G.R. No.

L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS,
petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership
was amended as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C.
Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with
a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos consists of her
industry being an industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the
proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to
be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila, alleging that
the partnership, which was also made a party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse and let her examine the partnership books or to give
her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership. She therefore prayed
that the defendants be ordered to render accounting to her of the partnership business and to pay her corresponding share in the
partnership profits after such accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that the
plaintiff ever demanded that she be allowed to examine the partnership books; and byway of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties, which was that the plaintiff was not an industrial partner; that
she did not in fact contribute industry to the partnership; and that her share of 30% was to be based on the profits which might be realized
by the partnership only until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation
in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as security.

The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is an industrial partner
as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from June 7, 1955
until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein petitioners)." On
that issue the Court of First Instance found for the plaintiff and rendered judgement "declaring her an industrial partner of Evangelista &
Co.; ordering the defendants to render an accounting of the business operations of the (said) partnership ... from June 7, 1955; to pay
the plaintiff such amounts as may be due as her share in the partnership profits and/or dividends after such an accounting has been
properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co.,
notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the appellate court the
said respondent was one of the judges of the City Court of Manila, and despite its findings that respondent had been
paid for services allegedly contributed by her to the partnership. In this connection the Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive evidence that
respondent was in fact made an industrial partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in the decision proves that said
respondent did not bind herself to contribute her industry, and she could not, and in fact did not,
because she was one of the judges of the City Court of Manila since 1954.

(C) In finding that respondent did not in fact contribute her industry, despite the appellate court's own
finding that she has been paid for the services allegedly rendered by her, as well as for the loans of
money made by her to the partnership.

II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and deprived of,
her alleged share, interests and participation, as an alleged industrial partner, in the partnership Evangelista & Co.,
and its profits or net income.

III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was declared an
industrial partner of the petitioner, and petitioners were ordered to render an accounting of the business operation of
the partnership from June 7, 1955, and to pay the respondent her alleged share in the net profits of the partnership
plus the sum of P2,000.00 as attorney's fees and the costs of the suit, instead of dismissing respondent's complaint,
with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals. The evidence
presented by the parties as the trial in support of their respective positions on the issue of whether or not the respondent was an industrial
partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the lengthy
testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing
errors of law that might have been commited by the lower court. It should be observed, in this regard, that the Court of Appeals did not
hold that the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive evidence that the respondent was an
industrial partner of the said company, but considered it together with other factors, consisting of both testimonial and documentary
evidences, in arriving at the factual conclusion expressed in the decision.

The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced if only to
demonstrate that the same were made after a through analysis of then evidence, and hence are beyond this Court's power of review.

The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein it is pointed
out that "Appellee's documentary evidence does not conclusively prove that appellee was in fact admitted by appellants
as industrial partner of Evangelista & Co." and that "The grounds relied upon by the lower Court are untenable" (Pages
21 and 26, Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding that the appellee
is an industrial partner of appellant Evangelista & Co., herein referred to as the partnership — the lower court relied
mainly on the appellee's documentary evidence, entirely disregarding facts and circumstances established by
appellants" evidence which contradict the said finding' (Page 21, Appellants' Brief). The lower court could not have
done otherwise but rely on the exhibits just mentioned, first, because appellants have admitted their genuineness and
due execution, hence they were admitted without objection by the lower court when appellee rested her case and,
secondly the said exhibits indubitably show the appellee is an industrial partner of appellant company. Appellants are
virtually estopped from attempting to detract from the probative force of the said exhibits because they all bear the
imprint of their knowledge and consent, and there is no credible showing that they ever protested against or opposed
their contents prior of the filing of their answer to appellee's complaint. As a matter of fact, all the appellant Evangelista,
Jr., would have us believe — as against the cumulative force of appellee's aforesaid documentary evidence — is the
appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already mentioned, does not express the
true intent and agreement of the parties thereto, the real understanding between them being the appellee would be
merely a profit sharer entitled to 30% of the net profits that may be realized between the partners from June 7, 1955,
until the mortgage loan of P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however,
is discredited not only by the aforesaid documentary evidence brought forward by the appellee, but also by the fact
that from June 7, 1955 up to the filing of their answer to the complaint on February 8, 1964 — or a period of over eight
(8) years — appellants did nothing to correct the alleged false agreement of the parties contained in Exhibit "A". It is
thus reasonable to suppose that, had appellee not filed the present action, appellants would not have advanced this
obvious afterthought that Exhibit "A" does not express the true intent and agreement of the parties thereto.

At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact which proves
that the parties to the Amended Articles of Partnership, Exhibit "A", did not contemplate to make the appellee Estrella
Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since before the execution of the
amended articles of partnership, Exhibit "A", the appellee Estrella Abad Santos has been, and up to the present time
still is, one of the judges of the City Court of Manila, devoting all her time to the performance of the duties of her public
office. This fact proves beyond peradventure that it was never contemplated between the parties, for she could not
lawfully contribute her full time and industry which is the obligation of an industrial partner pursuant to Art. 1789 of the
Civil Code.

The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then concluded as
follows:

One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as she was
and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they would not
have had the wherewithal to operate the business for which appellant company was organized. Article 1767 of the New
Civil Code which provides that "By 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, 'does not specify
the kind of industry that a partner may thus contribute, hence the said services may legitimately be considered as
appellee's contribution to the common fund. Another article of the same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may have obtained in violation of this
provision, with a right to damages in either case.'

It is not disputed that the provision against the industrial partner engaging in business for himself seeks to prevent any
conflict of interest between the industrial partner and the partnership, and to insure faithful compliance by said partner
with this prestation. There is no pretense, however, even on the part of the appellee is engaged in any business
 antagonistic to that of appellant company, since being a Judge of one of the branches of the City Court of Manila can
hardly be characterized as a business. That appellee has faithfully complied with her prestation with respect to
appellants is clearly shown by the fact that it was only after filing of the complaint in this case and the answer thereto
appellants exercised their right of exclusion under the codal art just mentioned by alleging in their Supplemental Answer
dated June 29, 1964 — or after around nine (9) years from June 7, 1955 — subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement whereby the herein plaintiff been excluded from, and
deprived of, her alleged share, interests or participation, as an alleged industrial partner, in the defendant partnership
and/or in its net profits or income, on the ground plaintiff has never contributed her industry to the partnership, instead
she has been and still is a judge of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the privilege and emoluments appertaining to the said office,
aside from teaching in law school in Manila, without the express consent of the herein defendants' (Record On Appeal,
pp. 24-25). Having always knows as a appellee as a City judge even before she joined appellant company on June 7,
1955 as an industrial partner, why did it take appellants many yearn before excluding her from said company as
aforequoted allegations? And how can they reconcile such exclusive with their main theory that appellee has never
been such a partner because "The real agreement evidenced by Exhibit "A" was to grant the appellee a share of 30%
of the net profits which the appellant partnership may realize from June 7, 1955, until the mortgage of P30,000.00
obtained from the Rehabilitation Finance Corporal shall have been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of appellant
company, with the right to demand for a formal accounting and to receive her share in the net profit that may result
from such an accounting, which right appellants take exception under their second assigned error. Our said holding is
based on the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law,
accepting as conclusive the factual findings of the lower court upon its own assessment of the evidence.The judgment appealed from is
affirmed, with costs.

G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR.,

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner Isabelo Moran, Jr.
to pay damages to respondent Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each
for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran
actually supervising the work; that Pecson would receive a commission of P l,000 a month starting on April 15, 1971
up to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of
the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a
few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000
payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment
on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in
his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00,
payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that:

From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement entered into
by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the
Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant was able to
print 2,000 copies only authorized of which, however, were sold at P5.00 each. Nothing more was done after this and
it can be said that the venture did not really get off the ground. On the other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is entitled to rescind the contract which right is implied in reciprocal
obligations under Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which
were the object of the contract ...

WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to plaintiff
Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19,
1972, and the costs of the suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision against the
petitioner. The dispositive portion of the decision reads:

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby rendered,
ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their
agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with law and with
Supreme Court decisions when it committed the following errors:

I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING
OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE
VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF
APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S COMPULSORY
COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of
the partnership. The petitioner contends that the award is highly speculative. The petitioner maintains that the respondent court did not
take into account the great risks involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact and law.

There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of partnership.
The latter in his complaint alleged that he was induced by the petitioner to enter into a partnership with him under the following terms and
conditions:

1. That the partnership will print colored posters of the delegates to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
 4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to
December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account pertaining to the
distribution and printing of the said 95,000 posters shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, 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 (Art. 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of
the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant therein was
remiss in his obligations as a partner and as prime contractor of the construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is
a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the partnership between the petitioner and
the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis
for the award of speculative damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much more than what was expected of
him. In this case, however, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00.
He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with
the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.

Article 1797 of the Civil Code provides:

The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the
profits has been agreed upon, the share of each in the losses shall be in the same proportion.

Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership.
And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the
other partner cannot claim a right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits.
In this case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month for eight months
and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of
expected profits is obvious. We have to take various factors into account. The failure of the Commission on Elections to proclaim all the
320 candidates of the Constitutional Convention on time was a major factor. The petitioner undesirable his best business judgment and
felt that it would be a losing venture to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business
venture have to be considered.

It does not follow however that the private respondent is not entitled to recover any amount from the petitioner. The records show that
the private respondent gave P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00
per poster or a total printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income
therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of P10,000.00 and with no evidence on the
cost of distribution, the net profits amount to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and
the private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining P6,000.00
should therefore be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's supposed commission has no
justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of Pl,000.00 from April
15, 1971 to December 15, 1971 for a total of eight (8) monthly commissions. The agreement does not state the basis of the commission.
The payment of the commission could only have been predicated on relatively extravagant profits. The parties could not have intended
the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled
to the P8,000.00 commission.

Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in holding him liable to the private
respondent in the sum of P7,000.00 as a supposed return of investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the Veterans" magazine venture,
the respondent court ruled that:

xxx xxx xxx

 ... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question the due
execution of said note. Must Moran therefore pay the amount of P20,000? The evidence indicates that the P20,000
was assigned by Moran to cover the following: têñ.£îhqwâ£

(a) P 7,000 — the amount of the PNB check given by Pecson to Moran representing Pecson's investment in
Moran's other project (the publication and printing of the 'Voice of the Veterans');
(b) P10,000 — to cover the return of Pecson's contribution in the project of the Posters;
(c) P3,000 — representing Pecson's commission for three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project, for this project
never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals,
92 SCRA 332). However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97
SCRA 734), we held that this Court retains the power to review and rectify the findings of fact of the Court of Appeals when (1) the
conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken
absurd and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and
(5) when the court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both the
appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that his investment in the "Voice
of Veterans" project amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the private respondent expected
to receive.

The records show the following exhibits-

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant. Defendant admitted
the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is
being offered for the purpose of showing plaintiff's capital investment in the printing of the "Voice of the Veterans" for
which he was promised a fixed profit of P8,000. This investment of P6,000.00 and the promised profit of P8,000 are
covered by defendant's promissory note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n.,
pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00
investment thereby proportionately reducing the promised profit to P4,000. With the balance of P3,000 (capital) and
P4,000 (promised profit), defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the capital
investment and P1,000 partial payment of the promised profit. The P3,000 balance of the promised profit was made
part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented
to show the consideration for the P20,000 promissory note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The authenticity of the
check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P
7,000 is part consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being
presented to show the consideration for the P20,000 note and the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject matter of the
other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which, together with the promised
profit of P8,000 made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As explained in
connection with Exhibit E. the P3,000 balance of the promised profit was later made part consideration of the P20,000
promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is being offered
for the purpose of further showing the transaction as explained in connection with Exhibits E and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of P6,000 (Exh. E)
in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This document is being offered in support
of plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction mentioned therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of showing the
transaction as explained in connection with Exhibits E, L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that:

 Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount of
P14,000.00 which has been marked as Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your transaction with the defendant?
A This promissory note is for the printing of the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National Bank
Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the printing of this
"Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit E, is this
the Manager's check that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00 of your investment
and P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital I gave to
him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to him, what
happened to the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your capital
investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes of
Identification I request the same to be marked as Exhibit M. . .
Court Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with your
transaction regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note.
Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the promissory
note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment and the
P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr. Moran.
Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the promissory
note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed. It
was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L".
Therefore, it would be error to state that the project never took place and on this basis decree the return of the private respondent's
investment.

As already mentioned, there are risks in any business venture and the failure of the undertaking cannot entirely be blamed on the
managing partner alone, specially if the latter exercised his best business judgment, which seems to be true in this case. In view of the
foregoing, there is no reason to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid
basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now Intermediate Appellate Court) is hereby
SET ASIDE and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX
THOUSAND (P6,000.00) PESOS representing the amount of the private respondent's contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits gained by the partnership in the sale
of the two thousand (2,000) copies of the posters, with interests at the legal rate on both amounts from the date the complaint was filed
until full payment is made.

SO ORDERED.

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr.
and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by herein respondent William J.
Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the Securities
and Exchange Commission. The firm engaged, among other activities, in the importation, marketing, distribution and operation of
automatic phonographs, radios, television sets and amusement machines, their parts and accessories. It had an office and held itself out
as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its
own books of accounts and bank accounts, and had a quota allocation with the Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December 1948, limited partner
Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission
on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, Commissioner
of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of
the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his
request was denied. Unable to secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered a
decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's aforesaid decision. It raises
these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter
and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a
nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and their subsequent acquisition
of the interests of remaining partner Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction of juridical
personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control
of the business; consequently the income tax return of respondent Suter for the years in question should have included his and his wife's
individual incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which
provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-residents, only one consolidated
return for the taxable year shall be filed by either spouse to cover the income of both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his marriage with limited partner Spirig
and their acquisition of Carlson's interests in the partnership in 1948 is not a ground for dissolution of the partnership, either in the Code
of Commerce or in the New Civil Code, and that since its juridical personality had not been affected and since, as a limited partnership,
as contra distinguished from a duly registered general partnership, it is taxable on its income similarly with corporations, Suter was not
bound to include in his individual return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law because of the
marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the partnership was
organized is rested by the appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial
Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, which applies in
the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are
 prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners necessarily brings
about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. was not a universal partnership,
but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when the
subject firm was organized in 1947), a universal partnership requires either that the object of the association be all the present property
of the partners, as contributed by them to the common fund, or else "all that the partners may acquire by their industry or work during the
existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of
the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546,
footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran constituir sociedad
particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular
entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda
persona es capaz para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros
fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo
de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that
purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil Code (Article
1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common property of both after their
marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate
from that of its partners (unlike American and English law that does not recognize such separate juridical personality), the bypassing of
the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality makes it impossible to equate its income with that of the component
members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of 30 October 1964,
and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of the corporations involved
therein are not applicable to the present case. In the cited cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the limited partnership from income taxation but would
throw the tax burden upon the partners-spouses in their individual capacities. The corporations, in the cases cited, merely served as
business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax purposes.
This is not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized
for legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been filing its
own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and
their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the
tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the
interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax
laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return
of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its
Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia colectiva)
and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former,
because it is in the case of compañias colectivas that the members, and not the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and forms part of the
conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register
of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal capital of the wife. Then again, the appellant's argument erroneously confines
itself to the question of the legal personality of the limited partnership, which is not essential to the income taxability of the partnership
since the law taxes the income of even joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken in that it
assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the "income of both spouses" (Section
45 [d] in their individual capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband
and wife) may be the same for a given taxable year, their consequences would be different, as their contributions in the business
partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with, and when split from the income of the
spouses, is not a justification for requiring consolidation; the revenue code, as it presently stands, does not authorize it, and even bars it
by requiring the limited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

G.R. No. L-18703 August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING CORPORATION, petitioners-
appellants.

Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.

Antonio Sanz for appellee.

ROMUALDEZ, J.:

The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein, a motion was presented by the
appellants praying this court that this case be considered purely a moot question now, for the reason that subsequent to the decision
appealed from, the partnership Campos Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself insolvent,
which is just what the herein petitioners and appellants tried to obtain from the lower court in this proceeding.

The motion now before us must be, and is hereby, denied even under the facts stated by the appellants in their motion aforesaid. The
question raised in this case is not purely moot one; the fact that a man was insolvent on a certain day does not justify an inference that
he was some time prior thereto.

Proof that a man was insolvent on a certain day does not justify an inference that he was on a day some time prior thereto.
Many contingencies, such as unwise investments, losing contracts, misfortune, or accident, might happen to reduce a person
from a state of solvency within a short space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)

A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos Rueda & Co. insolvent in
December, 1921, as prayed for in this case, and another to declare it insolvent in July, 1922, as stated in the motion.

Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the appellants in various sums
amounting to not less than P1,000, payable in the Philippines, which were not paid more than thirty days prior to the date of the filing by
the petitioners of the application for involuntary insolvency now before us. These facts were sufficient established by the evidence.

The trial court denied the petition on the ground that it was not proven, nor alleged, that the members of the aforesaid firm were
insolvent at the time the application was filed; and that was said partners are personally and solidarily liable for the consequence of the
transactions of the partnership, it cannot be adjudged insolvent so long as the partners are not alleged and proven to be insolvent.
From this judgment the petitioners appeal to this court, on the ground that this finding of the lower court is erroneous.

The fundamental question that presents itself for decision is whether or not a limited partnership, such as the appellee, which has failed
to pay its obligation with three creditors for more than thirty days, may be held to have committed an act of insolvency, and thereby be
adjudged insolvent against its will.

Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code of Commerce). This being so and the juridical personality of a
limited partnership being different from that of its members, it must, on general principle, answer for, and suffer, the consequence of its
acts as such an entity capable of being the subject of rights and obligations. If, as in the instant case, the limited partnership of Campos
Rueda & Co. Failed to pay its obligations with three creditors for a period of more than thirty days, which failure constitutes, under our
Insolvency Law, one of the acts of bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this partnership
must suffer the consequences of such a failure, and must be adjudged insolvent. We are not unmindful of the fact that some courts of
the United States have held that a partnership may not be adjudged insolvent in an involuntary insolvency proceeding unless all of its
members are insolvent, while others have maintained a contrary view. But it must be borne in mind that under the American common
law, partnerships have no juridical personality independent from that of its members; and if now they have such personality for the
purpose of the insolvency law, it is only by virtue of general law enacted by the Congress of the United States on July 1, 1898, section
5, paragraph (h), of which reads thus:

In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the partnership property
shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged bankrupt; but such partner
or partners not adjudged bankrupt shall settle the partnership business as expeditiously as its nature will permit, and account
for the interest of the partner or partners adjudged bankrupt.

The general consideration that these partnership had no juridical personality and the limitations prescribed in subsection (h) above set
forth gave rise to the conflict noted in American decisions, as stated in the case of In re Samuels (215 Fed., 845), which mentions the
two apparently conflicting doctrines, citing one from In re Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal (186
Fed., 481).

But there being in our insolvency law no such provision as that contained in section 5 of said Act of Congress of July 1, 1898, nor any
rule similar thereto, and the juridical personality of limited partnership being recognized by our statutes from their formation in all their
acts and contracts the decision of American courts on this point can have no application in this jurisdiction, nor we see any reason why
these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their members, provided the partnership
has, as such, committed some of the acts of insolvency provided in our law. Under this view it is unnecessary to discuss the other
points raised by the parties, although in the particular case under consideration it can be added that the liability of the limited partners
for the obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the common fund except
when a limited partner should have included his name or consented to its inclusion in the firm name (arts. 147 and 148, Code of
Commerce).

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty days to pay its obligations to the
petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and the International Banking Corporation, the case comes under
paragraph 11 of section 20 of Act No. 1956, and consequently the petitioners have the right to a judicial decree declaring the
involuntary insolvency of said partnership.

Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership Campos Rueda & Co. is and was on
December 28, 1921, insolvent and liable for having failed for more than thirty days to meet its obligations with the three petitioners
herein, and it is ordered that this proceeding be remanded to the Court of First Instance of Manila with instruction to said court to issue
the proper decrees under section 24 of Act No. 1956, and proceed therewith until its final disposition.

It is so ordered without special finding as to costs.

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

GANCAYCO, J.:

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:

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)

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.

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

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

CASTRO, J.:

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

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

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

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

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

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

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

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

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

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our discussion of the appellant's third
assignment of error.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the second
part, executed a contract — denominated a "contract of service" — the salient provisions of which are as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the plaintiffs opposed his
motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint failed to state a claim upon
which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower court
in its order of October 22, 1951. The defendants' motion for reconsideration filed on October 31, 1951 suffered the same fate when it
was likewise denied by the lower court in its order of November 12, 1951.

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

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

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

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

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

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

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

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

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

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

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

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad (½) del "fishpond" en cuestion
con todas las mejoras existentes dentro de la misma;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Casteel raises the following issues:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "... any event which makes it
unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership." The approval of the
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which
made the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.

Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or subletting the
fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and Natural Resources.15 To the same
effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not transfer or sublet all or any area herein
granted or any rights acquired therein without the previous consent and approval of this Office." Parenthetically, we must observe that
in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely for the reason that
his permit covered a portion of the area included in the appellant's prior fishpond application, but also because, upon investigation, it
was ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to develop with the
latter's capital the area covered by his fishpond permit F-289-C with the understanding that he (Aradillos) would be given a share in the
produce thereof.16

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

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

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

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

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

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

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

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

On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond so that he could
administer his own share, such division to be subject to the approval of the Secretary of Agriculture and Natural Resources. By letter
dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's proposition because there were allegedly no
appropriate grounds to support the same and, moreover, the conflict over the fishpond had not been finally resolved.

The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former expressed his determination to
administer the fishpond himself because the decision of the Government was in his favor and the only reason why administration had
been granted to the Deluaos was because he was indebted to them. In the same letter, the appellant forbade Felipe Deluao from
sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January 5, 1951
in which he reiterated his refusal to grant the administration of the fishpond to the appellant, stating as a ground his belief "that only the
competent agencies of the government are in a better position to render any equitable arrangement relative to the present case; hence,
any action we may privately take may not meet the procedure of legal order."

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

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

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

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

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

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

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

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

MAURICIO AGAD, plaintiff-appellant,

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

CONCEPCION, C.J.:

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

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated August 29, 1952, copy of which is
attached to the complaint as Annex "A" — partners in a fishpond business, to the capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to render
accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as
well as the winding up of its affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the ground
that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly failed to give his
P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared
void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.

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

Articles 1771 and 1773 of said Code provide:

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

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

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

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

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

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

G.R. No. 75875 December 15, 1989

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

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE
RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.

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

LUCIANO E. SALAZAR, petitioner,

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

Belo, Abiera & Associates for petitioners in 75875.

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

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617
which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent
elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more
than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares.
One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its
expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise
which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

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

(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and,
insofar as permitted under Philippine law, shall specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine
individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three
of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers
over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote
was required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.

The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino
group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it
apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March
8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the
Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the
members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr.,
George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles
Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the
consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the
nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events then, transpired:

... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by
the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees
of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the
Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following
Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the
meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and
declared the meeting adjourned. Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to
the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI
Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay.
Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting
Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four
(4) remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The
first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as
SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin,
David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be
the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.

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

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the
questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:

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

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

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

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

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by

stockholders and the replacement of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without
due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a
continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)

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

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE
THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established
by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other
relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on
the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint
venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)

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

The parol evidence Rule under Rule 130 provides:

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

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

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

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

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute
the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the
Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to
the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in
order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an
enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to
assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653;
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture
and not with an ordinary corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the
Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group
of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the
minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii)
(a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote
of this member is required for certain transactions [Sec. 3 (b) (i)].
 The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares
[Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The
Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec.
13 (a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing
Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for
certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and
the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the
minority stockholder.

Premises considered, we believe that under the Agreement there are two groups of stockholders who established a
corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a
six to three ratio. Each group is assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained
to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are
formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand
names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start,
intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes
profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such
subversive actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

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

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

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

Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95
stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay
family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members
of one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should
be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that
Saniwares is a public issue or a widely held corporation.
 In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly
applied principles of corporation law designed primarily for public issue corporations. These courts have indicated
that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement
between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M &
St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C.
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich.
90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11
Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture corporations should control, and the courts ruled that
substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied
on the orthodox principles of corporation law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of
corporation management. A noted authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require
greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders
power to select a specified number of directors; (3) give to the shareholders control over the selection and retention
of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these
agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty
five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into
an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect
their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to
the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code
limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such
case, its stockholders should not be precluded from entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts
the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC,
is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)

In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of
directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled
out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere
to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats,
even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights
to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold
that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may
well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special
relationships with each other to pursue and implement specific purposes, as in joint venture relationships between
foreign and local stockholders, so long as such agreements do not adversely affect third parties.

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

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

Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo-75875, pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant
to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of directors or governing body of corporations
or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable
participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether
or not that provision is applicable to a joint venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920])
It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates
a general business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business forms, and has held that although
a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)

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

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

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

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

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

... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed to designate under the Agreement, and may even be
able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.
 Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875)

Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by
the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of
the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of
aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign
Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the joint venture agreement exists considering that in
limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement
to protect the interests arising from the minority status of the foreign investors.

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

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

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

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

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

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly
GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F.
Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects,
the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.

SO ORDERED.

tu