philippine Currency, tosecure his purchase on credit of Shell petroleumproducts; . . .

WHEREAS, said DEALER, in his desire, to begranted an increased the limit up to P 25,000, hassecured the conformity of his CO-OWNERS towaive and assign to SHELL the total monthlyrentals due to all of them to accumulate theequivalent amount of P 15,000, commencing 24thMay 1966, this P 15,000 shall be treated asadditional cash deposit to SHELL under the sameterms and conditions of the aforementioned CashPledge Agreement dated llth May 1966.

NOW, THEREFORE, for and in consideration ofthe foregoing premises,and the mutual covenantsamong the CO-OWNERS herein and SHELL, saidparties have agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in favor ofDEALER the monthly rentals due to all CO-OWNERS, collectively, under the above describetwo Lease Agreements, one dated 13th November


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1963 and the other dated 19th March 1964 toenable DEALER to increase his existing cashdeposit to SHELL, from P 10,000 to P 25,000, forsuch purpose, the SHELL CO-OWNERS andDEALER hereby irrevocably assign to SHELL themonthly rental of P 3,382.29 payable to themrespectively as they fall due, monthly,

commencing 24th May 1966, until such time thatthe monthly rentals accumulated, shall be equal toP l5,000.

2. The above stated monthly rentals accumulatedshall be treated as additional cash deposit byDEALER to SHELL, thereby in increasing hiscredit limit from P 10,000 to P 25,000. Thisagreement, therefore, cancels and supersedes theJoint affidavit dated 11 April 1966 executed by the

CO-OWNERS.

3. Effective upon the signing of this agreement,SHELL agrees to allow DEALER to purchase fromSHELL petroleum products, on credit, up to theamount of P 25,000.

4. This increase in the credit shall also be subjectto the same terms and conditions of the above-mentioned Cash Pledge Agreement dated llth May

1966. (Exhs. "B-2," "L," and "6"; emphasissupplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it isclearly stipulated by the parties that the P 15,000.00 advancerental due to them from SHELL shall augment their "capitalinvestment" in the operation of the gasoline station, whichadvance rentals shall be credited as rentals from May 25, 1966up to four and one-half months or until 10 October 1966, moreor less covering said P 15,000.00.

In the subsequent document entitled "Additional Cash PledgeAgreement" above reproduced (Exhibit 6), the privaterespondents and petitioners assigned to SHELL the monthlyrentals due them commencing the 24th of May 1966 until suchtime that the monthly rentals accumulated equal P 15,000.00which private respondents agree to be a cash deposit ofpetitioner in favor of SHELL to increase his credit limit as dealer.

As above-stated it provided therein that "This agreement,therefore, cancels and supersedes the Joint Affidavit dated 11April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulationcancelling and superseding that previous Joint Affidavit,whatever partnership agreement there was in said previousagreement had thereby been abrogated. We find no merit in thisargument. Said cancelling provision was necessary for the JointAffidavit speaks of P 15,000.00 advance rentals starting May

25, 1966 while the latter agreement also refers to advancerentals of the same amount starting May 24, 1966. There is,therefore, a duplication of reference to the P 15,000.00 hencethe need to provide in the subsequent document that it "cancelsand supersedes" the previous one. True it is that in the latterdocument, it is silent as to the statement in the Joint Affidavitthat the P 15,000.00 represents the "capital investment" of theparties in the gasoline station business and it speaks ofpetitioner as the sole dealer, but this is as it should be for in thelatter document SHELL was a signatory and it would be against

its policy if in the agreement it should be stated that thebusiness is a partnership with private respondents and not asole proprietorship of petitioner.

Moreover other evidence in the record shows that there was infact such partnership agreement between the parties. This isattested by the testimonies of private respondent RemediesEstanislao and Atty. Angeles. Petitioner submitted to privaterespondents periodic accounting of the business. 4Petitionergave a written authority to private respondent Remedies


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Estanislao, his sister, to examine and audit the books of their"common business' aming negosyo). 5Respondent Remediosassisted in the running of the business. There is no doubt thatthe parties hereto formed a partnership when they boundthemselves to contribute money to a common fund with theintention of dividing the profits among themselves.6The soledealership by the petitioner and the issuance of all government

permits and licenses in the name of petitioner was incompliance with the afore-stated policy of SHELL and theunderstanding of the parties of having only one dealer of theSHELL products.

Further, the findings of facts of the respondent court areconclusive in this proceeding, and its conclusion based on thesaid facts are in accordancewith the applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in

toto with costs against petitioner. This decision is immediatelyexecutory and no motion for extension of time to file a motion forreconsideration shag beentertained.

SO ORDERED.

G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL.,plaintiffs-appellants,vs.

SECRETARY OF COMMERCE AND INDUSTRY,defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.Office of the Solicitor General for defendant-appellee.

DIZON, J .:

Action for declaratory relief filed in the Court of First Instance ofIloilo by Ang Pue & Company, Ang Pue and Tan Siong against

the Secretary of Commerce and Industry to secure judgment"declaring that plaintiffs could extend for five years the term ofthe partnership pursuant to the provisions of plaintiffs'Amendment to the Article of Co-partnership."

The answer filed by the defendant alleged, in substance, thatthe extension for another five years of the term of the plaintiffs'

partnership would be in violation of the provisions of RepublicAct No. 1180.

It appears that on May 1, 1953, Ang Pue and Tan Siong, bothChinese citizens, organized the partnership Ang Pue &Company for a term of five years from May 1, 1953, extendibleby their mutual consent. The purpose of the partnership was "tomaintain the business of general merchandising, buying andselling at wholesale and retail, particularly of lumber, hardwareand other construction materials for commerce, either native or

foreign." The corresponding articles of partnership (Exhibit B)were registered in the Office of the Securities & ExchangeCommission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted toregulate the retail business. It provided, among other things,that, after its enactment, a partnership not wholly formed byFilipinos could continue to engage in the retail business until theexpiration of its term.

On April 15, 1958

prior to the expiration of the five-year termof the partnership Ang Pue & Company, but after the enactmentof the Republic Act 1180, the partners already mentionedamended the original articles of part ownership (Exhibit B) so asto extend the term of life of the partnership to another five years.When the amended articles were presented for registration inthe Office of the Securities & Exchange Commission on April16, 1958, registration was refused upon the ground that theextension was in violation of the aforesaid Act.


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From the decision of the lower court dismissing the action, withcosts, the plaintiffs interposed this appeal.

The question before us is too clear to require an extendeddiscussion. To organize a corporation or a partnership thatcould claim a juridical personality of its own and transactbusiness as such, is not a matter of absolute right but a privilege

which may be enjoyed only under such terms as the State maydeem necessary to impose. That the State, through Congress,and in the manner provided by law, had the right to enactRepublic Act No. 1180 and to provide therein that only Filipinosand concerns wholly owned by Filipinos may engage in theretail business can not be seriously disputed. That this provisionwas clearly intended to apply to partnership already existing atthe time of the enactment of the law is clearly showing by itsprovision giving them the right to continue engaging in theirretail business until the expiration of their term or life.

To argue that because the original articles of partnershipprovided that the partners could extend the term of thepartnership, the provisions of Republic Act 1180 cannot beadversely affect appellants herein, is to erroneously assumethat the aforesaid provision constitute a property right of whichthe partners can not be deprived without due process or withouttheir consent. The agreement contain therein must be deemedsubject to the law existing at the time when the partners came toagree regarding the extension. In the present case, as already

stated, when the partners amended the articles of partnership,the provisions of Republic Act 1180 were already in force, andthere can be not the slightest doubt that the right claimed byappellants to extend the original term of their partnership toanother five years would be in violation of the clear intent andpurpose of the law aforesaid.

WHEREFORE, the judgment appealed from is affirmed, withcosts.

G.R. No. L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.OBILLOS and REMEDIOS P. OBILLOS, brothers andsisters, petitionersvs.COMMISSIONER OF INTERNAL REVENUE and COURT OF

TAX APPEALS, respondents.

Demosthenes B. Gadioma for petitioners.

AQUINO, J .:

This case is about the income tax liability of four brothers andsisters who sold two parcels of land which they had acquired

from their father.

On March 2, 1973 Jose Obillos, Sr. completed payment toOrtigas & Co., Ltd. on two lots with areas of 1,124 and 963square meters located at Greenhills, San Juan, Rizal. The nextday he transferred his rights to his four children, the petitioners,to enable them to build their residences. The company sold thetwo lots to petitioners for P178,708.12 on March 13 (Exh. A andB, p. 44, Rollo). Presumably, the Torrens titles issued to themwould 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 SecuritiesCorporation and Olga Cruz Canda for the total sum of P313,050(Exh. C and D). They derived from the sale a total profit ofP134,341.88 or P33,584 for each of them. They treated theprofit as a capital gain and paid an income tax on one-halfthereof or of P16,792.


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In April, 1980, or one day before the expiration of the five-yearprescriptive period, the Commissioner of Internal Revenuerequired the four petitioners to pay corporate income taxon thetotal profit of P134,336 in addition to individual income tax ontheir shares thereof He assessed P37,018 as corporate incometax, 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 eachpetitioner in the sum of P33,584 as a " taxable in full (not a merecapital gain of which is taxable) and required them to paydeficiency income taxes aggregating P56,707.20 including the50% fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency incometaxes and penalties totalling P127,781.76 on their profit ofP134,336, in addition to the tax on capital gains already paid by

them.

The Commissioner acted on the theory that the four petitionershad formed an unregistered partnership or joint venture withinthe meaning of sections 24(a) and 84(b) of the Tax Code(Collector of Internal Revenue vs. Batangas Trans. Co., 102Phil. 822).

The petitioners contested the assessments. Two Judges of theTax Court sustained the same. Judge Roaquin dissented.

Hence, the instant appeal.

We hold that it is error to consider the petitioners as havingformed a partnership under article 1767 of the Civil Code simplybecause they allegedly contributed P178,708.12 to buy the twolots, resold the same and divided the profit among themselves.

To regard the petitioners as having formed a taxableunregistered partnership would result in oppressive taxation and

confirm the dictum that the power to tax involves the power todestroy. 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 aspartners would obliterate the distinction between a co-ownershipand 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 residentialpurposes. If later on they found it not feasible to build theirresidences on the lots because of the high cost of construction,then they had no choice but to resell the same to dissolve theco-ownership. The division of the profit was merely incidental tothe dissolution of the co-ownership which was in the nature ofthings a temporary state. It had to be terminated sooner or later.Castan Tobeas says:

Como establecer el deslinde entre la comunidadordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina masgeneralizada-esta: por razon del origen, en que lasociedad presupone necesariamente laconvencion, mentras que la comunidad puedeexistir y existe ordinariamente sin ela; y por razondel fin objecto, en que el objeto de la sociedad es

obtener lucro, mientras que el de la indivision essolo mantener en su integridad la cosa comun yfavorecer su conservacion.

Reflejo de este criterio es la sentencia de 15 deOctubre de 1940, en la que se dice que si ennuestro Derecho positive se ofrecen a vecesdificultades al tratar de fijar la linea divisoria entrecomunidad de bienes y contrato de sociedad, lamoderna orientacion de la doctrina cientifica


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seala como nota fundamental de diferenciacionaparte del origen de fuente de que surgen, nosiempre uniforme, la finalidad perseguida por losinteresados: lucro comun partibleen la sociedad,y mera conservaciony aprovechamiento en lacomunidad. (Derecho Civil Espanol, Vol. 2, Part 1,10 Ed., 1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing ofgross returns does not of itself establish a partnership, whetheror not the persons sharing them have a joint or common right orinterest in any property from which the returns are derived".There must be an unmistakable intention to form a partnershipor joint venture.*

Such intent was present in Gatchalian vs. Collector of InternalRevenue, 67 Phil. 666, where 15 persons contributed small

amounts to purchase a two-peso sweepstakes ticket with theagreement that they would divide the prize The ticket won thethird prize of P50,000. The 15 persons were held liable forincome tax as an unregistered partnership.

The instant case is distinguishable from the cases where theparties engaged in joint ventures for profit. Thus, in Oa vs.

** This view is supported by the following rulings of respondentCommissioner:

Co-owership distinguished from partnership.Wefind that the case at bar is fundamentally similar tothe De Leon case. Thus, like the De Leon heirs,the Longa heirs inherited the 'hacienda' inquestionpro-indiviso from their deceased parents;they did not contribute or invest additional ' capitalto increase or expand the inherited properties;they merely continued dedicating the property tothe use to which it had been put by their forebears;

they individually reported in their tax returns theircorresponding shares in the income and expensesof the 'hacienda', and they continued for manyyears the status of co-ownership in order, asconceded by respondent, 'to preserve its (the'hacienda') value and to continue the existingcontractual relations with the Central Azucarera de

Bais for milling purposes. Longa vs. Aranas, CTACase No. 653, July 31, 1963).

All co-ownerships are not deemed unregisteredpratnership.Co-Ownership who own propertieswhich produce income should not automatically beconsidered partners of an unregisteredpartnership, or a corporation, within the purview ofthe income tax law. To hold otherwise, would be tosubject the income of all

co-ownershipsof inherited properties to the tax oncorporations, inasmuch as if a property does notproduce an income at all, it is not subject to anykind of income tax, whether the income tax onindividuals or the income tax on corporation. (DeLeon vs. CI R, CTA Case No. 738, September 11,1961, cited in Araas, 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-heirsused the inheritance or the incomes derived therefrom as acommon fund to produce profits for themselves, it was held thatthey were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of InternalRevenue, 24 SCRA 198, where father and son purchased a lotand building, entrusted the administration of the building to anadministrator and divided equally the net income, and fromEvangelista vs. Collector of Internal Revenue, 102 Phil. 140,


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where the three Evangelista sisters bought four pieces of realproperty which they leased to various tenants and derivedrentals therefrom. Clearly, the petitioners in these two caseshad formed an unregistered partnership.

In the instant case, what the Commissioner should haveinvestigated 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 havealready prescribed.

WHEREFORE, the judgment of the Tax Court is reversed andset aside. The assessments are cancelled. No costs.

SO ORDERED.

G.R. No. 136448 November 3, 1999

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

PANGANIBAN, J .:

A partnership may be deemed to exist among parties who agree

to borrow money to pursue a business and to divide the profitsor losses that may arise therefrom, even if it is shown that theyhave not contributed any capital of their own to a "commonfund." Their contribution may be in the form of credit or industry,not necessarily cash or fixed assets. Being partner, they are allliable for debts incurred by or on behalf of the partnership. Theliability for a contract entered into on behalf of anunincorporated association or ostensible corporation may lie ina person who may not have directly transacted on its behalf, butreaped benefits from that contract.

The Case

In the Petition for Review on Certioraribefore us, Lim Tong Limassails the November 26, 1998 Decision of the Court of Appealsin CA-GR CV41477, 1which disposed as follows:

WHEREFORE, [there being] no reversible error inthe appealed decision, the same is herebyaffirmed. 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 forthe following amounts, subject to the modificationsas hereinafter made by reason of the special andunique facts and circumstances and theproceedings that transpired during the trial of thiscase;

a. P532,045.00 representing [the]unpaid purchase price of the fishingnets covered by the Agreement plusP68,000.00 representing the unpaidprice of the floats not covered bysaid Agreement;

b. 12% interestper annum countedfrom date of plaintiff's invoices and


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computed on their respectiveamounts as follows:

i. Accrued interest ofP73,221.00 on InvoiceNo. 14407 forP385,377.80 dated

February 9, 1990;

ii. Accrued interest forP27,904.02 on InvoiceNo. 14413 forP146,868.00 datedFebruary 13, 1990;

iii. Accrued interest ofP12,920.00 on Invoice

No. 14426 forP68,000.00 datedFebruary 19, 1990;

c. P50,000.00 as and for attorney'sfees, plus P8,500.00 representingP500.00 per appearance in court;

d. P65,000.00 representingP5,000.00 monthly rental for storage

charges on the nets counted fromSeptember 20, 1990 (date ofattachment) to September 12, 1991(date of auction sale);

e. Cost of suit.

With respect to the joint liability ofdefendants for the principal obligation or forthe unpaid price of nets and floats in the

amount of P532,045.00 and P68,000.00,respectively, or for the total amountP600,045.00, this Court noted that theseitems were attached to guarantee anyjudgment that may be rendered in favor ofthe plaintiff but, upon agreement of theparties, and, to avoid further deterioration of

the nets during the pendency of this case, itwas ordered sold at public auction for notless than P900,000.00 for which the plaintiffwas the sole and winning bidder. Theproceeds of the sale paid for by plaintiff wasdeposited in court. In effect, the amount ofP900,000.00 replaced the attachedproperty as a guaranty for any judgmentthat plaintiff may be able to secure in thiscase with the ownership and possession of

the nets and floats awarded and deliveredby the sheriff to plaintiff as the highestbidder in the public auction sale. It has alsobeen 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 itsown properties. It [was] for this reason alsothat this Court earlier ordered theattachment bond filed by plaintiff to

guaranty damages to defendants to becancelled and for the P900,000.00 cashbidded and paid for by plaintiff to serve asits bond in favor of defendants.

From the foregoing, it would appeartherefore that whatever judgment theplaintiff may be entitled to in this case willhave to be satisfied from the amount ofP900,000.00 as this amount replaced the


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attached nets and floats. Considering,however, that the total judgment obligationas computed above would amount to onlyP840,216.92, it would be inequitable, unfairand unjust to award the excess to thedefendants who are not entitled to damagesand who did not put up a single centavo to

raise the amount of P900,000.00 aside fromthe fact that they are not the owners of thenets and floats. For this reason, thedefendants are hereby relieved from anyand all liabilities arising from the monetaryjudgment obligation enumerated above andfor plaintiff to retain possession andownership of the nets and floats and for thereimbursement of the P900,000.00deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chuaand Peter Yao entered into a Contract dated February 7, 1990,for the purchase of fishing nets of various sizes from thePhilippine 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 tothe agreement. The total price of the nets amounted toP532,045. Four hundred pieces of floats worth P68,000 werealso sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and thefloats; hence, private respondents filed a collection suit againstChua, Yao and Petitioner Lim Tong Lim with a prayer for a writof preliminary attachment. The suit was brought against thethree in their capacities as general partners, on the allegation

that "Ocean Quest Fishing Corporation" was a nonexistentcorporation as shown by a Certification from the Securities andExchange Commission. 5On September 20, 1990, the lowercourt issued a Writ of Preliminary Attachment, which the sheriffenforced by attaching the fishing nets on board F/B Lourdeswhich was then docked at the Fisheries Port, Navotas, MetroManila.

Instead of answering the Complaint, Chua filed a Manifestationadmitting his liability and requesting a reasonable time withinwhich to pay. He also turned over to respondent some of thenets 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. LimTong Lim, on the other hand, filed an Answer with Counterclaimand Crossclaim and moved for the lifting of the Writ of

Attachment.6

The trial court maintained the Writ, and uponmotion of private respondent, ordered the sale of the fishingnets at a public auction. Philippine Fishing Gear Industries wonthe bidding and deposited with the said court the sales proceedsof P900,000. 7

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

The trial court ruled that a partnership among Lim, Chua andYao existed based (1) on the testimonies of the witnessespresented and (2) on a Compromise Agreement executed bythe three 9in Civil Case No. 1492-MN which Chua and Yao hadbrought against Lim in the RTC of Malabon, Branch 72, for (a) adeclaration of nullity of commercial documents; (b) a reformationof contracts; (c) a declaration of ownership of fishing boats; (d)an injunction and (e) damages.10The Compromise Agreementprovided:


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a) That the parties plaintiffs & LimTong Lim agree to have the four (4)vessels sold in the amount ofP5,750,000.00 including the fishingnet. This P5,750,000.00 shall beapplied as full payment forP3,250,000.00 in favor of JL

Holdings Corporation and/or LimTong Lim;

b) If the four (4) vessel[s] and thefishing net will be sold at a higherprice than P5,750,000.00 whateverwill be the excess will be divided into3: 1/3 Lim Tong Lim; 1/3 AntonioChua; 1/3 Peter Yao;

c) If the proceeds of the sale thevessels will be less thanP5,750,000.00 whatever thedeficiency shall be shouldered andpaid to JL Holding Corporation by1/3 Lim Tong Lim; 1/3 Antonio Chua;1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silentas to the nature of their obligations, but that joint liability could

be presumed from the equal distribution of the profit and loss.21

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

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was apartner of Chua and Yao in a fishing business and may thus be

held liable as a such for the fishing nets and floats purchased byand for the use of the partnership. The appellate court ruled:

The evidence establishes that all the defendantsincluding herein appellant Lim Tong Lim undertooka partnership for a specific undertaking, that is forcommercial fishing . . . . Oviously, the ultimate

undertaking of the defendants was to divide theprofits among themselves which is what apartnership essentially is . . . . By a contract ofpartnership, two or more persons bind themselvesto contribute money, property or industry to acommon fund with the intention of dividing theprofits among themselves (Article 1767, New CivilCode). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

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

I THE COURT OF APPEALS ERRED INHOLDING, BASED ON A COMPROMISEAGREEMENT THAT CHUA, YAO ANDPETITIONER LIM ENTERED INTO IN A

SEPARATE CASE, THAT A PARTNERSHIPAGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHOREPRESENTED THAT HE WAS ACTING FOROCEAN QUEST FISHING CORPORATIONWHEN HE BOUGHT THE NETS FROMPHILIPPINE FISHING, THE COURT OFAPPEALS WAS UNJUSTIFIED IN IMPUTINGLIABILITY TO PETITIONER LIM AS WELL.


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III THE TRIAL COURT IMPROPERLY ORDEREDTHE SEIZURE AND ATTACHMENT OFPETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for thefishing nets and floats from respondent, the Court must resolvethis 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 equipmentpurchased from respondent, petitioner controverts the CAfinding that a partnership existed between him, Peter Yao andAntonio Chua. He asserts that the CA based its finding on theCompromise Agreement alone. Furthermore, he disclaims anydirect participation in the purchase of the nets, alleging that thenegotiations were conducted by Chua and Yao only, and that hehas not even met the representatives of the respondent

company. Petitioner further argues that he was a lessor, not apartner, of Chua and Yao, for the "Contract of Lease " datedFebruary 1, 1990, showed that he had merely leased to the twothe main asset of the purported partnership the fishingboat F/B Lourdes. The lease was for six months, with a monthlyrental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The factsas found by the two lower courts clearly showed that there

existed a partnership among Chua, Yao and him, pursuant toArticle 1767 of the Civil Code which provides:

Art. 1767 By the contract of partnership, two ormore persons bind themselves to contributemoney, property, or industry to a common fund,with the intention of dividing the profits among

themselves.

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

(1) That Petitioner Lim Tong Lim requested PeterYao who was engaged in commercial fishing tojoin him, while Antonio Chua was already Yao'spartner;

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

(3) That they borrowed P3.25 million from JesusLim, brother of Petitioner Lim Tong Lim, to financethe venture.

(4) That they bought the boats from CMF Fishing

Corporation, which executed a Deed of Sale overthese two (2) boats in favor of Petitioner Lim TongLim only to serve as security for the loan extendedby Jesus Lim;

(5) That Lim, Chua and Yao agreed that therefurbishing, re-equipping, repairing, dry dockingand other expenses for the boats would beshouldered by Chua and Yao;


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(6) That because of the "unavailability of funds,"Jesus Lim again extended a loan to thepartnership in the amount of P1 million secured bya check, because of which, Yao and Chuaentrusted the ownership papers of two otherboats, Chua's FB Lady Anne Meland Yao'sFBTracy to Lim Tong Lim.

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

(8) That subsequently, Civil Case No. 1492-MNwas filed in the Malabon RTC, Branch 72 byAntonio Chua and Peter Yao against Lim Tong

Lim for (a) declaration of nullity of commercialdocuments; (b) reformation of contracts; (c)declaration of ownership of fishing boats; (4)injunction; and (e) damages.

(9) That the case was amicably settled through aCompromise Agreement executed between theparties-litigants the terms of which are alreadyenumerated above.

From the factual findings of both lower courts, it is clear thatChua, Yao and Lim had decided to engage in a fishingbusiness, which they started by buying boats worth P3.35million, financed by a loan secured from Jesus Lim who waspetitioner's brother. In their Compromise Agreement, theysubsequently revealed their intention to pay the loan with theproceeds of the sale of the boats, and to divide equally amongthem the excess or loss. These boats, the purchase and therepair of which were financed with borrowed money, fell underthe term "common fund" under Article 1767. The contribution to

such fund need not be cash or fixed assets; it could be anintangible like credit or industry. That the parties agreed that anyloss or profit from the sale and operation of the boats would bedivided equally among them also shows that they had indeedformed 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 thefloats. The fishing nets and the floats, both essential to fishing,were obviously acquired in furtherance of their business. Itwould have been inconceivable for Lim to involve himself somuch in buying the boat but not in the acquisition of theaforesaid equipment, without which the business could not haveproceeded.

Given the preceding facts, it is clear that there was, amongpetitioner, Chua and Yao, a partnership engaged in the fishing

business. They purchased the boats, which constituted the mainassets of the partnership, and they agreed that the proceedsfrom the sales and operations thereof would be divided amongthem.

We stress that under Rule 45, a petition for review like thepresent case should involve only questions of law. Thus, theforegoing factual findings of the RTC and the CA are binding onthis Court, absent any cogent proof that the present action isembraced by one of the exceptions to the rule. 16In assailing

the factual findings of the two lower courts, petitioner effectivelygoes 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 forassuming the existence of a partnership was the CompromiseAgreement. He also claims that the settlement was entered into


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only to end the dispute among them, but not to adjudicate theirpreexisting rights and obligations. His arguments are baseless.The Agreement was but an embodiment of the relationshipextant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courtsmust review and thoroughly appraise all relevant facts. Both

lower courts have done so and have found, correctly, apreexisting partnership among the parties. In implying that thelower courts have decided on the basis of one piece ofdocument alone, petitioner fails to appreciate that the CA andthe RTC delved into the history of the document and exploredall the possible consequential combinations in harmony withlaw, logic and fairness. Verily, the two lower courts' factualfindings mentioned above nullified petitioner's argument that theexistence of a partnership was based only on the CompromiseAgreement.

Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he wasmerely the lessor of the boats to Chua and Yao, not a partner inthe fishing venture. His argument allegedly finds support in theContract of Lease and the registration papers showing that hewas the owner of the boats, including F/B Lourdeswhere the

nets were found.

His allegation defies logic. In effect, he would like this Court tobelieve that he consented to the sale of his own boats to pay adebt of Chua and Yao, with the excess of the proceeds to bedivided among the three of them. No lessor would do whatpetitioner did. Indeed, his consent to the sale proved that therewas a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into abusiness agreement with Chua and Yao, in which debts wereundertaken in order to finance the acquisition and the upgradingof the vessels which would be used in their fishing business.The sale of the boats, as well as the division among the three ofthe balance remaining after the payment of their loans, provesbeyond cavil that F/B Lourdes, though registered in his name,

was not his own property but an asset of the partnership. It isnot uncommon to register the properties acquired from a loan inthe name of the person the lender trusts, who in this case is thepetitioner himself. After all, he is the brother of the creditor,Jesus Lim.

We stress that it is unreasonable indeed, it is absurd forpetitioner to sell his property to pay a debt he did not incur, if therelationship 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 byestoppel, liability can be imputed only to Chua and Yao, and notto him. Again, we disagree.

Sec. 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 tobe without authority to do so shall be liable asgeneral partners for all debts, liabilities anddamages incurred or arising as a resultthereof: Provided however,That when any suchostensible corporation is sued on any transactionentered by it as a corporation or on any tortcommitted by it as such, it shall not be allowed touse as a defense its lack of corporate personality.


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One who assumes an obligation to an ostensiblecorporation as such, cannot resist performancethereof on the ground that there was in fact nocorporation.

Thus, even if the ostensible corporate entity is proven to belegally nonexistent, a party may be estopped from denying its

corporate existence. "The reason behind this doctrine is obviousan unincorporated association has no personality and wouldbe incompetent to act and appropriate for itself the power andattributes of a corporation as provided by law; it cannot createagents or confer authority on another to act in its behalf; thus,those who act or purport to act as its representatives or agentsdo so without authority and at their own risk. And as it is anelementary principle of law that a person who acts as an agentwithout authority or without a principal is himself regarded as theprincipal, possessed of all the right and subject to all the

liabilities of a principal, a person acting or purporting to act onbehalf of a corporation which has no valid existence assumessuch privileges and obligations and becomes personally liablefor contracts entered into or for other acts performed as suchagent. 17

The doctrine of corporation by estoppel may apply to the allegedcorporation and to a third party. In the first instance, anunincorporated association, which represented itself to be acorporation, will be estopped from denying its corporate

capacity in a suit against it by a third person who relied in goodfaith on such representation. It cannot allege lack of personalityto be sued to evade its responsibility for a contract it enteredinto and by virtue of which it received advantages and benefits.

On the other hand, a third party who, knowing an association tobe unincorporated, nonetheless treated it as a corporation andreceived benefits from it, may be barred from denying itscorporate existence in a suit brought against the allegedcorporation. In such case, all those who benefited from the

transaction made by the ostensible corporation, despiteknowledge of its legal defects, may be held liable for contractsthey impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing GearIndustries, is entitled to be paid for the nets it sold. The onlyquestion here is whether petitioner should be held

jointly18

liable with Chua and Yao. Petitioner contests suchliability, insisting that only those who dealt in the name of theostensible corporation should be held liable. Since his namedoes not appear on any of the contracts and since he neverdirectly transacted with the respondent corporation, ergo, hecannot be held liable.

Unquestionably, petitioner benefited from the use of the netsfound inside F/B Lourdes, the boat which has earlier beenproven to be an asset of the partnership. He in fact questions

the attachment of the nets, because the Writ has effectivelystopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chuaand Yao decided to form a corporation. Although it was neverlegally formed for unknown reasons, this fact alone does notpreclude the liabilities of the three as contracting parties inrepresentation of it. Clearly, under the law on estoppel, thoseacting 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 behalfof the corporation. However, having reaped the benefits of thecontract entered into by persons with whom he previously hadan existing relationship, he is deemed to be part of saidassociation and is covered by the scope of the doctrine ofcorporation by estoppel. We reiterate the ruling of the CourtinAlonso v. Villamor: 19


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A litigation is not a game of technicalities in whichone, more deeply schooled and skilled in thesubtle art of movement and position, entraps anddestroys the other. It is, rather, a contest in whicheach contending party fully and fairly lays beforethe court the facts in issue and then, brushingaside as wholly trivial and indecisive all

imperfections of form and technicalities ofprocedure, asks that justice be done upon themerits. Lawsuits, unlike duels, are not to be wonby a rapier's thrust. Technicality, when it desertsits proper office as an aid to justice and becomesits great hindrance and chief enemy, deservesscant consideration from courts. There should beno vested rights in technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment wasimproperly issued against the nets. We agree with the Court ofAppeals that this issue is now moot and academic. Aspreviously discussed, F/B Lourdeswas an asset of thepartnership and that it was placed in the name of petitioner, onlyto assure payment of the debt he and his partners owed. Thenets and the floats were specifically manufactured and tailor-

made according to their own design, and were bought and usedin the fishing venture they agreed upon. Hence, the issuance ofthe Writ to assure the payment of the price stipulated in theinvoices is proper. Besides, by specific agreement, ownership ofthe nets remained with Respondent Philippine Fishing Gear,until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailedDecision AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 127347 November 25, 1999

ALFREDO N. AGUILA, JR., petitioner,vs.HONORABLE COURT OF APPEALS and FELICIDAD S.

VDA. DE ABROGAR, respondents.

MENDOZA, J .:

This is a petition for review on certiorari of the decision 1of theCourt of Appeals, dated November 29, 1990, which reversedthe 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 privaterespondent Felicidad S. Vda. de Abrogar against petitionerAlfredo N. Aguila, Jr.

The facts are as follows:

Petitioner is the manager of A.C. Aguila & Sons, Co., apartnership engaged in lending activities. Private respondentand her late husband, Ruben M. Abrogar, were the registeredowners 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, andA.C. Aguila & Sons, Co., represented by petitioner, entered intoa Memorandum of Agreement, which provided:

(1) That the SECOND PARTY [A.C. Aguila &Sons, Co.] shall buy the above-described propertyfrom the FIRST PARTY [Felicidad S. Vda. deAbrogar], and pursuant to this agreement, a Deedof Absolute Sale shall be executed by the FIRST


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PARTY conveying the property to the SECONDPARTY for and in consideration of the sum of TwoHundred Thousand Pesos (P200,000.00),Philippine Currency;

(2) The FIRST PARTY is hereby given by theSECOND PARTY the option to repurchase the

said property within a period of ninety (90) daysfrom the execution of this memorandum ofagreement effective April 18, 1991, for the amountof TWO HUNDRED THIRTY THOUSAND PESOS(P230,000.00);

(3) In the event that the FIRST PARTY fail toexercise her option to repurchase the saidproperty within a period of ninety (90) days, theFIRST PARTY is obliged to deliver peacefully the

possession of the property to the SECONDPARTY within fifteen (15) days after the expirationof the said 90 day grace period;

(4) During the said grace period, the FIRSTPARTY obliges herself not to file any lispendens or whatever claims on the property norshall be cause the annotation of say claim at theback of the title to the said property;

(5) With the execution of the deed of absolutesale, the FIRST PARTY warrants her ownership ofthe property and shall defend the rights of theSECOND PARTY against any party whom mayhave any interests over the property;

(6) All expenses for documentation and otherincidental expenses shall be for the account of theFIRST PARTY;

(7) Should the FIRST PARTY fail to deliverpeaceful possession of the property to theSECOND PARTY after the expiration of the 15-day grace period given in paragraph 3 above, theFIRST PARTY shall pay an amount equivalent toFive Percent of the principal amount of TWOHUNDRED PESOS (P200.00) or P10,000.00 per

month of delay as and for rentals and liquidateddamages;

(8) Should the FIRST PARTY fail to exercise heroption to repurchase the property within ninety(90) days period above-mentioned, thismemorandum of agreement shall be deemedcancelled and the Deed of Absolute Sale,executed by the parties shall be the final contractconsidered as entered between the parties and

the SECOND PARTY shall proceed to transferownership of the property above described to itsname free from lines and encumbrances. 2

On the same day, April 18, 1991, the parties likewise executeda deed of absolute sale, 3dated June 11, 1991, wherein privaterespondent, with the consent of her late husband, sold thesubject property to A.C. Aguila & Sons, Co., represented bypetitioner, for P200,000,00. In a special power of attorney datedthe same day, April 18, 1991, private respondent authorized

petitioner to cause the cancellation of TCT No. 195101 and theissuance of a new certificate of title in the name of A.C. Aguilaand Sons, Co., in the event she failed to redeem the subjectproperty 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 mentionedabove, petitioner caused the cancellation of TCT No. 195101


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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, 1991from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons,Co., demanding that she vacate the premises within 15 daysafter receipt of the letter and surrender its possession peacefully

to A.C. Aguila & Sons, Co. Otherwise, the latter would bring theappropriate action in court. 6

Upon the refusal of private respondent to vacate the subjectpremises, A.C. Aguila & Sons, Co. filed an ejectment caseagainst her in the Metropolitan Trial Court, Branch 76, Marikina,Metro Manila. In a decision, dated April 3, 1992, theMetropolitan Trial Court ruled in favor of A.C. Aguila & Sons,Co. on the ground that private respondent did not redeem thesubject property before the expiration of the 90-day period

provided in the Memorandum of Agreement. Private respondentappealed first to the Regional Trial Court, Branch 163, Pasig,Metro Manila, then to the Court of Appeals, and later to thisCourt, but she lost in all the cases.

Private respondent then filed a petition for declaration of nullityof a deed of sale with the Regional Trial Court, Branch 273,Marikina, Metro Manila on December 4, 1993. She alleged thatthe signature of her husband on the deed of sale was a forgerybecause 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 criminalcomplaint for falsification against petitioner with the Office of theProsecutor of Quezon City which was dismissed in a resolution,dated February 14, 1994.

On April 11, 1995, Branch 273 of RTC-Marikina rendered itsdecision:

Plaintiff's claim therefore that the Deed of AbsoluteSale is a forgery because they could notpersonally appear before Notary Public LambertoC. Nanquil on June 11, 1991 because herhusband, Ruben Abrogar, died on May 8, 1991 orone month and 2 days before the execution of theDeed of Absolute Sale, while the plaintiff was still

in the Quezon City Medical Center recuperatingfrom wounds which she suffered at the samevehicular accident on May 8, 1991, cannot besustained. The Court is convinced that the threerequired documents, to wit: the Memorandum ofAgreement, the Special Power of Attorney, andthe Deed of Absolute Sale were all signed by theparties on the same date on April 18, 1991. It is acommon and accepted business practice of thoseengaged in money lending to prepare an undated

absolute deed of sale in loans of money securedby real estate for various reasons, foremost ofwhich is the evasion of taxes and surcharges. Theplaintiff never questioned receiving the sum ofP200,000.00 representing her loan from thedefendant. Common sense dictates that anestablished lending and realty firm like the Aguila& Sons, Co. would not part with P200,000.00 tothe Abrogar spouses, who are virtual strangers toit, without the simultaneous accomplishment and

signing of all the required documents, moreparticularly the Deed of Absolute Sale, to protectits interest.

xxx xxx xxx

WHEREFORE, foregoing premises considered,the case in caption is hereby ORDEREDDISMISSED, with costs against the plaintiff.


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On appeal, the Court of Appeals reversed. It held:

The facts and evidence show that the transactionbetween plaintiff-appellant and defendant-appelleeis indubitably an equitable mortgage. Article 1602of the New Civil Code finds strong application inthe case at bar in the light of the following

circumstances.

First: The purchase price for the alleged sale withright to repurchase is unusually inadequate. Theproperty is a two hundred forty (240) sq. m. lot. Onsaid lot, the residential house of plaintiff-appellantstands. The property is inside asubdivision/village. The property is situated inMarikina 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 ameasly P200,000.00 or P833.33 per square meterfor both the land and for the house.

Second: The disputed Memorandum of Agreementspecifically provides that plaintiff-appellant isobliged to deliver peacefully the possession of theproperty 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 thething allegedly sold.

In fact, plaintiff-appellant retained possession ofthe property "sold" as if they were still the absoluteowners. There was no provision for maintenanceor expenses, much less for payment of rent.

Third: The apparent vendor, plaintiff-appellantherein, continued to pay taxes on the property"sold". It is well-known that payment of taxesaccompanied by actual possession of the landcovered by the tax declaration, constitute evidenceof great weight that a person under whose namethe real taxes were declared has a claim of right

over the land.

It is well-settled that the presence of even one ofthe circumstances in Article 1602 of the New CivilCode is sufficient to declare a contract of sale withright to repurchase an equitable mortgage.

Considering that plaintiff-appellant, as vendor, waspaid a price which is unusually inadequate, hasretained possession of the subject property and

has continued paying the realty taxes over thesubject property, (circumstances mentioned in par.(1) (2) and (5) of Article 1602 of the New CivilCode), it must be conclusively presumed that thetransaction the parties actually entered into is anequitable mortgage, not a sale with right torepurchase. The factors cited are in support to thefinding that the Deed of Sale/Memorandum ofAgreement with right to repurchase is in actualityan equitable mortgage.

Moreover, it is undisputed that the deed of salewith right of repurchase was executed by reasonof the loan extended by defendant-appellee toplaintiff-appellant. The amount of loan being thesame with the amount of the purchase price.

xxx xxx xxx


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Since the real intention of the party is to securethe payment of debt, now deemed to berepurchase price: the transaction shall then beconsidered to be an equitable mortgage.

Being a mortgage, the transaction entered into bythe parties is in the nature of apactum

commissoriumwhich is clearly prohibited byArticle 2088 of the New Civil Code. Article 2088 ofthe New Civil Code reads:

Art. 2088. The creditor cannotappropriate the things given by wayof pledge or mortgage, or dispose ofthem. Any stipulation to the contraryis null and void.

The aforequoted provision furnishes the twoelements forpactum commissoriumto exist: (1)that there should be a pledge or mortgage whereina property is pledged or mortgaged by way ofsecurity for the payment of principal obligation;and (2) that there should be a stipulation for anautomatic appropriation by the creditor of the thingpledged and mortgaged in the event of non-payment of the principal obligation within thestipulated period.

In this case, defendant-appellee in realityextended a P200,000.00 loan to plaintiff-appellantsecured by a mortgage on the property of plaintiff-appellant. The loan was payable within ninety (90)days, the period within which plaintiff-appellantcan repurchase the property. Plaintiff-appellant willpay P230,000.00 and not P200,000.00, theP30,000.00 excess is the interest for the loanextended. Failure of plaintiff-appellee to pay the

P230,000.00 within the ninety (90) days period,the property shall automatically belong todefendant-appellee by virtue of the deed of saleexecuted.

Clearly, the agreement entered into by the partiesis in the nature ofpactum commissorium.

Therefore, the deed of sale should be declaredvoid as we hereby so declare to be invalid, forbeing violative of law.

xxx xxx xxx

WHEREFORE, foregoing considered, theappealed decision is hereby REVERSED and SETASIDE. The questioned Deed of Sale and thecancellation of the TCT No. 195101 issued in favor

of plaintiff-appellant and the issuance of TCT No.267073 issued in favor of defendant-appelleepursuant to the questioned Deed of Sale is herebydeclared VOID and is hereby ANNULLED.Transfer Certificate of Title No. 195101 of theRegistry of Marikina is hereby orderedREINSTATED. The loan in the amount ofP230,000.00 shall be paid within ninety (90) daysfrom the finality of this decision. In case of failureto pay the amount of P230,000.00 from the period

therein stated, the property shall be sold at publicauction to satisfy the mortgage debt and costs andif there is an excess, the same is to be given to theowner.

Petitioner now contends that: (1) he is not the real party ininterest but A.C. Aguila & Co., against which this case shouldhave been brought; (2) the judgment in the ejectment case is abar to the filing of the complaint for declaration of nullity of adeed of sale in this case; and (3) the contract between A.C.


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Aguila & Sons, Co. and private respondent is apacto deretro sale and not an equitable mortgage as held by theappellate 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 actionmust be prosecuted and defended in the name of the real partyin interest." A real party in interest is one who would bebenefited or injured by the judgment, or who is entitled to theavails of the suit. 7This ruling is now embodied in Rule 3, 2 ofthe 1997 Revised Rules of Civil Procedure. Any decisionrendered against a person who is not a real party in interest inthe case cannot be executed. 8Hence, a complaint filed againstsuch a person should be dismissed for failure to state a causeof action. 9

Under Art. 1768 of the Civil Code, a partnership "has a juridicalpersonality separate and distinct from that of each of thepartners." The partners cannot be held liable for the obligationsof the partnership unless it is shown that the legal fiction of adifferent juridical personality is being used for fraudulent, unfair,or illegal purposes. 10 In this case, private respondent has notshown that A.C. Aguila & Sons, Co., as a separate juridicalentity, 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 wasexecuted between private respondent, with the consent of herlate husband, and A.C. Aguila & Sons, Co., represented bypetitioner. Hence, it is the partnership, not its officers or agents,which should be impleaded in any litigation involving propertyregistered in its name. A violation of this rule will result in thedismissal of the complaint. 11We cannot understand why boththe Regional Trial Court and the Court of Appeals sidesteppedthis issue when it was squarely raised before them by petitioner.

Our conclusion that petitioner is not the real party in interestagainst whom this action should be prosecuted makes itunnecessary to discuss the other issues raised by him in thisappeal.

WHEREFORE, the decision of the Court of Appeals is herebyREVERSED and the complaint against petitioner is

DISMISSED.

SO ORDERED.

G.R. No. L-19342 May 25, 1972

LORENZO T. OA and HEIRS OF JULIA BUALES, namely:RODOLFO B. OA, MARIANO B. OA, LUZ B. OA,VIRGINIA B. OA and LORENZO B. OA, JR., petitioners,vs.

THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A. Alafriz, AssistantSolicitor General Felicisimo R. Rosete, and Special AttorneyPurificacion Ureta for respondent.

BARREDO, J .:p

Petition for review of the decision of the Court of Tax Appeals inCTA Case No. 617, similarly entitled as above, holding thatpetitioners have constituted an unregistered partnership andare, therefore, subject to the payment of the deficiencycorporate income taxes assessed against them by respondentCommissioner of Internal Revenue for the years 1955 and 1956in the total sum of P21,891.00, plus 5% surcharge and 1%monthly interest from December 15, 1958, subject to the


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provisions of Section 51 (e) (2) of the Internal Revenue Code,as amended by Section 8 of Republic Act No. 2343 and thecosts of the suit,1as well as the resolution of said court denyingpetitioners' motio

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