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

COMMISSIONER OF INTERNAL

REVENUE, petitioner, 

vs.

WILLIAM J. SUTER and THE COURT OF

TAX APPEALS, respondents.

Office of the Solicitor General Antonio P.

Barredo, Assistant Solicitor General

Felicisimo R. Rosete and Special Attorneys

B. Gatdula, Jr. and T. Temprosa Jr. for

petitioner. 

A. S. Monzon, Gutierrez, Farrales and Ong

for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J.

Suter 'Morcoin' Co., Ltd.," was formed on

30 September 1947 by herein respondent

William J. Suter as the general partner, and

Julia Spirig and Gustav Carlson, as the

limited partners. The partners contributed,

respectively, P20,000.00, P18,000.00 and

P2,000.00 to the partnership. On 1 October

1947, the limited partnership was registered

with the Securities and Exchange

Commission. The firm engaged, among

other activities, in the importation,

marketing, distribution and operation of

automatic phonographs, radios, television

sets and amusement machines, their parts

and accessories. It had an office and held

itself out as a limited partnership, handling

and carrying merchandise, using invoices,

bills and letterheads bearing its trade-name,

maintaining its own books of accounts and

bank accounts, and had a quota allocation

with the Central Bank.

In 1948, however, general partner Suter and

limited partner Spirig got married and,

thereafter, on 18 December 1948, limited

partner Carlson sold his share in the

partnership to Suter and his wife. The sale

was duly recorded with the Securities and

Exchange Commission on 20 December

1948.

The limited partnership had been filing its

income tax returns as a corporation, without

objection by the herein petitioner,

Commissioner of Internal Revenue, until in

1959 when the latter, in an assessment,

consolidated the income of the firm and the

individual incomes of the partners-spouses

Suter and Spirig resulting in a determination

of a deficiency income tax against

respondent Suter in the amount of P2,678.06

for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment,

and requested its cancellation and

withdrawal, as not in accordance with law,

but his request was denied. Unable to secure

a reconsideration, he appealed to the Court

of Tax Appeals, which court, after trial,

rendered a decision, on 11 November 1965,

reversing that of the Commissioner of

Internal Revenue.

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The present case is a petition for review,

filed by the Commissioner of Internal

Revenue, of the tax court's aforesaid

decision. It raises these issues:

(a) Whether or not the corporate personality

of the William J. Suter "Morcoin" Co., Ltd.

should be disregarded for income tax

purposes, considering that respondent

William J. Suter and his wife, Julia Spirig

Suter actually formed a single taxable unit;

and

(b) Whether or not the partnership was

dissolved after the marriage of the partners,

respondent William J. Suter and Julia Spirig

Suter and the subsequent sale to them by the

remaining partner, Gustav Carlson, of his

participation of P2,000.00 in the partnership

for a nominal amount of P1.00.

The theory of the petitioner, Commissioner

of Internal Revenue, is that the marriage of

Suter and Spirig and their subsequent

acquisition of the interests of remaining

partner Carlson in the partnership dissolved

the limited partnership, and if they did not,

the fiction of juridical personality of the

partnership should be disregarded for

income tax purposes because the spouses

have exclusive ownership and control of the

business; consequently the income tax return

of respondent Suter for the years in question

should have included his and his wife's

individual incomes and that of the limited

partnership, in accordance with Section 45

(d) of the National Internal Revenue Code,

which provides as follows:

(d) Husband and wife. — In the case of

married persons, whether citizens, residents

or non-residents, only one consolidated

return for the taxable year shall be filed by

either spouse to cover the income of both

spouses; ....

In refutation of the foregoing, respondent

Suter maintains, as the Court of Tax Appeals

held, that his marriage with limited partner

Spirig and their acquisition of Carlson's

interests in the partnership in 1948 is not a

ground for dissolution of the partnership,

either in the Code of Commerce or in the

New Civil Code, and that since its juridical

personality had not been affected and since,

as a limited partnership, as contra

distinguished from a duly registered general

partnership, it is taxable on its income

similarly with corporations, Suter was not

bound to include in his individual return the

income of the limited partnership.

We find the Commissioner's appeal

unmeritorious.

The thesis that the limited partnership,

William J. Suter "Morcoin" Co., Ltd., has

been dissolved by operation of law because

of the marriage of the only general partner,

William J. Suter to the originally limited

partner, Julia Spirig one year after the

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partnership was organized is rested by the

appellant upon the opinion of now Senator

Tolentino in Commentaries and

Jurisprudence on Commercial Laws of the

Philippines, Vol. 1, 4th Ed., page 58, that

reads as follows:

A husband and a wife may not enter into a

contract of general copartnership, because

under the Civil Code, which applies in the

absence of express provision in the Code of

Commerce, persons prohibited from making

donations to each other are prohibited from

entering into universal partnerships. (2

Echaverri 196) It follows that the marriage

of partners necessarily brings about the

dissolution of a pre-existing partnership. (1

Guy de Montella 58)

The petitioner-appellant has evidently failed

to observe the fact that William J. Suter

"Morcoin" Co., Ltd. was not a

universal partnership, but a particular one.

As appears from Articles 1674 and 1675 of

the Spanish Civil Code, of 1889 (which was

the law in force when the subject firm was

organized in 1947), a universal partnership

requires either that the object of the

association be all the present property of the

partners, as contributed by them to the

common fund, or else "all that the partners

may acquire by their industry or

work during the existence of the

partnership". William J. Suter "Morcoin"

Co., Ltd. was not such a universal

partnership, since the contributions of the

partners were fixed sums of money,

P20,000.00 by William Suter and

P18,000.00 by Julia Spirig and neither one

of them was an industrial partner. It follows

that William J. Suter "Morcoin" Co., Ltd.

was not a partnership that spouses were

forbidden to enter by Article 1677 of the

Civil Code of 1889.

The former Chief Justice of the Spanish

Supreme Court, D. Jose Casan, in his

Derecho Civil, 7th Edition, 1952, Volume 4,

page 546, footnote 1, says with regard to the

prohibition contained in the aforesaid

Article 1677:

Los conyuges, segun esto, no pueden

celebrar entre si el contrato de sociedad

universal, pero o podran constituir sociedad

particular? Aunque el punto ha sido muy

debatido, nos inclinamos a la tesis permisiva

de los contratos de sociedad particular entre

esposos, ya que ningun precepto de nuestro

Codigo los prohibe, y hay que estar a la

norma general segun la que toda persona es

capaz para contratar mientras no sea

declarado incapaz por la ley. La

jurisprudencia de la Direccion de los

Registros fue favorable a esta misma tesis en

su resolution de 3 de febrero de 1936, mas

parece cambiar de rumbo en la de 9 de

marzo de 1943.

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Nor could the subsequent marriage of the

partners operate to dissolve it, such marriage

not being one of the causes provided for that

purpose either by the Spanish Civil Code or

the Code of Commerce.

The appellant's view, that by the marriage of

both partners the company became a single

proprietorship, is equally erroneous. The

capital contributions of partners William J.

Suter and Julia Spirig were separately

owned and contributed by them before their

marriage; and after they were joined in

wedlock, such contributions remained their

respective separate property under the

Spanish Civil Code (Article 1396):

The following shall be

the exclusive property of each spouse:

(a) That which is brought to the marriage as

his or her own; ....

Thus, the individual interest of each consort

in William J. Suter "Morcoin" Co., Ltd. did

not become common property of both after

their marriage in 1948.

It being a basic tenet of the Spanish and

Philippine law that the partnership has a

juridical personality of its own, distinct and

separate from that of its partners (unlike

American and English law that does not

recognize such separate juridical

personality), the bypassing of the existence

of the limited partnership as a taxpayer can

only be done by ignoring or disregarding

clear statutory mandates and basic principles

of our law. The limited partnership's

separate individuality makes it impossible to

equate its income with that of the

component members. True, section 24 of the

Internal Revenue Code merges registered

general co-partnerships (compañias

colectivas) with the personality of the

individual partners for income tax purposes.

But this rule is exceptional in its disregard

of a cardinal tenet of our partnership laws,

and can not be extended by mere implication

to limited partnerships.

The rulings cited by the petitioner (Collector

of Internal Revenue vs. University of the

Visayas, L-13554, Resolution of 30 October

1964, and Koppel [Phil.], Inc. vs. Yatco, 77

Phil. 504) as authority for disregarding the

fiction of legal personality of the

corporations involved therein are not

applicable to the present case. In the cited

cases, the corporations were

already subject to tax when the fiction of

their corporate personality was pierced; in

the present case, to do so would exempt the

limited partnership from income taxation but

would throw the tax burden upon the

partners-spouses in their individual

capacities. The corporations, in the cases

cited, merely served as business conduits

or alter egos of the stockholders, a factor

that justified a disregard of their corporate

personalities for tax purposes. This is not

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true in the present case. Here, the limited

partnership is not a mere business conduit of

the partner-spouses; it was organized for

legitimate business purposes; it conducted

its own dealings with its customers prior to

appellee's marriage, and had been filing its

own income tax returns as such independent

entity. The change in its membership,

brought about by the marriage of the

partners and their subsequent acquisition of

all interest therein, is no ground for

withdrawing the partnership from the

coverage of Section 24 of the tax code,

requiring it to pay income tax. As far as the

records show, the partners did not enter into

matrimony and thereafter buy the interests

of the remaining partner with the

premeditated scheme or design to use the

partnership as a business conduit to dodge

the tax laws. Regularity, not otherwise, is

presumed.

As the limited partnership under

consideration is taxable on its income, to

require that income to be included in the

individual tax return of respondent Suter is

to overstretch the letter and intent of the law.

In fact, it would even conflict with what it

specifically provides in its Section 24: for

the appellant Commissioner's stand results

in equal treatment, tax wise, of a general

copartnership (compañia colectiva) and a

limited partnership, when the code plainly

differentiates the two. Thus, the code taxes

the latter on its income, but not the former,

because it is in the case of compañias

colectivas that the members, and not the

firm, are taxable in their individual

capacities for any dividend or share of the

profit derived from the duly registered

general partnership (Section 26, N.I.R.C.;

Arañas, Anno. & Juris. on the N.I.R.C., As

Amended, Vol. 1, pp. 88-89).lawphi1.nêt

But it is argued that the income of the

limited partnership is actually or

constructively the income of the spouses and

forms part of the conjugal partnership of

gains. This is not wholly correct. As pointed

out in Agapito vs. Molo 50 Phil. 779, and

People's Bank vs. Register of Deeds of

Manila, 60 Phil. 167, the fruits of the wife's

parapherna become conjugal only when no

longer needed to defray the expenses for the

administration and preservation of the

paraphernal capital of the wife. Then again,

the appellant's argument erroneously

confines itself to the question of the legal

personality of the limited partnership, which

is not essential to the income taxability of

the partnership since the law taxes the

income of even joint accounts that have no

personality of their own. 1 Appellant is,

likewise, mistaken in that it assumes that the

conjugal partnership of gains is a taxable

unit, which it is not. What is taxable is the

"income of both spouses" (Section 45 [d] in

their individual capacities. Though the

amount of income (income of the conjugal

partnership vis-a-vis the joint income of

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husband and wife) may be the same for a

given taxable year, their consequences

would be different, as their contributions in

the business partnership are not the same.

The difference in tax rates between the

income of the limited partnership being

consolidated with, and when split from the

income of the spouses, is not a justification

for requiring consolidation; the revenue

code, as it presently stands, does not

authorize it, and even bars it by requiring the

limited partnership to pay tax on its own

income.

FOR THE FOREGOING REASONS, the

decision under review is hereby affirmed.

No costs.

G.R. No. L-4935             May 28, 1954

J. M. TUASON & CO., INC., represented

by it Managing PARTNER, GREGORIA

ARANETA, INC., plaintiff-appellee, 

vs.

QUIRINO BOLAÑOS, defendant-appellant.

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

REYES, J.:

This is an action originally brought in the

Court of First Instance of Rizal, Quezon

City Branch, to recover possesion of

registered land situated in barrio Tatalon,

Quezon City.

Plaintiff's complaint was amended three

times with respect to the extent and

description of the land sought to be

recovered. The original complaint described

the land as a portion of a lot registered in

plaintiff's name under Transfer Certificate of

Title No. 37686 of the land record of Rizal

Province and as containing an area of 13

hectares more or less. But the complaint was

amended by reducing the area of 6 hectares,

more or less, after the defendant had

indicated the plaintiff's surveyors the portion

of land claimed and occupied by him. The

second amendment became necessary and

was allowed following the testimony of

plaintiff's surveyors that a portion of the area

was embraced in another certificate of title,

which was plaintiff's Transfer Certificate of

Title No. 37677. And still later, in the course

of trial, after defendant's surveyor and

witness, Quirino Feria, had testified that the

area occupied and claimed by defendant was

about 13 hectares, as shown in his Exhibit 1,

plaintiff again, with the leave of court,

amended its complaint to make its

allegations conform to the evidence.

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Defendant, in his answer, sets up

prescription and title in himself thru "open,

continuous, exclusive and public and

notorious possession (of land in dispute)

under claim of ownership, adverse to the

entire world by defendant and his

predecessor in interest" from "time in-

memorial". The answer further alleges that

registration of the land in dispute was

obtained by plaintiff or its predecessors in

interest thru "fraud or error and without

knowledge (of) or interest either personal or

thru publication to defendant and/or

predecessors in interest." The answer

therefore prays that the complaint be

dismissed with costs and plaintiff required

to reconvey the land to defendant or pay its

value.

After trial, the lower court rendered

judgment for plaintiff, declaring defendant

to be without any right to the land in

question and ordering him to restore

possession thereof to plaintiff and to pay the

latter a monthly rent of P132.62 from

January, 1940, until he vacates the land, and

also to pay the costs.

Appealing directly to this court because of

the value of the property involved,

defendant makes the following assignment

or errors:

I. The trial court erred in not dismissing the

case on the ground that the case was not

brought by the real property in interest.

II. The trial court erred in admitting the third

amended complaint.

III. The trial court erred in denying

defendant's motion to strike.

IV. The trial court erred in including in its

decision land not involved in the litigation.

V. The trial court erred in holding that the

land in dispute is covered by transfer

certificates of Title Nos. 37686 and 37677.

Vl. The trial court erred in not finding that

the defendant is the true and lawful owner of

the land.

VII. The trial court erred in finding that the

defendant is liable to pay the plaintiff the

amount of P132.62 monthly from January,

1940, until he vacates the premises.

VIII. The trial court erred in not ordering the

plaintiff to reconvey the land in litigation to

the defendant.

As to the first assigned error, there is

nothing to the contention that the present

action is not brought by the real party in

interest, that is, by J. M. Tuason and Co.,

Inc. What the Rules of Court require is that

an action be broughtin the name of, but not

necessarily by, the real party in interest.

(Section 2, Rule 2.) In fact the practice is for

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an attorney-at-law to bring the action, that is

to file the complaint, in the name of the

plaintiff. That practice appears to have been

followed in this case, since the complaint is

signed by the law firm of Araneta and

Araneta, "counsel for plaintiff" and

commences with the statement "comes now

plaintiff, through its undersigned counsel." It

is true that the complaint also states that the

plaintiff is "represented herein by its

Managing Partner Gregorio Araneta, Inc.",

another corporation, but there is nothing

against one corporation being represented by

another person, natural or juridical, in a suit

in court. The contention that Gregorio

Araneta, Inc. can not act as managing

partner for plaintiff on the theory that it is

illegal for two corporations to enter into a

partnership is without merit, for the true rule

is that "though a corporation has no power

to enter into a partnership, it may

nevertheless enter into a joint venture with

another where the nature of that venture is in

line with the business authorized by its

charter." (Wyoming-Indiana Oil Gas Co. vs.

Weston, 80 A. L. R., 1043, citing 2 Fletcher

Cyc. of Corp., 1082.) There is nothing in the

record to indicate that the venture in which

plaintiff is represented by Gregorio Araneta,

Inc. as "its managing partner" is not in line

with the corporate business of either of

them.

Errors II, III, and IV, referring to the

admission of the third amended complaint,

may be answered by mere reference to

section 4 of Rule 17, Rules of Court, which

sanctions such amendment. It reads:

Sec. 4. Amendment to conform to evidence.

— When issues not raise d by the pleadings

are tried by express or implied consent of

the parties, they shall be treated in all

respects, as if they had been raised in the

pleadings. Such amendment of the pleadings

as may be necessary to cause them to

conform to the evidence and to raise these

issues may be made upon motion of any

party at my time, even of the trial of these

issues. If evidence is objected to at the trial

on the ground that it is not within the issues

made by the pleadings, the court may allow

the pleadings to be amended and shall be so

freely when the presentation of the merits of

the action will be subserved thereby and the

objecting party fails to satisfy the court that

the admission of such evidence would

prejudice him in maintaining his action or

defense upon the merits. The court may

grant a continuance to enable the objecting

party to meet such evidence.

Under this provision amendment is not even

necessary for the purpose of rendering

judgment on issues proved though not

alleged. Thus, commenting on the provision,

Chief Justice Moran says in this Rules of

Court:

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Under this section, American courts have,

under the New Federal Rules of Civil

Procedure, ruled that where the facts shown

entitled plaintiff to relief other than that

asked for, no amendment to the complaint is

necessary, especially where defendant has

himself raised the point on which recovery

is based, and that the appellate court treat

the pleadings as amended to conform to the

evidence, although the pleadings were not

actually amended. (I Moran, Rules of Court,

1952 ed., 389-390.)

Our conclusion therefore is that

specification of error II, III, and IV are

without merit..

Let us now pass on the errors V and VI.

Admitting, though his attorney, at the early

stage of the trial, that the land in dispute "is

that described or represented in Exhibit A

and in Exhibit B enclosed in red pencil with

the name Quirino Bolaños," defendant later

changed his lawyer and also his theory and

tried to prove that the land in dispute was

not covered by plaintiff's certificate of title.

The evidence, however, is against defendant,

for it clearly establishes that plaintiff is the

registered owner of lot No. 4-B-3-C, situate

in barrio Tatalon, Quezon City, with an area

of 5,297,429.3 square meters, more or less,

covered by transfer certificate of title No.

37686 of the land records of Rizal province,

and of lot No. 4-B-4, situated in the same

barrio, having an area of 74,789 square

meters, more or less, covered by transfer

certificate of title No. 37677 of the land

records of the same province, both lots

having been originally registered on July 8,

1914 under original certificate of title No.

735. The identity of the lots was established

by the testimony of Antonio Manahan and

Magno Faustino, witnesses for plaintiff, and

the identity of the portion thereof claimed by

defendant was established by the testimony

of his own witness, Quirico Feria. The

combined testimony of these three witnesses

clearly shows that the portion claimed by

defendant is made up of a part of lot 4-B-3-

C and major on portion of lot 4-B-4, and is

well within the area covered by the two

transfer certificates of title already

mentioned. This fact also appears admitted

in defendant's answer to the third amended

complaint.

As the land in dispute is covered by

plaintiff's Torrens certificate of title and was

registered in 1914, the decree of registration

can no longer be impugned on the ground of

fraud, error or lack of notice to defendant, as

more than one year has already elapsed from

the issuance and entry of the decree. Neither

court the decree be collaterally attacked by

any person claiming title to, or interest in,

the land prior to the registration

proceedings. (Soroñgon vs. Makalintal,1 45

Off. Gaz., 3819.) Nor could title to that land

in derogation of that of plaintiff, the

registered owner, be acquired by

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prescription or adverse possession. (Section

46, Act No. 496.) Adverse, notorious and

continuous possession under claim of

ownership for the period fixed by law is

ineffective against a Torrens title.

(Valiente vs. Judge of CFI of Tarlac,2 etc.,

45 Off. Gaz., Supp. 9, p. 43.) And it is

likewise settled that the right to secure

possession under a decree of registration

does not prescribed. (Francisco vs. Cruz, 43

Off. Gaz., 5105, 5109-5110.) A recent

decision of this Court on this point is that

rendered in the case of Jose Alcantara et al.,

vs. Mariano et al., 92 Phil., 796. This

disposes of the alleged errors V and VI.

As to error VII, it is claimed that `there was

no evidence to sustain the finding that

defendant should be sentenced to pay

plaintiff P132.62 monthly from January,

1940, until he vacates the premises.' But it

appears from the record that that reasonable

compensation for the use and occupation of

the premises, as stipulated at the hearing was

P10 a month for each hectare and that the

area occupied by defendant was 13.2619

hectares. The total rent to be paid for the

area occupied should therefore be P132.62 a

month. It is appears from the testimony of J.

A. Araneta and witness Emigdio Tanjuatco

that as early as 1939 an action of ejectment

had already been filed against defendant.

And it cannot be supposed that defendant

has been paying rents, for he has been

asserting all along that the premises in

question 'have always been since time

immemorial in open, continuous, exclusive

and public and notorious possession and

under claim of ownership adverse to the

entire world by defendant and his

predecessors in interest.' This assignment of

error is thus clearly without merit.

Error No. VIII is but a consequence of the

other errors alleged and needs for further

consideration.

During the pendency of this case in this

Court appellant, thru other counsel, has filed

a motion to dismiss alleging that there is

pending before the Court of First Instance of

Rizal another action between the same

parties and for the same cause and seeking

to sustain that allegation with a copy of the

complaint filed in said action. But an

examination of that complaint reveals that

appellant's allegation is not correct, for the

pretended identity of parties and cause of

action in the two suits does not appear. That

other case is one for recovery of ownership,

while the present one is for recovery of

possession. And while appellant claims that

he is also involved in that order action

because it is a class suit, the complaint does

not show that such is really the case. On the

contrary, it appears that the action seeks

relief for each individual plaintiff and not

relief for and on behalf of others. The

motion for dismissal is clearly without

merit.

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Wherefore, the judgment appealed from is

affirmed, with costs against the plaintiff.

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C.

EVANGELISTA, JR., CONCHITA B.

NAVARRO and LEONARDA ATIENZA

ABAD SABTOS, petitioners, 

vs.

ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for

respondent.

 

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was

formed under the name of "Evangelista &

Co." On June 7, 1955 the Articles of Co-

partnership was amended as to include

herein respondent, Estrella Abad Santos, as

industrial partner, with herein petitioners

Domingo C. Evangelista, Jr., Leonardo

Atienza Abad Santos and Conchita P.

Navarro, the original capitalist partners,

remaining in that capacity, with a

contribution of P17,500 each. The amended

Articles provided, inter alia, that "the

contribution of Estrella Abad Santos

consists of her industry being an industrial

partner", and that the profits and losses

"shall be divided and distributed among the

partners ... in the proportion of 70% for the

first three partners, Domingo C. Evangelista,

Jr., Conchita P. Navarro and Leonardo

Atienza Abad Santos to be divided among

them equally; and 30% for the fourth partner

Estrella Abad Santos."

On December 17, 1963 herein respondent

filed suit against the three other partners in

the Court of First Instance of Manila,

alleging that the partnership, which was also

made a party-defendant, had been paying

dividends to the partners except to her; and

that notwithstanding her demands the

defendants had refused and continued to

refuse and let her examine the partnership

books or to give her information regarding

the partnership affairs to pay her any share

in the dividends declared by the partnership.

She therefore prayed that the defendants be

ordered to render accounting to her of the

partnership business and to pay her

corresponding share in the partnership

profits after such accounting, plus attorney's

fees and costs.

The defendants, in their answer, denied ever

having declared dividends or distributed

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profits of the partnership; denied likewise

that the plaintiff ever demanded that she be

allowed to examine the partnership books;

and byway of affirmative defense alleged

that the amended Articles of Co-partnership

did not express the true agreement of the

parties, which was that the plaintiff was not

an industrial partner; that she did not in fact

contribute industry to the partnership; and

that her share of 30% was to be based on the

profits which might be realized by the

partnership only until full payment of the

loan which it had obtained in December,

1955 from the Rehabilitation Finance

Corporation in the sum of P30,000, for

which the plaintiff had signed a promisory

note as co-maker and mortgaged her

property as security.

The parties are in agreement that the main

issue in this case is "whether the plaintiff-

appellee (respondent here) is an industrial

partner as claimed by her or merely a profit

sharer entitled to 30% of the net profits that

may be realized by the partnership from

June 7, 1955 until the mortgage loan from

the Rehabilitation Finance Corporation shall

be fully paid, as claimed by appellants

(herein petitioners)." On that issue the Court

of First Instance found for the plaintiff and

rendered judgement "declaring her an

industrial partner of Evangelista & Co.;

ordering the defendants to render an

accounting of the business operations of the

(said) partnership ... from June 7, 1955; to

pay the plaintiff such amounts as may be

due as her share in the partnership profits

and/or dividends after such an accounting

has been properly made; to pay plaintiff

attorney's fees in the sum of P2,000.00 and

the costs of this suit."

The defendants appealed to the Court of

Appeals, which thereafter affirmed

judgments of the court a quo.

In the petition before Us the petitioners have

assigned the following errors:

I. The Court of Appeals erred in the finding

that the respondent is an industrial partner of

Evangelista & Co., notwithstanding the

admitted fact that since 1954 and until after

promulgation of the decision of the appellate

court the said respondent was one of the

judges of the City Court of Manila, and

despite its findings that respondent had been

paid for services allegedly contributed by

her to the partnership. In this connection the

Court of Appeals erred:

(A) In finding that the "amended Articles of

Co-partnership," Exhibit "A" is conclusive

evidence that respondent was in fact made

an industrial partner of Evangelista & Co.

(B) In not finding that a portion of

respondent's testimony quoted in the

decision proves that said respondent did not

bind herself to contribute her industry, and

she could not, and in fact did not, because

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she was one of the judges of the City Court

of Manila since 1954.

(C) In finding that respondent did not in fact

contribute her industry, despite the appellate

court's own finding that she has been paid

for the services allegedly rendered by her, as

well as for the loans of money made by her

to the partnership.

II. The lower court erred in not finding that

in any event the respondent was lawfully

excluded from, and deprived of, her alleged

share, interests and participation, as an

alleged industrial partner, in the partnership

Evangelista & Co., and its profits or net

income.

III. The Court of Appeals erred in

affirming in toto the decision of the trial

court whereby respondent was declared an

industrial partner of the petitioner, and

petitioners were ordered to render an

accounting of the business operation of the

partnership from June 7, 1955, and to pay

the respondent her alleged share in the net

profits of the partnership plus the sum of

P2,000.00 as attorney's fees and the costs of

the suit, instead of dismissing respondent's

complaint, with costs, against the

respondent.

It is quite obvious that the questions raised

in the first assigned errors refer to the facts

as found by the Court of Appeals. The

evidence presented by the parties as the trial

in support of their respective positions on

the issue of whether or not the respondent

was an industrial partner was thoroughly

analyzed by the Court of Appeals on its

decision, to the extent of

reproducing verbatim therein the lengthy

testimony of the witnesses.

It is not the function of the Supreme Court

to analyze or weigh such evidence all over

again, its jurisdiction being limited to

reviewing errors of law that might have been

commited by the lower court. It should be

observed, in this regard, that the Court of

Appeals did not hold that the Articles of Co-

partnership, identified in the record as

Exhibit "A", was conclusive evidence that

the respondent was an industrial partner of

the said company, but considered it together

with other factors, consisting of both

testimonial and documentary evidences, in

arriving at the factual conclusion expressed

in the decision.

The findings of the Court of Appeals on the

various points raised in the first assignment

of error are hereunder reproduced if only to

demonstrate that the same were made after a

through analysis of then evidence, and hence

are beyond this Court's power of review.

The aforequoted findings of the lower Court

are assailed under Appellants' first assigned

error, wherein it is pointed out that

"Appellee's documentary evidence does not

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conclusively prove that appellee was in fact

admitted by appellants as industrial partner

of Evangelista & Co." and that "The grounds

relied upon by the lower Court are

untenable" (Pages 21 and 26, Appellant's

Brief).

The first point refers to Exhibit A, B, C, K,

K-1, J, N and S, appellants' complaint being

that "In finding that the appellee is an

industrial partner of appellant Evangelista &

Co., herein referred to as the partnership —

the lower court relied mainly on the

appellee's documentary evidence, entirely

disregarding facts and circumstances

established by appellants" evidence which

contradict the said finding' (Page 21,

Appellants' Brief). The lower court could

not have done otherwise but rely on the

exhibits just mentioned, first, because

appellants have admitted their genuineness

and due execution, hence they were

admitted without objection by the lower

court when appellee rested her case and,

secondly the said exhibits indubitably show

the appellee is an industrial partner of

appellant company. Appellants are virtually

estopped from attempting to detract from the

probative force of the said exhibits because

they all bear the imprint of their knowledge

and consent, and there is no credible

showing that they ever protested against or

opposed their contents prior of the filing of

their answer to appellee's complaint. As a

matter of fact, all the appellant Evangelista,

Jr., would have us believe — as against the

cumulative force of appellee's aforesaid

documentary evidence — is the appellee's

Exhibit "A", as confirmed and corroborated

by the other exhibits already mentioned,

does not express the true intent and

agreement of the parties thereto, the real

understanding between them being the

appellee would be merely a profit sharer

entitled to 30% of the net profits that may be

realized between the partners from June 7,

1955, until the mortgage loan of P30,000.00

to be obtained from the RFC shall have been

fully paid. This version, however, is

discredited not only by the aforesaid

documentary evidence brought forward by

the appellee, but also by the fact that from

June 7, 1955 up to the filing of their answer

to the complaint on February 8, 1964 — or a

period of over eight (8) years — appellants

did nothing to correct the alleged false

agreement of the parties contained in Exhibit

"A". It is thus reasonable to suppose that,

had appellee not filed the present action,

appellants would not have advanced this

obvious afterthought that Exhibit "A" does

not express the true intent and agreement of

the parties thereto.

At pages 32-33 of appellants' brief, they also

make much of the argument that 'there is an

overriding fact which proves that the parties

to the Amended Articles of Partnership,

Exhibit "A", did not contemplate to make

the appellee Estrella Abad Santos, an

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industrial partner of Evangelista & Co. It is

an admitted fact that since before the

execution of the amended articles of

partnership, Exhibit "A", the appellee

Estrella Abad Santos has been, and up to the

present time still is, one of the judges of the

City Court of Manila, devoting all her time

to the performance of the duties of her

public office. This fact proves beyond

peradventure that it was never contemplated

between the parties, for she could not

lawfully contribute her full time and

industry which is the obligation of an

industrial partner pursuant to Art. 1789 of

the Civil Code.

The Court of Appeals then proceeded to

consider appellee's testimony on this point,

quoting it in the decision, and then

concluded as follows:

One cannot read appellee's testimony just

quoted without gaining the very definite

impression that, even as she was and still is

a Judge of the City Court of Manila, she has

rendered services for appellants without

which they would not have had the

wherewithal to operate the business for

which appellant company was organized.

Article 1767 of the New Civil Code which

provides that "By contract of partnership

two or more persons bind themselves, to

contribute money, property, or industry to a

common fund, with the intention of dividing

the profits among themselves, 'does not

specify the kind of industry that a partner

may thus contribute, hence the said services

may legitimately be considered as appellee's

contribution to the common fund. Another

article of the same Code relied upon

appellants reads:

'ART. 1789. An industrial partner cannot

engage in business for himself, unless the

partnership expressly permits him to do so;

and if he should do so, the capitalist

partners may either exclude him from the

firm or avail themselves of the benefits

which he may have obtained in violation of

this provision, with a right to damages in

either case.'

It is not disputed that the provision against

the industrial partner engaging in business

for himself seeks to prevent any conflict of

interest between the industrial partner and

the partnership, and to insure faithful

compliance by said partner with this

prestation. There is no pretense, however,

even on the part of the appellee is engaged

in any business antagonistic to that of

appellant company, since being a Judge of

one of the branches of the City Court of

Manila can hardly be characterized as a

business. That appellee has faithfully

complied with her prestation with respect to

appellants is clearly shown by the fact that it

was only after filing of the complaint in this

case and the answer thereto appellants

exercised their right of exclusion under the

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codal art just mentioned by alleging in their

Supplemental Answer dated June 29, 1964

— or after around nine (9) years from June

7, 1955 — subsequent to the filing of

defendants' answer to the complaint,

defendants reached an agreement whereby

the herein plaintiff been excluded from, and

deprived of, her alleged share, interests or

participation, as an alleged industrial

partner, in the defendant partnership and/or

in its net profits or income, on the ground

plaintiff has never contributed her industry

to the partnership, instead she has been and

still is a judge of the City Court (formerly

Municipal Court) of the City of Manila,

devoting her time to performance of her

duties as such judge and enjoying the

privilege and emoluments appertaining to

the said office, aside from teaching in law

school in Manila, without the express

consent of the herein defendants' (Record

On Appeal, pp. 24-25). Having always

knows as a appellee as a City judge even

before she joined appellant company on

June 7, 1955 as an industrial partner, why

did it take appellants many yearn before

excluding her from said company as

aforequoted allegations? And how can they

reconcile such exclusive with their main

theory that appellee has never been such a

partner because "The real agreement

evidenced by Exhibit "A" was to grant the

appellee a share of 30% of the net profits

which the appellant partnership may realize

from June 7, 1955, until the mortgage of

P30,000.00 obtained from the Rehabilitation

Finance Corporal shall have been fully

paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold

with the lower Court that appellee is an

industrial partner of appellant company,

with the right to demand for a formal

accounting and to receive her share in the

net profit that may result from such an

accounting, which right appellants take

exception under their second assigned error.

Our said holding is based on the following

article of the New Civil Code:

'ART. 1899. Any partner shall have the right

to a formal account as to partnership affairs:

(1) If he is wrongfully excluded from the

partnership business or possession of its

property by his co-partners;

(2) If the right exists under the terms of any

agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it

just and reasonable.

We find no reason in this case to depart

from the rule which limits this Court's

appellate jurisdiction to reviewing only

errors of law, accepting as conclusive the

factual findings of the lower court upon its

own assessment of the evidence.

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The judgment appealed from is affirmed,

with costs.

G.R. L-No. 3666            August 17, 1909

THE CITY OF MANILA, plaintiff-

appellant, 

vs.

FRANCISCO GAMBE, ET

AL., defendants-appellees.

Modesto Reyes for appellant. 

Del-Pan, Ortigas and Fisher for appellees.

JOHNSON, J.:

From the record the following facts appear:

First. That upon the 31st day of August,

1903, the plaintiff commenced an action in

the Court of First Instance of the city of

Manila against the defendants, Francisco

Gambe, Manuel Perez, Antonio Herranz,

and Florencio Garriz, who constitute the

commercial firm of Herranz & Garriz, for

the purpose of recovering the sum of five

thousand dollars ($5,000), United States

currency, for certain damages occasioned by

the steamship Alfred to the "Spanish

Bridge" in the city of Manila.

Second. After a consideration of the facts

adduced during the trial, the Honorable

Judge Rohde, then one of the judges of the

Court of First Instance of the city of Manila,

rendered a judgment against the said

Francisco Gambe, for the sum of $1,300,

United States currency, and for the costs.

Third. Francisco Gambe was a pilot and

member of the Pilot's Association of Manila

and was at the time of the alleged accident

and injury in charge of said

steamship Alfred. Judge Rohde dismissed

the cause as to the other defendants.

Fourth. From this judgment of the lower

court the defendant Gambe appealed to the

Supreme Court.

Fifth. After a consideration of the facts, the

Supreme Court on the 31st day of March,

1906, affirmed with costs the judgment of

the lower court. (See City of

Manila vs. Gambe, 6 Phil. Rep., 49.)

Sixth. The judgment thus affirmed was

returned to the lower court for an execution

of the same.

Seventh. On the 26th day of May, 1906, an

execution was issued upon the said

judgment against the said defendant,

Francisco Gambe, and was returned upon

the 23d day of June, 1906, unsatisfied.

Eighth. Later, upon the 11th day of July,

1906, another execution was issued out of

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the Court of First Instance against the

defendant, Francisco Gambe, which was

returned upon the 17th day of August, 1906,

unsatisfied.

Ninth. On the same day, or the 11th day of

July, 1906, in accordance with the

provisions of section 431 of the Code of

Procedure in Civil Actions, the plaintiff

attempted to attach whatever money or

effects which the defendant had in the said

Pilots' Association of Manila. These

attachments were directed to the Hongkong

and Shanghai Banking Corporation, the

Hon. W. Morgan Shuster, Collector of

Customs, as well as Francisco Aguado, who

was the chief of the said Pilot's Association.

Tenth. On the 22d day of August, 1906, the

attorney for the plaintiff presented in the

lower court the following affidavit:

Edmond Block, being duly sworn, says:

That he is the attorney for the plaintiff in the

above-entitled action.

That a judgment was duly entered and

docketed in the said action in the said court

on the 20th day of April, 1906, for the sum

of thirteen hundred dollars ($1,300), United

States currency, and costs, against the

above-named defendant, in favor of the

plaintiff.

That an execution upon said judgment was

duly issued against the property of said

judgment debtor.

That the said judgment debtor now resides

in the said city of Manila.

That the sheriff of the city of Manila has

returned said execution wholly unsatisfied,

and that the said judgment still remains

wholly unpaid.

That affiant is informed and believes that an

organization or association known as the

"Manila Pilots' Association," of which

Francisco Aguado is the chief pilot, Manuel

Goitia is the treasurer and custodian of its

funds, and of which W. Morgan Shuster,

Francisco Gambe, and other pilots of the

port of Manila are members, has property in

its possession dedicated to and for the

purpose of payment of damages caused

through negligence of the pilots of said

association, or any of them, to third persons.

That the said association has in its

possession and under its control, property of

the said judgment debtor, exceeding eight

hundred pesos (P800), Philippine currency,

and is indebted to the said judgment debtor

in an amount exceeding eight hundred pesos

(P800), Philippine currency.

That the said indebtedness to said judgment

debtor arose through this, that the said

judgment debtor has deposited with the said

[ ] PARTNERSHIP

association the amount exceeding eight

hundred pesos (P800), Philippine currency,

and that the said association now holds the

said amount subject to the order of said

judgment debtor, and that the said amount

should be applied, affiant believes, to the

payment or satisfaction of the judgment

debtor.

That on the 23d day of June and 11th of

July, 1906, the said Pilots' Association,

through the chief pilot, the treasurer of said

association, W. Morgan Shuster, and

Francisco Gambe, was duly notified and

each of the above-mentioned persons were

so duly notified by the sheriff of the city of

Manila, that attachment was levied against

all the goods, effects, interests, credits or

money belonging to the defendant, in the

possession of said association and persons,

to cover the amount of two thousand six

hundred and seventy pesos (P2,670),

Philippine currency, and to make immediate

payment of said goods, effects, interests,

credits, or money and forward same to the

sheriff.

That all of the above-mentioned persons

denied having in their possession, and

refused to deliver any such said goods,

effects, interests, credits, or money

belonging to said defendant.

Wherefore deponent prays an order of this

court that the said Francisco Aguado,

Francisco Gambe, Manuel Goitia, and W.

Morgan Shuster, be and appear and answer

as to the indebtedness of the said Pilots'

Association to said judgment debtor, at a

time and place by said court to be specified.

(Signed) EDMOND BLOCK.

Subscribed and sworn to before me this 22d

day of August, 1906, exhibiting in the act

cedula No. 175565, dated Manila, June 6,

1906.

(Signed) MODESTO REYES, 

Notary Public.

Commission expires December 31, 1906.

Upon this affidavit, the Hon. A. S.

Crossfield, one of the judges of the Court of

First Instance of the city of Manila, made

the following order:

On reading the foregoing affidavit, it is

satisfactorily appearing to me therefrom that

the Manila Pilots' Association has property

of Francisco Gambe, the defendant in the

above-entitled action, which property ought

to be applied toward the satisfaction of the

judgment in said action, and that Francisco

Aguado is the chief pilot, Manuel Goitia the

treasurer, and Francisco Gambe and W.

Morgan Shuster are members of said

association, and that it is proper cause for

this order, I, the undersigned, judge of the

Court of First Instance of the city of Manila,

Philippine Islands, do hereby order the said

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Francisco Aguado, Francisco Gambe,

Manuel Goitia, and W. Morgan Shuster

personally to appear before me in the said

city of Manila, on the 10th day of

September, at 10 o'clock in the morning of

that day, to answer concerning the said

property.

Eleventh. In accordance with the above

order, the said parties appeared before the

said court and testified relating to the

money, property, credits or effects which the

said Pilots' Association had in its possession

belonging to the said defendants.

After hearing the evidence of these parties,

the said Hon. A. S. Crossfield rendered the

following judgment:

This case is now before the court for hearing

the order directing Francisco Aguado as

chief pilot, Manuel Goitia as treasurer, and

Francisco Gambe and W. Morgan Shuster as

members of the Pilots' Association to

answer as to any property they may have in

their possession or under their control,

belonging to the defendant, Francisco

Gambe. Execution having been issued in the

above-named respondents having been

attached, as in garnishee proceedings, all of

the above-named respondents appeared and

the two first-named made declarations as to

the property in their hands.

From the declaration made it appears:

That each member of the Pilots' Association

before becoming such, must deposit with the

association the sum of P800, to be retained

by the association for the purpose of

satisfying damages which may be incurred

by others by reason of negligence or fault on

the part of the association in the transaction

of its business.

It further appears from the declarations that

persons thus depositing the money could not

withdraw it; that it is property of the

association and may not be withdrawn, even

in case of the death of a member, and that

said Francisco Gambe is a member.

I therefore find that the above-named

respondents, either as officers of the

association or members thereof, have not in

their control, nor do they possess any

property, money, or effects which would be

the subject of a levy under execution against

said Gambe, and the order to appear is

discharged.

From this decision of the lower court the

plaintiff appealed and made the following

assignments of error in this court:

1. The court below erred in deciding that the

sum of P800, Philippine currency, deposited

by the defendant, Gambe, with the Pilots'

Association could not be withdrawn by him:

"that it has become the property of the

association, and that the same can not be

withdrawn even in the event of the death of

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a member", and that the said Francisco

Gambe is such a member.

2. The court below erred in deciding that the

respondents called upon to appear in this

incident "either as officers of the association

or as members thereof, have not under their

control nor in their possession any property,

money, or goods subject to attachment by

reason of an execution against the said

Gambe."

3. The court below erred in not ordering the

respondents, as officers or members of the

Pilots' Association, to deliver to the plaintiff,

the city of Manila, the P800, Philippine

currency, which the said defendant Gambe,

against whom the plaintiff has an execution

pending for the sum of P2,670, Philippine

currency, has in the treasury of the

association.

The only question presented in this court is

whether or not the said Pilots' Association

had debts, credits, or personal property, not

capable of manual delivery, in its possession

or under its control, belonging to the

defendant. In other words, did said Pilots'

Association owe to the defendant, a debt or

have in its possession and under its control

credits and other personal property,

belonging to the defendant, subject to be

attached in accordance with the provisions

of said section 431? Section 431 of the Code

of Procedure in Civil Actions provides:

Debts and credits, and other personal

property not capable of manual delivery,

shall be attached by leaving with the person

owing such debts or having in his possession

or under his control such credits and other

personal property, a copy of the order of

attachment, and a notice that the debts

owing by him to the defendant, or the credits

and other personal property in his

possession or under his control, belonging to

the defendant, are attached in pursuance of

such order.

The test whether or not the interests of the

defendant, if he has any, in said association

may be attached by virtue of said section is

whether said Gambe could maintain an

action against the said association for the

recovery of the specific debt, credit, or

personal property. It would seem clear and

conclusive that if Gambe himself could not

maintain an action against the said

association for the recovery of the specific

debt, credit, or personal property which the

plaintiff here is attempting to get possession

of by virtue of the action, that said plaintiff

could not recover the same under the form

of action adopted by it. If Gambe could

successfully maintain an action against the

said Pilots' Association for the recovery of a

specific sum of money or specific personal

property, then, in our opinion, his judgment

creditors, or the plaintiff in this case, might

also by the procedure provided for under

said section 431 maintain the present action,

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but not otherwise. (Hassie vs. God Is With

Us Cong., 35 Cal., 378, 386.)

We do not believe that a mere equitable or

contingent debt, credit, or personal property

can be reached by the procedure provided

for in said section (431). (Redondo Beach

Co. vs. Brewer, 101 Cal., 322.)

A "debt," as used in said section, means

some definite amount of money, ascertained

or capable of being ascertained, which may

be paid over to the sheriff or the court under

an order, while "credits " and "personal

property" are something belonging to the

defendant, but in possession and under the

control of the person attached.

(Gow vs. Marshall, 90 Cal., 565;

Dunsmoor vs. Furstenfeldt, 88 Cal., 522.)

In our opinion it is also essential that the

debt, credit, or the personal property which

is attempted to be subjected to the payment

of the obligation of the defendant, and which

is alleged to be in the possession of the

person attached, must exist in some definite

and ascertainable form at the time of the

attachment. (Norris vs. Burgoyne, 4 Cal.,

409.)

The said Pilots' Association is purely a

voluntary association of the pilots of the city

of Manila. The association is expressly

recognized under the law. No one can

become a member of said association who

has not shown special qualifications as a

pilot, and no one can act as a pilot who has

not been expressly recommended and

approved by the collector of the port of

Manila, and no one can become a member

of said association without having paid a

certain sum of money into the treasury of

said association. This funds becomes the

property of the association for the purpose

of protecting its members against losses

occasioned by its members to ships while

said ships are under the control of a member

or members of said association. The money

paid in by one member of said association

becomes a part of a general fund of said

association, subject to be paid out for

damages done to ships by any member of

the association. The fund created by the

contributions of the members no longer

belongs to the members of the association; it

belongs to the association. The association

has a distinct and separate entity from the

individual members who make it up. The

fund is created for a specific purpose. (See

articles 35, 36, 38, and 39 of the regulations

of said association.) Under the regulations of

said association it has assumed a certain

responsibility for its members. Whether the

damage caused by the defendant in this case

is of such a character for which the said

association assumed the responsibility is a

question which the person injured has a right

to test in a special action against said

association.

[ ] PARTNERSHIP

From the evidence that was adduced before

the lower court we are of the opinion, and so

hold, that the said association had no debts,

credits, or personal property, not capable of

manual delivery, in its possession, belonging

to the defendant (Gambe), which are subject

to be attached in accordance with the

provisions of section 431. It is, therefore,

hereby ordered that the plaintiff take nothing

in this action and that the plaintiff be

charged with the costs of both instances.

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

ELIGIO ESTANISLAO, JR., petitioner, 

vs.

THE HONORABLE COURT OF APPE

ALS, REMEDIOS ESTANISLAO, EMILIO

and LEOCADIO SANTIAGO,respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

 

GANCAYCO, J.:

By this petition for certiorari the Court is

asked to determine if a partnership exists

between members of the same family arising

from their joint ownership of certain

properties.

Petitioner and private respondents are

brothers and sisters who are co-owners of

certain lots at the corner of Annapolis and

Aurora Blvd., QuezonCity which were then

being leased to the Shell Company of the

Philippines Limited (SHELL). They agreed

to open and operate a gas station thereat to

be known as Estanislao Shell Service

Station with an initial investment of P

15,000.00 to be taken from the advance

rentals due to them from SHELL for the

occupancy of the said lots owned in

common by them. A joint affidavit was

executed by them on April 11, 1966 which

was prepared byAtty. Democrito

Angeles 1 They agreed to help their brother,

petitioner herein, by allowing him to operate

and manage the gasoline service station of

the family. They negotiated with SHELL.

For practical purposes and in order not to

run counter to the company's policy of

appointing only one dealer, it was agreed

that petitioner would apply for the

dealership. Respondent Remedios helped in

managing the bussiness with petitioner from

May 3, 1966 up to February 16, 1967.

On May 26, 1966, the parties herein entered

into an Additional Cash Pledge Agreement

with SHELL wherein it was reiterated that

the P 15,000.00 advance rental shall be

[ ] PARTNERSHIP

deposited with SHELL to cover advances of

fuel to petitioner as dealer with a proviso

that said agreement "cancels and supersedes

the Joint Affidavit dated 11 April 1966

executed by the co-owners." 2

For sometime, the petitioner submitted

financial statements regarding the operation

of the business to private respondents, but

therafter petitioner failed to render

subsequent accounting. Hence through Atty.

Angeles, a demand was made on petitioner

to render an accounting of the profits.

The financial report of December 31, 1968

shows that the business was able to make a

profit of P 87,293.79 and that by the year

ending 1969, a profit of P 150,000.00 was

realized. 3

Thus, on August 25, 1970 private

respondents filed a complaint in the Court of

First Instance of Rizal against petitioner

praying among others that the latter be

ordered:

1. to execute a public document embodying

all the provisions of the partnership

agreement entered into between plaintiffs

and defendant as provided in Article 1771 of

the New Civil Code;

2. to render a formal accounting of the

business operation covering the period from

May 6, 1966 up to December 21, 1968 and

from January 1, 1969 up to the time the

order is issued and that the same be subject

to proper audit;

3. to pay the plaintiffs their lawful shares

and participation in the net profits of the

business in an amount of no less than P

l50,000.00 with interest at the rate of 1% per

month from date of demand until full

payment thereof for the entire duration of

the business; and

4. to pay the plaintiffs the amount of P

10,000.00 as attorney's fees and costs of the

suit (pp. 13-14 Record on Appeal.)

After trial on the merits, on October 15,

1975, Hon. Lino Anover who was then the

temporary presiding judge of Branch IV of

the trial court, rendered judgment dismissing

the complaint and counterclaim and ordering

private respondents to pay petitioner P

3,000.00 attorney's fee and costs. Private

respondent filed a motion for

reconsideration of the decision. On

December 10, 1975, Hon. Ricardo Tensuan

who was the newly appointed presiding

judge of the same branch, set aside the

aforesaid derision and rendered another

decision in favor of said respondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court

dated October 14, 1975 is hereby

reconsidered and a new judgment is hereby

[ ] PARTNERSHIP

rendered in favor of the plaintiffs and as

against the defendant:

(1) Ordering the defendant to execute a

public instrument embodying all the

provisions of the partnership agreement

entered into between plaintiffs and

defendant as provided for in Article 1771,

Civil Code of the Philippines;

(2) Ordering the defendant to render a

formal accounting of the business operation

from April 1969 up to the time this order is

issued, the same to be subject to

examination and audit by the plaintiff,

(3) Ordering the defendant to pay plaintiffs

their lawful shares and participation in the

net profits of the business in the amount of P

150,000.00, with interest thereon at the rate

of One (1%) Per Cent per month from date

of demand until full payment thereof;

(4) Ordering the defendant to pay the

plaintiffs the sum of P 5,000.00 by way of

attorney's fees of plaintiffs' counsel; as well

as the costs of suit. (pp. 161-162. Record on

Appeal).

Petitioner then interposed an appeal to the

Court of Appeals enumerating seven (7)

errors allegedly committed by the trial court.

In due course, a decision was rendered by

the Court of Appeals on November 28,1978

affirming in toto the decision of the lower

court with costs against petitioner. *

A motion for reconsideration of said

decision filed by petitioner was denied on

January 30, 1979. Not satisfied therewith,

the petitioner now comes to this court by

way of this petition for certiorari alleging

that the respondent court erred:

1. In interpreting the legal import of the

Joint Affidavit (Exh. 'A') vis-a-vis the

Additional Cash Pledge Agreement (Exhs.

"B-2","6", and "L"); and

2. In declaring that a partnership was

established by and among the petitioner and

the private respondents as regards the

ownership and or operation of the gasoline

service station business.

Petitioner relies heavily on the provisions of

the Joint Affidavit of April 11, 1966

(Exhibit A) and the Additional Cash Pledge

Agreement of May 20, 1966 (Exhibit 6)

which are herein reproduced-

(a) The joint Affidavit of April 11, 1966,

Exhibit A reads:

(1) That we are the Lessors of two parcels of

land fully describe in Transfer Certificates

of Title Nos. 45071 and 71244 of the

Register of Deeds of Quezon City, in favor

of the LESSEE - SHELL COMPANY OF

THE PHILIPPINES LIMITED a corporation

duly licensed to do business in the

Philippines;

[ ] PARTNERSHIP

(2) That we have requested the said SHELL

COMPANY OF THE PHILIPPINE

LIMITED advanced rentals in the total

amount of FIFTEEN THOUSAND PESOS

(P l5,000.00) Philippine Currency, so that

we can use the said amount to augment our

capital investment in the operation of that

gasoline station constructed ,by the said

company on our two lots aforesaid by virtue

of an outstanding Lease Agreement we have

entered into with the said company;

(3) That the and SHELL COMPANY OF

THE PHILIPPINE LIMITED out of its

benevolence and desire to help us in

aumenting our capital investment in the

operation of the said gasoline station, has

agreed to give us the said amount of P

15,000.00, which amount will partake the

nature of ADVANCED RENTALS;

(4) That we have freely and voluntarily

agreed that upon receipt of the said amount

of FIFTEEN THOUSAND PESOS (P

l6,000.00) from he SHELL COMPANY OF

THE PHILIPPINES LIMITED, the said sum

as ADVANCED RENTALS to us be applied

as monthly rentals for the sai two lots under

our Lease Agreement starting on the 25th of

May, 1966 until such time that the said of P

15,000.00 be applicable, which time to our

estimate and one-half months from May 25,

1966 or until the 10th of October, 1966

more or less;

(5) That we have likewise agreed among

ourselves that the SHELL COMPANY OF

THE PHILIPPINES LIMITED execute an

instrument for us to sign embodying our

conformity that the said amount that it will

generously grant us as requested be applied

as ADVANCED RENTALS; and

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement

of May 20,1966, Exhibit 6, is as follows:

WHEREAS, under the lease Agreement

dated 13th November, 1963 (identified as

doc. Nos. 491 & 1407, Page Nos. 99 & 66,

Book Nos. V & III, Series of 1963 in the

Notarial Registers of Notaries Public

Rosauro Marquez, and R.D. Liwanag,

respectively) executed in favour of SHELL

by the herein CO-OWNERS and another

Lease Agreement dated 19th March

1964 . . . also executed in favour of SHELL

by CO-OWNERS Remedios and MARIA

ESTANISLAO for the lease of adjoining

portions of two parcels of land at Aurora

Blvd./ Annapolis, Quezon City, the CO

OWNERS RECEIVE a total monthly rental

of PESOS THREE THOUSAND THREE

HUNDRED EIGHTY TWO AND 29/100 (P

3,382.29), Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao

Jr. is the Dealer of the Shell Station

constructed on the leased land, and as Dealer

under the Cash Pledge Agreement dated llth

[ ] PARTNERSHIP

May 1966, he deposited to SHELL in cash

the amount of PESOS TEN THOUSAND (P

10,000), Philippine Currency, to secure his

purchase on credit of Shell petroleum

products; . . .

WHEREAS, said DEALER, in his desire, to

be granted an increased the limit up to P

25,000, has secured the conformity of his

CO-OWNERS to waive and assign to

SHELL the total monthly rentals due to all

of them to accumulate the equivalent

amount of P 15,000, commencing 24th May

1966, this P 15,000 shall be treated as

additional cash deposit to SHELL under the

same terms and conditions of the

aforementioned Cash Pledge Agreement

dated llth May 1966.

NOW, THEREFORE, for and in

consideration of the foregoing premises,and

the mutual covenants among the CO-

OWNERS herein and SHELL, said parties

have agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in

favor of DEALER the monthly rentals due

to all CO-OWNERS, collectively, under the

above describe two Lease Agreements, one

dated 13th November 1963 and the other

dated 19th March 1964 to enable DEALER

to increase his existing cash deposit to

SHELL, from P 10,000 to P 25,000, for such

purpose, the SHELL CO-OWNERS and

DEALER hereby irrevocably assign to

SHELL the monthly rental of P 3,382.29

payable to them respectively as they fall

due, monthly, commencing 24th May 1966,

until such time that the monthly rentals

accumulated, shall be equal to P l5,000.

2. The above stated monthly rentals

accumulated shall be treated as additional

cash deposit by DEALER to SHELL,

thereby in increasing his credit limit from P

10,000 to P 25,000. This agreement,

therefore, cancels and supersedes the Joint

affidavit dated 11 April 1966 executed by

the CO-OWNERS.

3. Effective upon the signing of this

agreement, SHELL agrees to allow

DEALER to purchase from SHELL

petroleum products, on credit, up to the

amount of P 25,000.

4. This increase in the credit shall also be

subject to the same terms and conditions of

the above-mentioned Cash Pledge

Agreement dated llth May 1966. (Exhs. "B-

2," "L," and "6"; emphasis supplied)

In the aforesaid Joint Affidavit of April 11,

1966 (Exhibit A), it is clearly stipulated by

the parties that the P 15,000.00 advance

rental due to them from SHELL shall

augment their "capital investment" in the

operation of the gasoline station, which

advance rentals shall be credited as rentals

from May 25, 1966 up to four and one-half

[ ] PARTNERSHIP

months or until 10 October 1966, more or

less covering said P 15,000.00.

In the subsequent document entitled

"Additional Cash Pledge Agreement" above

reproduced (Exhibit 6), the private

respondents and petitioners assigned to

SHELL the monthly rentals due them

commencing the 24th of May 1966 until

such time that the monthly rentals

accumulated equal P 15,000.00 which

private respondents agree to be a cash

deposit of petitioner in favor of SHELL to

increase his credit limit as dealer. As above-

stated it provided therein that "This

agreement, therefore, cancels and supersedes

the Joint Affidavit dated 11 April 1966

executed by the CO-OWNERS."

Petitioner contends that because of the said

stipulation cancelling and superseding that

previous Joint Affidavit, whatever

partnership agreement there was in said

previous agreement had thereby been

abrogated. We find no merit in this

argument. Said cancelling provision was

necessary for the Joint Affidavit speaks of P

15,000.00 advance rentals starting May 25,

1966 while the latter agreement also refers

to advance rentals of the same amount

starting May 24, 1966. There is, therefore, a

duplication of reference to the P 15,000.00

hence the need to provide in the subsequent

document that it "cancels and supersedes"

the previous one. True it is that in the latter

document, it is silent as to the statement in

the Joint Affidavit that the P 15,000.00

represents the "capital investment" of the

parties in the gasoline station business and it

speaks of petitioner as the sole dealer, but

this is as it should be for in the latter

document SHELL was a signatory and it

would be against its policy if in the

agreement it should be stated that the

business is a partnership with private

respondents and not a sole proprietorship of

petitioner.

Moreover other evidence in the record

shows that there was in fact such partnership

agreement between the parties. This is

attested by the testimonies of private

respondent Remedies Estanislao and Atty.

Angeles. Petitioner submitted to private

respondents periodic accounting of the

business. 4 Petitioner gave a written

authority to private respondent Remedies

Estanislao, his sister, to examine and audit

the books of their "common business' aming

negosyo). 5 Respondent Remedios assisted

in the running of the business. There is no

doubt that the parties hereto formed a

partnership when they bound themselves to

contribute money to a common fund with

the intention of dividing the profits among

themselves. 6 The sole dealership by the

petitioner and the issuance of all government

permits and licenses in the name of

petitioner was in compliance with the afore-

stated policy of SHELL and the

[ ] PARTNERSHIP

understanding of the parties of having only

one dealer of the SHELL products.

Further, the findings of facts of the

respondent court are conclusive in this

proceeding, and its conclusion based on the

said facts are in accordancewith the

applicable law.

WHEREFORE, the judgment appealed from

is AFFIRMED in toto with costs against

petitioner. This decision is immediately

executory and no motion for extension of

time to file a motion for reconsideration

shag beentertained.

SO ORDERED.

February 2, 1903

G.R. No. 413

JOSE FERNANDEZ, plaintiff-appellant,

vs.

FRANCISCO DE LA ROSA, defendant-

appellee.

Vicente Miranda, for appellant.

Simplicio del Rosario, for appellee.

LADD, J.:

The object of this action is to obtain from

the court a declaration that a partnership

exists between the parties, that the plaintiff

has a consequent interested in certain

cascoes which are alleged to be partnership

property, and that the defendant is bound to

render an account of his administration of

the cascoes and the business carried on with

them.

Judgment was rendered for the defendant in

the court below and the plaintiff appealed.

The respective claims of the parties as to the

facts, so far as it is necessary to state them in

order to indicate the point in dispute, may be

briefly summarized. The plaintiff alleges

that in January, 1900, he entered into a

verbal agreement with the defendant to form

a partnership for the purchase of cascoes and

the carrying on of the business of letting the

same for hire in Manila, the defendant to

buy the cascoes and each partner to furnish

for that purpose such amount of money as he

could, the profits to be divided

proportionately; that in the same January the

plaintiff furnished the defendant 300 pesos

to purchase a casco designated as No. 1515,

which the defendant did purchase for 500

pesos of Doña Isabel Vales, taking the title

in his own name; that the plaintiff furnished

further sums aggregating about 300 pesos

for repairs on this casco; that on the fifth of

the following March he furnished the

defendant 825 pesos to purchase another

[ ] PARTNERSHIP

casco designated as No. 2089, which the

defendant did purchase for 1,000 pesos of

Luis R. Yangco, taking the title to this casco

also in his own name; that in April the

parties undertook to draw up articles of

partnership for the purpose of embodying

the same in an authentic document, but that

the defendant having proposed a draft of

such articles which differed materially from

the terms of the earlier verbal agreement,

and being unwillingly to include casco No.

2089 in the partnership, they were unable to

come to any understanding and no written

agreement was executed; that the defendant

having in the meantime had the control and

management of the two cascoes, the plaintiff

made a demand for an accounting upon him,

which the defendant refused to render,

denying the existence of the partnership

altogether.

The defendant admits that the project of

forming a partnership in the casco business

in which he was already engaged to some

extent individually was discussed between

himself and the plaintiff in January, 1900,

and earlier, one Marcos Angulo, who was a

partner of the plaintiff in a bakery business,

being also a party to the negotiations, but he

denies that any agreement was ever

consummated. He denies that the plaintiff

furnished any money in January, 1900, for

the purchase of casco No. 1515, or for

repairs on the same, but claims that he

borrowed 300 pesos on his individual

account in January from the bakery firm,

consisting of the plaintiff, Marcos Angulo,

and Antonio Angulo. The 825 pesos, which

he admits he received from the plaintiff

March 5, he claims was for the purchase of

casco No. 1515, which he alleged was

bought March 12, and he alleges that he

never received anything from the defendant

toward the purchase of casco No. 2089. He

claims to have paid, exclusive of repairs,

1,200 pesos for the first casco and 2,000

pesos for the second one.

The case comes to this court under the old

procedure, and it is therefore necessary for

us the review the evidence and pass upon the

facts. Our general conclusions may be stated

as follows:

(1) Doña Isabel Vales, from whom the

defendant bought casco No. 1515, testifies

that the sale was made and the casco

delivered in January, although the public

document of sale was not executed till some

time afterwards. This witness is apparently

disinterested, and we think it is safe to rely

upon the truth of her testimony, especially as

the defendant, while asserting that the sale

was in March, admits that he had the casco

taken to the ways for repairs in January.

It is true that the public document of sale

was executed March 10, and that the vendor

declares therein that she is the owner of the

casco, but such declaration does not exclude

[ ] PARTNERSHIP

proof as to the actual date of the sale, at least

as against the plaintiff, who was not a party

to the instrument. (Civil Code, sec. 1218.) It

often happens, of course, in such cases, that

the actual sale precedes by a considerable

time the execution of the formal instrument

of transfer, and this is what we think

occurred here.

(2) The plaintiff presented in evidence the

following receipt: "I have this day received

from D. Jose Fernandez eight hundred and

twenty-five pesos for the cost of a casco

which we are to purchase in company.

Manila, March 5, 1900. Francisco de la

Rosa." The authenticity of this receipt is

admitted by the defendant. If casco No.

1515 was bought, as we think it was, in

January, the casco referred to in the receipt

which the parties "are to purchase in

company" must be casco No. 2089, which

was bought March 22. We find this to be the

fact, and that the plaintiff furnished and the

defendant received 825 pesos toward the

purchase of this casco, with the

understanding that it was to be purchased on

joint account.

(3) Antonio Fernandez testifies that in the

early part of January, 1900, he saw Antonio

Angulo give the defendant, in the name of

the plaintiff, a sum of money, the amount of

which he is unable to state, for the purchase

of a casco to be used in the plaintiff's and

defendant's business. Antonio Angulo also

testifies, but the defendant claims that the

fact that Angulo was a partner of the

plaintiff rendered him incompetent as a

witness under the provisions of article 643

of the then Code of Civil Procedure, and

without deciding whether this point is well

taken, we have discarded his testimony

altogether in considering the case. The

defendant admits the receipt of 300 pesos

from Antonio Angulo in January, claiming,

as has been stated, that it was a loan from

the firm. Yet he sets up the claim that the

825 pesos which he received from the

plaintiff in March were furnished toward the

purchase of casco No. 1515, thereby

virtually admitting that casco was purchased

in company with the plaintiff. We discover

nothing in the evidence to support the claim

that the 300 pesos received in January was a

loan, unless it may be the fact that the

defendant had on previous occasions

borrowed money from the bakery firm. We

think all the probabilities of the case point to

the truth of the evidence of Antonio

Fernandez as to this transaction, and we find

the fact to be that the sum in question was

furnished by the plaintiff toward the

purchase for joint ownership of casco No.

1515, and that the defendant received it with

the understanding that it was to be used for

this purposed. We also find that the plaintiff

furnished some further sums of money for

the repair of casco.

[ ] PARTNERSHIP

(4) The balance of the purchase price of

each of the two cascoes over and above the

amount contributed by the plaintiff was

furnished by the defendant.

(5) We are unable to find upon the evidence

before us that there was any specific verbal

agreement of partnership, except such as

may be implied from the fact as to the

purchase of the casco.

(6) Although the evidence is somewhat

unsatisfactory upon this point, we think it

more probable than otherwise that no

attempt was made to agree upon articles of

partnership till about the middle of the April

following the purchase of the cascoes.

(7) At some time subsequently to the failure

of the attempt to agree upon partnership

articles and after the defendant had been

operating the cascoes for some time, the

defendant returned to the plaintiff 1,125

pesos, in two different sums, one of 300 and

one of 825 pesos. The only evidence in the

record as to the circumstances under which

the plaintiff received these sums is contained

in his answer to the interrogatories proposed

to him by the defendant, and the whole of

his statement on this point may properly be

considered in determining the fact as being

in the nature of an indivisible admission. He

states that both sums were received with an

express reservation on his part of all his

rights as a partner. We find this to be the

fact.

Two questions of law are raised by the

foregoing facts: (1) Did a partnership exist

between the parties? (2) If such partnership

existed, was it terminated as a result of the

act of the defendant in receiving back the

1,125 pesos?

(1) "Partnership is a contract by which two

or more persons bind themselves to

contribute money, property, or industry to a

common fund, with the intention of dividing

the profits among themselves." (Civil Code,

art. 1665.)

The essential points upon which the minds

of the parties must meet in a contract of

partnership are, therefore, (1) mutual

contribution to a common stock, and (2) a

joint interest in the profits. If the contract

contains these two elements the partnership

relation results, and the law itself fixes the

incidents of this relation if the parties fail to

do so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was

furnished by the plaintiff and received by

the defendant with the understanding that it

was to be used for the purchase of the

cascoes in question. This establishes the first

element of the contract, namely, mutual

contribution to a common stock. The second

element, namely, the intention to share

profits, appears to be an unavoidable

[ ] PARTNERSHIP

deduction from the fact of the purchase of

the cascoes in common, in the absence of

any other explanation of the object of the

parties in making the purchase in that form,

and, it may be added, in view of the

admitted fact that prior to the purchase of

the first casco the formation of a partnership

had been a subject of negotiation between

them.

Under other circumstances the relation of

joint ownership, a relation distinct though

perhaps not essentially different in its

practical consequence from that of

partnership, might have been the result of

the joint purchase. If, for instance, it were

shown that the object of the parties in

purchasing in company had been to make a

more favorable bargain for the two cascoes

that they could have done by purchasing

them separately, and that they had no

ulterior object except to effect a division of

the common property when once they had

acquired it, the affectio societatis would be

lacking and the parties would have become

joint tenants only; but, as nothing of this sort

appears in the case, we must assume that the

object of the purchase was active use and

profit and not mere passive ownership in

common.

It is thus apparent that a complete and

perfect contract of partnership was entered

into by the parties. This contract, it is true,

might have been subject to a suspensive

condition, postponing its operation until an

agreement was reached as to the respective

participation of the partners in the profits,

the character of the partnership as collective

or en comandita, and other details, but

although it is asserted by counsel for the

defendant that such was the case, there is

little or nothing in the record to support this

claim, and that fact that the defendant did

actually go on and purchase the boat, as it

would seem, before any attempt had been

made to formulate partnership articles,

strongly discountenances the theory.

The execution of a written agreement was

not necessary in order to give efficacy to the

verbal contract of partnership as a civil

contract, the contributions of the partners

not having been in the form of immovables

or rights in immovables. (Civil Code, art.

1667.) The special provision cited, requiring

the execution of a public writing in the

single case mentioned and dispensing with

all formal requirements in other cases,

renders inapplicable to this species of

contract the general provisions of article

1280 of the Civil Code.

(2) The remaining question is as to the legal

effect of the acceptance by the plaintiff of

the money returned to him by the defendant

after the definitive failure of the attempt to

agree upon partnership articles. The amount

returned fell short, in our view of the facts,

of that which the plaintiff had contributed to

[ ] PARTNERSHIP

the capital of the partnership, since it did not

include the sum which he had furnished for

the repairs of casco No. 1515. Moreover, it

is quite possible, as claimed by the plaintiff,

that a profit may have been realized from the

business during the period in which the

defendant have been administering it prior to

the return of the money, and if so he still

retained that sum in his hands. For these

reasons the acceptance of the money by the

plaintiff did not have the effect of

terminating the legal existence of the

partnership by converting it into a societas

leonina, as claimed by counsel for the

defendant.

Did the defendant waive his right to such

interest as remained to him in the

partnership property by receiving the

money? Did he by so doing waive his right

to an accounting of the profits already

realized, if any, and a participation in them

in proportion to the amount he had

originally contributed to the common fund?

Was the partnership dissolved by the "will

or withdrawal of one of the partners" under

article 1705 of the Civil Code? We think

these questions must be answered in the

negative.

There was no intention on the part of the

plaintiff in accepting the money to

relinquish his rights as a partner, nor is there

any evidence that by anything that he said or

by anything that he omitted to say he gave

the defendant any ground whatever to

believe that he intended to relinquish them.

On the contrary he notified the defendant

that he waived none of his rights in the

partnership. Nor was the acceptance of the

money an act which was in itself

inconsistent with the continuance of the

partnership relation, as would have been the

case had the plaintiff withdrawn his entire

interest in the partnership. There is,

therefore, nothing upon which a waiver,

either express or implied, can be predicated.

The defendant might have himself

terminated the partnership relation at any

time, if he had chosen to do so, by

recognizing the plaintiff's right in the

partnership property and in the profits.

Having failed to do this he can not be

permitted to force a dissolution upon his co-

partner upon terms which the latter is

unwilling to accept. We see nothing in the

case which can give the transaction in

question any other aspect than that of the

withdrawal by one partner with the consent

of the other of a portion of the common

capital.

The result is that we hold and declare that a

partnership was formed between the parties

in January, 1900, the existence of which the

defendant is bound to recognize; that

cascoes No. 1515 and 2089 constitute

partnership property, and that the plaintiff is

entitled to an accounting of the defendant's

administration of such property, and of the

[ ] PARTNERSHIP

profits derived therefrom. This declaration

does not involve an adjudication as to any

disputed items of the partnership account.

The judgment of the court below will be

reversed without costs, and the record

returned for the execution of the judgment

now rendered. So ordered.

Arellano, C.J., Torres, Cooper, and Mapa,

JJ., concur.

Willard, J., dissenting.

ON MOTION FOR A REHEARING.

MAPA, J.:

This case has been decided on appeal in

favor of the plaintiff, and the defendant has

moved for a rehearing upon the following

grounds:

1. Because that part of the decision which

refers to the existence of the partnership

which is the object of the complaint is not

based upon clear and decisive legal grounds;

and

2. Because, upon the supposition of the

existence of the partnership, the decision

does not clearly determine whether the

juridical relation between the partners

suffered any modification in consequence of

the withdrawal by the plaintiff of the sum of

1,125 pesos from the funds of the

partnership, or if it continued as before, the

parties being thereby deprived, he alleges, of

one of the principal bases for determining

with exactness the amount due to each.

With respect to the first point, the appellant

cites the fifth conclusion of the decision,

which is as follows: "We are unable to find

from the evidence before us that there was

any specific verbal agreement of

partnership, except such as may be implied

from the facts as to the purchase of the

cascoes."

Discussing this part of the decision, the

defendant says that, in the judgment of the

court, if on the one hand there is no direct

evidence of a contract, on the other its

existence can only be inferred from certain

facts, and the defendant adds that the

possibility of an inference is not sufficient

ground upon which to consider as existing

what may be inferred to exist, and still less

as sufficient ground for declaring its efficacy

to produce legal effects.

This reasoning rests upon a false basis. We

have not taken into consideration the mere

possibility of an inference, as the appellant

gratuitously stated, for the purpose of

arriving at a conclusion that a contract of

partnership was entered into between him

and the plaintiff, but have considered the

proof which is derived from the facts

connected with the purchase of the cascoes.

It is stated in the decision that with the

exception of this evidence we find no other

[ ] PARTNERSHIP

which shows the making of the contract. But

this does not mean (for it says exactly the

contrary) that this fact is not absolutely

proven, as the defendant erroneously

appears to think. From this data we infer a

fact which to our mind is certain and

positive, and not a mere possibility; we infer

not that it is possible that the contract may

have existed, but that it actually did exist.

The proofs constituted by the facts referred

to, although it is the only evidence, and in

spite of the fact that it is not direct, we

consider, however, sufficient to produce

such a conviction, which may certainly be

founded upon any of the various classes of

evidence which the law admits. There is all

the more reason for its being so in this case,

because a civil partnership may be

constituted in any form, according to article

1667 of the Civil Code, unless real property

or real rights are contributed to it — the only

case of exception in which it is necessary

that the agreement be recorded in a public

instrument.

It is of no importance that the parties have

failed to reach an agreement with respect to

the minor details of contract. These details

pertain to the accidental and not to the

essential part of the contract. We have

already stated in the opinion what are the

essential requisites of a contract of

partnership, according to the definition of

article 1665. Considering as a whole the

probatory facts which appears from the

record, we have reached the conclusion that

the plaintiff and the defendant agreed to the

essential parts of that contract, and did in

fact constitute a partnership, with the funds

of which were purchased the cascoes with

which this litigation deals, although it is true

that they did not take the precaution to

precisely establish and determine from the

beginning the conditions with respect to the

participation of each partner in the profits or

losses of the partnership. The disagreements

subsequently arising between them, when

endeavoring to fix these conditions, should

not and can not produce the effect of

destroying that which has been done, to the

prejudice of one of the partners, nor could it

divest his rights under the partnership which

had accrued by the actual contribution of

capital which followed the agreement to

enter into a partnership, together with the

transactions effected with partnership funds.

The law has foreseen the possibility of the

constitution of a partnership without an

express stipulation by the partners upon

those conditions, and has established rules

which may serve as a basis for the

distribution of profits and losses among the

partners. (Art. 1689 of the Civil Code. ) We

consider that the partnership entered into by

the plaintiff and the defendant falls within

the provisions of this article.

With respect to the second point, it is

obvious that upon declaring the existence of

a partnership and the right of the plaintiff to

[ ] PARTNERSHIP

demand from the defendant an itemized

accounting of his management thereof, it

was impossible at the same time to

determine the effects which might have been

produced with respect to the interest of the

partnership by the withdrawal by the

plaintiff of the sum of 1,125 pesos. This

could only be determined after a liquidation

of the partnership. Then, and only then, can

it be known if this sum is to be charged to

the capital contributed by the plaintiff, or to

his share of the profits, or to both. It might

well be that the partnership has earned

profits, and that the plaintiff's participation

therein is equivalent to or exceeds the sum

mentioned. In this case it is evident that,

notwithstanding that payment, his interest in

the partnership would still continue. This is

one case. It would be easy to imagine many

others, as the possible results of a

liquidation are innumerable. The liquidation

will finally determine the condition of the

legal relations of the partners inter se at the

time of the withdrawal of the sum

mentioned. It was not, nor is it possible to

determine this status a priori without

prejudging the result, as yet unknown, of the

litigation. Therefore it is that in the decision

no direct statement has been made upon this

point. It is for the same reason that it was

expressly stated in the decision that it "does

not involve an adjudication as to any

disputed item of the partnership account."

The contentions advanced by the moving

party are so evidently unfounded that we can

not see the necessity or convenience of

granting the rehearing prayed for, and the

motion is therefore denied.

G.R. No. L-55397 February 29, 1988

TAI TONG CHUACHE & CO., petitioner, 

vs.

THE INSURANCE COMMISSION and

TRAVELLERS MULTI-INDEMNITY

CORPORATION, respondents.

 

GANCAYCO, J.:

This petition for review on certiorari seeks

the reversal of the decision of the Insurance

Commission in IC Case #367 1dismissing

the complaint 2 for recovery of the alleged

unpaid balance of the proceeds of the Fire

Insurance Policies issued by herein

respondent insurance company in favor of

petitioner-intervenor.

The facts of the case as found by respondent

Insurance Commission are as follows:

[ ] PARTNERSHIP

Complainants acquired from a certain

Rolando Gonzales a parcel of land and a

building located at San Rafael Village,

Davao City. Complainants assumed the

mortgage of the building in favor of S.S.S.,

which building was insured with respondent

S.S.S. Accredited Group of Insurers for

P25,000.00.

On April 19, 1975, Azucena Palomo

obtained a loan from Tai Tong Chuache

Inc. in the amount of P100,000.00. To

secure the payment of the loan, a mortgage

was executed over the land and the building

in favor of Tai Tong Chuache & Co.

(Exhibit "1" and "1-A"). On April 25, 1975,

Arsenio Chua, representative of Thai Tong

Chuache & Co. insured the latter's interest

with Travellers Multi-Indemnity

Corporation for P100,000.00 (P70,000.00

for the building and P30,000.00 for the

contents thereof) (Exhibit "A-a," contents

thereof) (Exhibit "A-a").

On June 11, 1975, Pedro Palomo secured a

Fire Insurance Policy No. F- 02500 (Exhibit

"A"), covering the building for P50,000.00

with respondent Zenith Insurance

Corporation. On July 16, 1975, another Fire

Insurance Policy No. 8459 (Exhibit "B")

was procured from respondent Philippine

British Assurance Company, covering the

same building for P50,000.00 and the

contents thereof for P70,000.00.

On July 31, 1975, the building and the

contents were totally razed by fire.

Adjustment Standard Corporation submitted

a report as follow

xxx xxx xxx

... Thus the apportioned share of each

company is as follows:

Policy No.. Company Risk Insures

MIRO Zenith Building P50,000

F-02500 Insurance

Corp.

F-84590 Phil. Household 70,000

British

Assco. Co.

Inc. FFF & F5 50,000

Policy No. Company Risk Insures

FIC-15381 SSSAccre

dited Group

of Insurers Building P25,000

[ ] PARTNERSHIP

Totals

We are showing hereunder another

apportionment of the loss which includes the

Travellers Multi-Indemnity policy for

reference purposes.

Policy No. Company Risk

MIRO/ Zenith

F-02500 Insurance

Corp. Building

F-84590 Phil.

British

Assco. Co. I-Building

FFF & PE

PVC-15181 SSS Accredited

Group of

Insurers Building

F-599 DV Insurers I-Ref

Multi II-Building 70,000

Totals P295.000

Based on the computation of the loss,

including the Travellers Multi- Indemnity,

respondents, Zenith Insurance, Phil. British

Assurance and S.S.S. Accredited Group of

Insurers, paid their corresponding shares of

the loss. Complainants were paid the

following: P41,546.79 by Philippine British

Assurance Co., P11,877.14 by Zenith

Insurance Corporation, and P5,936.57 by

S.S.S. Group of Accredited Insurers (Par. 6.

Amended Complaint). Demand was made

from respondent Travellers Multi-Indemnity

for its share in the loss but the same was

refused. Hence, complainants demanded

from the other three (3) respondents the

balance of each share in the loss based on

the computation of the Adjustment

Standards Report excluding Travellers

Multi-Indemnity in the amount of

P30,894.31 (P5,732.79-Zenith Insurance:

P22,294.62, Phil. British: and P2,866.90,

SSS Accredited) but the same was refused,

hence, this action.

In their answers, Philippine British

Assurance and Zenith Insurance Corporation

admitted the material allegations in the

complaint, but denied liability on the ground

that the claim of the complainants had

already been waived, extinguished or paid.

[ ] PARTNERSHIP

Both companies set up counterclaim in the

total amount of P 91,546.79.

Instead of filing an answer, SSS Accredited

Group of Insurers informed the Commission

in its letter of July 22, 1977 that the herein

claim of complainants for the balance had

been paid in the amount of P 5,938.57 in

full, based on the Adjustment Standards

Corporation Report of September 22, 1975.

Travellers Insurance, on its part, admitted

the issuance of the Policy No. 599 DV and

alleged as its special and affirmative

defenses the following, to wit: that Fire

Policy No. 599 DV, covering the furniture

and building of complainants was secured

by a certain Arsenio Chua, mortgage

creditor, for the purpose of protecting his

mortgage credit against the complainants;

that the said policy was issued in the name

of Azucena Palomo, only to indicate that she

owns the insured premises; that the policy

contains an endorsement in favor of Arsenio

Chua as his mortgage interest may appear to

indicate that insured was Arsenio Chua and

the complainants; that the premium due on

said fire policy was paid by Arsenio Chua;

that respondent Travellers is not liable to

pay complainants.

On May 31, 1977, Tai Tong Chuache & Co.

filed a complaint in intervention claiming

the proceeds of the fire Insurance Policy No.

F-559 DV, issued by respondent Travellers

Multi-Indemnity.

Travellers Insurance, in answer to the

complaint in intervention, alleged that the

Intervenor is not entitled to indemnity under

its Fire Insurance Policy for lack of

insurable interest before the loss of the

insured premises and that the complainants,

spouses Pedro and Azucena Palomo, had

already paid in full their mortgage

indebtedness to the intervenor. 3

As adverted to above respondent Insurance

Commission dismissed spouses Palomos'

complaint on the ground that the insurance

policy subject of the complaint was taken

out by Tai Tong Chuache & Company,

petitioner herein, for its own interest only as

mortgagee of the insured property and thus

complainant as mortgagors of the insured

property have no right of action against

herein respondent. It likewise dismissed

petitioner's complaint in intervention in the

following words:

We move on the issue of liability of

respondent Travellers Multi-Indemnity to

the Intervenor-mortgagee. The complainant

testified that she was still indebted to

Intervenor in the amount of P100,000.00.

Such allegation has not however, been

sufficiently proven by documentary

evidence. The certification (Exhibit 'E-e')

issued by the Court of First Instance of

[ ] PARTNERSHIP

Davao, Branch 11, indicate that the

complainant was Antonio Lopez Chua and

not Tai Tong Chuache & Company. 4

From the above decision, only intervenor

Tai Tong Chuache filed a motion for

reconsideration but it was likewise denied

hence, the present petition.

It is the contention of the petitioner that

respondent Insurance Commission decided

an issue not raised in the pleadings of the

parties in that it ruled that a certain Arsenio

Lopez Chua is the one entitled to the

insurance proceeds and not Tai Tong

Chuache & Company.

This Court cannot fault petitioner for the

above erroneous interpretation of the

decision appealed from considering the

manner it was written. 5 As correctly

pointed out by respondent insurance

commission in their comment, the decision

did not pronounce that it was Arsenio Lopez

Chua who has insurable interest over the

insured property. Perusal of the decision

reveals however that it readily absolved

respondent insurance company from liability

on the basis of the commissioner's

conclusion that at the time of the occurrence

of the peril insured against petitioner as

mortgagee had no more insurable interest

over the insured property. It was based on

the inference that the credit secured by the

mortgaged property was already paid by the

Palomos before the said property was gutted

down by fire. The foregoing conclusion was

arrived at on the basis of the certification

issued by the then Court of First Instance of

Davao, Branch II that in a certain civil

action against the Palomos, Antonio Lopez

Chua stands as the complainant and not

petitioner Tai Tong Chuache & Company.

We find the petition to be impressed with

merit. It is a well known postulate that the

case of a party is constituted by his own

affirmative allegations. Under Section 1,

Rule 131 6 each party must prove his own

affirmative allegations by the amount of

evidence required by law which in civil

cases as in the present case is preponderance

of evidence. The party, whether plaintiff or

defendant, who asserts the affirmative of the

issue has the burden of presenting at the trial

such amount of evidence as required by law

to obtain favorable judgment. 7 Thus,

petitioner who is claiming a right over the

insurance must prove its case. Likewise,

respondent insurance company to avoid

liability under the policy by setting up an

affirmative defense of lack of insurable

interest on the part of the petitioner must

prove its own affirmative allegations.

It will be recalled that respondent insurance

company did not assail the validity of the

insurance policy taken out by petitioner over

the mortgaged property. Neither did it deny

that the said property was totally razed by

[ ] PARTNERSHIP

fire within the period covered by the

insurance. Respondent, as mentioned earlier

advanced an affirmative defense of lack of

insurable interest on the part of the

petitioner that before the occurrence of the

peril insured against the Palomos had

already paid their credit due the petitioner.

Respondent having admitted the material

allegations in the complaint, has the burden

of proof to show that petitioner has no

insurable interest over the insured property

at the time the contingency took place. Upon

that point, there is a failure of proof.

Respondent, it will be noted, exerted no

effort to present any evidence to substantiate

its claim, while petitioner did. For said

respondent's failure, the decision must be

adverse to it.

However, as adverted to earlier, respondent

Insurance Commission absolved respondent

insurance company from liability on the

basis of the certification issued by the then

Court of First Instance of Davao, Branch II,

that in a certain civil action against the

Palomos, Arsenio Lopez Chua stands as the

complainant and not Tai Tong Chuache.

From said evidence respondent commission

inferred that the credit extended by herein

petitioner to the Palomos secured by the

insured property must have been paid. Such

is a glaring error which this Court cannot

sanction. Respondent Commission's findings

are based upon a mere inference.

The record of the case shows that the

petitioner to support its claim for the

insurance proceeds offered as evidence the

contract of mortgage (Exh. 1) which has not

been cancelled nor released. It has been held

in a long line of cases that when the creditor

is in possession of the document of credit,

he need not prove non-payment for it is

presumed. 8 The validity of the insurance

policy taken b petitioner was not assailed by

private respondent. Moreover, petitioner's

claim that the loan extended to the Palomos

has not yet been paid was corroborated by

Azucena Palomo who testified that they are

still indebted to herein petitioner.9

Public respondent argues however, that if

the civil case really stemmed from the loan

granted to Azucena Palomo by petitioner the

same should have been brought by Tai Tong

Chuache or by its representative in its own

behalf. From the above premise respondent

concluded that the obligation secured by the

insured property must have been paid.

The premise is correct but the conclusion is

wrong. Citing Rule 3, Sec. 2 10 respondent

pointed out that the action must be brought

in the name of the real party in interest. We

agree. However, it should be borne in mind

that petitioner being a partnership may sue

and be sued in its name or by its duly

authorized representative. The fact that

Arsenio Lopez Chua is the representative of

petitioner is not questioned. Petitioner's

[ ] PARTNERSHIP

declaration that Arsenio Lopez Chua acts as

the managing partner of the partnership was

corroborated by respondent insurance

company. 11 Thus Chua as the managing

partner of the partnership may execute all

acts of administration 12 including the right

to sue debtors of the partnership in case of

their failure to pay their obligations when it

became due and demandable. Or at the very

least, Chua being a partner of petitioner Tai

Tong Chuache & Company is an agent of

the partnership. Being an agent, it is

understood that he acted for and in behalf of

the firm. 13 Public respondent's allegation

that the civil case flied by Arsenio Chua was

in his capacity as personal creditor of

spouses Palomo has no basis.

The respondent insurance company having

issued a policy in favor of herein petitioner

which policy was of legal force and effect at

the time of the fire, it is bound by its terms

and conditions. Upon its failure to prove the

allegation of lack of insurable interest on the

part of the petitioner, respondent insurance

company is and must be held liable.

IN VIEW OF THE FOREGOING, the

decision appealed from is hereby SET

ASIDE and ANOTHER judgment is

rendered order private respondent Travellers

Multi-Indemnity Corporation to pay

petitioner the face value of Insurance Policy

No. 599-DV in the amount of P100,000.00.

Costs against said private respondent.

SO ORDERED.

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

LORENZO T. OÑA and HEIRS OF JULIA

BUÑALES, namely: RODOLFO B. OÑA,

MARIANO B. OÑA, LUZ B. OÑA,

VIRGINIA B. OÑA and LORENZO B.

OÑA, JR., petitioners, 

vs.

THE COMMISSIONER OF INTERNAL

REVENUE, respondent.

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A.

Alafriz, Assistant Solicitor General

Felicisimo R. Rosete, and Special Attorney

Purificacion Ureta for respondent.

 

BARREDO, J.:p

Petition for review of the decision of the

Court of Tax Appeals in CTA Case No. 617,

similarly entitled as above, holding that

petitioners have constituted an unregistered

partnership and are, therefore, subject to the

payment of the deficiency corporate income

[ ] PARTNERSHIP

taxes assessed against them by respondent

Commissioner of Internal Revenue for the

years 1955 and 1956 in the total sum of

P21,891.00, plus 5% surcharge and 1%

monthly interest from December 15, 1958,

subject to the provisions of Section 51 (e)

(2) of the Internal Revenue Code, as

amended by Section 8 of Republic Act No.

2343 and the costs of the suit, 1 as well as

the resolution of said court denying

petitioners' motion for reconsideration of

said decision.

The facts are stated in the decision of the

Tax Court as follows:

Julia Buñales died on March 23, 1944,

leaving as heirs her surviving spouse,

Lorenzo T. Oña and her five children. In

1948, Civil Case No. 4519 was instituted in

the Court of First Instance of Manila for the

settlement of her estate. Later, Lorenzo T.

Oña the surviving spouse was appointed

administrator of the estate of said deceased

(Exhibit 3, pp. 34-41, BIR rec.). On April

14, 1949, the administrator submitted the

project of partition, which was approved by

the Court on May 16, 1949 (See Exhibit K).

Because three of the heirs, namely Luz,

Virginia and Lorenzo, Jr., all surnamed Oña,

were still minors when the project of

partition was approved, Lorenzo T. Oña,

their father and administrator of the estate,

filed a petition in Civil Case No. 9637 of the

Court of First Instance of Manila for

appointment as guardian of said minors. On

November 14, 1949, the Court appointed

him guardian of the persons and property of

the aforenamed minors (See p. 3, BIR rec.).

The project of partition (Exhibit K; see also

pp. 77-70, BIR rec.) shows that the heirs

have undivided one-half (1/2) interest in ten

parcels of land with a total assessed value of

P87,860.00, six houses with a total assessed

value of P17,590.00 and an undetermined

amount to be collected from the War

Damage Commission. Later, they received

from said Commission the amount of

P50,000.00, more or less. This amount was

not divided among them but was used in the

rehabilitation of properties owned by them

in common (t.s.n., p. 46). Of the ten parcels

of land aforementioned, two were acquired

after the death of the decedent with money

borrowed from the Philippine Trust

Company in the amount of P72,173.00

(t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the

estate shares equally with Lorenzo T. Oña,

the administrator thereof, in the obligation

of P94,973.00, consisting of loans

contracted by the latter with the approval of

the Court (see p. 3 of Exhibit K; or see p. 74,

BIR rec.).

Although the project of partition was

approved by the Court on May 16, 1949, no

attempt was made to divide the properties

[ ] PARTNERSHIP

therein listed. Instead, the properties

remained under the management of Lorenzo

T. Oña who used said properties in business

by leasing or selling them and investing the

income derived therefrom and the proceeds

from the sales thereof in real properties and

securities. As a result, petitioners' properties

and investments gradually increased from

P105,450.00 in 1949 to P480,005.20 in 1956

as can be gleaned from the following year-

end balances:

Investment Land Building

Account Account Account

P87,860.00 P17,590.00

P24,657.65 128,566.72 96,076.26

51,301.31 120,349.28 110,605.11

67,927.52 87,065.28 152,674.39

61,258.27 84,925.68 161,463.83

63,623.37 99,001.20 167,962.04

100,786.00 120,249.78 169,262.52

175,028.68 135,714.68 169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40,

50, 102-104)

From said investments and properties

petitioners derived such incomes as profits

from installment sales of subdivided lots,

profits from sales of stocks, dividends,

rentals and interests (see p. 3 of Exhibit 3; p.

32, BIR rec.; t.s.n., pp. 37-38). The said

incomes are recorded in the books of

account kept by Lorenzo T. Oña where the

corresponding shares of the petitioners in the

net income for the year are also known.

Every year, petitioners returned for income

tax purposes their shares in the net income

derived from said properties and securities

and/or from transactions involving them

(Exhibit 3,supra; t.s.n., pp. 25-26). However,

petitioners did not actually receive their

shares in the yearly income. (t.s.n., pp. 25-

26, 40, 98, 100). The income was always left

in the hands of Lorenzo T. Oña who, as

heretofore pointed out, invested them in real

properties and securities. (See Exhibit 3,

t.s.n., pp. 50, 102-104).

On the basis of the foregoing facts,

respondent (Commissioner of Internal

Revenue) decided that petitioners formed an

unregistered partnership and therefore,

subject to the corporate income tax, pursuant

to Section 24, in relation to Section 84(b), of

the Tax Code. Accordingly, he assessed

against the petitioners the amounts of

P8,092.00 and P13,899.00 as corporate

income taxes for 1955 and 1956,

respectively. (See Exhibit 5, amended by

Exhibit 17, pp. 50 and 86, BIR rec.).

[ ] PARTNERSHIP

Petitioners protested against the assessment

and asked for reconsideration of the ruling

of respondent that they have formed an

unregistered partnership. Finding no merit in

petitioners' request, respondent denied it

(See Exhibit 17, p. 86, BIR rec.). (See pp. 1-

4, Memorandum for Respondent, June 12,

1961).

The original assessment was as follows:

1955

Net income as per

investigation ................ P40,209.89

Income tax due thereon ...............................

8,042.00

25% surcharge ..............................................

2,010.50

Compromise for non-

filing .......................... 50.00

Total ..............................................................

. P10,102.50

1956

Net income as per

investigation ................ P69,245.23

Income tax due thereon ...............................

13,849.00

25% surcharge ..............................................

3,462.25

Compromise for non-

filing .......................... 50.00

Total ..............................................................

. P17,361.25

(See Exhibit 13, page 50, BIR records)

Upon further consideration of the case, the

25% surcharge was eliminated in line with

the ruling of the Supreme Court in Collector

v. Batangas Transportation Co., G.R. No. L-

9692, Jan. 6, 1958, so that the questioned

assessment refers solely to the income tax

proper for the years 1955 and 1956 and the

"Compromise for non-filing," the latter item

obviously referring to the compromise in

lieu of the criminal liability for failure of

petitioners to file the corporate income tax

returns for said years. (See Exh. 17, page 86,

BIR records). (Pp. 1-3, Annex C to Petition)

Petitioners have assigned the following as

alleged errors of the Tax Court:

I.

THE COURT OF TAX APPEALS ERRED

IN HOLDING THAT THE PETITIONERS

FORMED AN UNREGISTERED

PARTNERSHIP;

II.

THE COURT OF TAX APPEALS ERRED

IN NOT HOLDING THAT THE

PETITIONERS WERE CO-OWNERS OF

THE PROPERTIES INHERITED AND

(THE) PROFITS DERIVED FROM

TRANSACTIONS THEREFROM (sic);

[ ] PARTNERSHIP

III.

THE COURT OF TAX APPEALS ERRED

IN HOLDING THAT PETITIONERS

WERE LIABLE FOR CORPORATE

INCOME TAXES FOR 1955 AND 1956

AS AN UNREGISTERED

PARTNERSHIP;

IV.

ON THE ASSUMPTION THAT THE

PETITIONERS CONSTITUTED AN

UNREGISTERED PARTNERSHIP, THE

COURT OF TAX APPEALS ERRED IN

NOT HOLDING THAT THE

PETITIONERS WERE AN

UNREGISTERED PARTNERSHIP TO

THE EXTENT ONLY THAT THEY

INVESTED THE PROFITS FROM THE

PROPERTIES OWNED IN COMMON

AND THE LOANS RECEIVED USING

THE INHERITED PROPERTIES AS

COLLATERALS;

V .

ON THE ASSUMPTION THAT THERE

WAS AN UNREGISTERED

PARTNERSHIP, THE COURT OF TAX

APPEALS ERRED IN NOT DEDUCTING

THE VARIOUS AMOUNTS PAID BY

THE PETITIONERS AS INDIVIDUAL

INCOME TAX ON THEIR RESPECTIVE

SHARES OF THE PROFITS ACCRUING

FROM THE PROPERTIES OWNED IN

COMMON, FROM THE DEFICIENCY

TAX OF THE UNREGISTERED

PARTNERSHIP.

In other words, petitioners pose for our

resolution the following questions: (1)

Under the facts found by the Court of Tax

Appeals, should petitioners be considered as

co-owners of the properties inherited by

them from the deceased Julia Buñales and

the profits derived from transactions

involving the same, or, must they be deemed

to have formed an unregistered partnership

subject to tax under Sections 24 and 84(b) of

the National Internal Revenue Code? (2)

Assuming they have formed an unregistered

partnership, should this not be only in the

sense that they invested as a common fund

the profits earned by the properties owned

by them in common and the loans granted to

them upon the security of the said

properties, with the result that as far as their

respective shares in the inheritance are

concerned, the total income thereof should

be considered as that of co-owners and not

of the unregistered partnership? And (3)

assuming again that they are taxable as an

unregistered partnership, should not the

various amounts already paid by them for

the same years 1955 and 1956 as individual

income taxes on their respective shares of

the profits accruing from the properties they

owned in common be deducted from the

deficiency corporate taxes, herein involved,

assessed against such unregistered

[ ] PARTNERSHIP

partnership by the respondent

Commissioner?

Pondering on these questions, the first thing

that has struck the Court is that whereas

petitioners' predecessor in interest died way

back on March 23, 1944 and the project of

partition of her estate was judicially

approved as early as May 16, 1949, and

presumably petitioners have been holding

their respective shares in their inheritance

since those dates admittedly under the

administration or management of the head of

the family, the widower and father Lorenzo

T. Oña, the assessment in question refers to

the later years 1955 and 1956. We believe

this point to be important because,

apparently, at the start, or in the years 1944

to 1954, the respondent Commissioner of

Internal Revenue did treat petitioners as co-

owners, not liable to corporate tax, and it

was only from 1955 that he considered them

as having formed an unregistered

partnership. At least, there is nothing in the

record indicating that an earlier assessment

had already been made. Such being the case,

and We see no reason how it could be

otherwise, it is easily understandable why

petitioners' position that they are co-owners

and not unregistered co-partners, for the

purposes of the impugned assessment,

cannot be upheld. Truth to tell, petitioners

should find comfort in the fact that they

were not similarly assessed earlier by the

Bureau of Internal Revenue.

The Tax Court found that instead of actually

distributing the estate of the deceased among

themselves pursuant to the project of

partition approved in 1949, "the properties

remained under the management of Lorenzo

T. Oña who used said properties in business

by leasing or selling them and investing the

income derived therefrom and the proceed

from the sales thereof in real properties and

securities," as a result of which said

properties and investments steadily

increased yearly from P87,860.00 in "land

account" and P17,590.00 in "building

account" in 1949 to P175,028.68 in

"investment account," P135.714.68 in "land

account" and P169,262.52 in "building

account" in 1956. And all these became

possible because, admittedly, petitioners

never actually received any share of the

income or profits from Lorenzo T. Oña and

instead, they allowed him to continue using

said shares as part of the common fund for

their ventures, even as they paid the

corresponding income taxes on the basis of

their respective shares of the profits of their

common business as reported by the said

Lorenzo T. Oña.

It is thus incontrovertible that petitioners did

not, contrary to their contention, merely

limit themselves to holding the properties

inherited by them. Indeed, it is admitted that

during the material years herein involved,

some of the said properties were sold at

considerable profit, and that with said profit,

[ ] PARTNERSHIP

petitioners engaged, thru Lorenzo T. Oña, in

the purchase and sale of corporate securities.

It is likewise admitted that all the profits

from these ventures were divided among

petitioners proportionately in accordance

with their respective shares in the

inheritance. In these circumstances, it is Our

considered view that from the moment

petitioners allowed not only the incomes

from their respective shares of the

inheritance but even the inherited properties

themselves to be used by Lorenzo T. Oña as

a common fund in undertaking several

transactions or in business, with the

intention of deriving profit to be shared by

them proportionally, such act was

tantamonut to actually contributing such

incomes to a common fund and, in effect,

they thereby formed an unregistered

partnership within the purview of the above-

mentioned provisions of the Tax Code.

It is but logical that in cases of inheritance,

there should be a period when the heirs can

be considered as co-owners rather than

unregistered co-partners within the

contemplation of our corporate tax laws

aforementioned. Before the partition and

distribution of the estate of the deceased, all

the income thereof does belong commonly

to all the heirs, obviously, without them

becoming thereby unregistered co-partners,

but it does not necessarily follow that such

status as co-owners continues until the

inheritance is actually and physically

distributed among the heirs, for it is easily

conceivable that after knowing their

respective shares in the partition, they might

decide to continue holding said shares under

the common management of the

administrator or executor or of anyone

chosen by them and engage in business on

that basis. Withal, if this were to be allowed,

it would be the easiest thing for heirs in any

inheritance to circumvent and render

meaningless Sections 24 and 84(b) of the

National Internal Revenue Code.

It is true that in Evangelista vs. Collector,

102 Phil. 140, it was stated, among the

reasons for holding the appellants therein to

be unregistered co-partners for tax purposes,

that their common fund "was not something

they found already in existence" and that "it

was not a property inherited by them pro

indiviso," but it is certainly far fetched to

argue therefrom, as petitioners are doing

here, that ergo, in all instances where an

inheritance is not actually divided, there can

be no unregistered co-partnership. As

already indicated, for tax purposes, the co-

ownership of inherited properties is

automatically converted into an unregistered

partnership the moment the said common

properties and/or the incomes derived

therefrom are used as a common fund with

intent to produce profits for the heirs in

proportion to their respective shares in the

inheritance as determined in a project

partition either duly executed in an

[ ] PARTNERSHIP

extrajudicial settlement or approved by the

court in the corresponding testate or intestate

proceeding. The reason for this is simple.

From the moment of such partition, the heirs

are entitled already to their respective

definite shares of the estate and the incomes

thereof, for each of them to manage and

dispose of as exclusively his own without

the intervention of the other heirs, and,

accordingly he becomes liable individually

for all taxes in connection therewith. If after

such partition, he allows his share to be held

in common with his co-heirs under a single

management to be used with the intent of

making profit thereby in proportion to his

share, there can be no doubt that, even if no

document or instrument were executed for

the purpose, for tax purposes, at least, an

unregistered partnership is formed. This is

exactly what happened to petitioners in this

case.

In this connection, petitioners' reliance on

Article 1769, paragraph (3), of the Civil

Code, providing that: "The sharing of gross

returns does not of itself establish a

partnership, whether or not the persons

sharing them have a joint or common right

or interest in any property from which the

returns are derived," and, for that matter, on

any other provision of said code on

partnerships is unavailing.

In Evangelista, supra, this Court clearly

differentiated the concept of partnerships

under the Civil Code from that of

unregistered partnerships which are

considered as "corporations" under Sections

24 and 84(b) of the National Internal

Revenue Code. Mr. Justice Roberto

Concepcion, now Chief Justice, elucidated

on this point thus:

To begin with, the tax in question is one

imposed upon "corporations", which, strictly

speaking, are distinct and different from

"partnerships". When our Internal Revenue

Code includes "partnerships" among the

entities subject to the tax on "corporations",

said Code must allude, therefore, to

organizations which are not

necessarily "partnerships", in the technical

sense of the term. Thus, for instance, section

24 of said Code exempts from the

aforementioned tax "duly registered general

partnerships," which constitute precisely one

of the most typical forms of partnerships in

this jurisdiction. Likewise, as defined in

section 84(b) of said Code, "the term

corporation includes partnerships, no matter

how created or organized." This qualifying

expression clearly indicates that a joint

venture need not be undertaken in any of the

standard forms, or in confirmity with the

usual requirements of the law on

partnerships, in order that one could be

deemed constituted for purposes of the tax

on corporation. Again, pursuant to said

section 84(b),the term "corporation"

includes, among others, "joint accounts,

(cuentas en participacion)" and

[ ] PARTNERSHIP

"associations", none of which has a legal

personality of its own, independent of that of

its members. Accordingly, the lawmaker

could not have regarded that personality as a

condition essential to the existence of the

partnerships therein referred to. In fact, as

above stated, "duly registered general co-

partnerships" — which are possessed of the

aforementioned personality — have been

expressly excluded by law (sections 24 and

84[b]) from the connotation of the term

"corporation." ....

xxx xxx xxx

Similarly, the American Law

... provides its own concept of a partnership.

Under the term "partnership" it includes not

only a partnership as known in common law

but, as well, a syndicate, group, pool, joint

venture, or other unincorporated

organization which carries on any business,

financial operation, or venture, and which is

not, within the meaning of the Code, a trust,

estate, or a corporation. ... . (7A Merten's

Law of Federal Income Taxation, p. 789;

emphasis ours.)

The term "partnership" includes a syndicate,

group, pool, joint venture or other

unincorporated organization, through or by

means of which any business, financial

operation, or venture is carried on. ... . (8

Merten's Law of Federal Income Taxation,

p. 562 Note 63; emphasis ours.)

For purposes of the tax on corporations, our

National Internal Revenue Code includes

these partnerships — with the exception

only of duly registered general

copartnerships — within the purview of the

term "corporation." It is, therefore, clear to

our mind that petitioners herein constitute a

partnership, insofar as said Code is

concerned, and are subject to the income tax

for corporations.

We reiterated this view, thru Mr. Justice

Fernando, in Reyes vs. Commissioner of

Internal Revenue, G. R. Nos. L-24020-21,

July 29, 1968, 24 SCRA 198, wherein the

Court ruled against a theory of co-ownership

pursued by appellants therein.

As regards the second question raised by

petitioners about the segregation, for the

purposes of the corporate taxes in question,

of their inherited properties from those

acquired by them subsequently, We consider

as justified the following ratiocination of the

Tax Court in denying their motion for

reconsideration:

In connection with the second ground, it is

alleged that, if there was an unregistered

partnership, the holding should be limited to

the business engaged in apart from the

properties inherited by petitioners. In other

words, the taxable income of the partnership

should be limited to the income derived

from the acquisition and sale of real

[ ] PARTNERSHIP

properties and corporate securities and

should not include the income derived from

the inherited properties. It is admitted that

the inherited properties and the income

derived therefrom were used in the business

of buying and selling other real properties

and corporate securities. Accordingly, the

partnership income must include not only

the income derived from the purchase and

sale of other properties but also the income

of the inherited properties.

Besides, as already observed earlier, the

income derived from inherited properties

may be considered as individual income of

the respective heirs only so long as the

inheritance or estate is not distributed or, at

least, partitioned, but the moment their

respective known shares are used as part of

the common assets of the heirs to be used in

making profits, it is but proper that the

income of such shares should be considered

as the part of the taxable income of an

unregistered partnership. This, We hold, is

the clear intent of the law.

Likewise, the third question of petitioners

appears to have been adequately resolved by

the Tax Court in the aforementioned

resolution denying petitioners' motion for

reconsideration of the decision of said court.

Pertinently, the court ruled this wise:

In support of the third ground, counsel for

petitioners alleges:

Even if we were to yield to the decision of

this Honorable Court that the herein

petitioners have formed an unregistered

partnership and, therefore, have to be taxed

as such, it might be recalled that the

petitioners in their individual income tax

returns reported their shares of the profits of

the unregistered partnership. We think it

only fair and equitable that the various

amounts paid by the individual petitioners as

income tax on their respective shares of the

unregistered partnership should be deducted

from the deficiency income tax found by

this Honorable Court against the

unregistered partnership. (page 7,

Memorandum for the Petitioner in Support

of Their Motion for Reconsideration, Oct.

28, 1961.)

In other words, it is the position of

petitioners that the taxable income of the

partnership must be reduced by the amounts

of income tax paid by each petitioner on his

share of partnership profits. This is not

correct; rather, it should be the other way

around. The partnership profits distributable

to the partners (petitioners herein) should be

reduced by the amounts of income tax

assessed against the partnership.

Consequently, each of the petitioners in his

individual capacity overpaid his income tax

for the years in question, but the income tax

due from the partnership has been correctly

assessed. Since the individual income tax

liabilities of petitioners are not in issue in

[ ] PARTNERSHIP

this proceeding, it is not proper for the Court

to pass upon the same.

Petitioners insist that it was error for the Tax

Court to so rule that whatever excess they

might have paid as individual income tax

cannot be credited as part payment of the

taxes herein in question. It is argued that to

sanction the view of the Tax Court is to

oblige petitioners to pay double income tax

on the same income, and, worse, considering

the time that has lapsed since they paid their

individual income taxes, they may already

be barred by prescription from recovering

their overpayments in a separate action. We

do not agree. As We see it, the case of

petitioners as regards the point under

discussion is simply that of a taxpayer who

has paid the wrong tax, assuming that the

failure to pay the corporate taxes in question

was not deliberate. Of course, such taxpayer

has the right to be reimbursed what he has

erroneously paid, but the law is very clear

that the claim and action for such

reimbursement are subject to the bar of

prescription. And since the period for the

recovery of the excess income taxes in the

case of herein petitioners has already lapsed,

it would not seem right to virtually disregard

prescription merely upon the ground that the

reason for the delay is precisely because the

taxpayers failed to make the proper return

and payment of the corporate taxes legally

due from them. In principle, it is but proper

not to allow any relaxation of the tax laws in

favor of persons who are not exactly above

suspicion in their conduct vis-a-vis their tax

obligation to the State.

IN VIEW OF ALL THE FOREGOING, the

judgment of the Court of Tax Appeals

appealed from is affirm with costs against

petitioners.

G.R. No. L-45425             April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-

appellants, 

vs.

THE COLLECTOR OF INTERNAL

REVENUE, defendant-appellee.

Guillermo B. Reyes for appellants.

Office of the Solicitor-General Tuason for

appellee.

IMPERIAL, J.:

The plaintiff brought this action to recover

from the defendant Collector of Internal

Revenue the sum of P1,863.44, with legal

interest thereon, which they paid under

protest by way of income tax. They appealed

from the decision rendered in the case on

[ ] PARTNERSHIP

October 23, 1936 by the Court of First

Instance of the City of Manila, which

dismissed the action with the costs against

them.

The case was submitted for decision upon

the following stipulation of facts:

Come now the parties to the above-

mentioned case, through their respective

undersigned attorneys, and hereby agree to

respectfully submit to this Honorable Court

the case upon the following statement of

facts:

1. That plaintiff are all residents of the

municipality of Pulilan, Bulacan, and that

defendant is the Collector of Internal

Revenue of the Philippines;

2. That prior to December 15, 1934

plaintiffs, in order to enable them to

purchase one sweepstakes ticket valued at

two pesos (P2), subscribed and paid therefor

the amounts as follows:

1. Jose

Gatchalian .............................................

.......................................................

P0.

18

2. Gregoria

Cristobal ................................................

...............................................

.18

3. Saturnina

Silva ......................................................

.08

..............................................

4. Guillermo

Tapia ......................................................

.............................................

.13

5. Jesus

Legaspi ..................................................

....................................................

.15

6. Jose

Silva ......................................................

.......................................................

.07

7. Tomasa

Mercado ................................................

................................................

.08

8. Julio

Gatchalian .............................................

......................................................

.13

9. Emiliana

Santiago .................................................

...............................................

.13

10. Maria C.

Legaspi ..................................................

.............................................

.16

11. Francisco

Cabral ....................................................

...........................................

.13

[ ] PARTNERSHIP

12. Gonzalo

Javier .....................................................

...............................................

.14

13. Maria

Santiago .................................................

..................................................

.17

14. Buenaventura

Guzman .................................................

.....................................

.13

15. Mariano

Santos ....................................................

.............................................

.14

Total ......................................................

..................................................

2.0

0

3. That immediately thereafter but prior to

December 15, 1934, plaintiffs purchased, in

the ordinary course of business, from one of

the duly authorized agents of the National

Charity Sweepstakes Office one ticket

bearing No. 178637 for the sum of two

pesos (P2) and that the said ticket was

registered in the name of Jose Gatchalian

and Company;

4. That as a result of the drawing of the

sweepstakes on December 15, 1934, the

above-mentioned ticket bearing No. 178637

won one of the third prizes in the amount of

P50,000 and that the corresponding check

covering the above-mentioned prize of

P50,000 was drawn by the National Charity

Sweepstakes Office in favor of Jose

Gatchalian & Company against the

Philippine National Bank, which check was

cashed during the latter part of December,

1934 by Jose Gatchalian & Company;

5. That on December 29, 1934, Jose

Gatchalian was required by income tax

examiner Alfredo David to file the

corresponding income tax return covering

the prize won by Jose Gatchalian &

Company and that on December 29, 1934,

the said return was signed by Jose

Gatchalian, a copy of which return is

enclosed as Exhibit A and made a part

hereof;

6. That on January 8, 1935, the defendant

made an assessment against Jose Gatchalian

& Company requesting the payment of the

sum of P1,499.94 to the deputy provincial

treasurer of Pulilan, Bulacan, giving to said

Jose Gatchalian & Company until January

20, 1935 within which to pay the said

amount of P1,499.94, a copy of which letter

marked Exhibit B is enclosed and made a

part hereof;

7. That on January 20, 1935, the plaintiffs,

through their attorney, sent to defendant a

reply, a copy of which marked Exhibit C is

attached and made a part hereof, requesting

[ ] PARTNERSHIP

exemption from payment of the income tax

to which reply there were enclosed fifteen

(15) separate individual income tax returns

filed separately by each one of the plaintiffs,

copies of which returns are attached and

marked Exhibit D-1 to D-15, respectively, in

order of their names listed in the caption of

this case and made parts hereof; a statement

of sale signed by Jose Gatchalian showing

the amount put up by each of the plaintiffs

to cover up the attached and marked as

Exhibit E and made a part hereof; and a

copy of the affidavit signed by Jose

Gatchalian dated December 29, 1934 is

attached and marked Exhibit F and made

part thereof;

8. That the defendant in his letter dated

January 28, 1935, a copy of which marked

Exhibit G is enclosed, denied plaintiffs'

request of January 20, 1935, for exemption

from the payment of tax and reiterated his

demand for the payment of the sum of

P1,499.94 as income tax and gave plaintiffs

until February 10, 1935 within which to pay

the said tax;

9. That in view of the failure of the plaintiffs

to pay the amount of tax demanded by the

defendant, notwithstanding subsequent

demand made by defendant upon the

plaintiffs through their attorney on March

23, 1935, a copy of which marked Exhibit H

is enclosed, defendant on May 13, 1935

issued a warrant of distraint and levy against

the property of the plaintiffs, a copy of

which warrant marked Exhibit I is enclosed

and made a part hereof;

10. That to avoid embarrassment arising

from the embargo of the property of the

plaintiffs, the said plaintiffs on June 15,

1935, through Gregoria Cristobal, Maria C.

Legaspi and Jesus Legaspi, paid under

protest the sum of P601.51 as part of the tax

and penalties to the municipal treasurer of

Pulilan, Bulacan, as evidenced by official

receipt No. 7454879 which is attached and

marked Exhibit J and made a part hereof,

and requested defendant that plaintiffs be

allowed to pay under protest the balance of

the tax and penalties by monthly

installments;

11. That plaintiff's request to pay the

balance of the tax and penalties was granted

by defendant subject to the condition that

plaintiffs file the usual bond secured by two

solvent persons to guarantee prompt

payment of each installments as it becomes

due;

12. That on July 16, 1935, plaintiff filed a

bond, a copy of which marked Exhibit K is

enclosed and made a part hereof, to

guarantee the payment of the balance of the

alleged tax liability by monthly installments

at the rate of P118.70 a month, the first

payment under protest to be effected on or

before July 31, 1935;

[ ] PARTNERSHIP

13. That on July 16, 1935 the said plaintiffs

formally protested against the payment of

the sum of P602.51, a copy of which protest

is attached and marked Exhibit L, but that

defendant in his letter dated August 1, 1935

overruled the protest and denied the request

for refund of the plaintiffs;

14. That, in view of the failure of the

plaintiffs to pay the monthly installments in

accordance with the terms and conditions of

bond filed by them, the defendant in his

letter dated July 23, 1935, copy of which is

attached and marked Exhibit M, ordered the

municipal treasurer of Pulilan, Bulacan to

execute within five days the warrant of

distraint and levy issued against the

plaintiffs on May 13, 1935;

15. That in order to avoid annoyance and

embarrassment arising from the levy of their

property, the plaintiffs on August 28, 1936,

through Jose Gatchalian, Guillermo Tapia,

Maria Santiago and Emiliano Santiago, paid

under protest to the municipal treasurer of

Pulilan, Bulacan the sum of P1,260.93

representing the unpaid balance of the

income tax and penalties demanded by

defendant as evidenced by income tax

receipt No. 35811 which is attached and

marked Exhibit N and made a part hereof;

and that on September 3, 1936, the plaintiffs

formally protested to the defendant against

the payment of said amount and requested

the refund thereof, copy of which is attached

and marked Exhibit O and made part hereof;

but that on September 4, 1936, the defendant

overruled the protest and denied the refund

thereof; copy of which is attached and

marked Exhibit P and made a part hereof;

and

16. That plaintiffs demanded upon defendant

the refund of the total sum of one thousand

eight hundred and sixty three pesos and

forty-four centavos (P1,863.44) paid under

protest by them but that defendant refused

and still refuses to refund the said amount

notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to

present other and additional evidence if

necessary.

Exhibit E referred to in the stipulation is of

the following tenor:

To whom it may concern:

I, Jose Gatchalian, a resident of Pulilan,

Bulacan, married, of age, hereby certify, that

on the 11th day of August, 1934, I sold parts

of my shares on ticket No. 178637 to the

persons and for the amount indicated below

and the part of may share remaining is also

shown to wit:

PurchaserAmou

nt

Addres

s

1. Mariano

Santos ................................

P0.14 Pulilan

,

[ ] PARTNERSHIP

...........Bulaca

n.

2. Buenaventura

Guzman .............................

..

.13 - Do -

3. Maria

Santiago .............................

...............

.17 - Do -

4. Gonzalo

Javier .................................

.............

.14 - Do -

5. Francisco

Cabral ................................

..........

.13 - Do -

6. Maria C.

Legaspi ..............................

............

.16 - Do -

7. Emiliana

Santiago .............................

............

.13 - Do -

8. Julio

Gatchalian .........................

...................

.13 - Do -

9. Jose

Silva ...................................

.07 - Do -

...................

10. Tomasa

Mercado .............................

..........

.08 - Do -

11. Jesus

Legaspi ..............................

...............

.15 - Do -

12. Guillermo

Tapia ..................................

.........

.13 - Do -

13. Saturnina

Silva ...................................

.........

.08 - Do -

14. Gregoria

Cristobal ............................

...........

.18 - Do -

15. Jose

Gatchalian .........................

...................

.18 - Do -

2.00

Total

cost of

said

ticket; and that, therefore, the persons named

above are entitled to the parts of whatever

prize that might be won by said ticket.

Pulilan, Bulacan, P.I.

[ ] PARTNERSHIP

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is

inserted in the bill of exceptions as follows:

RECAPITULATIONS OF 15

INDIVIDUAL INCOME TAX RETURNS

FOR 1934 ALL DATED JANUARY 19,

1935 SUBMITTED TO THE COLLECTOR

OF INTERNAL REVENUE.

Name

Exh

ibit 

No.

Purc

hase 

Pric

e

Pri

ce 

W

on

Expe

nses

Ne

t 

pri

ze

1. Jose

Gatchalian ......

........................

............

D-1P0.1

8

P4,

42

5

P 4803,9

45

2. Gregoria

Cristobal .........

........................

.....

D-2 .184,5

752,000

2,5

75

3. Saturnina

Silva ...............

........................

......

D-3 .081,8

75360

1,5

15

4. Guillermo

Tapia ..............

........................

D-4 .13 3,3

25

360 2,9

65

....

5. Jesus

Legaspi by

Maria

Cristobal .........

D-5 .153,8

25720

3,1

05

6. Jose

Silva ...............

........................

.............

D-6 .081,8

75360

1,5

15

7. Tomasa

Mercado .........

........................

......

D-7 .071,8

75360

1,5

15

8. Julio

Gatchalian by

Beatriz

Guzman .......

D-8 .133,1

50240

2,9

10

9. Emiliana

Santiago .........

........................

.....

D-9 .133,3

25360

2,9

65

10. Maria C.

Legaspi ...........

........................

...

D-

10.16

4,1

00960

3,1

40

11. Francisco

Cabral .............

D- .13 3,3 360 2,9

[ ] PARTNERSHIP

........................

.11 25 65

12. Gonzalo

Javier ..............

........................

....

D-

12.14

3,3

25360

2,9

65

13. Maria

Santiago .........

........................

.........

D-

13.17

4,3

50360

3,9

90

14.

Buenaventura

Guzman ..........

.................

D-

14.13

3,3

25360

2,9

65

15. Mariano

Santos .............

........................

...

D-

15.14

3,3

25360

2,9

65

2.00

50,

00

0

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The legal questions raised in plaintiffs-

appellants' five assigned errors may properly

be reduced to the two following: (1)

Whether the plaintiffs formed a partnership,

or merely a community of property without

a personality of its own; in the first case it is

admitted that the partnership thus formed is

liable for the payment of income tax,

whereas if there was merely a community of

property, they are exempt from such

payment; and (2) whether they should pay

the tax collectively or whether the latter

should be prorated among them and paid

individually.

The Collector of Internal Revenue collected

the tax under section 10 of Act No. 2833, as

last amended by section 2 of Act No. 3761,

reading as follows:

SEC. 10. (a) There shall be levied, assessed,

collected, and paid annually upon the total

net income received in the preceding

calendar year from all sources by every

[ ] PARTNERSHIP

corporation, joint-stock company,

partnership, joint account (cuenta en

participacion), association or insurance

company, organized in the Philippine

Islands, no matter how created or organized,

but not including duly registered general

copartnership (compañias colectivas), a tax

of three per centum upon such income; and a

like tax shall be levied, assessed, collected,

and paid annually upon the total net income

received in the preceding calendar year from

all sources within the Philippine Islands by

every corporation, joint-stock company,

partnership, joint account (cuenta en

participacion), association, or insurance

company organized, authorized, or existing

under the laws of any foreign country,

including interest on bonds, notes, or other

interest-bearing obligations of residents,

corporate or otherwise: Provided,

however, That nothing in this section shall

be construed as permitting the taxation of

the income derived from dividends or net

profits on which the normal tax has been

paid.

The gain derived or loss sustained from the

sale or other disposition by a corporation,

joint-stock company, partnership, joint

account (cuenta en participacion),

association, or insurance company, or

property, real, personal, or mixed, shall be

ascertained in accordance with subsections

(c) and (d) of section two of Act Numbered

Two thousand eight hundred and thirty-

three, as amended by Act Numbered

Twenty-nine hundred and twenty-six.

The foregoing tax rate shall apply to the net

income received by every taxable

corporation, joint-stock company,

partnership, joint account (cuenta en

participacion), association, or insurance

company in the calendar year nineteen

hundred and twenty and in each year

thereafter.

There is no doubt that if the plaintiffs

merely formed a community of property the

latter is exempt from the payment of income

tax under the law. But according to the

stipulation facts the plaintiffs organized a

partnership of a civil nature because each of

them put up money to buy a sweepstakes

ticket for the sole purpose of dividing

equally the prize which they may win, as

they did in fact in the amount of P50,000

(article 1665, Civil Code). The partnership

was not only formed, but upon the

organization thereof and the winning of the

prize, Jose Gatchalian personally appeared

in the office of the Philippines Charity

Sweepstakes, in his capacity as co-partner,

as such collection the prize, the office issued

the check for P50,000 in favor of Jose

Gatchalian and company, and the said

partner, in the same capacity, collected the

said check. All these circumstances repel the

idea that the plaintiffs organized and formed

a community of property only.

[ ] PARTNERSHIP

Having organized and constituted a

partnership of a civil nature, the said entity

is the one bound to pay the income tax

which the defendant collected under the

aforesaid section 10 (a) of Act No. 2833, as

amended by section 2 of Act No. 3761.

There is no merit in plaintiff's contention

that the tax should be prorated among them

and paid individually, resulting in their

exemption from the tax.

In view of the foregoing, the appealed

decision is affirmed, with the costs of this

instance to the plaintiffs appellants. So

ordered.

G.R. Nos. L-24020-21           July 29, 1968

FLORENCIO REYES and ANGEL

REYES, petitioners, 

vs.

COMMISSIONER OF INTERNAL

REVENUE and HON. COURT OF TAX

APPEALS, respondents.

Jose W. Diokno and Domingo Sandoval for

petitioners.

Office of the Solicitor General for

respondents.

FERNANDO, J.:

Petitioners in this case were assessed by

respondent Commissioner of Internal

Revenue the sum of P46,647.00 as income

tax, surcharge and compromise for the years

1951 to 1954, an assessment subsequently

reduced to P37,528.00. This assessment

sought to be reconsidered unsuccessfully

was the subject of an appeal to respondent

Court of Tax Appeals. Thereafter, another

assessment was made against petitioners,

this time for back income taxes plus

surcharge and compromise in the total sum

of P25,973.75, covering the years 1955 and

1956. There being a failure on their part to

have such assessments reconsidered, the

matter was likewise taken to the respondent

Court of Tax Appeals. The two

cases1 involving as they did identical issues

and ultimately traceable to facts similar in

character were heard jointly with only one

decision being rendered.

In that joint decision of respondent Court of

Tax Appeals, the tax liability for the years

1951 to 1954 was reduced to P37,128.00

and for the years 1955 and 1956, to

P20,619.00 as income tax due "from the

partnership formed" by petitioners.2 The

reduction was due to the elimination of

surcharge, the failure to file the income tax

[ ] PARTNERSHIP

return being accepted as due to petitioners

honest belief that no such liability was

incurred as well as the compromise penalties

for such failure to file.3 A reconsideration of

the aforesaid decision was sought and

denied by respondent Court of Tax Appeals.

Hence this petition for review.

The facts as found by respondent Court of

Tax Appeals, which being supported by

substantial evidence, must be

respected4 follow: "On October 31, 1950,

petitioners, father and son, purchased a lot

and building, known as the Gibbs Building,

situated at 671 Dasmariñas Street, Manila,

for P835,000.00, of which they paid the sum

of P375,000.00, leaving a balance of

P460,000.00, representing the mortgage

obligation of the vendors with the China

Banking Corporation, which mortgage

obligations were assumed by the vendees.

The initial payment of P375,000.00 was

shared equally by petitioners. At the time of

the purchase, the building was leased to

various tenants, whose rights under the lease

contracts with the original owners, the

purchasers, petitioners herein, agreed to

respect. The administration of the building

was entrusted to an administrator who

collected the rents; kept its books and

records and rendered statements of accounts

to the owners; negotiated leases; made

necessary repairs and disbursed payments,

whenever necessary, after approval by the

owners; and performed such other functions

necessary for the conservation and

preservation of the building. Petitioners

divided equally the income of operation and

maintenance. The gross income from rentals

of the building amounted to about

P90,000.00 annually."5

From the above facts, the respondent Court

of Tax Appeals applying the appropriate

provisions of the National Internal Revenue

Code, the first of which imposes an income

tax on corporations "organized in, or

existing under the laws of the Philippines,

no matter how created or organized but not

including duly registered general co-

partnerships (companias colectivas), ...,"6 a

term, which according to the second

provision cited, includes partnerships "no

matter how created or organized, ...,"7 and

applying the leading case of Evangelista v.

Collector of Internal Revenue,8 sustained

the action of respondent Commissioner of

Internal Revenue, but reduced the tax

liability of petitioners, as previously noted.

Petitioners maintain the view that the

Evangelista ruling does not apply; for them,

the situation is

dissimilar.1äwphï1.ñëtConsequently they

allege that the reliance by respondent Court

of Tax Appeals was unwarranted and the

decision should be set aside. If their

interpretation of the authoritative doctrine

therein set forth commands assent, then

clearly what respondent Court of Tax

[ ] PARTNERSHIP

Appeals did fails to find shelter in the law.

That is the crux of the matter. A perusal of

the Evangelista decision is therefore

unavoidable.

As noted in the opinion of the Court, penned

by the present Chief Justice, the issue was

whether petitioners are subject to the tax on

corporations provided for in section 24 of

Commonwealth Act No. 466, otherwise

known as the National Internal Revenue

Code, ..."9 After referring to another section

of the National Internal Revenue Code,

which explicitly provides that the term

corporation "includes partnerships" and then

to Article 1767 of the Civil Code of the

Philippines, defining what a contract of

partnership is, the opinion goes on to state

that "the essential elements of a partnership

are two, namely: (a) an agreement to

contribute money, property or industry to a

common fund; and (b) intent to divide the

profits among the contracting parties. The

first element is undoubtedly present in the

case at bar, for, admittedly, petitioners have

agreed to and did, contribute money and

property to a common fund. Hence, the issue

narrows down to their intent in acting as

they did. Upon consideration of all the facts

and circumstances surrounding the case, we

are fully satisfied that their purpose was to

engage in real estate transactions for

monetary gain and then divide the same

among themselves, ..."10

In support of the above conclusion,

reference was made to the following

circumstances, namely, the common fund

being created purposely not something

already found in existence, the investment of

the same not merely in one transaction but in

a series of transactions; the lots thus

acquired not being devoted to residential

purposes or to other personal uses of

petitioners in that case; such properties

having been under the management of one

person with full power to lease, to collect

rents, to issue receipts, to bring suits, to sign

letters and contracts and to endorse notes

and checks; the above conditions having

existed for more than 10 years since the

acquisition of the above properties; and no

testimony having been introduced as to the

purpose "in creating the set up already

adverted to, or on the causes for its

continued existence."11 The conclusion that

emerged had all the imprint of inevitability.

Thus: "Although, taken singly, they might

not suffice to establish the intent necessary

to constitute a partnership, the collective

effect of these circumstances is such as to

leave no room for doubt on the existence of

said intent in petitioners herein."12

It may be said that there could be a

differentiation made between the

circumstances above detailed and those

existing in the present case. It does not

suffice though to preclude the applicability

of the Evangelista decision. Petitioners

[ ] PARTNERSHIP

could harp on these being only one

transaction. They could stress that an

affidavit of one of them found in the Bureau

of Internal Revenue records would indicate

that their intention was to house in the

building acquired by them the respective

enterprises, coupled with a plan of effecting

a division in 10 years. It is a little surprising

then that while the purchase was made on

October 31, 1950 and their brief as

petitioners filed on October 20, 1965, almost

15 years later, there was no allegation that

such division as between them was in fact

made. Moreover, the facts as found and as

submitted in the brief made clear that the

building in question continued to be leased

by other parties with petitioners dividing

"equally the income ... after deducting the

expenses of operation and

maintenance ..."13 Differences of such

slight significance do not call for a different

ruling.

It is obvious that petitioners' effort to avoid

the controlling force of the Evangelista

ruling cannot be deemed successful.

Respondent Court of Tax Appeals acted

correctly. It yielded to the command of an

authoritative decision; it recognized its

binding character. There is clearly no merit

to the second error assigned by petitioners,

who would deny its applicability to their

situation.

The first alleged error committed by

respondent Court of Tax Appeals in holding

that petitioners, in acquiring the Gibbs

Building, established a partnership subject

to income tax as a corporation under the

National Internal Revenue Code is likewise

untenable. In their discussion in their brief

of this alleged error, stress is laid on their

being co-owners and not partners. Such an

allegation was likewise made in the

Evangelista case.

This is the way it was disposed of in the

opinion of the present Chief Justice: "This

pretense was correctly rejected by the Court

of Tax Appeals."14 Then came the

explanation why: "To begin with, the tax in

question is one imposed upon

"corporations", which, strictly speaking, are

distinct and different from "partnerships".

When our Internal Revenue Code includes

"partnerships" among the entities subject to

the tax on "corporations", said Code must

allude, therefore, to organizations which

are not necessarily "partnerships", in the

technical sense of the term. Thus, for

instance, section 24 of said

Code exempts from the aforementioned tax

"duly registered general partnerships",

which constitute precisely one of the most

typical forms of partnerships in this

jurisdiction. Likewise, as defined in section

84(b) of said Code, "the term corporation

includes partnerships, no matter how created

or organized." This qualifying expression

[ ] PARTNERSHIP

clearly indicates that a joint venture need not

be undertaken in any of the standard forms,

or in conformity with the usual requirements

of the law on partnerships, in order that one

could be deemed constituted for purposes of

the tax on corporations. Again, pursuant to

said section 84(b), the term "corporation"

includes, among others, "joint accounts,

(cuentas en participacion)" and

"associations", none of which has a legal

personality of its own, independent of that of

its members. Accordingly, the lawmaker

could not have regarded that personality as a

condition essential to the existence of the

partnerships therein referred to. In fact, as

above stated, "duly registered general

copartnerships" — which are possessed of

the aforementioned personality - have been

expressly excluded by law (sections 24 and

84[b]) from the connotation of the term

"corporation"."15 The opinion went on to

summarize the matter aptly: "For purposes

of the tax on corporations, our National

Internal Revenue Code, include these

partnerships — with the exception only of

duly registered general co-partnerships

within the purview of the term

"corporation." It is, therefore, clear to our

mind that petitioners herein constitute a

partnership, insofar as said Code is

concerned, and are subject to the income tax

for corporations."16

In the light of the above, it cannot be said

that the respondent Court of Tax Appeals

decided the matter incorrectly. There is no

warrant for the assertion that it failed to

apply the settled law to uncontroverted facts.

Its decision cannot be successfully assailed.

Moreover, an observation made in Alhambra

Cigar & Cigarette Manufacturing Co. v.

Commissioner of Internal Revenue,17 is

well-worth recalling. Thus: "Nor as a matter

of principle is it advisable for this Court to

set aside the conclusion reached by an

agency such as the Court of Tax Appeals

which is, by the very nature of its functions,

dedicated exclusively to the study and

consideration of tax problems and has

necessarily developed an expertise on the

subject, unless, as did not happen here, there

has been an abuse or improvident exercise

of its authority."

WHEREFORE, the decision of the

respondent Court of Tax Appeals ordering

petitioners "to pay the sums of P37,128.00

as income tax due from the partnership

formed by herein petitioners for the years

1951 to 1954 and P20,619.00 for the years

1955 and 1956 within thirty days from the

date this decision becomes final, plus the

corresponding surcharge and interest in case

of delinquency," is affirmed. With costs

against petitioners.

[ ] PARTNERSHIP

G.R. Nos. L-11483-11484             February

14, 1958

In the matter of the Testate Estate of the

deceased Edward E. Christensen, ADOLFO

CRUZ AZNAR,petitioner.

MARIA LUCY CHRISTENSEN DANEY

and ADOLFO CRUZ AZNAR, petitioners-

appellants, 

vs.

MARIA HELEN CHRISTENSEN GARCIA

and BERNARDA

CAMPOREDONDO, oppositors-appellees.

BERNARDA

CAMPOREDONDO, plaintiff-appellee, 

vs.

ADOLFO CRUZ AZNAR, as Executor of

the Deceased EDWARD E.

CHRISTENSEN, defendant-appellant.

M. R. Sotelo for appellants.

Leopoldo M. abellera and Amado A. Munda

for appellee Maria Heliuen Christensen

Garcia.

Pedro P. Suarez and Oscar Breva for

appellee Bernarda Camporedondo.

FELIX, J.:

From the records of the above-entitled cases,

it appears that as of 1913,Edward E.

Christensen, an American citizen, was

already residing in Davao and on the

following year became the manager of

Mindanao Estates located in the

municipality of Padada of the same

province. At a certain time, which the lower

court placed at 1917, a group of laborers

recruited from Argao, Cebu, arrived to work

in the said plantation. Among the group was

a young girl,Bernarda Camporendondo, who

became an assistant to the cook. Thereafter,

thegirl and Edward E. Christensen, who was

also unmarried staring living together as

husband and wife and although the records

failed to establishthe exact date when such

relationship commenced, the lower court

found the same to have been continous for

over 30 years until the death of Christensen

occurecd on April 30, 1953. Out of said

relations, 2 children, Lucy and Helen

Christensen, were allegedly born.

G. R. NO. L-11484.

Upon the demise of the American, who had

left a considerable amount of properties his

will naming Adolfo Cruz Aznar as executor

was duly presented for probate in court and

became the subject of Special Proceedings

No. 622 of the Court of First Instance of

Davao. Said will contains, among others, the

following provisions:

xxx             xxx             xxx.

[ ] PARTNERSHIP

3. I declare . . . that I have but one (1) child,

named MARIA LUCY CHRISTENSEN

(now Mrs. Bernard Daney), who was born in

the Philippines about twenty-eight years

ago, and who is now residing at No. 665

Rodger Young Village, Los Angeles,

California, U.S.A.

4. I further declare that I have no living

ascendants, andno descendantsexcept my

above named daughter, MARIA LUCY

CHRISTENSEN DANEY.

xxx             xxx             xxx.

7. I give, devise and bequeath unto MARIA

LUCY CHRISTENSEN, now married

toEduardo Garcia, about eighteen years of

age and who, notwithstanding the factthat

she was baptized Christensen, is not in any

way related to me, nor hasshe been at any

time adopted to me, and who, from all

information I have now resides in Egipt,

Digos, Davao, Philippines, the sum of

THREEE THOUSAND SIXHUNDRED

PESOS (P3,600) Philippine Currency, the

same to be deposited in trustfor said Maria

Lucy Christensen with the Davao Branch of

the PhilippineNational Bank, and paid to her

at the rate of One Hundred Pesos (P100),

Philippine Currency per month until the the

principal thereof as well as any interest

which may have accrued thereon, is

exhausted.

8. I give devise and bequeath unto

BERNARDA CAMPORENDONDO, now

residing inPadada, Davao, Philippines, the

sum of One Thousand Pesos (P1,000),

Philippine Currency.

xxx             xxx             xxx.

12. I hereby give, devise and bequeath, unto

my well-beloved daughter, the said MARIA

Lucy CHRISTENSEN DANEY (Mrs.

Bernard Daney), now residing as aforesaid

at No. 665 Rodger Young Village Los

Angeles, California, U.S.A., all the income

from the rest, remainder, and residue of my

property and estate, real, personal and/or

mixed, of whatsoever kind or character,

andwheresover situated; of which I may be

possessed at any death and which mayhave

come to me from any source whatsoever,

during her lifetime,Provided, honvever, that

should the said MARIA LUCY

CHRISTENSEN DANEY at any time prior

to her decease having living issue, then, and

in that event, the life interest herein given

shall terminate, and if so terminated, then I

give, devise, and bequeath to my said

daughter, the said MARIA LUCY

CHRISTENSEN DANEY, the rest

remainder and residue of my property, with

the same force and effectas if I had

originally so given, devised and

bequeathedit to her; and provided, further,

that should be said Maria Lucy

ChristensenDaney die without living issue

[ ] PARTNERSHIP

then, and in that event, I give, devise and

bequeath all the rest, remainder and residue

of my property, one-half (1/2) to my well-

beloved sister, Mrs. CARRIE LOIUSE C.

BORTON, now residing at No. 2124

Twentieth Street, Bakersfield, California,

U.S.A. and one-half (1/2) to the children of

my deceased brother, JOSEPH C.

CRISTENSEN, . . .

13. I hereby nominate and appoint Mr

Adolfo Cruz Aznar, of Davao City,

Philippines, my executor, and the executor

of this, my last will and testament.

. . . (Exh. A).

Oppositions to the probate of this will were

separately filed by Maria Helen Christensen

Garcia and Bernarda Camporendondo, the

first contending that thewill lacked the

formalities required by law; that granting

that he had, thedispositions made therein

were illegal because although she and Lucy

Christensen were both children had by the

deceased with Bernarda Camporendondo,

yet she was given only a meager sum of

P3,600 out of an estate valued at $485,000

while Lucy would get the rest of the

properties;and that the petitioner Adolfo

Cruz Aznar was not qualified to be

appointed as administrator of the estate

because he had an interest adverse to thatof

the estate. It was therefore prayed by his

oppositor that the application for probate be

denied and the will disallowed; that the

proceeding be declared intestate and that

another disinterested person be appointed as

administrator.

Bernarda Camporedondo, on the other hand,

claimed ownership over one-halfof the

entire estate in virtue of her relationship

with the deceased, it being alleged that she

and the testator having lived together as

husband andwife continuously for a period

of over 30 years, the properties acquired

during such cohabitation should be governed

by the rules on co-ownership. This

opposition was dismissed by the probate

court on the ground that shehad no right to

intervene in said proceeding, for as such

common-law wife she had no successional

right that might be affected by the probate of

thewill, and likewise, she could not be

allowed to establish her title and co-

ownership over the properties therein for

such questions must be ventilated in a court

of general jurisdiction. In view of this ruling

of the Court and in order to attain the

purpose sought by her overruled opposition

Bernarda Camporedondo had to institute, as

she did institute Civil Case No. 1076 of the

Court of First Instance of Davao (G.R. No.

L-11483) which we will consider and

discuss hereinafter.

In the meantime, Adolfo Cruz Aznar was

appointed special adminsitrator of the estate

after filing a bond for P5,000 pending the

[ ] PARTNERSHIP

appointment of a regular one, and letters of

special administrition were correspondingly

issued to him on May 21, 1953.

The records further show that subsequent to

her original opposition. Helen Christensen

Garcia filed a supplemental opposition and

motion to declare her an acknowledged

natural child of Edward E. Christensen,

alleging that shewas conceived during the

time when her mother Bernarda

Camporendondo was living with the

deceased as his common-law wife; that she

had been in continous possession of the

status of a natural child of the deceased;

thatahe had in her favor evidence and/or

proof that Edward Christensen was her

father; and that she and Lucy had the same

civil status as children of the decedent and

Bernarda Camporedondo. This motion was

opposed jointly by the executor and Maria

Lucy Christensen Daney asserting that

before, during and after the conception and

birth of Helen Christensen Garcia, her

mother was generally known to be carrying

relations with 3 different men; that during

the lifetime of the decedent and even years

before his death, Edward Christensen

verbally as well as in writing disavowed

relationship with said oppositor; that

oppositor appropriated and used the surname

Christensen illegally and without permission

from the deceased. Thus they prayed the

Court that the will be allowed; that Maria

Helen Christensen Garcia be declared not in

any way related to the deceased; and that the

motion of said oppositor be denied.

After due hearing, the lower court in a

decision dated February 28, 1953, found that

oppositor Maria Helen Cristensen had been

in continous possession of the status of a

natural child of the deceased Edward

Christensen notwithstanding the fact that she

was disowned by him in his will, for such

action must have been brought about by the

latter's disaproval of said oppositor's

marriage to a man he did not like. But taking

into considerationthat such possession of the

status of a natural child did not itself

constitute acknowledgment but may only be

availed of to compel acknowledgment, the

lower Court directed Maria Lucy

Christensen Daney toacknowledge the

oppositor as a natural child of Edward E.

Christensen. Thewill was, however, allowed

the letters testamentary consequently issued

toAdolfo Cruz Aznar, the executor named

therein. From the portion of the decision

requiring Lucy Christensen to acknowledge

Helen as a natural child of the testator, the

former and the executor interposed an

appeal to the Court of Appeals (CA-G. R.

No. 13421-R), but the appellate tribunal

elevatedthe same to Us on the ground that

the case involves an estate the value of

which far exceeds P50,000.00 and thus falls

within the exclusive appellate jurisdiction of

this Court pursuant to Section 17 (5),

Republic Act No. 296.

[ ] PARTNERSHIP

The principal issue in this litigation is

whether the lower court erred in finding that

the oppositor Maria Helen Christensen

Garcia had been in continous possession of

the status of a natural child of the deceased

EdwardE. Christensen and in directing

Maria Lucy Christensen Daney,

recognizeddaughter and instituted heirs of

the decedent, to acknowledge the former

assuch natural child.

Maria Lucy Christensen was born on April

25, 1922, and Maria Helen Christensen on

July 2, 1934, of the same mother, Bernarda

Camporedondo, during the period when the

latter was publicly known to have been

living as common-law wife of Edward E.

Chrisiensen. From the facts of the case there

can be no question as to Lucy's parentage,

but controversy arose when Edward

Christensen, in making his last will and

testament, disavowed such paternity to

Helen and gave her only a legacy of P3,600.

ln the course of the proceeding for the

probate of the will (Exh, A), Helen

introduced documentary and testimonial

evidence to support her claim that she,

Lucy,was a natural child of the deceased

and, therefore, entitled to the hereditaryshare

corresponding to such descendant. Several

witness testified in herfavor, including the

mother Bernarda Camporendondo, her

former teachers andother residents of the

community, tending to prove that she was

known in the locality as a child of the

testator and was introduced by the latter to

the circle of his friends and acquaintances as

his daughter. Family portraits, greeting cards

and letters were likewise presented to bolster

herassertion that she had always been treated

by the deceased and by Lucy herself as a

member of the family.

Lucy Christensen and Adolfo Cruz Aznar,

as executor, tried to repudiate herclaim by

introducing evidence to prove that on or

about the period when shewas conceived

and born, her mother was carrying an affair

with another man,Zosimo Silva, a former

laborer in her Paligue plantation. Silva

executed an affidavit and even took the

witness stand to testify to this effect.

Appellants also strived to show that the

defendant's solicitations for Helen's welfare

and the help extended to her merely sprang

out generosity and hammered on the fact

that on several occasions, the deceased

disclaimed any relationship with her (Exh.

O-Daney, Exh. Q-Daney, Exh. Z-Daney,

Exh. 8-Helen).

Going over the evidence adduced during the

trial, it appears indubitable that on or about

the period when Helen was born, Bernarda

Camporendondo had established residence

at her plantation at Paligue, Davao, and that

although Edward Christensen stayed in

Davao City to manage his merchandising

business, he spent the weekends with the

former and their child Lucy in the

[ ] PARTNERSHIP

Christensenplantation. Even granting that

Zosimo Silva at his stage fitted himself

intothe picture, it cannot be denied that

Helen's mother and the deceased

weregenerally and publicly known to be

living together as husband and wife.

Thismust have been the reason why

Christensen from Helen's birth in 1934

providedfor her maintenance; shouldered the

expenses for her education to the extentthat

she was even enrolled as an intern in an

exclusive college for girls inManila;

tolerated or allowed her carrying the

surname "Christensen", and ineffect gaver

her the attention and care that a father would

only do to this offspring. We should take

note that nothing appears on record to show

thatChristensen ever entertained any doubt

or disputed Helen's paternity.

Hisrepudations of her relationship with him

came about only after he andBernarda

Comperodondo parted ways in March, 1950,

and apparently after Helentook sides with

her mother. Furthermore, it seems that

despite that decedent's desire that she

continue her studies, Helen ignored the same

andgot married to a man for Christensen

held no high esteem. We may state at

hisjuncture that while it is true that herein

appellants introduced witnesses todisprove

oppositor'r claim, the lower Court that had

the opportunity to observe the conduct of the

witnesses while testifying and could better

gaugetheir credibility and impartiality in the

case, arrived at the conclusion that Maria

Helen Christensen had established that she

had been in continouspossessions of the

status of a natural child of the deceased.

Considering the preponderant evidence on

record, We see no reason to reverse said

ruling.The testator' lastacts cannot be made

the criterion in determining whether

oppositor was his child or not, for human

frailty and parental arrogance maydraw a

person to adopt unnatural or harsh measures

against an erring child orone who displeases

just so the weight of his authority could be

felt. In theconsideration of a claim that one

is a natural child, the attitude or directacts of

the person against whom such action is

directed or that of his family before the

controversy arose or during his lifetime if he

predeceases the claimant, and not a single

opportunity or an isolated occasions but as a

whole, must be taken into account. The

possession of such status is one of the cases

that gives rise to the right, in favor of the

child, of coumpulsaryrecognition. (Art. 283,

Civil Code).

The lower Court, however, after making its

finding directed Maria Lucy Christensen

Daney, an heir of the decedent, to recognize

oppositor as a natural child of the deceased.

This seems improper. The Civil Code for 2

kinds of acknowledgement of a natural

child: voluntary and compulsory. In the first

instance, which may be effected in the

record of birth, a will, a statement before a

[ ] PARTNERSHIP

court of record or in an authentic writing

(Art. 278,Civil Code), court intervention is

very nil and not altogether wanting, whereas

in the second, judicial pronouncement is

essential, and while it is true that the effect

of a voluntary and a compulsory

acknowledgment onthe right of the child so

recognized is the same, to maintain the view

of thelower Court would eliminate the

distinction between voluntary acts and those

brought about by judicial dicta. And if We

consider that in the case, where, the

presumed parent dies ahead of the child and

action for compulsory recogniton is brought

against the heirs of the deceased, as in the

instant case, the situation would take absurd

turn, for the heirs would be compelled to

recognize such child as a natural child of the

deceased without a properprovision of the

law, for as it now stands, the Civil Code

only requires a declaration by the court of

the child's status as a natural child of the

parent who, if living, would be compelled to

recognize his offspring as such.Therefore,

We hold that in cases of compulsory

recognition, as in the case at bar, it would be

sufficient that a competent court, after

taking into account all the evidence on

record, would declare that under any of the

circumstances specified by Article 283 of

the Civil Code, a child has acquired the

status of a natural child of the presumptive

parent and as such is entitled to all rights

granted it by law, for such declaration is by

itself already a judicial recognition of the

paternity of the parent concerned which is

her against whom the action is directed, are

bound to respect.

G.R. No. L-11483

Coming now to Civil Case No. 1076 of the

Court of First Instance of Davao, Bernarda

Camporendondo claimed in her complaint

1/2 of the properties of thedeceased as co-

owner thereof in virtue of her relations with

the deceased. She alleged as basis for action

that she and the deceased Edward E.

Christensen had lived and cohabitated as

husband and wife, continously and openly

for a period for more than 30 years; that

within said period, plaintiff and the deceased

acquired real and personal properties

through their common effort and industry;

and that in virtue of such relationship, she

was a co-owner of said properties. As the

executor refused to account forand deliver

the share allegedly belonging to her despite

her repeated demands, she prayed the court

that said executor be ordered to submit an

inventory and render an accounting of the

entire estate of the deceased;to divide the

same into 2 equal parts and declare that one

of them lawfully belonged to plaintiff; and

for such other reliefs as may be deemed just

and equitable in the premises. In his answer,

the executor denied the avermentsof the

complaint, contending that the decedent was

the sole owner of the properties left by him

[ ] PARTNERSHIP

as they were acquired through his own

efforts; thatplaintiff had never been a co-

owner of any property acquired or possessed

by the late Edward christensen during his

lifetime; that the personal relationship

between plaintiff and the deceased was

purely clandestinebecause the former

habitually lived in her plantation at Paligue,

Davao, from the time she acquired the same

in 1928; that she also maintained relations

with 2 other men; and that the claim of

plaintiff would violate the provisions of

Article 2253 of the Civil Code as the vested

rights of the compulsory heirs of the

deceased would be impaired. Defendant thus

prayed for the dismissal of the complaint

and as counterclaim demanded the sum

ofP70.000.00 representing actual, moral and

exemplary damages.

Due hearing was conducted thereon and

after the parties ad submitted theirrespective

memoranda, the lower Court on August 25,

1954, rendered judgmentfinding that the

deceased Edward Christensen and Bernarda

Camporendondo,not otherwise suffering

from any impediment to contract marriage,

lived together as husband and wife without

marital ties continously for over 30years

until the former's death in 1953; that out of

such relations 2 childrenwere born; and that

the properties in controversy were acquired

by either orboth of them through their work

or industry. Relying on Section 144 of

theCivil Code which said court considered

to have created another mode ofacquiring

ownership, plaintiff was held to be entitled

to one-half of saidproperties as co-owner

thereof in view of her relationship with the

deceasedand ordered the executor to account

for and deliver the same by her. Fromthis

decision, defendant Aznar, as Executor of

the will, perfected an appealto the Court of

Appeals, but as the property involved in the

litigation exceeds P50,000.00 said tribunal

elevated the case to Us for consideration.

It is not controverted that at the time of his

death, Edward Christensen was the owner of

certain properties, including shares of stock

in the plantation bearing his name and a

general merchandising store in Davao City.

It is also undeniable that the deceased and

appellee, both capacitated to enter into the

married state, maintained relations as

husband and wife, continuously and publicly

for a considerable number of years which

the lower Court declared to be until the

death of Christensen in 1953. While as a

general rule appellate courts do not usually

disturb the lower court's findings of fact,

unless said finding is not supported by or

totally devoid of or inconsistent with the

evidence on record, such finding must

ofnecessity be modified to confrom with the

evidence if the reviewing tribunalwere to

arrive at the proper and just solution of the

controversy. In theinstant case, the court a

quo overlooked or failed to consider the

testimonies of both Lucy and Helen

[ ] PARTNERSHIP

Christensen to the effect that the deceased

and their mother Bernarda Camporendondo

had some sort of quarrel or

misunderstanding and parted ways as of

March, 1950, a fact which appelleewas not

able to overcome. Taking into account the

circumstances of this caseas found by the

trial court, with the modification that the

cohabitation should appear as continuous

from the early 20's until March, 1950, the

question left for our determination is

whether Bernarda Camporedondo, byreason

of such relationship, may be considered as a

co-owner of the properties acquired by the

deceased during said period and thus

entitledto one-half thereof after the latter's

death.

Presumably taking judicial notice of the

existence in our society of a certain kind of

relationship brought about by couples living

together as husbands and wives without the

benefit of marriage, acquiring and

bringingproperties unto said union, and

probably realizing that while same may not

beacceptable from the moral point of view

they are as much entitled to theprotection of

the laws as any other property owners, the

lawmakersincorporated Article 144 in

Republic Act No. 386 (Civil Code of the

Philippines) to govern their property

relations. Said article read as follows:

ART. 114. When a man and a woman live

together as husband and wife, but they are

not married, or their marriage is void from

the beginning, the property acquired by

either or both of them through their work or

industry or their wages and salaries shall be

governed by the rules of co-ownership.

It must be noted that such form of co-

ownership requires that the man and the

woman thus living together must not in any

way be incapacitated to contract marriage

and that the properties realized during their

cohabitation be acquired through the work,

industry, employment or occupation of both

or either of them. And the same thing may

be said of whose marriages are by provision

of law declared void ab intio. While it is true

that these requisites are fully met and

satisfied in the case at bar, We must

remember that the deceased and herein

appellee were already estranged as of

March, 1950. There being no provision of

law governing the cessation of such informal

civil partnership, if ever existed, same may

be considered terminated upon their

separation or desistance to continue said

relations.The Spanish Civil Code which was

then enforce contains to counterpart of

Article 144 and as the records in the instant

case failed to show show thata subsequent

reconciliation ever took place and

considering that Republic ActNo. 386 which

recognizeed such form of co-ownership

went into operation onlyon August 30, 1950,

evidently, this later enactment cannot be

invoked as basis for appellee's claim.

[ ] PARTNERSHIP

In determining the question poised by this

action We may look upon the jurisprudence

then obtaining on the matter. As early as

1925, this Court already declared that where

a man and a woman, not suffering from any

impediment to contract marriage, live

together as husband and wife, an informal

civil partnership exists and made the

pronouncement that each of them has an

intereat in the properties acquired during

said union and is entitled to participate

therein if said properties were the product

oftheir JOINT efforts (Marata vs. Dionio

G.R. No. 24449, Dec. 31, 1925). In another

case, this Court similarly held that although

there is no technical marital partnership

between person living maritally without

being lawfully married, nevertheless there is

between them an informalcivil partnership,

and the parties would be entitled to an equal

interest where the property is acquired

through their JOINT efforts (Lesaca vs.

FelixVda. de Lesaca, 91 Phil., 135).

Appellee, claiming that the properties in

controversy were the product of their joint

industry apparently in her desire to tread on

the doctrine laiddown in the aforementioned

cases, would lead Us to believe that her help

wassolicited or she took a hand in the

management of and/or acquisition of

thesame. But such assertion appears

incredible if We consider that she

wasobserved by the trial Court as an

illiterate woman who cannot even

remembersimple things as the date when she

arrived at the Mindanao Estate, when

shecommenced relationship with the

deceased, not even her approximate age

orthat of her children. And considering that

aside from her own declaration, which We

find to be highly improbable, there appears

no evidence to proveher alleged contribution

or participation in the acquisition of the

properties involved therein, and that in view

of the holding of this Courtthat for a claim

to one-half of such property to be allowed it

must be provedthat the same was acquired

through their joint efforts and labor (Flores

vs.Rehabilitation Finance Corporation, * 50

Off. Gaz. 1029), We have no recoursebut

reverse the holding of the lower Court and

deny the claim of BernardaCampredondo.

We may further state that even granting, for

the sake ofargument, that this case falls

under the provisions of Article 144 of

theCivil Code, same would be applicable

only as far as properties acquiredafter the

effectivity of Republic Act 386 are

concerned and to no other, forsuch law

cannot be given retroactive effect to govern

those already possessedbefore August 30,

1950. It may be argued, however, that being

a newly created right, the provisions of

Section 144 should be made to retroact if

only toenforce such right. Article 2252 of

the same Code is explicit in thisrespect

when it states:

[ ] PARTNERSHIP

SEC. 2252. Changes made and new

provisions and rules laid down by this Code

which may prejudice or impair vested or

acquired rights in accordance with the old

legislation, shall have ro retroactive effect.

xxx             xxx             xxx.

As it cannot be denied that the rights and

legitimes of the compulsory heirsof the

deceased Edward Christensen would be

impaired or diminished if the claim of herein

appellee would succeed, the answer to such

argument wouldbe simply obvious.

With regard to appellant Aznar's contention

that the lower Court erred in admitting the

testimony of appellee Bernarda

Camporedondo dealing with facts that

transpired before the death of Edward

Christensen on the ground that it is

prohibited by Section 26-(c), Rule 123 of the

Rules of Court. We deem it unnecessary to

delve on the same because even admitting

that the court a quo committed the error

assigned, yet it will not affect anymore the

outcome of the case in view of the

conclusion We have already arrived at on

the main issue.

On the strength of the foregoing

considerations, We affirm the decision of

the lower Court in case G.R. No. L-11484,

with the modification that MariaLucy

Christensen Daney need not be compelled to

acknowledge her sister Maria Helen

Christensen Garcia as a natural child of her

father Edward E. Christensen, the

declaration of the Court in this respect being

sufficient to enable her to all the rights

inherent to such status.

The decision appealed from in case G.R. No.

L-11483 is hereby reversed and another one

rendered, dismissing plaintiff's complaint.

Costs are taxed against appellants in G.R.

No. L-11484 and against appellee Bernarda

Camporedondo in G.R. No. L-11483. It is so

ordered.

EN BANC

G.R. No. L-2484  April 11, 1906

JOHN FORTIS,Plaintiff-Appellee,

vs. GUTIERREZ HERMANOS,Defendants-

Appellants.

Hartigan, Rohde and Gutierrez, for

appellants.

W. A. Kincaid, for appellee.

WILLARD, J.:

[ ] PARTNERSHIP

Plaintiff, an employee of defendants during

the years 1900, 1901, and 1902, brought this

action to recover a balance due him as salary

for the year 1902. He alleged that he was

entitled, as salary, to 5 per cent of the net

profits of the business of the defendants for

said year. The complaint also contained a

cause of action for the sum of 600 pesos,

money expended by plaintiff for the

defendants during the year 1903. The court

below, in its judgment, found that the

contract had been made as claimed by the

plaintiff; that 5 per cent of the net profits of

the business for the year 1902 amounted to

26,378.68 pesos, Mexican currency; that the

plaintiff had received on account of such

salary 12,811.75 pesos, Mexican currency,

and ordered judgment against the defendants

for the sum 13,566.93 pesos, Mexican

currency, with interest thereon from

December 31, 1904. The court also ordered

judgment against the defendants for the 600

pesos mentioned in the complaint, and

intereat thereon. The total judgment

rendered against the defendants in favor of

the plaintiff, reduced to Philippine currency,

amounted to P13,025.40. The defendants

moved for a new trial, which was denied,

and they have brought the case here by bill

of

exceptions.chanroblesvirtualawlibrary chanr

obles virtual law library

(1) The evidence is sufifcient to support the

finding of the court below to the effect that

the plaintiff worked for the defendants

during the year 1902 under a contract by

which he was to receive as compensation 5

per cent of the net profits of the business.

The contract was made on the part of the

defendants by Miguel Alonzo Gutierrez. By

the provisions of the articles of partnership

he was made one of the managers of the

company, with full power to transact all of

the business thereof. As such manager he

had authority to make a contract of

employment with the

plaintiff.chanroblesvirtualawlibrary chanrobl

es virtual law library

(2) Before answering in the court below, the

defendants presented a motion that the

complaint be made more definite and

certain. This motion was denied. To the

order denying it the defendants excepted,

and they have assigned as error such ruling

of the court below. There is nothing in the

record to show that the defendants were in

any way prejudiced by this ruling of the

court below. If it were error it was error

without prejudice, and not ground for

reversal. (Sec. 503, Code of Civil

Procedure.)chanrobles virtual law library

(3) It is claimed by the appellants that the

contract alleged in the complaint made the

plaintiff a copartner of the defendants in the

business which they were carrying on. This

contention can not bo sustained. It was a

mere contract of employnent. The plaintiff

[ ] PARTNERSHIP

had no voice nor vote in the management of

the affairs of the company. The fact that the

compensation received by him was to be

determined with reference to the profits

made by the defendants in their business did

not in any sense make by a partner therein.

The articles of partnership between the

defendants provided that the profits should

be divided among the partners named in a

certain proportion. The contract made

between the plaintiff and the then manager

of the defendant partnership did not in any

way vary or modify this provision of the

articles of partnership. The profits of the

business could not be determined until all of

the expenses had been paid. A part of the

expenses to be paid for the year 1902 was

the salary of the plaintiff. That salary had to

be deducted before the net profits of the

business, which were to be divided among

the partners, could be ascertained. It was

undoubtedly necessary in order to determine

what the salary of the plaintiff was, to

determine what the profits of the business

were, after paying all of the expenses except

his, but that determination was not the final

determination of the net profits of the

business. It was made for the purpose of

fixing the basis upon which his

compensation should be

determined.chanroblesvirtualawlibrary chanr

obles virtual law library

(4) It was no necessary that the contract

between the plaintiff and the defendants

should be made in writing. (Thunga Chui vs.

Que Bentec, 1 1 Off. Gaz., 818, October 8,

1903.)chanrobles virtual law library

(5) It appearred that Miguel Alonzo

Gutierrez, with whom the plaintiff had made

the contract, had died prior to the trial of the

action, and the defendants claim that by

reasons of the provisions of section 383,

paragraph 7, of the Code of Civil Procedure,

plaintiff could not be a witness at the trial.

That paragraph provides that parties to an

action against an executor or aministrator

upon a claim or demand against the estate of

a deceased person can not testify as to any

matter of fact occurring before the death of

such deceased person. This action was not

brought against the administrator of Miguel

Alonzo, nor was it brought upon a claim

against his estate. It was brought against a

partnership which was in existence at the

time of the trial of the action, and which was

juridical person. The fact that Miguel

Alonzo had been a partner in this company,

and that his interest therein might be

affected by the result of this suit, is not

sufficient to bring the case within the

provisions of the section above

cited.chanroblesvirtualawlibrary chanrobles

virtual law library

(6) The plaintiff was allowed to testify

against the objection and exception of the

defendants, that he had been paid as salary

for the year 1900 a part of the profits of the

[ ] PARTNERSHIP

business. This evidence was competent for

the purpose of corroborating the testimony

of the plaintiff as to the existence of the

contract set out in the

complain

t.chanroblesvirtualawlibrarychanrobles

virtual law library

(7) The plaintiff was allowed to testify as to

the contents of a certain letter written by

Miguel Glutierrez, one of the partners in the

defendant company, to Miguel Alonzo

Gutierrez, another partner, which letter was

read to plaintiff by Miguel Alonzo. It is not

necessary to inquire whether the court

committed an error in admitting this

evidence. The case already made by the

plaintiff was in itself sufficient to prove the

contract without reference to this letter. The

error, if any there were, was not prejudicial,

and is not ground for revesal. (Sec. 503,

Code of Civil Procedure.)chanrobles virtual

law library

(8) For the purpose of proving what the

profits of the defendants were for the year

1902, the plaintiff presented in evidence the

ledger of defendants, which contained an

entry made on the 31st of December, 1902,

as follows:

Perdidas y

Ganancias ...................................... a Varios

Ps. 527,573.66 Utilidades liquidas obtenidas

durante el ano y que abonamos conforme a

la proporcion que hemos establecido segun

el convenio de sociedad.

The defendant presented as a witness on, the

subject of profits Miguel Gutierrez, one of

the defendants, who testiffied, among other

things, that there were no profits during the

year 1902, but, on the contrary, that the

company suffered considerable loss during

that year. We do not think the evidence of

this witnees sufficiently definite and certain

to overcome the positive evidence furnished

by the books of the defendants

themselves.chanroblesvirtualawlibrary chanr

obles virtual law library

(9) In reference to the cause of action

relating to the 600 pesos, it appears that the

plaintiff left the employ of the defendants on

the 19th of Macrh, 1903; that at their request

he went to Hongkong, and was there for

about two months looking after the business

of the defendants in the matter of the repair

of a certain steamship. The appellants in

their brief say that the plaintiff is entitled to

no compensation for his services thus

rendered, because by the provisions of

article 1711 of the Civil Code, in the

absence of an agreement to the contrary, the

contract of agency is supposed to be

gratuitous. That article i not applicable to

this case, because the amount of 600 pesos

not claimed as compensation for services but

as a reimbursment for money expended by

the plaintiff in the business of the

[ ] PARTNERSHIP

defendants. The article of the code that is

applicable is article

1728.chanroblesvirtualawlibrary chanrobles

virtual law library

The judgment of the court below is affirmed,

with the costs, of this instance against the

appellants. After the expiration of twenty

days from the date of this decision let final

judgment be entered herein, and ten days

thereafter let the case be remanded to the

lower court for execution. So ordered.