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THIRD DIVISION
G.R. No. 172690 March 3, 2010
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,
vs.
JULIET VILLA LIM, Respondent.
D E C I S I O N
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1
under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA) Decision2
dated June 29, 2005, which
reversed and set aside the decision3
of the Regional Trial Court (RTC) of Lucena City,
dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
CresenciaPalad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and
Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They filed a
Complaint4
for Partition, Accounting and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose
and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy)
and Norberto Uy (Norberto), formed a partnership to engage in the trucking business.
Initially, with a contribution of P50,000.00 each, they purchased a truck to be used in
the hauling and transport of lumber of the sawmill. Jose managed the operations of this
trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the management of Elfledo.
The shares in the partnership profits and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or
acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate
serving as his father’s driver in the trucking business. He was never a partner or an
investor in the business and merely supervised the purchase of additional trucks using
the income from the trucking business of the partners. By the time the partnership
ceased, it had nine trucks, which were all registered in Elfledo's name. Petitioners
asseverated that it was also through Elfledo’s management of the partnership that he
was able to purchase numerous real properties by using the profits derived therefrom,
all of which were registered in his name and that of respondent. In addition to the nine
trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
claimed that respondent took over the administration of the aforementioned
properties, which belonged to the estate of Jose, without their consent and approval.
Claiming that they are co-owners of the properties, petitioners required respondent to
submit an accounting of all income, profits and rentals received from the estate of
Elfledo, and to surrender the administration thereof. Respondent refused; thus, the
filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
partner of Norberto and Jimmy. Respondent also claimed that per testimony of
Cresencia, sometime in 1980, Jose gave ElfledoP50,000.00 as the latter's capital in an
informal partnership with Jimmy and Norberto. When Elfledo and respondent got
married in 1981, the partnership only had one truck; but through the efforts of Elfledo,
the business flourished. Other than this trucking business, Elfledo, together with
respondent, engaged in other business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and repair business. When Norberto
was ambushed and killed on July 16, 1993, the trucking business started to falter. When
Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to
the heirs of Norberto, as she could no longer run the business. Jimmy suggested that
three out of the nine trucks be given to him as his share, while the other three trucks be
given to the heirs of Norberto. However, Norberto's wife, PaquitaUy, was not interested
in the vehicles. Thus, she sold the same to respondent, who paid for them in
installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also
stressed that Jose left no properties that Elfledo could have held in trust. Respondent
maintained that all the properties involved in this case were purchased and acquired
through her and her husband’s joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose. Respondent submitted that
these are conjugal partnership properties; and thus, she had the right to refuse to
render an accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally
between the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-
Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits
and rentals received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,5
which the CA, however, denied in its Resolution6
dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES,
CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN
THAT BY A FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER
PARTNERS IN THE PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of Jimmy, the sole
surviving partner, Elfledo was not a partner; and that he and Norberto entered into a
partnership with Jose. Thus, the CA erred in not giving that testimony greater weight
than that of Cresencia, who was merely the spouse of Jose and not a party to the
partnership.8
Respondent counters that the issue raised by petitioners is not proper in a petition for
review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the
review, evaluation, calibration, and re-weighing of the factual findings of the CA.
Moreover, respondent invokes the rationale of the CA decision that, in light of the
admissions of Cresencia and Edison and the testimony of respondent, the testimony of
Jimmy was effectively refuted; accordingly, the CA's reversal of the RTC's findings was
fully justified.9
We resolve first the procedural matter regarding the propriety of the instant Petition.

2. Verily, the evaluation and calibration of the evidence necessarily involves consideration
of factual issues — an exercise that is not appropriate for a petition for review on
certiorari under Rule 45. This rule provides that the parties may raise only questions of
law, because the Supreme Court is not a trier of facts. Generally, we are not duty-bound
to analyze again and weigh the evidence introduced in and considered by the tribunals
below.10
When supported by substantial evidence, the findings of fact of the CA are
conclusive and binding on the parties and are not reviewable by this Court, unless the
case falls under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation,
surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific
evidence on which they are based;
(9) When the facts set forth in the petition as well as in the petitioners' main
and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on
record.11
We note, however, that the findings of fact of the RTC are contrary to those of the CA.
Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there shall
be a proportionate sharing of the profits and losses among them. A contract of
partnership is defined by the Civil Code as one where 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.12
Undoubtedly, the best evidence would have been the contract of partnership or the
articles of partnership. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we are asked to determine who
between Jose and Elfledowas the "partner" in the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence
presented by petitioners falls short of the quantum of proof required to establish that:
(1) Jose was the partner and not Elfledo; and (2) all the properties acquired by
Elfledoand respondent form part of the estate of Jose, having been derived from the
alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of
evidence against respondent. It must be considered and weighed along with petitioners'
other evidence vis-à-vis respondent's contrary evidence. In civil cases, the party having
the burden of proof must establish his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence
on either side and is usually considered synonymous with the term "greater weight of
the evidence" or "greater weight of the credible evidence." "Preponderance of
evidence" is a phrase that, in the last analysis, means probability of the truth. It is
evidence that is more convincing to the court as worthy of belief than that which is
offered in opposition thereto.13
Rule 133, Section 1 of the Rules of Court provides the
guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having
burden of proof must establish his case by a preponderance of evidence. In determining
where the preponderance or superior weight of evidence on the issues involved lies, the
court may consider all the facts and circumstances of the case, the witnesses' manner of
testifying, their intelligence, their means and opportunity of knowing the facts to which
they are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also their
personal credibility so far as the same may legitimately appear upon the trial. The court
may also consider the number of witnesses, though the preponderance is not
necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan EngKee v. Court of Appeals14
is enlightening.
Therein, we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish 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;
(4) The receipt by a person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances tend
to prove that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia
testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that
coincided with the payment of the initial capital in the partnership;15
(2) Elfledo ran the
affairs of the partnership, wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners herein;16
(3) all of the
properties, particularly the nine trucks of the partnership, were registered in the name
of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the profits of the
business;17
and (5) none of the petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo during his lifetime. As repeatedly stressed
in Heirs of Tan Eng Kee,18
a demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and respondent
formed part of the estate of Jose, having been derived from Jose's alleged partnership
with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo and
respondent engaged in other businesses. Edison even admitted that Elfledo also sold
Interwood lumber as a sideline.19 Petitioners could not offer any credible evidence other
than their bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight.20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the
partners in the trucking business, active and visible in the running of its affairs from day
one until this ceased operations upon his demise. The extent of his control,
administration and management of the partnership and its business, the fact that its
properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner and a
controlling one at that. It is apparent that the other partners only contributed in the
initial capital but had no say thereafter on how the business was ran. Evidently it was
through Elfredo’s efforts and hard work that the partnership was able to acquire more
trucks and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.1avvphi1
It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it
was Jose Lim and not Elfledo who was the partner, then upon his death the partnership
should have
been dissolved and its assets liquidated. On the contrary, these were not done but
instead its operation continued under the helm of Elfledo and without any participation
from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their
own concerted efforts and hard work. Elfledo did not limit himself to the business of
their partnership but engaged in other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they
are amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision
dated June 29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.
THIRD DIVISION
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC.,
CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC.,

3. EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K.
Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING
CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC.,
GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM
THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON
REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General
Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and
LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES),Respondents.
D E C I S I O N
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K.
Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA)
dated March 31, 20041
in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No
78774 and its Resolution dated December 07, 2004,2 denying petitioner’s motion for
reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua,
Sr. (Eduardo) are brothers. The legal dispute between them started when, on December
4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his
brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations
for specific performance and accounting. In his complaint,3
docketed as Civil Case No.
69235 and eventually raffled to Branch 68 of the court,4 Aurelio alleged that, since June
1973, he and Eduardo are into a joint venture/partnership arrangement in the Odeon
Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue
Realty, Inc., owner of lands and buildings, among other corporations. Yang is described
in the complaint as petitioner’s and Eduardo’s partner in their Odeon Theater
investment.5
The same complaint also contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and common family
funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other relatives. Copy of
this memorandum is attached hereto and made an integral part asAnnex "A" and the
portion referring to [Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of
[Aurelio’s] retaining his share in the remaining family businesses (mostly, movie
theaters, shipping and land development) and contributing his industry to the continued
operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these
businesses and those to be subsequently acquired by them whichever is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and
Eduardo had accumulated in their joint venture/partnership various assets including but
not limited to the corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also acquired [various other
assets], but Eduardo caused to be registered in the names of other parties….
xxxxxxxxx
4.04 The substantial assets of most of the corporate defendants consist of real
properties …. A list of some of these real properties is attached hereto and made an
integral part as Annex "B".
xxxxxxxxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so
that [Aurelio] requested for an accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting and liquidation were
not heeded].
xxxxxxxxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the
corporate defendants as well as Bobby [Yang], are transferring . . . various real
properties of the corporations belonging to the joint venture/partnership to other
parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time
the annotation on the titles of these real properties… a notice
of lispendens …. (Emphasis in the original; underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have
been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow the pattern …. You
will be the only one left with the company, among us brothers and I will ask you to stay
as I want you to run this office every time I am away. I want you to run it the way I am
trying to run it because I will be all alone and I will depend entirely to you (sic). My sons
will not be ready to help me yet until about maybe 15/20 years from now. Whatever is
left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble
the whole thing of what I have and what you are entitled to. …. It will be you and me
alone on this. If ever I pass away, I want you to take care of all of this. You keep my
share for my two sons are ready take over but give them the chance to run the company
which I have built.
xxxxxxxxx
Because you will need a place to stay, I will arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live
better there. The rest I will give you in form of stocks which you can keep. This stock I
assure you is good and saleable. I will also gladly give you the share of Wack-Wack …and
Valley Golf … because you have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as defendants a
quo, filed a joint ANSWERWith Compulsory Counterclaim denying under oath the material
allegations of the complaint, more particularly that portion thereof depicting petitioner
and Eduardo as having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint
states no cause of action, since no cause of action may be derived from the actionable
document, i.e., Annex "A-1", being void under the terms of Article 1767 in relation to
Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking
Eduardo agreed to do, if any, under Annex "A-1", are unenforceable under the provisions
of the Statute of Frauds.7
For his part, Yang - who was served with summons long after the other defendants
submitted their answer – moved to dismiss on the ground, inter alia, that, as to him,
petitioner has no cause of action and the complaint does not state any.8 Petitioner
opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9
To
this motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for
Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in an
Omnibus Order dated March 5, 2003, denied the affirmative defenses and, except for
Yang, set the case for pre-trial on April 10, 2003.11
In another Omnibus Order of April 2, 2003, the same court denied the motion of
Eduardo, et al., for reconsideration12
and Yang’s motion to dismiss. The following then
transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek
reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to
dismiss13
to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003,
but his motion was denied in an Order of July 4, 2003.14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,15
to
nullify the separate orders of the trial court, the first denying his motion to dismiss the
basic complaint and, the second, denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of
discretion and injudicious haste attended the issuance of the trial court’s
aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from
the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No.
76987.
Per its resolution dated October 2, 2003,16
the CA’s 14th Division ordered the
consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of Authorities,
the appellate court came out with the herein assailed Decision dated March 31, 2004,
finding for Eduardo and Yang, as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari
in these consolidated cases annulling, reversing and setting aside the assailed orders of
the court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint
filed by private respondent [now petitioner Aurelio] against all the petitioners [now
herein respondents Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.17
(Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged
partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached
to the complaint, and upon which petitioner solely predicates his right/s allegedly
violated by Eduardo, Yang and the corporate defendants a quo is "void or legally
inexistent".
In time, petitioner moved for reconsideration but his motion was denied by the CA in its
equally assailedResolution of December 7, 2004.18
.
Hence, petitioner’s present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable document
because this was not a public instrument and immovable properties were contributed to
the partnership.

4. B. When it ruled that the actionable document did not create a demandable right in
favor of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent]
Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that
Petitioner had done was to support his pleaded cause of action by another legal
perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court,
is for delivery or payment to him, as Eduardo’s and Yang’s partner, of his
partnership/joint venture share, after an accounting has been duly conducted of what he
deems to be partnership/joint venture property.19
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there shall
be a proportionate sharing of the profits and losses between them.20
A contract of
partnership is defined by the Civil Code as one where two or more persons bound
themselves to contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves.21
A joint venture, on the other hand,
is hardly distinguishable from, and may be likened to, a partnership since their elements
are similar, i.e., community of interests in the business and sharing of profits and losses.
Being a form of partnership, a joint venture is generally governed by the law on
partnership.22
The underlying issue that necessarily comes to mind in this proceedings is whether or
not petitioner and respondent Eduardo are partners in the theatre, shipping and realty
business, as one claims but which the other denies. And the issue bearing on the first
assigned error relates to the question of what legal provision is applicable under the
premises, petitioner seeking, as it were, to enforce the actionable document - Annex "A-
1" - which he depicts in his complaint to be the contract of partnership/joint venture
between himself and Eduardo. Clearly, then, a look at the legal provisions determinative
of the existence, or defining the formal requisites, of a partnership is indicated.
Foremost of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall
be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be recorded
in the Office of the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the
liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and attached
to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned
and undated. As an unsigned document, there can be no quibbling that Annex "A-1"
does not meet the public instrumentation requirements exacted under Article 1771 of
the Civil Code. Moreover, being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented
for notarization, let alone registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of validity when
immovable property is contributed to the partnership, the next logical point of inquiry
turns on the nature of petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner’s contribution
consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioner’s]
contribution to the so-called "partnership/joint venture" was his supposed share in the
family business that is consisting of movie theaters, shipping and land development
under paragraph 3.02 of the complaint. In other words, his contribution as a partner in
the alleged partnership/joint venture consisted of immovable properties and real rights.
….23
Significantly enough, petitioner matter-of-factly concurred with the appellate court’s
observation that, prescinding from what he himself alleged in his basic complaint, his
contribution to the partnership consisted of his share in the Litonjua family businesses
which owned variable immovable properties. Petitioner’s assertion in his motion for
reconsideration24
of the CA’s decision, that "what was to be contributed to the business
[of the partnership] was [petitioner’s] industry and his share in the family [theatre and
land development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773
of the Civil Code applies as long real property or real rights are initially brought into the
partnership. In short, it is really of no moment which of the partners, or, in this case,
who between petitioner and his brother Eduardo, contributed immovables. In context,
the more important consideration is that real property was contributed, in which case
an inventory of the contributed property duly signed by the parties should be attached
to the public instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the
immovables in question were not contributed, but were acquired after the formation of
the supposed partnership. Needless to stress, the Court cannot accord cogency to this
specious argument. For, as earlier stated, petitioner himself admitted contributing his
share in the supposed shipping, movie theatres and realty development family
businesses which already owned immovables even before Annex "A-1" was allegedly
executed.
Considering thus the value and nature of petitioner’s alleged contribution to the
purported partnership, the Court, even if so disposed, cannot plausibly extend Annex
"A-1" the legal effects that petitioner so desires and pleads to be given. Annex "A-1", in
fine, cannot support the existence of the partnership sued upon and sought to be
enforced. The legal and factual milieu of the case calls for this disposition. A partnership
may be constituted in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at least P3,000.00, in which
case a public instrument shall be necessary.25
And if only to stress what has repeatedly
been articulated, an inventory to be signed by the parties and attached to the public
instrument is alsoindispensable to the validity of the partnership whenever immovable
property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed
Decision26
about the probative value and legal effect of Annex "A-1" commends itself for
concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the "Memorandum" (Annex "A" of the
complaint) which purports to establish the said "partnership/joint venture" is NOT a
public instrument and there was NO inventory of the immovable property duly signed by
the parties. As such, the said "Memorandum" … is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract cannot be the source of any contractual
or legal right. Accordingly, the allegations in the complaint, including the actionable
document attached thereto, clearly demonstrates that [petitioner] has NO valid
contractual or legal right which could be violated by the [individual respondents]
herein. As a consequence, [petitioner’s] complaint does NOT state a valid cause of
action because NOT all the essential elements of a cause of action are
present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CA’s equally
assailed Resolution of December 7, 200427 denying petitioner’s motion for
reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as
well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not
appreciate and apply the legal provisions which were brought to its attention by herein
[respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the
latter alleged inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and there was no
inventory of immovable properties signed by the parties. Both the allegations in the
complaint and the actionable documents considered, it is crystal clear that [petitioner]
has no valid or legal right which could be violated by [respondents]. (Words in bracket
added.)
Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its
inefficacy or nullity as a partnership document, nevertheless created demandable rights
in his favor. As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions,
established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract
does create rights and obligations of the parties and which rights and obligations may
be enforceable and demandable. Just because the relationship created by the
agreement cannot be specifically labeled or pigeonholed into a category of nominate
contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and
earlier on the CA after he experienced a reversal of fortune thereat - as an afterthought.
The appellate court, however, cannot really be faulted for not yielding to petitioner’s
dubious stratagem of altering his theory of joint venture/partnership to an innominate
contract. For, at bottom, the appellate court’s certiorari jurisdiction was circumscribed
by what was alleged to have been the order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly observed,28
since the parties’ basic position
had been well-defined, that of petitioner being that the actionable document
established a partnership/joint venture, it is on those positions that the appellate court
exercised its certiorari jurisdiction. Petitioner’s act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared, an admission of the
untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has
now contended that the actionable instrument may be considered an innominate
contract. xxx Verily, this now changes [petitioner’s] theory of the case which is not only
prohibited by the Rules but also is an implied admission that the very theory he himself
… has adopted, filed and prosecuted before the respondent court is erroneous.
Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of
the actionable document being a partnership document. If anything, it is so obvious we
do have to test the sufficiency of the cause of action on the basis of partnership law
xxx.29
(Emphasis in the original; Words in bracket added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected
innominate contract, petitioner’s complaint would still be dismissible as against Eduardo
and, more so, against Yang. It cannot be over-emphasized that petitioner points to

5. Eduardo as the author of Annex "A-1". Withal, even on this consideration alone,
petitioner’s claim against Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as
vesting petitioner with a right to demand from respondent Eduardo the observance of a
determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I will ask you
to stay as I want you to run this office everytime I am away. I want you to run it the way I
am trying to run it because I will be alone and I will depend entirely to you, My sons will
not be ready to help me yet until about maybe 15/20 years from now.Whatever is left in
the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or
ten percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under the
above passage, if he indeed wrote Annex "A-1", is a promise which is not to be
performed within one year from "contract" execution on June 22, 1973. Accordingly, the
agreement embodied in Annex "A-1" is covered by the Statute of Frauds
and ergounenforceable for non-compliance therewith.30
By force of the statute of
frauds, an agreement that by its terms is not to be performed within a year from the
making thereof shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party charged. Corollarily, no
action can be proved unless the requirement exacted by the statute of frauds is
complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%
equity of the family businesses supposedly promised by Eduardo to give in the near
future. Any suggestion that the stated amount or the equity component of the promise
was intended to go to a common fund would be to read something not written
in Annex"A-1". Thus, even this angle alone argues against the very idea of a partnership,
the creation of which requires two or more contracting minds mutually agreeing to
contribute money, property or industry to a common fund with the intention of dividing
the profits between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific
performance anchored on an actionable document of partnership which is legally
inexistent or void or, at best, unenforceable does not state a cause of action as against
respondent Eduardo and the corporate defendants. And if no of action can successfully
be maintained against respondent Eduardo because no valid partnership existed
between him and petitioner, the Court cannot see its way clear on how the same action
could plausibly prosper against Yang. Surely, Yang could not have become a partner in,
or could not have had any form of business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that
would tie Yang to him as his partner. In fact, attendant circumstances would indicate the
contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership with
Eduardo was "for the continuation of their family business and common family funds
which were theretofore being mainly managed by Eduardo." 33
But Yang denies kinship
with the Litonjua family and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will be. No
allegation is made whatsoever about what Yang contributed, if any, let alone his
proportional share in the profits. But such allegation cannot, however, be made
because, as aptly observed by the CA, the actionable document did not contain such
provision, let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the partnership
contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business
partners in the [respondent] corporations," while "Bobby is his and Eduardo’s partner in
their Odeon Theater investment’ (par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their partner in their Odeon Theater
investment thereafter. Several paragraphs later, however, petitioner would contradict
himself by alleging that his "investment and that of Eduardo and Yang in the Odeon
theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate
respondents" This simply means that the "Odeon Theatre business" came before the
corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon Theatre business.34
Needless to stress, petitioner has not sufficiently established in his complaint the
legal vinculum whence he sourced his right to drag Yang into the fray. The Court of
Appeals, in its assailed decision, captured and formulated the legal situation in the
following wise:
[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a
"partner" of [Eduardo] and the [petitioner] in the Odeon Theater Investment which
expanded through reinvestments of profits and direct investments in several
corporations, thus:
xxxxxxxxx
Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with
petitioner and the …respondent. However, there was NO allegation in the complaint
which directly alleged how the supposed contractual relation was created between
[petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court
that the purported partnership between [Eduardo] is void and legally inexistent directly
affects said claim against …Yang. Since [petitioner] is trying to establish his claim
against … Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect
[petitioner] and … Yang. To establish a valid cause of action, the complaint should have
a statement of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts on those matters is pivotal to the
complaint as they would constitute the ultimate facts necessary to establish the
elements of a cause of action against … Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioner’s motion for
reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to the
complaint that is controlling. Suffice it to state, We have not ignored the actionable
document … As a matter of fact, We emphasized in our decision … that insofar as
[Yang] is concerned, he is not even mentioned in the said actionable document. We are
therefore puzzled how a person not mentioned in a document purporting to establish a
partnership could be considered a partner.36
(Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of
the case, as peremptorily determined by the CA, has been discussed at length earlier and
need not detain us long. Suffice it to say that after the CA has ruled that the alleged
partnership is inexistent, petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and consistently pursued in his complaint,
petitioner embraced the innominate contract theory. Illustrative of this shift is
petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision
combined with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or
whatever, is a legal matter. What is determinative for purposes of sufficiency of the
complainant’s allegations, is whether the actionable document bears out an actionable
contract – be it a partnership, a joint venture or whatever or some innominate contract
… It may be noted that one kind of innominate contract is what is known as du
utfacias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted provisions,
established an actionable contract even though it may not be a partnership. This
actionable contract is what is known as an innominate contract (Civil Code, Article
1307).38
Springing surprises on the opposing party is offensive to the sporting idea of fair play,
justice and due process; hence, the proscription against a party shifting from one theory
at the trial court to a new and different theory in the appellate court.39
On the same
rationale, an issue which was neither averred in the complaint cannot be raised for the
first time on appeal.40 It is not difficult, therefore, to agree with the CA when it made
short shrift of petitioner’s innominate contract theory on the basis of the foregoing
basic reasons.
Petitioner’s protestation that his act of introducing the concept of innominate contract
was not a case of changing theories but of supporting his pleaded cause of action – that
of the existence of a partnership - by another legal perspective/argument, strikes the
Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CA’s decision virtually relegates partnership as a fall-
back theory. Two paragraphs later, in the same notion, petitioner faults the appellate
court for reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on
whether or not to pursue the original cause of action or altogether abandoning the
same, thus:
12. Incidentally, assuming that the actionable document created a partnership between
[respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this
partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document
attached to the complaint does not establish a contractual relationship between
[petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his document does
not create a partnership or a joint venture. This is … a myopic reading of the actionable
document.
Per the Court’s own count, petitioner used in his complaint the mixed words "joint
venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made
reference to the "law of joint venture/partnership [being applicable] to the business
relationship … between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific
properties of their joint venture/partnership". Given this consideration, petitioner’s right
of action against respondents Eduardo and Yang doubtless pivots on the existence of
the partnership between the three of them, as purportedly evidenced by the undated
and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of
partnership, would strip petitioner of a cause of action under the premises. A complaint
for delivery and accounting of partnership property based on such void or legally non-
existent actionable document is dismissible for failure to state of action. So, in gist, said
the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution
of the Court of AppealsAFFIRMED.
Cost against the petitioner.
SO ORDERED.
EN BANC
G.R. No. L-11840 December 10, 1963
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,
vs.
WASHINGTON Z. SYCIP, ET AL., defendants-appellees.

6. Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees.
Jose C. Calayco for plaintiffs-appellants..
R E S O L U T I O N
REYES, J.B.L., J.:
The matter now pending is the appellant's motion for reconsideration of our main
decision, wherein we have upheld the validity of the sale of the lands owned by the
partnership Goquiolay& Tan Sin An, made in 1949 by the widow of the managing
partner, Tan Sin An (Executed in her dual capacity as Administratrix of the husband's
estate and as partner in lieu of the husband), in favor of the buyers Washington Sycip
and Betty Lee for the following consideration:
Cash paid P37,000.00
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan& Co., 54,310.13
T O T A L P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our
holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more
than a limited partner, incapacitated by law to manage the affairs of partnership; that
the testimony of her witness Young and Lim belies that she took over the administration
of the partnership property; and that, in any event, the sale should be set aside because
it was executed with the intent to defraud appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to reconsider,
being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner,
acting in behalf of the firm, to a stranger. There is no question between partners inter se,
and this aspect to the case was expressly reserved in the main decision of 26 July 1960;
(b) That partnership was expressly organized: "to engage in real estate business, either
by buying and selling real estate". The Articles of co-partnership, in fact, expressly
provided that:
IV. The object and purpose of the copartnership are as follows:
1. To engage in real estate business, either by buying and selling real estates;
to subdivide real estates into lots for the purpose of leasing and selling
them.;
(c) That the properties sold were not part of the contributed capital (which was in cash)
but land precisely acquired to be sold, although subject to a mortgage in favor of the
original owners, from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed
and retained possession of the partnership properties. Suffice it to point out that
appellant Goquiolay himself admitted that —
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said,
because I wanted to help Mrs. Kong Chai Pin, she could just do it and
besides I am not interested in agricultural lands. I allowed her to take care of
the properties in order to help her and because I believe in God and —
wanted to help her.
Q — So the answer to my question is you did not take any
steps?
A — I did not.
Q — And this conversation which you had with Mrs. Yu Eng Lai
was few months after 1945?
A — In the year 1945. (Emphasis supplied).
The appellant subsequently ratified this testimony in his deposition of 30 June 1956,
pages 8-9, wherein he stated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin
An, and of course they are receiving quiet a lot benefit from the plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly
entitled to greater weight than those of Hernando Young and Rufino Lim, having been
made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the
witness found the properties "abandoned and undeveloped", omits to mention that
said part of the testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet
Mrs. Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai Pin) did not
receive any income from the partnership properties, was given in answer to the
question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and
his family lived on the plantation of the partnership and derived their
subsistence from that plantation. What can you say to that? (Dep. 19 July
1956, p. 8).
And also —
What can you say as to the development of these other properties of the
partnership which you saw during the occupation? (Dep. p. 13, Emphasis
supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is
in Tigato is about eleven (11) hectares and planted with abaca seedlings
planted by Mr. Sin An. When I went there with Hernando Youngwe saw all
the abaca destroyed. The place was occupied by the Japanese Army. They
planted camotes and vegetables to feed the Japanese Army. Of course they
never paid any money to Tan Sin An or his family. (Dep., Lim, pp. 13-14.
Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's
admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to
manage the properties). Witnesses Lim and Young referred to the period of Japanese
occupation; but Goquiolay's authority was, in fact, given to the widow in 1945,after the
occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out
no acts of management during the Japanese occupation (1942-1944) does not mean that
she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young; he
actually manifested his willingness that the widow should manage the partnership
properties. Whether or not she complied with this authority is a question between her
and the appellant, and is not here involved. But the authority was given, and she did
have it when she made the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article
1713 of the Civil Code of 1889. What this argument overlooks is that the widow was not a
mere agent, because she had become a partner upon her husband's death, as expressly
provided by the articles of copartnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization
to manage the partnership property was proof that he considered and recognized her as
general partner, at least since 1945. The reason is plain: Under the law (Article 148, last
paragraph, Code of Commerce), appellant could not empower the widow, if she were
only a limited partner, to administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to
the interests of the copartnership, not even in the capacity of agents of the
managing partners. (Emphasis supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that
she desired to be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do), Goquiolay
recognized her as such partner, and is now in estoppel to deny her position as a general
partner, with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
"necessarily") becomes a limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of the estate inherited so as
not to jeopardize his personal assets. But this statutory limitation of responsibility being
designed to protect the heir, the latter may disregard it and instead elect to become a
collective or general partner, with all the rights and privileges of one, and answering for
the debts of the firm not only with the inheritance but also with the heir's personal
fortune. This choice pertains exclusively to the heir, and does not require the assent of
the surviving partner.
It must be remember that the articles of co-partnership here involved expressly
stipulated that:
In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but will
have to be continued and the deceased partner shall be represented by his
heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be
merely limited partners; on the contrary, they expressly stipulated that in case of death
of either partner "the co-partnership ... will have to be continued" with the heirs or
assigns. It certainly could not be continued if it were to be converted from a general

7. partnership into a limited partnership, since the difference between the two kinds of
associations is fundamental; and specially because the conversion into a
limited association would have the heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation does actually contemplate that the
heirs would becomegeneral partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they
refuse to assume personal and unlimited responsibility for the obligations of the firm.
The heirs, in other words, can not be compelled to become general partners against
their wishes. But because they are not so compellable, it does not legitimately follow
that they may not voluntarily choose to become general partners, waiving the
protective mantle of the general laws of succession. And in the latter event, it is
pointless to discuss the legality of any conversion of a limited partner into a general one.
The heir never was a limited partner, but chose to be, and became, a general partner
right at the start.
It is immaterial that the heir's name was not included in the firm name, since no
conversion of status is involved, and the articles of co-partnership expressly
contemplated the admission of the partner's heirs into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and
does not deal with the rights existing between partners Goquiolay and the widow of Tan
Sin An. The issues between the partners inter sewere expressly reserved in our main
decision. Now, in determining what kind of partner the widow of partner Tan Sin an Had
elected to become, strangers had to be guided by her conduct and actuations and those
of appellant Goquiolay. Knowing that by law a limited partner is barred from managing
the partnership business or property, third parties (like the purchasers) who found the
widow possessing and managing the firm property with the acquiescence (or at least
without apparent opposition) of the surviving partners were perfectly justified in
assuming that she had become a general partner, and, therefore, in negotiating with her
as such a partner, having authority to act for, and in behalf of the firm. This belief, be it
noted, was shared even by the probate court that approved the sale by the widow of
the real property standing in the partnership name. That belief was fostered by the very
inaction of appellant Goquiolay. Note that for seven long years, from partner Tan Sin
An's death in 1942 to the sale in 1949, there was more than ample time for Goquiolay to
take up the management of these properties, or at least ascertain how its affairs stood.
For seven years Goquiolay could have asserted his alleged rights, and by suitable notice
in the commercial registry could have warned strangers that they must deal with him
alone, as sole general partner. But he did nothing of the sort, because he was not
interested (supra), and he did not even take steps to pay, or settle the firm debts that
were overdue since before the outbreak of the last war. He did not even take steps,
after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that
he (Goquiolay) would have no intervention in the management of the partnership.
This laches certainly contributed to confirm the view that the widow of Tan Sin An had,
or was given, authority to manage and deal with the firm's properties apart from the
presumption that a general partner dealing with partnership property has to requisite
authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our
main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates on obligation between the two
partners, which consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon a third
person who contracts with the partnership. Neither it is necessary for the
third person to ascertain if the managing partner with whom he contracts
has previously obtained the consent of the other. A third person may and
has a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the law has been obeyed
(No. 31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties. (Litton vs. Hill &Ceron, et
al., 67 Phil. 409, 516). (Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the real estate
of the firm. This argument is lamentably superficial because it fails to differentiate
between real estate acquired and held as stock-in-tradeand real estate held merely
as business site (Vivante's "taller o banco social") for the partnership. Where the
partnership business is to deal in merchandise and goods, i.e., movable property, the
sale of its real property (immovables) is not within the ordinary powers of a partner,
because it is not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the present case),
the immovables thus acquired by the firm from part of its stock-in-trade, and the sale
thereof is in pursuance of partnership purposes, hence within the ordinary powers of
the partner. This distinction is supported by the opinion of Gay de Montella1
, in the very
passage quoted in the appellant's motion for reconsideration:
La enajenacionpuedeentrar en lasfacultadesdelgerante, cuandoesconforme
a los fines sociales. Peroestafacultad de enajenarlimitada a
lasventasconforme a los fines sociales, vienelimitada a los objetos de
comercio o a los productos de la fabricaparaexplotacion de los cuales se ha
constituido la Sociedad.Ocurriraunacosaparecidacuando el objeto de la
Sociedadfuese la compra y venta de inmuebles, en cuyocaso el
gerenteestariafacultadoparaotorgarlasventasquefuerenecesario. (Montella)
(Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has
the legal right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has
ample power, as a general agent of the firm, to enter into an executory contract for the
sale of real estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real
estate can not bind the firm by purchases or sales of such property made in
the regular course of business, then they are incapable of exercising the
essential rights and powers of general partners and their association is not
really a partnership at all, but a several agency.
Since the sale by the widow was in conformity with the express objective of the
partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of
Copartnership), it can not be maintained that the sale was made in excess of her power
as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly
different from the one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that
its property was insufficient to pay its debts, though it still had good credit,
and was actively engaged in the prosecution of its business. On that day,
which was Saturday, the plaintiff caused to be prepared, ready for
execution, the four chattel mortgages in question, which cover all the
tangible property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary for, and used in carrying
on, its business, and signed the same in this form: "In witness whereof, the
said Cowen & McGrath, a firm, and Owen McGrath, surviving partner, of said
firm, and Owen McCrath, individually, have hereunto set their hands, this
20th day of May, A.D. 1893. Cowen &Mcgrath, by Owen McGrath. Owen
McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the
same time, the plaintiff had prepared, ready for filing, the petitionfor the
dissolution of the partnership and appointment of a receiver which he
subsequently filed, as hereinafter stated. On the day the mortgages were
signed, they were placed in the hands of the mortgagees, which was the
first intimation to them that there was any intention to make them. At the
timenone of the claims secured by the mortgages were due, except, it may be,
a small part of one of them, andnone of the creditors to whom the
mortgages were made had requested security, or were pressing for the
payment of their debts. ... The mortgages appear to be without a sufficient
condition of defiance, and contain a stipulation authorizing the mortgagees
to take immediate possession of the property, which they did as soon as the
mortgages were filed through the attorney who then represented them, as
well as the plaintiff; and the stores were at once closed, and possession
delivered by them to the receiver appointed upon the filing of the
petition. The avowed purposes of the plaintiff, in the course pursued by
him, was to terminate the partnership, place its properly beyond the control
of the firm, and insure the preference of the mortgagees, all of which was
known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion
that the conveyances were made with intent to terminate the partnership, and that they
were not within the powers of McGrath as a partner. But there is no similarity between
those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale
included even the fixtures used in the business; in our case, the lands sold were those
acquired to be sold. In the McGrath case, none of the creditors were pressing for
payment; in our case, the creditors had been unpaid for more than seven years, and
their claims had been approved by the probate court for payment. In the McGrath case,
the partnership received nothing beyond the discharge of its debts; in the present case,
not only were its debts assumed by the buyers, but the latter paid, in addition,
P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath
ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but appellant
point out, as indicia thereof, the allegedly low price paid for the property, and the
relationship between the buyers, the creditors of the partnership, and the widow of Tan
Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed
by the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan& Co.)
are not questioned; they were approved by the court, and its approval is now final. The
claims were, in fact, for the balance on the original purchase price of the land sold (sue
first to La Urbana, later to the BancoHipotecario) plus accrued interests and taxes,
redeemed by the two creditors-claimants. To show that the price was inadquate,
appellant relies on the testimony of the realtor Mata, who is 1955, six years after the sale
in question, asserted that the land was worth P312,000.00. Taking into account the
continued rise of real estate values since liberation, and the fact that the sale in question
was practically a forced sale because the partnership had no other means to pay its
legitimate debts, this evidence certainly does not show such "gross inadequacy" as to
justify recission of the sale. If at the time of the sale (1949) the price of P153,726.04 was
really low, how is it that appellant was not able to raise the amount, even if the
creditor's representative, Yu Khe Thai, had already warned him four years before (1945)
that the creditors wanted their money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum needed to
discharge the debts. But the lands were already mortgaged, and had been mortgaged
since 1940, first to La Urbana, and then to the BancoHipotecario. Was it reasonable to
expect that other persons would loan money to the partnership when it was unable
even to pay the taxes on the property, and the interest on the principal since 1940? If it
had been possible to find lenders willing to take a chance on such a bad financial record,
would not Goquiolay have taken advantage of it? But the fact is clear on the record that

8. since liberation until 1949 Goquiolay never lifted a finger to discharge the debts of the
partnership. Is he entitled now to cry fraud after the debts were discharged with no help
from him.
With regard to the relationship between the parties, suffice it to say that the Supreme
Court has ruled that relationship alone is not a badge of fraud (OriaHnos. vs. McMicking,
21 Phil. 243; also HermandaddelSmo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers, Washington Sycip and Betty Lee, were
without independent means to purchase the property. That the Yutivos should be
willing to extend credit to them, and not to appellant, is neither illegal nor immoral; at
the very least, these buyers did not have a record of inveterate defaults like the
partnership "Tan Sin An&Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between
the Yutivo firm and their component members. But no proof is adduced. If he was such
a victim, he could have easily defeated the conspirators by raising money and paying off
the firm's debts between 1945 and 1949; but he did not; he did not even care to look for
a purchaser of the partnership assets. Were it true that the conspiracy to defraud him
arose (as he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai
asked him to do so, it is certainly strange that the conspirators should wait 4 years, until
1949, to have the sale effected by the widow of Tan Sin An, and that the sale should
have been routed through the probate court taking cognizance of Tan Sin An's estate,
all of which increased the risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan&
Co., (as subrogees of the BancoHipotecario) in proceedings for the settlement of the
estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin
An &Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the
BancoHipotecario), and Rule 87, section 6 is the effect that:
Where the obligation of the decedent is joint and several with another
debtor, the claim shall be filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to recover contribution
from the other debtor. (Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the
sense that each and every parcel under mortgage answers for the totality of the debt
(Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is
fraud at al, it can only be a fraud of creditorsthat gives rise to a rescission of the
offending contract. But by express provision of law (Article 1294, Civil Code of 1889;
Article 1383, New Civil Code) "the action for rescission is subsidiary; it can not be
instituted except when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that Goquiolaycan
not obtain reparation from the widow and heirs of Tan Sin An, the present suit to
rescind the sale in question is not maintainable, even if the fraud charged actually did
exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.
Regala, J., took no part.
EN BANC
G.R. No. L-26937 October 5, 1927
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.
VILLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling,
together with J. A. Say Lian Ping, KoTiao Hun, On YemKe Lam and Co SiengPeng formed
a commercial partnership under the name of "Tai Sing and Co.," with a capital of
P40,000 contributed by said partners. In the articles of copartnership, Exhibit A, it
appears that the partnership was to last for five years from after the date of its
organization, and that its purpose was to do business in the City of Iloilo, Province of
Iloilo, or in any other part of the Philippine Islands the partners might desire, under the
name of "Tai Sing & Co.," for the purchase and sale of merchandise, goods, and native,
as well as Chinese and Japanese, products, and to carry on such business and
speculations as they might consider profitable. One of the partners, J. A. Say Lian Ping
was appointed general manager of the partnership, with the appointed general
manager of the partnership, with the powers specified in said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney
(Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his stead as manager and
administrator of "Tai Sing & Co.," on July 26, 1918, for, and obtained a loan of P8,000 in
current account from the plaintiff bank. (Exhibit C). As security for said loan, he
mortgaged certain personal property of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as attorney-
in-fact of "Tai Sing & Co., executed a chattel mortgage in favor of plaintiff bank as
security for a loan of P20,000 with interest (Exhibit D). This mortgage was again
renewed on April 16, 1920 and A. Y. Kelam, as attorney-in-fact of "Tai Sing & Co.,
executed another chattel mortgage for the said sum of P20,000 in favor of plaintiff
bank. (Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn 9
per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the
latter represented by M. Pineda Tayenko, executed a power of attorney in favor of Sy Tit
by virtue of which Sy Tit, representing "Tai Sing & Co., obtained a credit of P20,000 from
plaintiff bank on January 7, 1921, executing a chattel mortgage on certain personal
property belonging to "Tai Sing & Co.
Defendants had been using this commercial credit in a current account with the
plaintiff bank, from the year 1918, to May 22, 1921, and the debit balance of this account,
with interest to December 31, 1924, is as follows:
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June 30, 1922
Interest on same from June 30, 1922 to December 31,1924, at 9 per cent per annum
Total
This total is the sum claimed in the complaint, together with interest on the
P16,518.74 debt, at 9 per cent per annum from January 1, 1925 until fully paid, with the
costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co. was not a
general partnership, and that the commercial credit in current account which "Tai Sing &
Co. obtained from the plaintiff bank had not been authorized by the board of directors
of the company, nor was the person who subscribed said contract authorized to make
the same, under the article of copartnership. The other defendants, Yap Sing and Ng
Khey Ling, answered the complaint denying each and every one of the allegations
contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., SiengPeng
indebted to plaintiff Philippine National Bank in sum of P22,595.26 to July
29, 1926, with a daily interest of P4.14 on the balance on account of the
partnership "Tai Sing & Co. for the sum of P16,518.74 until September 9,
1922;
(2) Said defendants are ordered jointly and severally to pay the Philippine
National Bank the sum of P22,727.74 up to August 31, 1926, and from the
date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the
action.1awph!l.net
Defendants appealed, making the following assignments of error:
I. The trial court erred in finding that article 126 of the Code of Commerce at
present in force is not mandatory.
II. The trial court erred in finding that the partnership agreement of "Tai
Sing & Co., (Exhibit A), is in accordance with the requirements of article 125
of the Code of Commerce for the organization of a regular partnership.
III. The trial court erred in not admitting J. A. SaiLian Ping's death in China in
November, 1917, as a proven fact.
IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot
extinguish the defendants' obligation to the plaintiff bank, because the last
debt incurred by the commercial partnership "Tai Sing & Co., was that
evidence by Exhibit F, signed by Sy Tit as attorney-in-fact of the members of
"Tai Sing & Co., by virtue of Exhibit G.
V. The trial court erred in not finding that plaintiff bank was not able to
collect its credit from the goods of "Tai Sing & Co., given as security therefor
through its own fault and negligence; and that the action brought by
plaintiff is a manifest violation of article 237 of the present Code of
Commerce.
VI. The trial court erred in finding that the current account of "Tai Sing & Co.
with plaintiff bank shows a debit balance of P16,518.74, which in addition to
interest at 9 per cent per annum from July 29, 1926, amount to P16,595.26,
with a daily interest of P4.14 on the sum of P16,518.74.
VII. The trial court erred in ordering the defendants appellants to pay jointly
and severally to the Philippine National Bank the sum of P22,727.74 up to
August 31, 1926, and interest on P16,518.74 from that date until fully paid,
with the costs of the action.
VIII. The trial court erred in denying the motion for a new trial filed by
defendants-appellants.
Appellants admit, and it appears from the context of Exhibit A, that the defendant
association formed by the defendants is a general partnership, as defined in article 126

9. of the Code Commerce. This partnership was registered in the mercantile register of the
Province of Iloilo. The only anomaly noted in its organization is that instead of adopting
for their firm name the names of all of the partners, of several of them, or only one of
them, to be followed in the last two cases, by the words "and to be followed in the last
two cases, by the words "and company" the partners agreed upon "Tai Sing & Co." as
the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-Chiong-
Seng, cited by appellants, this court held that, as the company formed by defendants
had existed in fact, though not in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in favor of the plaintiff, the same
must be paid by someone. This applies more strongly to the obligations contracted by
the defendants, for they formed a partnership which was registered in the mercantile
register, and carried on business contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted does not affect the liability of the
general partners to third parties under article 127 of the Code of Commerce. And the
Supreme Court so held in the case of Jo Chung Cang vs. Pacific Commercial Co., (45 Phil.,
142), in which it said that the object of article 126 of the Code of Commerce in requiring a
general partnership to transact business under the name of all its members, of several of
them, or of one only, is to protect the public from imposition and fraud; and that the
provision of said article 126 is for the protection of the creditors rather than of the
partners themselves. And consequently the doctrine was enunciated that the law must
be unlawful and unenforceable only as between the partners and at the instance of the
violating party, but not in the sense of depriving innocent parties of their rights who
may have dealt with the offenders in ignorance of the latter having violated the law; and
that contracts entered into by commercial associations defectively organized are valid
when voluntarily executed by the parties, and the only question is whether or not they
complied with the agreement. Therefore, the defendants cannot invoke in their defense
the anomaly in the firm name which they themselves adopted.
As to the alleged death of the manager of the company, Say Lian Ping, before the
attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not find
this fact proven at the hearing. But even supposing that the court had erred, such an
error would not justify the reversal of the judgment, for two reasons at least: (1)
Because Ou Yong Kelam was a partner who contracted in the name of the partnership,
without any objection of the other partners; and (2) because it appears in the record
that the appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed
Sy Tit as manager, and he obtained from the plaintiff bank the credit in current account,
the debit balance of which is sought to be recovered in this action.
Appellants allege that such of their property as is not included in the partnership
assets cannot-be seized for the payment of the debts contracted by the partnership
until after the partnership property has been exhausted. The court found that the
partnership property described in the mortgage Exhibit F no loner existed at the time of
the filing of the herein complaint nor has its existence been proven, nor was it offered
to the plaintiff for sale. We find no just reason to reverse this conclusion of the trial
court, and this being so, it follows that article 237 of the Code of Commerce, invoked by
the appellant, can in no way have any application here.
Appellants also assign error to the action of the trial court in ordering them to pay
plaintiff, jointly and severally, the sums claimed with 9 per cent interest on P16,518.74,
owing from them.
The judgment against the appellants is in accordance with article 127 of the Code of
Commerce which provides that all the members of a general partnership, be they
managing partners thereof or not, shall be personally and solidarily liable with all their
property, for the results of the transactions made in the name and for the account of
the partnership, under the signature of the latter, and by a person authorized to use it.
As to the amount of the interest suffice it to remember that the credit in current
account sued on in this case as been renewed by the parties in such a way that while it
appears in the mortgage Exhibit D executed on March 25, 1919 by the attorney-in-fact Ou
Yong Kelam that the P20,000 credit would earn 8 per cent interest annually, yet from
that executed on April 16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per
cent interest per annum. The credit was renewed in January, 1921, and in the deed of
pledge, Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact Sy Tit,
it appears that this security is for the payment of the sums received by the partnership,
not to exceed P20,000 with interest and collection fees. There can be no doubt that the
parties agreed upon the rate of interest fixed in the document Exhibit E, namely 9 per
cent per annum.
The judgment appealed from is in accordance with the law, and must therefore be,
as it is hereby, affirmed with costs against the appellants. So ordered.
Avanceña, C.J., Johnson, Street, Malcolm, Johns and Romualdez, JJ., concur.
EN BANC
G.R. No. L-9186 April 29, 1957
COLLECTOR OF INTERNAL REVENUE, petitioner,
vs.
JUAN ISASI, M. SALUSTIANA ALDECOA, CLAUDIO ZULOAGA, MIREN ZULOAGA, HUGO
P. RODRIGUEZ, and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Ambrosio Padilla, Solicitor Jose Alejandro, Solicitor Conrado
T. Limcaoco, Pedro P. Magaliman and Zoilo R. Sandoval for petitioner.
Emilio Abello and Hugo P. Rodriguez for respondents.
FELIX, J.:
Juan Isasi, M. SalustianaAldecoa assisted by her husband Jesus Isasi, Claudio Zuloaga,
Jr., MirenZuloaga and Hugo P. Rodriguez in his capacity as Liquidator of the Partnership
Aldecoa, Zuloaga and Isasi, instituted originally this case against the Collector of Internal
Revenue of the Republic of the Philippines in the Court of First Instance of Negros
Occidental (Civil Case No. 2028), but by virtue of the enactment of Republic Act No. 1125,
creating the Court of Tax Appeals, same was remanded to the latter Court in accordance
with section 22 of said Act.
From the agreed stipulation of facts and other pleadings filed by the parties, it appears
that plaintiffs Juan Isasi, M. SalustianaAldecoa, Claudio Zuloaga, Jr., and MirenZuloaga
formed a partnership known as "Aldecoa, Zuloaga e Isasi" organized principally for the
exploitation, development and utilization of Haciendas Manucao and Conchita, located
in the municipalities of Binalbagan and Hinigaran, Negros, Occidental. The partnership
agreement "Escritura de Constitucion de la Sociedad Agricola Aldecoa, Zuloaga e Isasi"
was duly registered on October 27, 1947.
The records show that for the tax years 1948 and 1949, the firm Aldecoa, Zuloaga e Isasi
filed its income tax returns and the Collector of Internal Revenue assessed the sum of
P26,873.66 against said partnership which the latter paid and that the members of the
partnership filed their individual income tax returns for the years 1948, 1949, 1950 and
1951, in which returns they indicated the shares of the profit or dividends that they
allege to have received from the partnership. On June 30, 1951, the partners agreed to
dissolve the partnership and the agreement of dissolution was duly recorded in the
Securities and Exchange Commission on October 25, 1951, wherein plaintiff Hugo P.
Rodriguez was appointed as liquidator.
Believing that the partnership "Aldecoa, Zuloaga e Isasi" was a duly registered general
co-partnership (sociedadcolectiva) and therefore not subject to income tax under
Section 24 of the National Internal Revenue Code, plaintiffs filed with defendant on July
16, 1951, a claim for the refund of P26,873.66 which the partnership had paid as income
tax. The claim for refund not having been acted upon by defendant, a complaint was
filed with the Court of First Instance of Negros Occidental on August 4, 1951, praying the
defendant be ordered to return to plaintiffs the aforementioned sum with costs, and for
such other remedies as may be just and equitable in the premises.
On September 14, 1951, the Provincial Fiscal of Negros Occidental answered the
complaint admitting some of the averments thereof and at the same time denying
plaintiff's allegations that Aldecoa, Zuloaga e Isasi is a general or regular collective
partnership, the truth being said partnership was a limited partner ship and as such
cannot be exempt from income tax. The Fiscal further set up the affirmative defense
that it being a civil partnership, whether registered or not, Aldecoa, Zuloaga e Isasi could
be taxed as a corporation under Section 24 of the National Internal Revenue Code. He
therefore prayed that the complaint be dismissed with costs against plaintiffs.
After the parties had filed their respective memoranda, the of Tax Appeals which took
the case rendered a decision ordering defendant to refund the sum of P26,873.66,
without costs, and making the following pronouncements:
In view of the foregoing, we are, therefore, of the opinion and so hold that
the partnership "Aldecoa, Zuloaga e Isasi" was a duly registered general co-
partnership (companiacolectiva) with the meaning and contemplation of
sections 24 and 26 of the National Internal Revenue Code and as such it is
not liable for income tax as a juridical person although the partners
composing it are liable in their individual capacity. Since it is admitted that
during the calendar years 1948, 1949, 1950 and 1951, the plaintiff partners
Juan Isasi, M. SalustianaAldecoa, Claudio Zuloaga and Zuloaga of the said
partnership had filed their respective individual income tax returns, and in
these returns, the said plaintiff partners indicated the amounts they had
received as income from the partnership and paid the income tax assessed
against them by the defendant Collector of Internal Revenue on account
thereof, the total amount of P26,873.66 paid by the partnership "Aldecoa,
Zuloaga e Isasi" as income tax for the fiscal years from July 1, 1948, to June
30, 1950, is therefore refundable.
From this decision, defendant filed with this Court a petition to review the said decision
making the following assignment of errors:
1. That the respondent Court of Tax Appeals erred in holding that the term
"duly registered general co-partnership (sociedadcolectiva)" found in
sections 24 and 26 of the National Internal Revenue Code includes civil
partnerships which have adopted the form of compañias colectivas and
(were) duly registered;
2. That the respondent Court of Tax Appeals erred in finding that the
partnership "Aldecoa, Zuloaga e Isasi" has adopted the form of general
partnership (sociedadcolectiva) under the Code of Commerce; and
3. That the respondent Court of Tax Appeals Erred in holding that the
partnership "Aldecoa, Zuloaga e Isasi" was a duly registered general co-
partnership (sociedadcolectiva) within the meaning and contemplation of
the aforesaid sections of the Tax Code and was not therefore liable to pay
income tax.
The dispute arose from a divergence of opinion as to the proper interpretation and
application of sections 24 and 26 of the National Revenue Code, which reads as follows:
SEC. 24.RATE OF TAX ON CORPORATIONS. — There shall be levied,
assessed, collective and paid annually upon the total net income received in
the proceeding taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines no matter how
created or organizedbut not including duly registered general co-partnership
(compañiascolectivas), a tax upon such income equal to the sum of the
following: . . .
Sec. 26.TAX LIABILITY OF MEMBERS OF DULY REGISTERED GENERAL CO.-
PARTNERSHIPS. — Persons carrying on business in general co-partnership
(compañiacolectiva) duly registered in the mercantile registry shall be liable