pship cases 1

7/28/2019 Pship Cases 1

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LIM TONG LIM, petitioner,

vs.

PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

G.R. No. 136448 November 3, 1999

Preliminary: A partnership may be deemed to exist among parties who agree to borrow money to pursue a

business and to divide the profits or losses that may arise therefrom, even if it is shown that they have not

contributed any capital of their own to a "common fund." Their contribution may be in the form of credit or

industry, not necessarily cash or fixed assets. Being partner, they are all liable for debts incurred by or on behalf of

the partnership. The liability for a contract entered into on behalf of an unincorporated association or ostensible

corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that

contract.

FACTS:

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated

February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.

(herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who

however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred

pieces of floats worth P68,000 were also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents filed a collection

suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary attachment. The suit was

brought against the three in their capacities as general partners, on the allegation that "Ocean Quest Fishing

Corporation" was a nonexistent corporation as shown by a Certification from the Securities and Exchange

Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff

enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas,

Metro Manila.

RTC: Philippine Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as

general partners, were jointly liable to pay respondent.

CA: affirmed RTC

ISSUE:

Whether by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership.

HELD:

Existence of a Partnership and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts

the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based

its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the purchaseof the nets, alleging that the negotiations were c onducted by Chua and Yao only, and that he has not even met the

representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua

and Yao, for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two the

main asset of the purported partnership the fishing boat F/B Lourdes. The lease was for six months, with a

monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly

that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Cod

provides:

Art. 1767 By the contract of partnership, two or more persons bind themselves to contribute money, p

or industry to a c ommon fund, with the intention of dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the following

findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to j

while Antonio Chua was already Y ao's partner;(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to acquire two fishing b

FB Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to fina

venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over th

(2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking an

expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to the partnersh

amount of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership paper

other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Res

Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio C

Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of co(c) declaration of ownership of fishing boats; (4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise Agreement executed between the

litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a

business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus L

was petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to

loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. Thes

the purchase and the repair of which were financed with borrowed money, fell under the term "commo

under Article 1767. The contribution to such fund need not be cash or fixed assets; it could be an intangi

credit or industry. That the parties agreed that any loss or profit from the sale and operation of the boats w

divided equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of

and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furthetheir business. It would have been inconceivable for Lim to involve himself so much in buying the boat bu

the acquisition of the aforesaid equipment, without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engage

fishing business. They purchased the boats, which constituted the main assets of the partnership, and they

that the proceeds from the sales and operations thereof would be divided among them.


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We stress that under Rule 45, a petition for review like the present c ase should involve only questions of law. Thus,

the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof that the

present action is embraced by one of the exceptions to the rule. 16 In assailing the factual findings of the two lower

courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.

Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership was the

Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,

but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but

an embodiment of the relationship extant among the parties prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise all relevant

facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the parties. In

implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails to

appreciate that the CA and the RTC delved into the history of the document and explored all the possible

consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual findings

mentioned above nullified petitioner's argument that the existence of a partnership was based only on the

Compromise Agreement.

Petitioner Was a Partner, Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua and Yao, not a

partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration

papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his ownboats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No

lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership

among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which

debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in

their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after

the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own

property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the

name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the

creditor, Jesus Lim.

We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to pay a debt he did not

incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners.

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CO NSTANCIO B. MAGLANA, Defendant-Appellee.

G.R. No. 30616 : December 10, 1990

FACTS:

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership called Eastcoast Deve

Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term of e

was duly registered on January 21, 1955 with the Securities and Exchange Commission.

A duly registered Articles of Co-Partnership was filed together with an application for a timber concession

the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and Timbe

No. 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf of t

registered partnership EDE.

Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the part

including marketing and handling of cash and is authorized to sign all papers and instruments relatin

partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging opera

the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the par

shall be divided share and share alike between the partners.

During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership.

Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamo

industrial partner.

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Ex

and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from th

difference in the purpose of the second partnership which is to hold and secure renewal of timber licenseof to secure the license as in the first partnership and the term of the second partnership is fixed to thi

years, everything else is the same.

The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was

ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.0

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL

INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing

themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partne

Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument that after pay

the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor

partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by Paha

and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be di

Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of the

partnership (R.A. 921).

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the b

any written agreement or reconstitution of their written Articles of Partnership

On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS

Inc. He left and abandoned the p artnership


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On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area

(Decision, R.A. 948).

The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS

Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in

equipment, to the capital investments of the partnership as well as his obligation to perform his duties as logging

superintendent.

Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised

contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share willjust be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A.

949).: nad

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21,

1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).

On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery

of properties, accounting, receivership and damages, docketed as Civil Case No. 3518

ISSUE:

HELD:

The lower court is of the view that the second partnership superseded the first, so that when the second

partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as providedfor in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was carried on by

Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. It was

considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or

impliedly (Decision, R.A. pp. 962-963).

On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development

Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been

novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas,

appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and

stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and

Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally

constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal error to

consider a de facto partnership between said two partners or a partnership at will. Hence, the letter of appellee

Maglana dated February 23, 1961, did not legally dissolve the registered partnership between them, being in

contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit"A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing

profits between them of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit

"A").

After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it

was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one,

which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-

25). Except for the fact that they took in one industrial partner; gave him an equal share in the profits and f

term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted th

name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contribu

Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as important is the f

all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the

licensee. To all intents and purposes therefore, the First Articles of Partnership were only amended, in the

Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appe

5). Otherwise stated, even during the existence of the second partnership, all business transactions were

out under the duly registered articles. As found by the trial court, it is an admitted fact that even up to now

are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obl

accrued in the name of the second partnership except in favor of Pahamotang which was fully paid by t

registered partnership (Decision, R.A., pp. 919-921).

On the other hand, there is no dispute that the second partnership was dissolved by common conse

dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas ag

purchase the interest, share and participation in the second partnership of Pahamotang and that thereaf

two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more convi

the fact that Maglana on Marc h 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute

cash or in equipment, to the capital investment of the partnership as well as his obligation to perform his d

logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered

of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the pr

contributions and he will not work as logging superintendent. By such statements, it is obvious tha

understood what Maglana was referring to and left no room for doubt that both considered themselves go

by the articles of the duly registered partnership.

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can

be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partduly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at

answer is in the affirmative.

Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in

notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dis

by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of co

the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no cas

be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hen

dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and M

shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles

Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" betwpartners.

But an accounting must first be made and which in fact was ordered by the trial court and accomplished

commissioners appointed for the purpose.

On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-196

follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Magl


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should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when

a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership

for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the

time he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133

SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture.

That is the essence of a partnership (Ibid., p. 95).

Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports

which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of

P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution, he

will be liable for P52,040.31.

Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is

unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which should

be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership, no

plausible reason could be found to disturb the findings and conclusions of the trial court.: nad

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the

withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS

Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused to

contribute either in cash or in equipment to the capital investment and to perform his duties as logging

superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned

the partnership but also took funds in a n amount more than his co ntribution (Decision, R.A., p. 949).

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.

PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is herebyMODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to

exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in

its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the

decision of the trial court in all other respects.

AURELIO K. LITONJUA, JR., Petitioner,

vs.

EDUARDO K. LITONJUA, SR.et.al

G.R. NOS. 166299-300 December 13, 2005

FACTS:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers.

The legal dispute between them started when, on December 4, 2002, in the Regional Trial C ourt (RTC) at Pasig City,Aurelio filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several

corporations for specific performance and accounting. In his complaint, Aurelio alleged that, since June 1973, he

and Eduardo are into a j oint venture/partnership arrangement in the Odeon Theater business which had expanded

thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II

theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations. Yang is described in the

complaint as petitioners and Eduardos partner in their Odeon Theater investment.

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the cont

of their family business and common family funds .

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduard

siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integra

Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-1".

3.02 It was then agreed upon between *Aurelio+ and Eduardo that in consideration of *Aurelios+ retaining h

in the remaining family businesses (mostly, movie theaters, shipping and land development) and contrib

industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in

businesses and those to be subsequently acquired by them whichever is greater. . . .

ISSUE:

Whether or not there was a valid partnership.

HELD:

NONE.

The supposed contract of partnership was evidenced by a private memorandum (unsigned), in which

expressed his desire to train his brother, and promising him a 10% share or 1 million pesos.

The supposed contract is void, for being contrary to Arts. 1771, 1772, and 1773.

The memorandum, on its face, contains typewritten entries, personal in tone, but is

unsigned and undated. As an unsigned document, there can be no quibbling that

1) The memorandum does not meet the public instrumentation requirements exacteArticle 1771 of the Civil Code.

2) Moreover, being unsigned and doubtless referring to a partnership involving mo

P3,000.00 in money or property, The Memorandum cannot be presente d for notariza

alone registere d with the Securities and Exchange Commission (SEC), as called for unArticle 1772 of the Code.

3) And inasmuch as the inventory requirement under the succeeding Article 1773 gothe matter of validity when immovable property is contributed to the partnership, tlogical point of inquiry turns on the nature of petitioners contribution, if any, to the spartnership.

Petitioner, then goes on to allege that, assuming arguendo, that the contrac t was not one of partthat the same actually established an innominate contract and was a source of actionable rights.

Court ruled even as a innominate contract, it would be void as in violation of the statute of fr(Being its performance was to be done 1 year after perfectio n of the contract.)


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Kilosbayan v. Guingona

G.R. No. 113375 May 5, 1994

FACTS:

Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended by B.P. Blg. 42) which grants it the

authority to hold and conduct charity sweepstakes races, lotteries and other similar activities, the PCSO

decided to establish an on-line lottery system for the purpose of increasing its revenue base and diversifying its

sources of funds. Sometime before March 1993, after learning that the PCSO was interested in operating an on-

line lottery system, the Berjaya Group Berhad, a multinational company and one of the ten largest public

companies in Malaysia, became interested to offer its services and resources to PCSO. As an initial step,

Berjaya Group Berhad (through its individual nominees) organized with some Filipino investors in March 1993 a

Philippine corporation known as the Philippine Gaming Management Corporation (PGMC), which was

intended to be the medium through which the technical and management services required for the project

would be offered and delivered to PCSO.

Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for the Lease Contract of an on-line

lottery system for the PCSO. On 15 August 1993, PGMC submitted its bid to the PCSO. On 21 October 1993, the

Office of the President announced that it had given the respondent PGMC the go-signal to operate the

countrys on-line lottery system and that the corresponding implementing contract would be submitted not

later than 8 November 1993 for final clearance and approval by the Chief Executive.

On 4 November 1993, KILOSBAYAN sent an open letter to President Fidel V. Ramos strongly opposing the

setting up of the on-line lottery s ystem on the basis of serious mo ral and ethical considerations. Considering the

denial by the Office of the President of its protest and the statement of Assistant Executive Secretary Renato

Corona that only a court injunction can stop Malacaang, and the imminent implementation of the Contract

of Lease in February 1994, KILOSBAYAN, with its co-petitioners, filed on 28 January 1994 this petition.

Petitioner claims that it is a non-stock domestic corporation composed of civic-spirited citizens, pastors, priests,

nuns, and lay leaders. The rest of the petitioners, except Senators Freddie Webb and Wigberto Taada and

Representative Joker P. Arroyo, are suing in their capacities as members of the Board of Trustees of

KILOSBAYAN and as taxpayers and concerned citizens. Senators Webb and Taada and Representative Arroyo

are suing in their capacities as members of Congress and as taxpayers and concerned citizens of the Philippines.

The public respondents, meanwhile allege that the petitioners have no standing to maintain the instant suit,

citing the Courts resolution in Valmonte vs. Philippine Charity Sweepstakes Office.

In relation to partnership: In their Comment filed by the Office of the Solicitor General, public respondents

Executive Secretary Teofisto Guingona, Jr., Assistant Executive Secretary Renato Corona, and the PCSO maintain

that the contract of lease in question does not violate Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42,

and that the petitioner's interpretation of the phrase "in c ollaboration, association or joint venture" in Section 1

is "much too narrow, strained and utterly devoid of logic" for it "ignores the reality that PCSO, as a corporateentity, is vested with the basic and essential prerogative to enter into all kinds of transactions or contracts as

may be necessary for the attainment of its purposes and objectives." What the PCSO charter "seeks to prohibit

is that arrangement akin to a "joint venture" or partnership where there is "community of interest in the

business, sharing of profits and losses, and a mutual right of control," a characteristic which does not obtain in a

contract of lease." With respect to the challenged Contract of Lease, the "role of PGMC is limited to that of a

lessor of the facilities" for the on-line lottery system; in "strict technical and legal sense," said contract "can be

categorized as a contract for a piece of work as defined in Articles 1467, 1713 and 1644 of the Civil Code."

ISSUE:

Whether or the Contract of Lease in the light of Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, w

prohibits the PCSO from holding and conducting lotteries in collaboration, association or joi nt venture

any person, association, company or entity, whether domestic or foreign. is legal and valid.

HELD:

The language of Section 1 of R.A. No. 1169 is indisputably clear. The PCSO cannot share its franchise

another by way of collaboration, association or joint venture. Neither can it assign, transfer, or lease

franchise. Whether the contract in question is one of lease or whether the PGMC is merely an independ

contractor should not be decided on the basis of the title or designation of the contract but by the intent o

parties, which may be gathered from the provisions of the contract itself. Animus hominis est anima sc ript

intention of the party is the soul of the instrument.

Undoubtedly, from the very inception, the PCSO and the PGMC mutually understood that any arrangem

between them would necessarily leave to the PGMC the technical, operations, and management aspects o

on-line lottery system while the PSCO would, primarily, provide the franchise. The so -called Contract of Lea

not, therefore, what it purports to be. Woven therein are provisions which negate its title and betray the

intention of the parties to be in or to have a joint venture for a period of eight years in the operation

maintenance of the on-line lottery system.

We thus declare that the challenged Contract of Lease violates the exception provided for in paragrap

Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid for being contrary to law.

conclusion renders unnecessary further discussion on the other issues raised by the petitioners.

In the concurring of Cruz: In the meantime, that is to say during the entire 8-year term of the contract, it w

PGMC that will be operating the lottery. Only "at the end of the term of this Contract" will PCSO "be abl

effectively take-over the Facilities and efficiently operate the On-Line Lottery System."

Even on the assumption that it is PCSO that will be operating the lottery at the very start, the auth ority gra

to PGMC by the agreement will readily show that PCSO w ill not be acting alone, as the respondents preten

fact, it cannot. PGMC is an indispensable co-worker because it has the equipment and the technology and

management skills that PCSO does not have at this time for the operation of the lottery, PCSO c annot deny

it needs the assistance of PGMC for this purpose, which was its reason for entering into the contract in the

place.

And when PCSO does avail itself of such assistance, how will it be operating the lottery? Undoubtedly, it w

doing so "in collaboration, association or joint venture" with PGMC, which, let it be added, will not be servi

a mere "hired help" of PCSO subject to its control. PGMC will be functioning independently in the discharits own assigned role as stipulated in detail under the contract. PGMC is plainly a partner of PCSO in violati

law, no matter how PGMC's assistance is called or the contract is denominated.

Even if it be conceded that the assistance partakes of a lease of services, the undeniable fact is that PCSO w

still be collaborating or cooperating with PGMC in the operation of the lottery. What is even worse is that P

and PGMC may be actually engaged in a joint venture, considering that PGMC does not collect the usual f


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rentals due an ordinary lessor but is entitled to a special "Rental Fee," as the contract calls it, "equal to four

point nine percent (4.9%) of gross receipts from ticket sales."

The flexibility of this amount is significant. As may be expected, it will induce in PGMC an active interest and

participation in the success of PCSO that is not expected of an ordinary detached lessor who gets to be paid his

rentals not a rental fee whether the lessee's business prospers or not. PGMC's share in the operation

depends on its own performance and the effectiveness of its collaboration with PCSO. Although the contract

pretends otherwise, PGMC is a co-investor with PCSO in what is practically, if not in a strictly legal sense, a joint

venture.

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,

vs.

COURT OF APPEALS and MANUEL TORRES, respondents.

G.R. No. 134559 December 9, 1999

FACTS:

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with

Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract,

they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered

in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000 which,

under the Joint Venture Agreement, was to be used for the development of the subdivision. 4 All three of them

also agreed to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." Theyadd that respondent used the loan not for the development of the subdivision, but in furtherance of his own

company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said

amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City

Council's approval of the subdivision project which he advertised in a local newspaper. He also caused the

construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the

building of sixty low-cost housing units and actually even set up a model house on one of the subdivision lots.

He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had

separately caused the annotations of adverse claims on the title to the land, which eventually scared away

prospective buyers. Despite his requests, petitioners refused to cause the clearing of the c laims, thereby forcinghim to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however

acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by

the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the

case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was

affirmed by the CA.

CA: affirmed RTC

ISSUE:

Whether or not a partnership agreement existed between the parties.

HELD:

YES.

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agree

and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partners

were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable fo

failure to implement the project. Because the agreement entitled them to receive 60 percent of the proc

from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 perce

the value of the property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and M

EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu

Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, t

sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pe

Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY

sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein containedrespective parties hereto do hereby stipulate and agree as f ollows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amoun

TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1

square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, bu

SECOND PARTY did not actually receive the payment.


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SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY

THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount

will serve as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to

be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount

involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division

project is terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND

(P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the

FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the

sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY

and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the

sales will be divided equally according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements

upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided

the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY,

will be paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the

FIRST PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily

for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant

to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,

property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of

land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the

amount needed for general expenses and other costs. Furthermore, the income from the said project would be

divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties toform a partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the

land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land

to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted

earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to

construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the partner

Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industr

Petitioners Bound by Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipula

but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are boun

only to the fulfillment of what has been expressly stipulated but also to all the consequences which, accor

to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of

contract they voluntarily signed. If it was not in consonance with their expectations, they should have obje

to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact

the contractual stipulations may turn out to be financially disadvantageous will not relieve parties theret

their obligations. They cannot now disavow the relationship formed from such agreement due to t

supposed misunderstanding of its terms.

Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the C ivil Code, which prov

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto,

inventory of said property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory o

real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo

Tolentino states that under the aforecited provision which is a complement of Article 1771, 12 "The exec

of a public instrument would be useless if there is no inventory of the property contributed, because witho

designation and description, they cannot be subject to inscription in the Registry of Property, and t

contribution cannot prejudice third persons. This will result in f raud to those who contract with the partne

in the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the contra

declared void by the law when no such inventory is made." The case at bar does not involve third partiesmay be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respon

should pay them 60 percent of the value of the property. 13 T hey cannot in one breath deny the c ontract a

another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsis

positions in regard to a contract and courts will not tolerate, much less approve, such practice.


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In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture

Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred

and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code,

because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid

consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the

expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually

receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as

cause, can take different forms, such as the prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the

expectation of profits from the subdivision project, for which the land was intended to be used. As explained by

the trial court, "the land was in effect given to the partnership as [petitioner's] participation therein. . . . There

was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture

come into fruition, they [would] get si xty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain

that he should be made to pay damages equivalent to 60 percent of the value of the property, which was theirshare in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure

of the project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame

solely to him, petitioners failed to give any reason why we should disregard the factual findings of the appellate

court relieving him of fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in

this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to

this doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not entitled to

damages.

FRANK S. BOURNS,Plaintiff-Appellee, vs. D. M. CARMAN, ET AL.,Defendants-Appellants.

G.R. No. L-2880 December 4, 1906

FACTS:The plaintiff in this action seeks to recover the sum of $437.50, United Stated currency, balance due on a

contract for the sawing of lumber for the lumber yard of Lo-Chim-Lim. the contract relating to the said work

was entered into by the said Lo-Chim-Lim, acting as in his own name with the plaintiff, and it appears that the

said Lo-Chim-Lim personally agreed to pay for the work himself. The plaintiff, however, has brought this action

against Lo-Chim-Lim and his codefendants jointly, alleging that, at the time the contract was made, they were

the joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under

the name and style of Lo-Chim-Lim. Apparently the plaintiff tries to show by the words above italicized tha

other defendants were the partners of Lo-C him-Lim in the said lumber-yard business.

The court below dismissed the action as to the defendants D. M. Carman and Fulgencio Tan-Tongco on

ground that they were not the partners of Lo-Chim-Lim, and rendered judgment against the other defend

for the amount claimed in the complaint with the costs of proceedings. Vicente Palanca and Go-Tauco

excepted to the said judgment, moved for a new trial, and have brought the case to this court by b

exceptions.

The evidence of record shows, according to the judgment of the court, "That Lo-Chim-Lim had a certain lu

yard in Calle Lemery of the city of Manila, and that he was the manager of the same, having ordered

plaintiff to do some work for him at his sawmill in the city of Manila; and that Vicente Palanca was his part

and had an interest in the said business as well as in the profits and losses thereof . . .," and that Go-Tu

received part of the earnings of the lumber yard in the management of which he was interested.

The court below accordingly found that "Lo-Chim-Lim, Vicente Palanca, Go-Tuaco had a lumber yard in C

Lemmery of the city of Manila in the year 1904, and participated in the profits and losses of business and

Lo-Chim-Lim was managing partner of the said lumber yard." In other words, coparticipants with the said

Chim-Lim in the business in question.

Although the evidence upon this point as stated by the by the however, that is plainly and manifestly in co

with the above finding of that court. Such finding should therefore be sustained.

The question thus raised is, therefore, purely one of law and reduces itself to determining the real legal na

of the participation which the appellants had in Lo-Chim-Lim's lumber yard, and consequently their lia

toward the plaintiff, in connection with the transaction which gave rise to the present suit.

ISSUE:

What is the real legal nature of the participation which the appellants had in Lo-Chim-Lim's lumber yard

consequently their liability toward the plaintiff.

HELD:

The partnership is a partnership of cuentas en participacion (joint accounts).

It seems that the alleged partnership between Lo-Chim-Lim and the appellants was formed by ve

agreement only. At least there is no evidence tending to show that the said agreement was reduced to wr

or that it was ever recorded in a public instrument.

Moreover, that partnership had no corporate name. The plaintiff himself alleges in his complaint that

partnership was engaged in business under the name and style of Lo-Chim-Lim only, which according toevidence was the name of one of the defendants. On the other hand, and this is very important, it does

appear that there was any mutual agreement, between the parties, and if there were any, it has not b

shown what the agreement was. As far as the evidence shows it seems that the business was conducted b

Chim-Lim in his own name, although he gave to the appellants a share was has been shown with certainty

contracts made with the plaintiff were made by Lo-Chim-Lim individually in his own name, and there

evidence that the partnership over contracted in any other form. Under such circumstances we find not


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upon which to consider this partnership other than as a partnership of cuentas en participacion. It may be that,

as a matter of fact, it is something different, but a simple business and scant evidence introduced by the

partnership We see nothing, according to the evidence, but a simple business conducted by Lo-Chim-Lim

exclusively, in his own name, the names of other persons interested in the profits and losses of the business

nowhere appearing. A partnership constituted in such a manner, the existence of which was only known to

those who had an interest in the same, being no mutual agreements between the partners and without a

corporate name indicating to the public in some way that there were other people besides the one who

ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en

participacion defined in article 239 of the Code of Commerce.

Those who contract with the person under whose name the business of such partnership of cuentas en

participacion is conducted, shall have only a right of action against such person and not against the otherpersons interested, and the latter, on the other hand, shall have no right of action against the third person who

contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the code Of

Commerce.) It follows, therefore that the plaintiff has no right to demand from the appellants the payment of

the amount claimed in the complaint, as Lo-Chim-Lim was the only one who contracted with him. the action of

the plaintiff lacks, therefore, a legal f oundation and should be accordingly dismissed.

The judgment appealed from this hereby reversed and the appellants are absolved of the complaint without

express provisions as to the costs of both instances. After the expiration of twenty days let judgment be

entered in accordance herewith, and ten days thereafter the cause be remanded to the court below for

execution. So ordered.

LUCINA BIGLANGAWA and LUCIA ESPIRITU, petitioners-appellees,

vs.

PASTOR B. CONSTANTINO, respondent-appellant.G.R. No. L-9965 August 29, 1960

FACTS:

Respondents appointed petitioner as their agent to develop a parcel of land owned by the former and to sell

them to prospective buyers. As compensation for his services, respondents promised to pay him 20%

commission on gross sales and a fee of 10% on the collections made by the Biglangawa. Petitioner, however,

advances all the expenses incurred in the development and administration of the project. After the petitioner

had sold more than half of the property, respondents paid only 30% of the gross monthly collections such that

there was still a balance on the petitioners commission. Respondents, however, acknowledged their liability

and they promised to settle the same in successive monthly installments. After some time, respondents

continued their practice of paying the petitioner to the latters disadvantage. Hence, this complaint for

collection of the petitioners remaining commissions.

ISSUE:Whether or not the contract is one of agency or of a partnership.

HELD:

Respondent-appellant claims that the lower court erred in holding that his pending action (Civil Case No. 2138)

in the Court of First Instance of Rizal, is purely a claim for money judgment which does not affect the title or

right of possession of petitioners' real property, covered by Transfer Certificate of Title No. T-5459. Instead, he

contends that the agreement whereby he was to be paid a commission of 20% on the gross sales and a fe

10% on the collections made by him, converted him into a partner and gave him 1/5 participation in

property itself. Hence, he argues, his suit is one for the settlement and adjustment of partnership interest

partition action or proceeding.

Appellant's theory is neither supported by the allegations of his complaint, nor borne out by the purpose o

action. There is no word or expression in the various paragraphs of his amended complaint that suggests

idea of partnership. On the contrary, appellant expressly averred that petitioners "appointed pla

(appellant) their exclusive agent to develop the area described in paragraph 2 into subdivision lots and to

them to prospective homeowners; and as compensation for his services defendants (appellees) promise

pay him a commission of 20% on the gross sales and a fee of 10% on the collections made by him. . . ." (

paragraph 3 of amended complaint.) Categorically, appellant referred to himself as an agent, not a parentitled to compensation, not participation, in the form of commission or fee, not a share.

It is true that in paragraph 5 of the amended complaint (supra) appellant claims to have made advances fo

expenses incurred in the development and administration of the property. But again he never considered t

as contributions to the business as to make him a partner; otherwise, he would have so stated it i

complaint. In fact, after a liquidation of these advances and the commissions due to appellant at the time o

termination of the agency, the whole balance was considered as appellees' indebtedness which appe

consented to be settled in monthly installments (see paragraphs 6, 8, and 9 of the amended complaint).

While it is true again that the prayer in a complaint does not determine the nature of the action, it not be

material part of the cause of action, still it logically indicates, as it does in this case, the purpose of the a

The four paragraphs of the prayer seeks the recovery of fixed amounts of underpayments and commissions

fees; not liquidation or accounting or partition as now insisted upon by appellant.

Appellants's amended complaint, not being "an action affecting the title or the right of possession of

property",1 nor one "to recover possession of real estate, or to quiet title thereto, or to remove clouds

the title thereof, or for partition or other proceeding of any kind in court affecting the title to real estate o

use or occupation thereof or the buildings thereon . . .",2 the same can not be the basis for annotating a n

of lis pendens on the title of the petitioners-appellees.

Having reached the above conclusion, this Court finds it unnecessary to decide the incidental matters raise

the parties during the pendency of this appeal.

Wherefore, finding no error in the appealed order of the court a quo, the same is hereby affirmed, with c

against the respondent-appellant. So ordered.

PIONEER INSURANCE & SURETY CORPORATION, petitioner,

vs.THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONST

M. MAGLANA and JACOB S. LIM, respondents.

G.R. No. 84197 July 28, 1989


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FACTS:

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of

Southern Air Lines (SAL) a single proprietorship.

On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales

contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare

parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No.

PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965.

On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety

executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the

balance price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto

Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in

the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new

corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements

(Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL,

Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and

bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all

damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which

Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make

good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should

or may pay or cause to be paid or become liable to pay on them of whatever kind and nature.

On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of

chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim

transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the

Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel

Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively.

Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety.

Pioneer paid a total sum of P298,626.12.

Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of

Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the

aircrafts,

On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary

attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana.

In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were

not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to

litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question.

After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's

complaint against all other defendants.

As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint ag

the defendants was dismissed. In all other respects the trial court's decision was affirmed.

ISSUE:

What legal rules govern the relationship among co-investors whose agreement was to do business thro

corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the

to be treated in situations where their contributions to the intended 'corporation' were invested not thro

corporate form?

HELD:

These questions are premised on the petitioner's theory that as a result of the failure of respondents Borm

Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among th

created, and that as a consequence of such relationship all must share in the losses and/or gains of the ven

proportion to their contribution. The petitioner, therefore, questions the appellate court's findings orderin

reimburse certain amounts given by the respondents to the petitioner as their contributions to the i

corporation, to wit:

However, defendant Lim should be held liable to pay his co-defendants' cross-claims in the total am

P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaints

amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervant

the other one-half to defendant Maglana. It is established in the records that defendant Lim had duly rece

amount of Pl51,000.00 from defendants Bormaheco and Maglana representing the latter's participatio

ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs i

additional expenses, hence, the total sum of P 184,878.74.

We first state the principles.

While it has been held that as between themselves the rights of the stockholders in a defectively incor

association should be governed by the supposed charter and the laws of the state relating thereto and no

rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinar

that persons who attempt, but fail, to form a corporation and who carry on business under the corpora

occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065

where persons associate themselves together under articles to purchase property to carry on a business, a

organization is so defective as to come short of creating a corporation within the statute, they become

effect partners inter se, and their rights as members of the company to the property acquired by the comp

be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 3

where certain persons associated themselves as a corporation for the development of land for irrigation p

and each conveyed land to the corporation, and two of them contracted to pay a third the difference

proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was tr

a trustee for the associates in an action between them for an accounting, and its capital stock was tre

partnership assets, sold, and the proceeds distributed among them in proportion to the value of the pcontributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not necessarily e

ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their

is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472,

688), and it should be implied only when necessary to do justice between the parties; thus, one who takes

except to subscribe for stock in a proposed corporation which is never legally formed does not become a

with other subscribers who engage in business under the name of the pretended corporation, so as to be l

such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mas


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partnership relation between certain stockholders and other stockholders, who were also directors, will not be

implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally

contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics

supplied).

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the

pretrial despite notification. In his answer, the petitioner denied having received any amount from respondents

Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit

58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty.

Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant

Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses.

It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite

his representations to them. This gives credence to the cross-claims of the respondents to the effect that they were

induced and lured by the petitioner to make contributions to a proposed corporation which was never formed

because the petitioner reneged on their agreement. Maglana alleged in his cross-claim:

... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline

business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience

and necessity as well as the required permits for the operation thereof. Maglana sometime in May 1965, gave

Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof.

Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about August

9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the

planes on his own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set

up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third

party complaint:

Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and

spare parts from Japan which the latter considered as their lawful contribution and participation in the proposed

corporation to be known as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down

payments were advanced by defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1).

Contrary to the agreement among the defendants, defendant Lim in connivance with the plaintiff, signed and

executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged

proprietor of the SAL. The answering defendants learned for the first time of this trickery and misrepresentation of

the other, Jacob Lim, when the herein plaintiff c hattel mortgage (sic) allegedly executed by defendant Lim, thereby

forcing them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral demands

made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes

and their accessories and or return the amount advanced by the former amounting to an aggregate sum of P

178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them.

(Record on Appeal, pp. 341-342).

Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership

was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of

the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his

other would-be incorporators in transacting the sale of the airplanes and spare parts.

WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Co urt of Appeals is A FFIRMED.

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,

vs.

YANG CHIAO SENG, defendant-appellee.

G.R. No. L-12541 August 28, 1959

FACTS:

Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre on the p

occupied by Cine Oro, PlazaSta. Cruz, Manila, the principal conditions of the offer being (1) Yang guarantee

monthly participation of P3,000 (2) partnership shall be for a period of 2 years and 6 months with the c

that if the land is expropriated, rendered impracticable for business, owner constructs a permanent buildin

Yulos right to lease and partnership even if period agreed upon has not yet expired; (3) Yulo is autho

personally conduct business in the lobby of the building; and (4) after Dec 31, 1947, all improvements pla

partnership shall belong to Yulo but if partnership is terminated before lapse of 1 and years, Yang shall ha

to remove improvements.

Parties established, Yang and Co. Ltd., to exist from July 1,1945 Dec 31, 1947.

In June 1946, they executed a supplementary agreement extending the partnership for 3 years beginnin

1948 to Dec. 31, 1950.

The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrion and Maria

Santa Marina for an indefinite period but that after 1 year, such lease may be cancelled by either party upo

notice.

In Apr 1949, the owners notified Yulo of their desire to cancel the lease contract come July.

Yulo and husband brought a civil action to declare the lease for a indefinite period. Owners brought their o

action for ejectment upon Yulo and Yang.

CFI: Two cases were heard jointly; Complaint of Yuloand Yang dismissed declaring contract of lease termina

CA: Affirmed the judgment. In 1950, Yulo demanded from Yang her share in the profits of the busine

answered saying he had to suspend payment because of pending ejectment suit. Yulo filed present action

alleging the existence of a partnership between them and that Yang has refused to pay her shares.

Defendants Position: The real agreement between plaintiff and defendant was one of lease and not of part

that the partnership was adopted as a subterfuge to get around the prohibition contained in the contract

between the owners and the plaintiff against the sublease of the property.

Trial Court: Dismissal. It is not true that a partnership was created between them because defendant

actually contributed the sum mentioned in the Articles of Partnership or any other amount. The agreem

lease because plaintiff didnt share either in the profits or in the losses of the busines s as required by Art 1

and because plaintiff was granted a guaranteed participation in the profits belies the supposed existe

partnership.

ISSUE:

Was the agreement a contract a lease or a partnership?


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HELD:

Sublease and not partnership.

In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out the

evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff is one of the

sublease and not of partnership. The action of the lower court in admitting evidence is justified by the express

allegation in the defendant's answer that the agreement set forth in the complaint was one of lease and not of

partnership, and that the partnership formed was adopted in view of a prohibition contained in plaintiff's lease

against a sublease of the property.

The most important issue raised in the appeal is that co ntained in the fourth assignment of error, to the effect that

the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between plaintiff and defendant,

are one of lease and not of partnership. We have gone over the evidence and we fully agree with the conclusion of

the trial court that the agreement was a sublease, not a partnership. The following are the requisites of

partnership: (1) two or more persons who bind themselves to contribute money, property, or industry to a

common fund; (2) intention on the part of the partners to divide the profits among themselves. (Art. 1767, Civil

Code.).

In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not furnish any

help or intervention in the management of the theatre. In the third place, it does not appear that she has ever

demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner,

her first concern should have been to find out how the business was progressing, whether the expenses were

legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a

partner should have done; all that she did was to receive her share of P3,000 a month, which can not be

interpreted in any manner than a payment for the use of the premises which she had leased from the owners.

Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"),

which shows that both parties considered this of fer as the real contract between them.

Plaintiff claims the sum of P41,000 as representing her share or participation in the business from December, 1949.

But the original letter of the defendant, Exh. "A", expressly states that the agreement between the plaintiff and the

defendant was to end upon the termination of the right of the plaintiff to the lease. Plaintiff's right having

terminated in July, 1949 as found by the Court of Appeals, the partnership agreement or the agreement for her to

receive a participation of P3,000 automatically ceased as of said date.

We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-appellant.

ELIGIO ESTANISLAO, JR., petitioner,

vs.

THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO, respondents.

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

FACTS:

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 c ommon by them. A joint affidavit was executed by them on Ap ril

which was prepared byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner herein, by a

him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For p

purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agr

petitioner would apply for the dealership. Respondent Remedios helped in managing the bussiness with p

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 wherei

reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to pe

as dealer with a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11 Ap

executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation of the business to

respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty. An

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

that by the year ending 1969, a profit of P 150,000.00 was realized.

ISSUE:

Whether or not a partnership was established by and among the petitioner and the private respondents as

the ownership and or operation of the gasoline service station business.

HELD:

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additio

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

the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a corpora

licensed to do business in the Philippines;

(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals in the total

FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can use the said amount to augment o

investment in the operation of that gasoline station constructed ,by the said company on our two lots aforesaid by vi

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

our capital investment in the operation of the said gasoline station, has agreed to give us the said amount of P 15,000.

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

l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be amonthly rentals for the sai two lots under our Lease Agreement starting on the 25th of May, 1966 until such time that

P 15,000.00 be applicable, which time to our estimate and one -half months from May 25, 1966 or until the 10th of Octo

more or less;

(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED e

instrument for us to sign embodying our conformity that the said amount that it will generously grant us as requested

as ADVANCED RENTALS; and


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(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 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 d eposit 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 s

pship cases 1

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