case digest for busorg

8/10/2019 Case Digest for BusOrg

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Partnership, Agency and Trusts

Business

Organizations I

Case Digests

Prepared for: Atty. Charlito Martin MendozaPrepared by: 2C (AY 2012-2013)



List of Cases

1. Adille v. Court of Appeals

2.

Afisco Insurance Corporation v. Court of Appeals3. Agad v. Mabato

4. Aguila v. Court of Appeals

5. Aurbach v. Saniwares

6. Caoile v. Court of Appeals7. Caragay v. Court of Appeals

8. Caram v. Laureta

9. Dan Fue Leung v. Intermediate Appellate Court10. Dy Buncio v. Ong Guan Can

11. Gatchalian v. Commissioner of Internal Revenue

12. Heirs of Tan Eng Kee v. Court of Appeals

13.

Inland Realty Investment Service v. Court of Appeals14.

JM Tuason v. Bolanos

15. Lim v. Saban

16. Lim Tanhu v. Remolete17. Lim Tong Lim v. Philippine Fishing Gear Insdustries

18. Lim v. Court of Appeals

19. Lopez v. Court of Appeals20. Lozana v. Depakakibo

21. Macababbad v. Marisag

22. Marsman Drysdale v. Philippine Geoanalytics Inc.23. Mendoza v. Paule

24. Moran v. Court of Appeals

25.

Obillos v. Commissioner on Internal Revenue26. Ona v. Commissioner on Internal Revenue

27. Orient Air Services v. Court of Appeals

28. Pascual v. Commissioner on Internal Revenue

29. Pedrano v. Heirs of Pedrano30. Philex Mining Corporation v. Commissioner on Internal Revenue

31. Ramnani v. Court of Appeals

32. Rural Bank of Miraor v. Ocfemia33. Siredy v. Court of Appeals

34. Tai Tong v. Insurance Commission

35. Tocao v. Court of Appeals36.

Tongoy v. Court of Appeals

37. Torres v. Court of Appeals

38. Valenzuela v. Court of Appeals

39. Victorias Milling Corporation v. Court of Appeals40. Yu Eng Cho v. Pan American World Airways



ADILLE VS. COURT OF APPEALS

G.R. No. L-44546

Sarmiento, J.

Facts

Felisa sold her own private property in pacto de retro to certain 3rd persons, period of

repurchase being 3 years, but she died in 1942 without being able to redeem. During the period

of redemption, defendant Rustico Adille repurchased the property and was able to secure title inhis name alone. After some efforts of compromise had failed, his half-brothers and sisters, herein

plaintiffs, filed a case for partition with accounting on the position that he was only a trustee on

an implied trust when he redeemed. It turned out that one of plaintiffs, Emeteria Asejo wasoccupying a portion. After hearing the evidence, the trial Judge sustained defendant in his

position that he was and became absolute owner, he was not a trustee, and therefore, dismissed

case and also condemned plaintiff occupant, Emeteria to vacate. The respondent Court of

Appeals reversed the trial court, and ruled for the private respondents.

Issue

Whether or not a co-owner may acquire exclusive ownership over the property held in

common

Ruling

No. The right of repurchase may be exercised by a co-owner with respect to his sharealone. While the records show that the petitioner redeemed the property in its entirety,

shouldering the expenses therefor, that did not make him the owner of all of it. In other words, it

did not put to end the existing state of co-ownership.

The petitioner must then be said to be a trustee of the property on behalf of the private

respondents. The Article 1456 of the Civil Code states ART. 1456 that if property is acquired

through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of animplied trust for the benefit of the person from whom the property comes. The Court agreed with

the respondent Court of Appeals that fraud attended the registration of the property. The

petitioner’s pretension that he was the sole heir to the land in the affidavit of extrajudicialsettlement he executed preliminary to the registration thereof betrays a clear effort on his part to

defraud his brothers and sisters and to exercise sole dominion over the property.



AFISCO INSURANCE CORPORATION V. COURT OF APPEALS

January 25, 1999

Panganiban, J.

Facts

The petitioners are 41 non-life Insurance corporations, organized and existing under the

laws of the Philippines, entered into a Quota Share Insurance Treaty and Surplus Reinsurance

Treaty with the Munchener Ruckversi-cherungs-Gesselschaft (Munich), a non-resident foreigninsurance corporation. The insurance treaties required petitioners to form a pool. A pool

composed of the petitioners was formed. The pool of insurers submitted a financial statement

and filed an "Information Return of Organization Exempt from Income Tax" for the year endingin 1975. It was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in

the amount of P1,843,273.60 and withholding taxes in the amount of P1,768,799.39 and

P89,438.68 on the dividends paid to Munich and to the petitioners, respectively.

The Court of Appeals ruled that the pool of machinery insurers was a partnership and

taxable as a corporation, and that the latter's collection of premiums on behalf of its members,

the ceding companies, was taxable income.

Issue

Whether or not the partnership or association was subject to tax as corporation

HELD:

Article 1767 of the Civil Code recognizes the creation of a contract of partnership when

"two or more persons bind themselves to contribute money, property, or industry to a commonfund, with the intention of dividing the profits among themselves".

In the case before us, the ceding companies entered into a Pool Agreement or an

association that would handle all the insurance businesses covered under their quota-sharereinsurance treaty and surplus reinsurance treaty with Munich. The following unmistakably

indicates a partnership or an association covered by Section 24 of NIRC, 1) The pool has a

common fund, consisting of money and other valuables that are deposited in the name and creditof the pool. This common fund pays for the administration and operation expenses of the pool. 2)

The pool functions through an executive board, which resembles the board of directors of a

corporation, composed of one representative for each of the ceding companies. 3) The pool itselfis not a reinsurer and does not issue any insurance policy; however, its work is indispensable,

beneficial and economically useful to the business of the ceding companies and Munich, because

without it they would not have received their premiums. The ceding companies share “in the

business ceded to the pool" and in the "expenses" according to a "Rules of Distribution" annexedto the Pool Agreement. Profit motive or business is, therefore, the primordial reason for the

pool's formation.



AGAD V. SEVERINO MABATO

G.R. No. L-24193

Concepcion, J.

Facts

Mauricio Agad and Severino Mabato were partners in a fishpond business pursuant to a

public instrument dated August 29, 1952, upon which Agad is to contribute P1,000 with a right

to receive 50% of the profits. Mabato handled the partnership funds and yearly rendered

accounts of the operations of the partnership from 1952 to 1956. However from 1957 to 1963,

despite repeated demands, Mabato failed and refused to render accounts for the years, leading

Agad to file a complaint in the CFI of Davao for his share in the partnership and for dissolution

of the same. In his answer, Mabato admitted the formal allegations of the complaint but denied

the existence of said partnership, upon the ground that the contract therefrom had not been

perfected as Agad had allegedly failed to give his P1,000 contribution to the partnership capital.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no

cause of action and that the lower court had no jurisdiction over the subject matter of the case,

because it involves principally the determination of rights over public lands. After due hearing,

the court issued the order appealed from, granting the motion to dismiss the complaint for failure

to state a cause of action. This conclusion was predicated upon the theory that the contract of

partnership is null and void, pursuant to Art. 1773 of the Civil Code, as the inventory of the

fishpond in question had not been attached thereto. A reconsideration of said order having been

denied, Agad brought the matter to the Supreme Court for review by record on appeal.

Issue

Whether the contract of partnership is void for failing to satisfy Article 1773 of the Civil

Code

Held

The case is remanded to the lower court for further proceedings. In the partnership contract

between Mabato and Agad, the partnership was established to operate a fishpond, not to engage

in a fishpond business. None of the partners had contributed either a fishpond or any real right

thereto. Their contributions had instead been P1,000 each, as provided in their contract. Thus,

aforementioned provision of the Civil Code is beside the point in the case at bar.



AGUILA V. COURT OF APPEALS

G.R. No. 127347

Mendoza, J.

Facts

This is a petition for review on certiorari of the decision of the Court of Appeals, dated

November 29, 1990, which reversed the decision of the Regional Trial Court, Branch 273,

Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed the petition fordeclaration of nullity of a deed of sale filed by private respondent Felicidad S. Vda. de Abrogar

against petitioner Alfredo N. Aguila, Jr.

On April 18, 1991, private respondent, with the consent of her late husband, and A.C.

Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement and

executed a deed of absolute sale, dated June 11, 1991, wherein private respondent, with the

consent of her late husband, sold the subject property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000.00. In a special power of attorney dated the same day, April 18, 1991,

private respondent authorized petitioner to cause the cancellation of TCT No. 195101 and the

issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the event shefailed to redeem the subject property as provided in the Memorandum of Agreement.

Issue

Whether or not Alfredo N. Aguila, Jr. is a real party in interest

Held

Rule 3, Section 2 of the Rules of Court of 1964, under which the complaint in this casewas filed, provided that “every action must be prosecuted and defended in the name of the real

party in interest.” A real party in interest is one who would be benefited or injured by the

judgment, or who is entitled to the avails of the suit.

Under Article 1768 of the Civil Code, a partnership “has a juridical personality separate

and distinct from that of each of the partners.” The partners cannot be held liable for the

obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case, private

respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being

used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is inthe name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was executed

between private respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co.,

represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be

impleaded in any litigation involving property registered in its name. A violation of this rule willresult in the dismissal of the complaint.



Aurbach v. Sanitary Wares Manufacturing Corporation

G.R. No. 75875

Gutierrez, Jr., J.

Facts

Saniwares, a domestic corporation was incorporated for the primary purpose of

manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went

abroad to look for foreign partners who could help in its expansion plans. A foreign corporationdomiciled in Delaware, United States entered into an Agreement with Saniwares and some

Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership

of an enterprise which would engage primarily in the business of manufacturing in thePhilippines and selling here and abroad vitreous china and sanitary wares.

Thus, the birth of the two groups: one representing the Filipino investors (Lagdameo

Group) and the other, the foreign investors (American Standard Inc.)The joint enterprise thusentered into by the Filipino investors and the American corporation prospered. Unfortunately,

with the business successes, there came a deterioration of the initially harmonious relations

between the two groups.

On March 8, 1983, the annual stockholders' meeting was held. The stockholders then

proceeded with the election of the Board of Directors. ASI nominated three, while Lagdameonominated six, the last one being Eduardo Ceniza, who, in turn, nominated Luciano Salazar, who

further nominated another, Mr. Charles Chamsay. Mr. Young, the presiding chairman, ruled the

last two nominations out of order pursuant to sec.5(a) of the agreement.(The consistent practiceof the parties during the past annual stockholders' meetings is to nominate only nine persons as

nominees for the nine-member board of directors)

After appeal and protests, The Chairman then instructed the Corporate Secretary to cast

all the votes present and represented by proxy equally for the 6 nominees of the Philippine

Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons

nominated. The ASI representative protested this decision, and stated that all the votes accruingto them were being cumulatively voted for the three ASI nominees and Charles Chamsay. The

Chairman did not heed this protest and accepted the duly nominated as the elected board

members.

Issues

1.

Whether the business established by the parties is joint venture or a corporation

2. Whether or not the ASI Group may vote their additional 10% equity during elections of

Saniwares' board of directors

Held

1. The rule is that whether the parties to a particular contract have thereby established

among themselves a joint venture or some other relation depends upon their actual intention

which is determined in accordance with the rules governing the interpretation and construction ofcontracts.

An examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a jointventure and not a corporation.

2. Section 24 of the Corporation Code (cumulative voting) is not applicable to jointventures. The legal concept of a joint venture is of common law origin. It has no precise legal



definition but it has been generally understood to mean an organization formed for some

temporary purpose. It is in fact hardly distinguishable from the partnership, since their elements

are similar community of interest in the business, sharing of profits and losses, and a mutual rightof control. The main distinction cited by most opinions in common law jurisdictions is that the

partnership contemplates a general business with some degree of continuity, while the joint

venture is formed for the execution of a single transaction, and is thus of a temporary nature.This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a

partnership may be particular or universal, and a particular partnership may have for its object a

specific undertaking. It would seem therefore that under Philippine law, a joint venture is a form

of partnership and should thus be governed by the law of partnerships. The Supreme Court hashowever recognized a distinction between these two business forms, and has held that although a

corporation cannot enter into a partnership contract, it may however engage in a joint venture

with others.

Having entered into a well-defined contractual relationship, it is imperative that the parties

should honor and adhere to their respective rights and obligations thereunder. The Court upheld

the original nine nominees to be the members of the Board of Directors of Saniware.



CAOILE V. COURT OF APPEALS

G.R. No. 106929 September 21, 1993

Davide, Jr., J

Facts

Sometime in January 1986, Soledad de Jesus met Erlinda Domingo a resident of Sterling

Life Homes, Las Piñas, Metro Manila. De Jesus intimated to Domingo that she was interested in

buying a residential lot. Domingo got in touch with her "kumadre," Erlinda Gatchalian also aresident of Sterling Life Homes, and informed her of de Jesus' desire to buy a residential lot.

Gatchalian told Domingo that she knew of a lot for sale in the subdivision. Soledad, together

with Tess Tameta, Domingo and Gatchalian, inspected the lot. She then decided to buy it.Accompanied by Domingo and Gatchalian, Soledad went to the office of Sterling Life Assurance

Corporation, the developer of Sterling Life Homes Subdivision Soledad, and was introduced to

Anita Caoile, Chief Accountant and Assistant Vice-President of Sterling Life Assurance

Corporation. Anita assured Soledad that the lot was for sale and gave the latter a photocopy ofthe certificate of title over the lot in the name of the corporation. Anita required Soledad to pay a

deposit for the lot which the latter paid as evidenced by a receipt signed by Anita Caoile as

"agent." Soledad paid a second installment, receipt for which was signed by Anita as "agent" and by Gatchalian, also as "agent." After she had fully paid the price of the lot, Soledad de Jesus

demanded from Anita Caoile the delivery of the corresponding Deed of Sale and the Transfer

Certificate of Title but the latter could not comply. Soledad then discovered upon inquiry fromAlberto N. Villareal, Vice-President of Sterling Life Assurance Corporation:

(1) that Anita was not authorized to sell the lot,

(2) the lot was sold to one Ruben Rodis under a Memorandum of Agreement and aContract to Sell,

(3) that Anita was forced to resign from Sterling Life Assurance Corporation because of

the anomalies she committed in the corporation, and(4) she had not been reporting for work since May 1986.

Soledad thus filed a complaint for a sum of money against Caoile, Domingo, Gatchalian

and Sterling Life Assurance Corporation with the Regional Trial Court of Manila

Issue

Whether or not defendant Gatchalian is jointly and severally liable with Anita Caoile

Ruling

No. Both the Court of Appeals and the private respondents placed undue emphasis and

reliance upon the word "agent" typed below the signature of the petitioner in the receipt in

question. It was the defendant Caoile who prepared the receipt for P61,000.00. According todefendant Gatchalian, she was asked by the defendant Caoile to sign the said receipt for

P61,000.00 as a witness thereof. Defendant Gatchalian did not sign any other receipts. There is

as well no evidence to show that it was Gatchalian who received the P61,000.00. That Soledadcase and did not demand reimbursement from Gatchalian before filing Civil Case No. 86-36543

are strong indications that the latter never received anything on account of the subject

transaction. indications that the latter never received anything on account of the subjecttransaction. More importantly, it was established that on 21 March 1986, Anita Caoile executed

and issued to Soledad de Jesus a sworn consolidated receipt. 15 Said receipt includes the

P61,000.00 indicated in Exhibit "A-1". This is an admission by Anita that the total purchase price of P120,000.00 was in fact received by her alone. As correctly found by the trial court, noconspiracy among Caoile, Domingo and Gatchalian was proven by Soledad de Jesus.



CARAGAY-LAYNO VS. COURT OF APPEALS

G.R. No. L-52064

Melencio-Herrera, J.

Facts

As Administratrix, DE VERA’s widow filed in Special Proceedings of the Court of First

Instance of Pangasinan, an Inventory of all properties of the deceased, which included a parcel of

land in the poblacion of Calasiao, Pangasinan, containing an area of 5,417 square meters, moreor less, and covered by Tax Declaration No. 12664. Because of the discrepancy in area

mentioned in the Inventory as 5,147 square metersand that in the title as 8,752 square meters,

respondent ESTRADA repaired to the Disputed Property and found that the northwestern portion, subsequently surveyed to be 3,732 square meters, was occupied by petitioner-spouses

Juliana Caragay Layno and Benito Layno. ESTRADA demanded that they vacate the Disputed

Portion since it was titled in the name of the deceased DE VERA, but petitioners refused

claiming that the land belonged to them and, before them, to JULIANA’S father Juan Caragay.ESTRADA then instituted suit against JULIANA for the recovery of the Disputed Portion which

she resisted, mainly on the ground that the Disputed Portion had been fraudulently or mistakenly

included in OCT No. 63, so that an implied or constructive trust existed in her favor. She thencounterclaimed for reconveyance of property in the sense that title be issued in her favor. After

hearing, the Trial Court rendered judgment ordering JULIANA to vacate the Disputed Portion.

On appeal, respondent Appellate Court affirmed the Decision in toto.

Issue

Whether or not petitioner’s claim for reconveyance based on implied or constructive trust

has prescribed after 10 years

Held

No. The evidence discloses that the Disputed Portion was originally possessed openly,

continuously and uninterruptedly in the concept of an owner by Juan Caragay, the deceasedfather of JULIANA, and had been declared in his name under Tax Declaration No. 28694

beginning with the year 1921. Prescription cannot be invoked against JULIANA for the reason

that as lawful possessor and owner of the Disputed Portion, her cause of action for reconveyancewhich, in effect, seeks to quiet title to the property, falls within settled jurisprudence that an

action to quiet title to property in one’s possession is imprescriptible. Her undisturbed possession

over a period of fifty two (52) years gave her a continuing right to seek the aid of a Court ofequity to determine the nature of the adverse claim of a third party and the effect on her own

title. Besides, under the circumstances, JULIANA’S right to quiet title, to seek reconveyance,

and to annul OCT. No. 63 accrued only in 1966 when she was made aware of a claim adverse to

her own. It was only then that the statutory period of prescription may be said to havecommenced to run against her.



CARAM, JR. V. LAURETA

G.R. No. L-28740

Fernandez, J.

Facts

Claro L. Laureta filed an action for nullity, recovery of ownership and/or reconveyancewith damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and

the Register of Deeds of Davao City.

Marcos Mata conveyed a large tract of agricultural in favor of Claro Laureta. The deed of

absolute sale in favor of the plaintiff was not registered and not acknowledged before a notary public or any other authorized officer because at the time the sale was executed, there was no

authorized officer before whom the sale could be acknowledged inasmuch as the civil

government in Tagum, Davao was not as yet organized. However, the defendant Marcos Mata

delivered to Laureta the peaceful and lawful possession of the premises of the land together withthe pertinent papers thereof

The same land was sold by Marcos Mata to defendant Fermin Z. Caram, Jr. The deed of

sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. Marcos Mata,

through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the court a petition forthe issuance of a new Owner's Duplicate of Original Certificate of Title, alleging as ground

therefor the loss of said title.

The defendants Marcos Mata and Codidi Mata filed their answer with counterclaim

admitting the existence of a private absolute deed of sale of his only property in favor of Claro L.

Laureta but alleging that he signed the same as he was subjected to duress, threat and

intimidation for the plaintiff was the commanding officer of the 10th division USFIP operating inthe unoccupied areas of Northern Davao.

That although the defendant Mata did not like to sell his property or sign the document

without even understanding the same, he was ordered to accept P650.00 Mindanao Emergencynotes; and that due to his fear of harm or danger that will happen to him or to his family, if he

refused he had no other alternative but to sign the document

The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the

Registry of Deeds regarding a document allegedly signed by him in favor of his co-defendantFermin Caram, Jr. but denies that he ever signed the document for he knew before hand that he

had signed a deed of sale in favor of the plaintiff and that the plaintiff was in possession of the

certificate of title. That his consent was obtained through fraud and misrepresentation for the

defendant Mata is illiterate and ignorant and did not know what he was signing; and that he did

not receive a consideration for the said sale.

The court ruled that the sale contracted by Mata and Laureta shall prevail. Defendants appealed

but the CA affirmed the decision.

Issue

Whether or not Irespe and Aportadera were Attorneys-in-fact of petitioner Carama for the

purpose of buying the property in question

Held

YES. The contention of the petitioner has no merit. The facts of record show that Mata,

the vendor, and Caram, the second vendee had never met. During the trial, Marcos Mata testifiedthat he knows Atty. Aportadera but did not know Caram. Thus, the sale of the property could

have only been through Caram's representatives, Irespe and Aportadera. The petitioner, in his

answer, admitted that Atty. Aportadera acted as his notary public and attorney-in-fact at the same



time in the purchase of the property. Irespe and Aportadera had knowledge of circumstances

which ought to have put them an inquiry. Both of them knew that Mata's certificate of title

together with other papers pertaining to the land was taken by soldiers under the command of

Col. Claro L. Laureta

The fact that at the time of the second sale Laureta was already in possession of the land,

Irespe and Aportadera should have investigated the nature of Laureta's possession. It was of

common knowledge that at the time the soldiers of Laureta took the documents from Mata, the civilgovernment of Tagum was not yet established and that there were no officials to ratify contracts of saleand make them registerable. Obviously, Aportadera and Irespe knew that even if Mata previously hadsold the disputed land such sale could not have been registered.

There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchasedthe property of Mata in bad faith. Applying the principle of agency, Caram as principal should

also be deemed to have acted in bad faith. Since Caram was a registrant in bad faith, the situation

is as if there was no registration at all.



DAN FUE LEUNG V. INTERMEDIATE APPELLATE COURT

January 31, 1989

Gutierrez, Jr., J.

Facts

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz,

Manila, was established sometime in October, 1955. It was registered as a single proprietorship

and its licenses and permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun

Wah Panciteria was actually a partnership and that he was one of the partners having contributed

P4,000.00 to its initial establishment.

Respondent Leung Yiu claims that Sun Wah Panciteria was actually a partnership and

that he was one of the partners having contributed P4,000 to its initial establishment evidenced

by receipt wherein the Dan Fue acknowledged acceptance of the P4,000. Also Leung Yiureceived from Dan Fue P12,000 covered by Fue’s Equitable Banking Check from the profits of

the operation of the restaurant. On the other hand, Dan Fue denies receipt of P4,000 from Laung

Yiu. He says that he did not receive any contribution at the time he started the Panciteria.Instead, he used his savings from his salaries as capital in establishing the Panciteria. He

presented various government licenses and permits showing the Sun Wah Panciteria was and still

is a single proprietorship solely owned and operated by himself alone.

Lower court ruled in favor of the private respondent. Petitioner appealed the trial court's

amended decision. However, the questioned decision was further modified and affirmed by theappellate court. Both the trial court and the appellate court declared that the private petitioner is a

partner and is entitled to a share of the annual profits of the restaurant. The petitioner argues that

private respondent extended 'financial assistance' to herein petitioner at the time of theestablishment of the Sun Wah Panciteria, in return of which private respondent allegedly will

receive a share in the profits of the restaurant. It was, therefore, error for the Appellate Court to

interpret or construe 'financial assistance' to mean the contribution of capital by a partner to a

partnership.

Issue:

Whether or not the private respondent is a partner in establishment of Sun Wah Panciteria

Ruling

Yes. Leung Yiu alleged that when the Panciteria was established, he gave P4,000 with

the understanding that he would be entitled to 22% of the annual profit. This makes them

partners in the establishment of Sun Wah Panciteria because NCC 1767 provides that "By thecontract 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".

Therefore, the lower courts did not err in construing the complaint as one wherein the

private respondent asserted his rights as partner of the petitioner in the establishment of the Sun

Wah Panciteria, notwithstanding the use of the term financial assistance therein. The SupremeCourt agreed with the appellate court's observation to the effect that "given its ordinary meaning,

financial assistance is the giving out of money to another without the expectation of any returns

therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state ofdestitution. But this circumstance under which the P4,000.00 was given to the petitioner does notobtain in this case. The complaint explicitly stated that "as a return for such financial assistance,

plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the annual

profit derived from the operation of the said panciteria. The well-settled doctrine is that thenature of the action filed in court is determined by the facts alleged in the complaint as



constituting the cause of action. Considering the facts of this case, the Court may decree a

dissolution of the partnership under Article 1831 of the Civil Code.



DY BUNCIO & COMPANY, INC. VS ONG GUAN CAN, ET AL

G.R. No. L-40681

Hull, J .

Facts

The recital of facts provides that Ong Guan Can Jr stood as an agent of Ong Guan Can, a

proprietor of the commercial firm Ong Guan Can & Sons. As agent, Ong Guan Can Jr. sold the

contested rice mill and camarin for P 13,000.00 to appellants Juan Tong and Pua Giok Eng. As

evidence of the agency, Ong Guan Can Jr presented a power of attorney dated May 23 1928. The

same was attached to the deed. The receipt of the money acknowledged in the deed was to the

agent, and the deed was signed by the agent in his own name and without any words indicating

that he was signing it for the principal.

Plaintiff Dy Buncio & Company Inc is claiming the contested rice mill and camarin, stating

that the said property belongs to Ong Guan Can. Appellants, on the other hand, points out to the

deed of sale evidencing their ownership of the property after it was sold to them by agent Ong

Guan Can Jr.

The Court of First Instance ruled in favor of plaintiff herein, stating that the deed was invalid

and that the property was subject to the execution which has been levied on said properties by

the judgment creditor of the owner. It is pointed out that the power of attorney possessed by Ong

Guan Can Jr is not general but a limited one, with the latter not giving him the power to alienate

the property in question.

Appellants are now appealing the case. They point out that the defect is cured by a general

power of attorney previously issued to Ong Guan Can Jr in 1920.

Issue

Whether a previously issued general power of attorney cures the lack of authority to sell in a

subsequent specific power of attorney

Held

The Court affirmed the previous ruling and ruled in favor of plaintiffs herein. The Court

stated that the making and accepting of a new power of attorney, whether it enlarges or decreases

the power of the agent under a prior power of attorney, must be held to supplant and revoke the

latter when the two are inconsistent. The Court opined that the revocation of the previously

issued power of attorney is necessary for otherwise, the subsequently issued power of attorney

will be an exercise in futile.



JOSE GATCHALIAN V. THE COLLECTOR OF INTERNAL REVENUE

G.R. No. L-45425

Imperial, J.

Facts

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. Prior to December 15, 1934, 15 plaintiffs subscribed and paid one sweepstakes

ticket valued at two pesos (P2) from one of the duly authorized agents of the National CharitySweepstakes 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;

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 thePhilippine National Bank, which check was cashed during the latter part of December, 1934 by

Jose Gatchalian & Company;

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. 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.

Issue

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.

Held

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 buya 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 winningof 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 samecapacity, collected the said check. All these circumstances repel the idea that the plaintiffs

organized and formed a community of property only.

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'scontention that the tax should be prorated among them and paid individually, resulting in theirexemption from the tax.



LIM V. FLORENCIO SABAN

G.R. No. 163720

Tinga, J.

Facts

The late Eduardo Ybanez entered into an Agreement and Authority to Negotiate and Sell

(Agency Agreement) with Florencio Saban which authorized the latter to look for a buyer of the

lot owned by Ybanez. The selling price of Ybanez was 200k plus the necessary taxes andexpenses plus Saban’s commission. Thru Saban’s efforts, the lot was eventually sold to

Genevieve Lim and Spouses Lim for P600,000.00 (P200,000.00 for Ybanez, P50,000.00 for

buyer’s agent, P113,257.00 for taxes, P236,743.00 for Saban’s commission). Lim issued 4checks amounting to P236,743.00 in favour of Saban but Ybanez wrote a letter to Lim

instructing him to cancel the 4 checks and issue new ones in favour of Ybanez. Saban filed a

complaint for the collection his commission plus damages. Lim argued that she was not privy to

the contract between Ybanez and Saban. Ybanez claims that Saban is not entitled to commission because he concealed the actual selling price from him and because he was not a licensed real

estate broker. Ybanez died during the pendency of the case and with the consent of both Saban

and Lim, the case against Ybanez was dismissed. RTC ruled in favour of Lim, absolving herfrom any liability against Saban.

The appellate court promulgated its Decision reversing the trial court’s ruling. It held thatSaban was entitled to his commission amounting to P236,743.00. The Court of Appeals ruled

that Ybañez’s revocation of his contract of agency with Saban was invalid because the agency

was coupled with an interest and Ybañez effected the revocation in bad faith in order to depriveSaban of his commission and to keep the profits for himself.

Issue

Whether or not Saban is entitled to the commission and is the agency coupled with

interest

Held

Yes and No. The Supreme Court affirms the appellate court’s finding that the agency wasnot revoked since Ybañez requested that Lim make stop payment orders for the checks payable

to Saban only after the consummation of the sale on March 10, 1994. At that time, Saban had

already performed his obligation as Ybañez’s agent when, through his (Saban’s) efforts, Ybañezexecuted the Deed of Absolute Sale of the lot with Lim and the Spouses Lim. To deprive Saban

of his commission subsequent to the sale which was consummated through his efforts would be a

breach of his contract of agency with Ybañez which expressly states that Saban would be entitled

to any excess in the purchase price after deducting the P200,000.00 due to Ybañez and thetransfer taxes and other incidental expenses of the sale.

The agency is, however, not coupled with interest. An agency is deemed as one coupledwith an interest where it is established for the mutual benefit of the principal and of the agent, or

for the interest of the principal and of third persons, and it cannot be revoked by the principal so

long as the interest of the agent or of a third person subsists. In an agency coupled with aninterest, the agent’s interest must be in the subject matter of the power conferred and not merely

an interest in the exercise of the power because it entitles him to compensation. When an agent’s

interest is confined to earning his agreed compensation, the agency is not one coupled with aninterest, since an agent’s interest in obtaining his compensation as such agent is an ordinaryincident of the agency relationship.



HEIRS OF TAN ENG KEE VS. COURT OF APPEALS

GR No. 126881

De Leon, Jr., J.

Facts

Benguet Lumber has been around even before World War II but during the war, its stocks

were confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee

pooled their resources in order to revive the business. In 1981, Tan Eng Lay caused theconversion of Benguet Lumber into a corporation called Benguet Lumber and Hardware

Company, with him and his family as the incorporators. In 1983, Tan Eng Kee died. Thereafter,

the heirs of Tan Eng Kee demanded for an accounting and the liquidation of the partnership.They claim the existence of partnership from these set of circumstances: that Tan Eng Lay and

Tan Eng Kee were commanding the employees; that both were supervising the employees; that

both were the ones who determined the price at which the stocks were to be sold; and that both

placed orders to the suppliers of the Benguet Lumber Company. They also point out that both oftheir families lived at the Benguet Lumber Company compound, a privilege not extended to its

ordinary employees.

Tan Eng Lay denied that there was a partnership between him and his brother. He said

that Tan Eng Kee was merely an employee of Benguet Lumber. He showed evidence consisting

of Tan Eng Kee’s payroll; his SSS as an employee and Benguet Lumber being the employer.

Issue

Whether or not Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber

Held

No. They were never partners.

Tan Eng Kee, in his lifetime never executed any acts which would indicate that he was a partner.

1) He never demanded for periodic accountings of the common fund, which would be

expected of a real partner;2) He never received any share in the profits of Benguet Lumber, he only received

salary as evidenced by the payroll documents presented by Tan Eng Lay;

3) The heirs were unable to prove that the brothers intended to divide the profits of the business between themselves.

Even if Tan Eng Kee was granted certain privileges not given to regular employees, the

Court found that these privileges were a result of being related to the owner of the company as brother and not because he was a partner. Further, even a mere supervisor in the company gives

orders and directions to his subordinates; and any trusted employee over whom confidence is

reposed by the owner, can order materials from the suppliers for and behalf of Benguet Lumber.



INLAND REALTY INVESTMENT SERVICE, INC. V. COURT OF APPEALS

June 9, 1997

Hermosisima, Jr., J.

Facts

Plaintiff Inland Realty Investment Service, Inc (Inland Realty) is a corporation engaged

in among others real estate business and brokerages. One prospective buyer to whom a proposal

letter was sent to eas Stanford Microsystems, Inc thant counter proposed to buy 9,800 sharesoffered at P1,000 per share or a total of P9,800,000. Defendant Araneta, Inc., thru its Assistant

General Manager, Amando Eduque replied that the price of Stanford was too low and suggested

that the plaintiffs see if the price and terms can be improve upon by Stanford. The authority tosell given to plaintiffs by defendants was extended several times: the first being on October 2,

1975 for 30 days from the said date, the second on October 28, 1975 for 30 days from said date

and on December 2, 1975 for 30 days from the said date. On July 8, 1977, plaintiffs finallu sold

the 9,800 shares of stock to Stanford Microsystems, Inc for P13,500,000.00. The plaintiffsdemanded formally from the defendants for their 5% commission which was declined by the

defendants on the ground that the claim has no factual or legal basis.

Issue

Whether or not the plaintiffs was entitled for the brokerage commission

Held

The Court of Appeals cannot be faulted for emphasizing the lapses of more than one year

and five months between the expiration of petitioners' authority to sell and the consumation of

the sale to Stanford, to be significant index of petitioners' non participation in the really criticalevents leading to the consumation of said sale. Certainly, when the lapse of the period for more

than one year and five months between the expiration of the petitioners' authority to sell and the

consumation of the sale, is viewed in the context of the utter lack of evidence of petitioners'

involvment in the negotiations between Araneta Inc., and Stanford during the period and inthesubsequent processing of the documents pertinent to the said sale, it becomes undeniable that the

court's dismissal of petitioners' claim for unpaid brokerage commission. Petitioners were not the

effiecient procuring cause in bringing about the sale in question on July 8, 1977 and aretherefore, not entitled to the stipulated broker's commission.



JM TUASON & COMPANY INC. V. QUIRINO BOLANOS

G.R. No. L-4935

Reyes, J.

Facts

This is an action originally brought to recover possession 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 with 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. And stilllater defendant's surveyor and witness, Quirino Feria, had testified that the area occupied and

claimed by defendant was about 13 hectares. 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 predecessorin 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 ininterest." The answer therefore prays that the complaint be dismissed with costs and plaintiff

required to reconvey the land to defendant or pay its value. The trial court rendered judgment for

plaintiff, declaring defendant to be without any right to the land in question and ordering him torestore 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. On appeal, Quirino raised that

the trial court erred in not dismissing the case on the ground that the case was not brought by thereal party in interest.

Issue

Whether or not the court erred in not dismissing the case for lack of proper party in

interest

Ruling

No. There is nothing in the Rules of Court requiring the action be brought in the name of,

but not necessarily by, the real party in interest. (Section 2, Rule 2.) In fact the practice is for anattorney-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. cannot act asmanaging 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 ofthat 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.



LIM TANHU VS. RAMOLETE

G.R. No. L-40098

Barredo, J.

Facts

Private respondent Tan Put alleged that she is the widow of Tee Hoon Lim Po Chuan,

who was a partner and practically the owner who has controlling interest of Glory Commercial

Co. and a Chinese Citizen until his death. Defendant Antonio Lim Tanhu and Alfonso Leonardo

Ng Sua were partners of Po Chuan and were naturalized Filipino Citizens. Respondent Tan Putfiled a complaint against defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck

Chuan, and Eng Chong Leonardo alleging that through fraud and machination, they took actual

and active management of the partnership and although Po Chuan was the manager of GloryCommercial Co., defendants managed to use the funds of the partnership to purchase lands and

buildings. She also alleged in the complaint that she actually gave money Po Chuan to help

launch the partnership business; that the assets of the business were never liquidated after her

husband’s death; that she was entitled to accounting and share in profits of the partnership aswife of Po Chuan and that she was fraudulently made to sign a quitclaim for 25,000 pesos.

According to the petitioners, Ang Siok Tin is the legitimate wife, who is still living, andwith whom Tee Hoon had four legitimate children, all presently residing in Hong Kong. Tee

Hoon died in 1966 and as a result of which the partnership was dissolved and what corresponded

to him were all given to his legitimate wife and children. Tan Put prior of her alleged marriagewith Tee Hoon on 1949, was engaged in the drugstore business; that not long after her marriage,

upon the suggestion of the latter sold her drugstore for P125,000.00 which amount she gave to

her husband as investment in Glory Commercial Co.

Issue

Whether Tan Put, as she alleged being married with Tee Hoon, can claim from the

company of the latter’s share

Held

No. The private respondent failed to prove that she is indeed the legal wife of Po Chuan

because of the unavailability of marriage contract as required under Article 55 of the Civil Codeand other competent evidence proving their marriage. On the contrary, the evidence shows that

her relation with the deceased was that of a common law wife and furthermore, that all her

claims against the company and its surviving partners have already been settled and paid.

Private respondent also failed to prove that defendants defrauded the partnership Glory

Commercial Co. Since Po Chuan was in control of the affairs of the partnership, the more logical

inference is that if defendants had obtained any portion of the funds of the partnership forthemselves, it must have been with the knowledge and consent of Po Chuan, for which reason no

accounting could be demanded from them therefore, considering that Article 1807 of the Civil

Code refers only to what is taken by a partner without the consent of other partners.



LIM TONG LIM V. PHILIPPINE FISING GEAR INDUSTRIES INC.

G.R. No. 136448

Panganiban, J.

Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered

into a Contract for the purchase of fishing nets from the Philippine Fishing Gear Industries, Inc

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

however was not a signatory to the agreement. However, the buyers failed to pay for the fishingnets and the floats; hence, PFGI filed a collection suit against Chua, Yao and 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 anonexistent corporation as shown by a Certification from the Securities and Exchange

Commission (SEC). On September 1990, the lower court issued a Writ of Preliminary

Attachment.

Chua filed a Manifestation admitting his liability and requesting a reasonable time within

which to pay. Peter Yao filed an Answer, after which he was deemed to have waived his right to

cross-examine witnesses and to present evidence on his behalf, because of his failure to appear insubsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and

Crossclaim and moved for the lifting of the Writ of Attachment. Lim Tong Lime also argued that

he was merely the lessor of the boats to Chua and Yao, not a partner in the fishing venture.

On November 18, 1992, the trial court rendered its Decision, ruling that PFGI was

entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointlyliable to pay PFGI. Lim appealed to the Court of Appeals (CA) which affirmed the RTC

decision.

Issue

Whether or not there existed a partnership between Chua, Yao and Lim?

Held

Yes. The SC ruled that the facts as found by the two lower courts clearly showed thatthere existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code

which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themselvesto contribute money, property, or industry to a common fund, with the intention of

dividing the profits among themselves.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had

decided to engage in a fishing business, which they started by buying boats worth P3.35 million,financed by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise

Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the

sale of the boats, and to divide equally among them the excess or loss. These boats, the purchaseand the repair of which were financed with borrowed money, fell under the term "common fund"

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

intangible like credit or industry. That the parties agreed that any loss or profit from the sale andoperation of the boats would be divided equally among them also shows that they had indeed

formed a partnership.

Furthermore, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing,

were obviously acquired in furtherance of their business.



The court rules that given the preceding facts, it is clear that there was a partnership

engaged in the fishing business. They purchased the boats, which constituted the main assets ofthe partnership, and they agreed that the proceeds from the sales and operations thereof would be

divided among them.



LIM V. COURT OF APPEALS

G.R. No. 102784

Hermosisa Jr., J.:

Facts

On October 8, 1987, Rosa Lim who had come from Cebu received from private

respondent Victoria Suarez the following two pieces of jewelry; one 3.35 carat diamond ring

worth P169K and one bracelet worth P170K, to be sold on commission basis. The agreementwas reflected in a receipt.

On December 15, 1987, Lim returned the bracelet to Suarez, but failed to return thediamond ring or to turn over the proceeds thereof if sold. As a result, private complainant, aside

from making verbal demands, wrote a demand letter to petitioner asking for the return of said

ring or the proceeds of the sale thereof.

Lim’s contention: She was not an agent of Suarez. In fact, she was a prospective buyer of

the pieces of jewelry. She told Mrs. Suarez that she would consider buying the pieces of jewelry

for her own use and that she would inform the private complainant of such decision before shegoes back to Cebu. She cannot be liable for estafa since she never received the jewelries in trust

or on commission basis from Vicky Suarez. The real agreement between her and the private

respondent was a sale on credit with Mrs. Suarez as the owner-seller and petitioner as the buyer,as indicated by the bet that petitioner did not sign on the blank space provided for the signature

of the person receiving the jewelry but at the upper portion thereof immediately below the

description of the items taken.

Issue

Whether or not the real transaction between Lim and Suarez was that of sale or that of

contract of agency to sell?

Held

Receipt contains the following provisions:

XXX I received from Vicky Suarez the following jewelries XXX

XXX if I could not sell, I shall return all the jewelry within the period mentioned above; if I

would be able to sell, I shall immediately deliver and account the whole proceeds of sale thereofto the owner of the jewelries at his/her residence XXX

Rosa Lim’s signature indeed appears on the upper portion of the receipt immediately

below the description of the items taken. This does not have the effect of altering the terms of thetransaction from a contract of agency to sell on commission basis to a contract of sale. Contracts

shall be obligatory in whatever form they may have been entered into, provided all the essential

requisites for their validity are present.

There are some provisions of the law which require certain formalities for particular

contracts. It is required for the validity of the contract; to make the contract effective as againstthird parties and; for the purpose of proving the existence of the contract. A contract of agency to

sell on commission basis does not belong to any of these three categories, hence it is valid and

enforceable in whatever form it may be entered into. FYI: There is only one type of legalinstrument where the law strictly prescribes the location of the signature – which is in notarialwills found in Article 805 NCC.



In the instant case, the parties did not execute a notarial will but a simple contract of

agency to sell on commission basis, thus making the position of petitioner’s signature thereto

immaterial.



Lopez v. Court of Appeals

G.R. No. 157784

Tinga, J.

Facts

The decedent, Juliana, was married to Jose Lopez Manzano (Jose). Their union did

not bear any children. Juliana owns, as part of her paraphernal properties, disputed

properties totaling more than 1,500 hectares consist of six parcels of land, which are all

located in Batangas. On 23 March 1968, Juliana executed a notarial will whereby she

expressed that she wished to constitute a trust fund for her paraphernal properties to be

administered by her husband. If her husband were to die or renounce the obligation, her

nephew, Enrique Lopez, was to become administrator and executor of the trust fund .

Juliana initiated the probate of her will five (5) days after its execution, but she died on

12 August 1968, before the petition for probate could be heard. The petition was pursued

instead by her husband, Jose, who was the designated executor in the will. On 7 October

1968, the Court of First Instance, Branch 3, Balayan, Batangas admitted the will to

probate and issued the letters testamentary to Jose. Jose then submitted an inventory of

Juliana’s real and personal properties with their appraised values, which was approved by

the probate court. Thereafter, Jose filed a Report dated 16 August 1969, which included a

proposed project of partition. On 25 August 1969, the probate court issued an order

approving the project of partition. The properties which Jose had alleged as registered in

his and Juliana’s names, including the disputed lots, were adjudicated to Jose as heir,

subject to the condition that Jose would settle the obligations charged on these properties.

The probate court, thus, directed that new certificates of title be issued in favor of Jose as

the registered owner thereof in its Order dated 15 September 1969. On even date, the

certificates of title of the disputed properties were issued in the name of Jose.Jose died on 22 July 1980, leaving a holographic will disposing of the disputed

properties to respondents. Pursuant to Jose’s will, the RTC ordered on 20 December 1983

the transfer of the disputed properties to the respondents as the heirs of Jose.

Consequently, the certificates of title of the disputed properties were cancelled and new

ones issued in the names of respondents.

Petitioner’s father, Enrique Lopez, also assumed the trusteeship of Juliana’s estate.

On 30 August 1984, the RTC of Batangas, Branch 9 appointed petitioner as trustee of

Juliana’s estate. On 11 December 1984, petitioner instituted an action for reconveyance

of parcels of land with sum of money before the RTC of Balayan, Batangas against

respondents. The complaint essentially alleged that Jose was able to register in his namethe disputed properties, which were the paraphernal properties of Juliana, either during

their conjugal union or in the course of the performance of his duties as executor of the

testate estate of Juliana and that upon the death of Jose, the disputed properties were

included in the inventory as if they formed part of Jose’s estate when in fact Jose was

holding them only in trust for the trust estate of Juliana.

Issues

1. Whether the last will and testament of Juliana is an express trust or an implied

trust2.

Whether the action for recoveyance by the petitioner has already prescribed

Held

1. On the premise that the disputed properties were the paraphernal properties of Juliana

which should have been included in the trust fund, their registration in the name of Jose would be



erroneous and Jose’s possession would be that of a trustee in an implied trust. Implied trusts are

those which, without being expressed, are deducible from the nature of the transaction as matters

of intent or which are superinduced on the transaction by operation of law as matters of equity,independently of the particular intention of the parties. The provision on implied trust governing

the factual milieu of this case is provided in Article 1456 of the Civil Code, which states: If

property is acquired through mistake or fraud, the person obtaining it is, by force of law,considered a trustee of an implied trust for the benefit of the person from whom the property

comes.

The disputed properties were excluded from the trust fund at the outset. Jose registeredthe disputed properties in his name partly as his conjugal share and partly as his inheritance from

his wife Juliana, which is the complete reverse of the claim of the petitioner, as the new trustee,

that the properties are intended for the beneficiaries of the trust fund . Furthermore, the exclusionof the disputed properties from the trust fund was approved by the probate court and,

subsequently, by the trial court having jurisdiction over the trust fund . The registration of the

disputed properties in the name of Jose was actually pursuant to a court order. The apparent

mistake in the adjudication of the disputed properties to Jose created a mere implied trust of theconstructive variety in favor of the beneficiaries of the trust fund .

2. The right to seek reconveyance based on an implied or constructive trust is not absolute.It is subject to extinctive prescription. An action for reconveyance based on implied or

constructive trust prescribes in 10 years. This period is reckoned from the date of the issuance of

the original certificate of title or transfer certificate of title. Since such issuance operates as aconstructive notice to the whole world, the discovery of the fraud is deemed to have taken place

at that time. In the instant case, the ten-year prescriptive period to recover the disputed property

must be counted from its registration in the name of Jose on 15 September 1969, when petitionerwas charged with constructive notice that Jose adjudicated the disputed properties to himself as

the sole heir of Juana and not as trustee of the trust fund.

It should be pointed out also that Jose had already indicated at the outset that the disputed

properties did not form part of the trust fund contrary to petitioner’s claim that no overt acts of

repudiation may be attributed to Jose. It may not be amiss to state that in the project of partition

submitted to the probate court, Jose had indicated that the disputed properties were conjugal innature and, thus, excluded from Juliana’s trust fund. This act is clearly tantamount to repudiating

the trust, at which point the period for prescription is reckoned. In any case, the rule that a trustee

cannot acquire by prescription ownership over property entrusted to him until and unless herepudiates the trust applies only to express trusts and resulting implied trusts. However, in

constructive implied trusts, prescription may supervene even if the trustee does not repudiate the

relationship. Necessarily, repudiation of said trust is not a condition precedent to the running ofthe prescriptive period.24 Thus, for the purpose of counting the ten-year prescriptive period for

the action to enforce the constructive trust, the reckoning point is deemed to be on 15 September

1969 when Jose registered the disputed properties in his name.



LOZANA vs. DEPAKAKIBO

G.R. No. L-13680

Labrador, J.

Facts

Plaintiff Mauro Lozana entered into a contract with defendant Serafin Depakakibo

wherein they established a partnership for the purpose of maintaining, operating and distributing

electric light and power in the Municipality of Dumangas, Province of Iloilo, under a franchise

issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public necessity andconvenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by the

Public Service Commission on May 15, 1955. Because of the cancellation of the franchise in the

name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator Buda to the newgrantee Olimpia D. Decolongon. Defendant Serafin Depakakibo, on the other hand, sold one

Crossly Diesel Engine to the spouses Felix Jimenea and Felina Harder.

Plaintiff Mauro Lozana brought an action against the defendant, alleging that he is theowner of the Generator Buda and that he is entitled to the possession thereof, but that the

defendant has wrongfully detained them as a consequence of which plaintiff suffered damages.

Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take possessionof the generator and 70 wooden posts. Defendant denied that the generator and the equipment

mentioned in the complaint belong to the plaintiff and alleging that the same had been

contributed by the plaintiff to the partnership entered into between them in the same manner thatdefendant had contributed equipment and therefore that he is not unlawfully detaining them. The

lower court declared that the contract of partnership was null and void, because by the contract

of partnership, the parties thereto have become dummies of the owner of the franchise.

Issue

Whether or not a contract of partnership is null and void

Held

Upon examining the contract of partnership, especially the provision thereon wherein the

parties agreed to maintain, operate and distribute electric light and power under the franchise

belonging to Mrs. Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such as to make the contract of partnership, null and void ab initio. The agreement

could have been submitted to the Public Service Commission if the rules of the latter require

them to be so presented. But the fact of furnishing the current to the holder of the franchisealone, without the previous approval of the Public Service Commission, does not per se make the

contract of partnership null and void from the beginning and render the partnership entered into

by the parties for the purpose also void and non-existent. Under the circumstances, therefore, the

court erred in declaring that the contract was illegal from the beginning and that parties to the partnership are not bound therefor, such that the contribution of the plaintiff to the partnership

did not pass to it as its property.



MACABABBAD, JR. V. MARISAG

G.R. No. 161237

Brion, J.

Facts

The deceased Spouses Pedro Masirag (Pedro) and Pantaleona Tulauan (Pantaleona) were

the original registered owners of Lot No. 4144 of the Cadastral Survey of Tuguegarao. Pedro and

Pantaleona had eight (8) children, namely, Valeriano, Domingo, Pablo, Victoria, Vicenta, Inicio,

Maxima and Maria. Respondents Fernando, Faustina, Corazon and Leonor Masirag are thechildren of Valeriano and Alfora Goyagoy, while Leoncio is the son of Vicenta and Braulio

Goyagoy. The respondents allegedly did not know of the demise of their respective parents; they

only learned of the inheritance due from their parents in the first week of March 1999 when theirrelative, Pilar Quinto, informed respondent Fernando and his wife Barbara Balisi about it. They

immediately hired a lawyer to investigate the matter. The investigation disclosed that the

petitioners falsified an extrajudicial settlement of estate and sale December 3, 1967 so that the

respondents were deprived of their shares in Lot No. 4144. The document purportedly bore therespondents’ signatures, making them appear to have participated in the execution of the

document when they did not; they did not even know the petitioners. The document ostensibly

conveyed the subject property to Macababbad for the sum of P1,800.00. Subsequently, OCT No.1946 was cancelled and Lot No.4144 was registered in the names of its new owners under

Transfer Certificate of Title (TCT) No. 13408, presumably after the death of Pedro and

Pantaleona. However, despite the supposed sale to Macababbad, his name did not appear on theface of TCT No. 13408. Despite his exclusion from TCT No. 13408 his petition for another

owner’s duplicate copy of TCT No. 13408, filed in the Court of First Instance of Cagayan, was

granted on July 27, 1982. Subsequently, Macababbad registered portions of Lot No. 4144 in hisname and sold other portions to third parties. On May 18, 1972, Chua filed a petition for the

cancellation of TCT No T-13408 and the issuance of a title evidencing his ownership over a

subdivided portion of Lot No. 4144 covering 803.50 square meters. On May 23, 1972, TCT No.T-18403 was issued in his name. Respondents filed an alleged action for reconveyance, quieting

of titles, nullity of titles, damages and attorney’s fees.

Issue

Whether the action, which was filed 32 years after the property was partitioned and after

a portion was sold to Macababbad, had already prescribed

Ruling

Precedents say it does not; the action remains imprescriptible, the issuance of the

certificates of titles notwithstanding. Ingjug-Tiro is again instructive on this point:

Article 1458 of the New Civil Code provides: By the contract of sale one of thecontracting parties obligates himself of transfer the ownership of and to deliver adeterminate thing, and the other to pay therefor a price certain in money or its equivalent.

It is essential that the vendors be the owners of the property sold otherwise they cannotdispose that which does not belong to them. As the Romans put it: Nemo dat quod non

habet. No one can give more than what he has. The sale of the realty to respondents isnull and void insofar as it prejudiced petitioner’s interests and participation therein. At

best, only the ownership of the shares of Luisa, Maria and Guillerma in the disputed

property could have been transferred to respondents.

Consequently, respondents could not have acquired ownership over the land to the extentof the shares of petitioners. The issuance of a certificate of title in their favor could notvest upon them ownership of the entire property; neither could it validate the purchase

thereof which is null and void. Registration does not vest title; it is merely the evidenceof such title. Our land registration laws do not give the holder any better title than what



he actually has. Being null and void, the sale to respondents of the petitioner’s shares produced no legal effects whatsoever.

Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the

Extrajudicial Settlement and Confirmation of Sale executed in 1967 would be fatal to thevalidity of the contract, if proved by clear and convincing evidence. Contracting parties

must be juristic entities at the time of the consummation of the contract. Stated otherwise,to form a valid and legal agreement it is necessary that there be a party capable ofcontracting and party capable of being contracted with. Hence, if any one party to a

supposed contract was already dead at the time of its execution, such contract isundoubtedly simulated and false and therefore null and void by reason of its having beenmade after the death of the party who appears as one of the contracting parties therein.The death of a person terminates contractual capacity.

In actions for reconveyance of the property predicated on the fact that the conveyancecomplained of was null and void ab initio, a claim of prescription of action would be unavailing.

The action or defense for the declaration of the inexistence of a contract does not prescribe.

Neither could laches be invoked in the case at bar. Laches is a doctrine in equity and our courtsare basically courts of law and not courts of equity. Equity, which has been aptly described as

justice outside legality, should be applied only in the absence of, and never against, statutory

law. Aequetas nunguam contravenit legis. The positive mandate of Article 1410 of the NewCivil; Code conferring imprescriptibility to actions for declaration of the inexistence of a

contract should preempt and prevail over all abstract arguments based only on equity. Certainly,laches cannot be set up to resist the enforcement of an imprescriptible legal right, and petitioners

can validly vindicate their inheritance despite the lapse of time.



MARSMAN DRYSDALE LAND, INC. V. PHILIPPINE GEOANALYTICS, INC.

G.R. No. 183374

Carpio-Morales, J.

Facts

Marsman Drysdale and Gotesco entered into a Joint Venture Agreement for the

construction and development of an office building on a land owned by Marsman Drysdale in

Makati City. The pertinent provision of the joint venture agreement provides that the parties will

be investing in the project on 50%-50% basis. Marsman shall contribute the property (land),while Gotesco shall contribute the amount of P420, 000,000 in cash. Marsman shall not be

obligated to fund the project as its contribution is limited to the property. Subsequently, to

implement the project, the joint venture entered into a Technical Services Contract engaging theservices of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory

testing, seismic study and geotechnical engineering for the project. PGI then billed the joint

venture for the cost of partial subsurface soil exploration and the cost of the completed seismic

study. But despite repeated demands from PGI, the joint venture failed to pay its obligations.Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short

and the planned building project was eventually shelved. PGI meanwhile subsequently filed a

complaint for the collection of sum of money.

In its answer, Marsman passed the responsibility of paying PGI to GOtesco which, under

the joint venture agreement was solely liable for the monetary expenses of the project. Gotesco,on the other hand, countered that PGI has no cause of action against it as PGI had yet to

complete the services enumerated in the contract; and that Marsman failed to clear the property

of debris which prevented PGI from completing its work.

Issue

Between Marsman and Drysdale, who is responsible for the payment of the obligations to

PGI

Held

A joint venture being a form of partnership, it is to be governed by the laws on

partnership. Article 1797 of the Civil Code provides:

“Art.1797. The losses and profits shall be distributed in conformitywith the agreement. If only the share of each partner in the profits has been

agreed upon, the share of each in the losses shall be in the same proportion.

In the absence of stipulation, the share of each in the profits and

losses shall be in proportion to what he may have contributed, but theindustrial partner shall not be liable for the losses. As for the profits, theindustrial partner shall receive such share as may be just and equitable under

the circumstances. If besides his services he has contributed capital, he shallalso receive a share in the profits in proportion to his capital.”

In the agreement, Marsman and Gotesco agreed on a 50-50 ratio on the proceeds of the

project. They did not provide for the splitting of losses, however. Applying the abovementioned provision of Article 1797, the same ratio applies in splitting the obligation-loss of the joint

venture.



already contracted, or if a partner is appointed manager of a partnership in the contract of

partnership and his removal from the management is unjustifiable.



ISABELO MORAN, JR. vs. COURT OF APPEALS

G. R. No. L-59956

Gutierrez, Jr., J.

Facts

Petitioner Moran and private respondent Pecson, entered into an agreement that each of

them would contribute Php15,000 for the purpose of printing 95,000 posters of the delegates to

the 1971 Constitutional Convention. They also agreed on the following:

1) Moran would be supervising the work;

2) Pecson would receive a commission of Php1,000 per month from April 15, 1971 toDecember 15, 1971; and

3) a liquidation of the accounts in the distribution and printing of the 95,000 posters

would be made on December 15, 1971.

Pecson gave Php10,000 to Moran as partial fulfillment of his obligation. The latter then

issued a receipt for the said amount. Moran used Php4,000 for the printing of 2,000 posters only.

All of the 2,000 posters were sold at Php5.00 each, having a gross income of Php10,000. OnMay 28, 1971, Moran executed a promissory note in favor of Pecson in the amount of Php20,000

payable in two equal installments. Upon default in the payment of the first installment on the

date due, the whole amount became due.

Pecson filed an action with the Court of First Instance of Manila for recovery of a sum of

money against petitioner. He sought, among others, the return of his Php10,000 contribution, the payment of his share in the profits of the partnership and the payment of his commission. CFI-

Manila ordered Moran to return Pecson’s contribution with legal interest. The parties appealed to

the Court of Appeals which ruled against the petitioner, ordering the latter to pay PecsonPhp45,000 for the amount that could have accrued to Pecson under the agreement, Php8,000 for

the commissions and the return of Pecson’s investment, all with legal interest.

Issue

Whether or not the Court of Appeals erred in holding Moran liable to Pecson for the

unrealized profits in the amount of Php47,500 and for the supposed commissions in the amountof Php8,000.

Held

Yes. The award of Php47,500 as the private respondent’s share in the unrealized profits

of the partnership is highly speculative and it has no factual or legal basis.

The rule is, when a partner who has undertaken to contribute a sum of money fails to do

so, he becomes a debtor of the partnership for whatever he may have promised to contribute and

for the interests and damages he should have complied with his obligation.

Being a contract of partnership, each partner must share in the profits and losses of the

venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner

cannot claim a right to recover the highly speculative profits. It is a rare business venture

guaranteed to give 100% profits. But the partner is still entitled to recover the share of profitsactually realized by the venture.

Where partnership venture is a failure, a partner is not entitled to any commission

promised by co-partner where agreement does not state the basis of commission.



OBILLOS v. COMMISSIONER OF INTERNAL REVENUE

G.R. No. L-68118

Aquino, J.

Facts

On March 2, 1973, Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two

lots with areas of 1124 and 963 square meters located at Greenhills, San Juan, Rizal. The next

day he transferred his rights to his four children to enable them to build their residences. TheTorrens titles issued to them would show that they were co-owners of the two lots. In 1974, or

after having held the two lots for more than a year, the petitioners resold them to the Walled City

Securities Corporation and Olga Cruz Canda for the total sum of P313,050.Worth of two lots: P178,708.12

Re-sold at the price: P313,050.

Profit [Total]: P134,341.88

Profit [Each]: P33,584.They treated the profit as a capital gain and paid an income tax on ½ thereof:

Income tax: P16,792.

In April 1980, Aside from individual income tax on their shares, the Commissioner of

Internal Revenue required the petitioners to pay:

Corporate Income tax on the total profit of P134,336 = P37,01850& Fraud surcharge: P18,509

42% Accumulated interest P15,547.56

Total: P71,074.56

CIR also considered the share of the profits of each petitioner in the sum of P33,584 as a

distributive dividend taxable in full and required them to pay deficiency income taxesaggregating P56,707.20 including the 50% fraud surcharge and accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties

totaling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains already paid by them. The commissioner acted on the theory that the four petitioners had formed an

unregistered partnership or joint venture within the meaning of sections 24(a) and 84 (b) of the

Tax Code.

Issue

Whether or not the petitioners are considered to have formed a partnership under Article

1767 of the Civil Code

Held

No, the petitioners are not considered as having formed a partnership simply because they

allegedly contributed P178,708.12 to buy the 2 lots, resold the same and divided the profitamong themselves.

The petitioners are co-owners, pure and simple. To consider them as partners wouldobliterate the distinction between a co-ownership and partnership. The petitioners were not

engaged in any joint venture by reason of that isolated transaction. Their original purpose was to

divide the lots for residential purposes. If later on they found it not feasible to build theirresidences on the lots because of the high cost of construction, then they had no choice but toresell the same to dissolve the co-ownership. The division of the profit was merely incidental to

the dissolution of the co-ownership which was in the nature of things a temporary state. It had to

be terminated sooner or later.



Art. 1769[3] of the Civil Code provides 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. There must be an unmistakableintention to form a partnership or joint venture.



ONA V. COMMISSIONER OF INTERNAL REVENUE

GR No. L-19342, May 25, 1972

Barredo, J.

Facts

Julia Bunales died leaving petitioners Lorenzo T. Ona and their five children as her heirs.

For the settlement of her estate, Lorenzo T. Ona was appointed by the court as the administrator.

The project partition shows that the heirs have undivided one-half interest in ten parcels of land,six houses, and P 50,000 from War Damage Commission, which was used to rehabilitate the

properties owned by them in common. Although the project of partition was approved by the

Court, no attempt was made to divide the properties therein listed. Instead, the propertiesremained 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. On the basis of the foregoing facts, respondent

Commissioner decided that petitioners formed an unregistered partnership and therefore, subjectto the corporate income tax.

Issue

Whether the petitioners formed an unregistered partnership

Held

Yes. The petitioners did not merely limit themselves to holding the properties inherited bythem. 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, petitioners engaged, thru Lorenzo T.

Oña, in the purchase and sale of corporate securities. It is likewise admitted that all the profitsfrom these ventures were divided among petitioners proportionately in accordance with their

respective shares in the inheritance. In these circumstances, it is the Court's 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 acommon fund in undertaking several transactions or in business, with the intention of deriving

profit to be shared by them proportionally, such act was tantamount to actually contributing such

incomes to a common fund and, in effect, they thereby formed an unregistered partnership withinthe purview of the above-mentioned provisions of the Tax Code.



Orient Air Services and Hotel Representatives v. Court of Appeals

GR No. 76931

Padilla, J.

Facts

American Airlines Inc. (AAI), an air carrier offering passenger and air cargo

transportation in the Philippines, and Orient Air Services and Hotel Representatives (Orient Air)

entered into a General Sales Agency Agreement authorizing the latter to act as its exclusivegeneral sales agent within the Philippines for the sale of air passenger transportation. Due to the

alleged failure of Orient Air to promptly remit the net proceeds of sales for 6 months, AAI

undertook the collection of the proceeds of tickets sold originally by Orient Air and terminatedthe agency agreement. AAI then instituted suit against Orient Air with CFI of Manila for

Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining

Order. The CFI of Manila ruled in favor of Orient Air and dismissed the complaint. It then

ordered AAI to reinstate Orient Air as its general sales agent for passenger transportation in thePhilippines. The CA affirmed with modifications the findings of CFI of Manila

Issue

Whether or not American Air can be ordered by the Court to “reinstate Orient Air as itsgeneral sales agent for passenger transportation in the Philippines in accordance with the General

Sales Agreement”

Held

NO. By affirming this ruling of the trial court, respondent appellate court, in effect,

compels American Air to extend its personality to Orient Air. Such would be violative of the

principles and essence of agency, defined by law as a contract whereby “a person binds

himself to another to render some service or to do something in representation or on behalf ofanother WITH THE CONSENT OR AUTHORITY OF THE LATTER”. In an agent-principal

relationship, the personality of the principal is extended through the facility of the agent. In so

doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which thelatter would have him do. Such a relationship can only be effected with the consent of the

principal, which must not, in any way, be compelled by law or by any court.



PASCUAL v. THE COMMISSIONER OF INTERNAL REVENUE

G.R. No. 78133, October 18, 1988

Gancayco, J.

Facts

On June 22, 1965, petitioners Mariano P. Pascual and Renato P. Dragon purchased two

parcels of land from Santiago Bernardino and purchased three other parcels of land from Juan

Roque on May 28, 1966. Subsequently they sold the parcels of land in 1968 and 1970. The

petitioners paid the corresponding capital gains taxes. On March 31, 1979, then Acting BIRCommisssioner Efren Plana assessed the petitioners of the alleged corporate income taxes

deficiency in 1968 and 1970, amounting to 107,101.70. The respondent commission alleged that

the petitioners as co-owners in the real estate transactions formed an unregistered partnershiptaxable as a corporation under the National Internal Revenue Code. The petitioners asserted that

they have already availed of the tax amnesties way back in 1974. The petitioners filed a petition

for review with the CTA, which affirmed the decision.

Issue

Whether or not the co-owners of the real estate property formed an unregistered partnership subject to corporate taxes under the NIRC

Held

No. There was no evidence that the petitioners agreed to enter into a contract of

partnership. Article 1767 of the Civil Code provides that by the contract of partnership two ormore persons bind themselves to contribute money, property, or industry to a common fund, with

the intention of dividing the profits among themselves. It is undisputed that here was an

agreement to contribute money, property and industry to a common fund, which they did so.Their purpose was likewise to engage in real estate transactions for monetary gain and divide the

same among themselves. However, they may not suffice to establish the intent necessary to

constitute a partnership.

Article 1769 lays down the rule for determining when transactions should be deemed as

partnership. Paragraphs 2 and 3 of the same article established that the common ownership of

property or the sharing of returns does not itself create a partnership between the co-owners.

There must be a clear intent to form a partnership, the existence of a juridical personality

different from the individual partners, and the freedom of each party to transfer or assign thewhole property. The two isolated transactions whereby they purchased properties and sold the

same a few years thereafter did not thereby make them partners. Additionally, petitioners have

availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are

thereby relieved of any further tax liability arising therefrom.



Pedrano vs. Heirs of Benedicto Pedrano

G.R. No. 159666

Velasco, Jr., J.

Facts

Lot No. 6416 was previously owned by Dr. Isidro Hynson who sold it on March 15, 1965

to Romana Monteal Pedrano, for PhP 315.02. Fourteen years later, petitioner Eulogio M.

Pedrano, a son of Romana, alleged that he had bought the land himself for PhP 30,000 fromRomana, payable on or before December 31, 1982 as shown in the Deed of Sale dated December

22, 1981. The Regional Trial Court (RTC) acting as Cadastral Court rendered a Decision

adjudicating Lot No. 6416, Ts-222 to petitioner.

Alleging that petitioner had not paid the PhP 30,000 consideration for Lot No. 6416 until

the December 31, 1982 deadline, respondents filed before the Municipal Trial Court of Molave,

Zamboanga del Sur, a complaint asking for the annulment of the December 22, 1981 Deed ofSale, and the recovery of the possession and ownership of Lot No. 6416. According to

respondents, Romana informed petitioner that the former was cancelling the sale and petitioner

should have Dr. Hynson’s name in the title replaced with her name. Respondents added thatdespite the cancellation of the deed of sale, Romana allowed petitioner to occupy the house on

Lot No. 6416. Further, respondents averred they were unaware that petitioner instituted a

cadastral case to have the land titled to himself. They discovered his machinations only in 1994.Thus, respondents instituted the instant case to have the December 22, 1981 Deed of Sale voided

for want of consideration and for fraud. Petitioner averred that respondents’ action was barred by

the decision of the RTC in Cadastral Case. The RTC said that it could no longer annul the salereasoning that Article 1144 of the Civil Code provided for 10 years within which to bring action

from the time the right of action accrues upon a written contract. Hence, it concluded that since

the deed of sale was executed on December 22, 1981, and the instant action was filed only onSeptember 5, 1996, after more than 14 years, prescription had set in. The Court of Appeals

rendered the assailed decision which granted respondents’ appeal, and reversed and set aside the

RTC Decision. The CA explained that the instant case involves an implied trust, and that Art.

1456 of the Civil Code was the applicable law.

Issue

Whether or not the possession of the land by petitioner an implied or express trust? Has

the action of respondents prescribed?

Held

Petitioner’s possession of Lot No. 6416, owned by his parents, was an implied trust

constituted upon petitioner. The CA is correct in applying Article 1456 on implied trust to thiscase.



An action for the reconveyance of a parcel of land based on implied or constructive trust,

as we have already explained in this case, prescribes in 10 years, the point of reference being the

date of registration of the deed or the date of the issuance of the certificate of title of the property. In the instant case, no OCT has yet been issued to Lot No. 6416 despite an order on

July 3, 1989 to title Lot Nos. 6409-A and 6416. Without an OCT, the date from whence the

prescriptive period could be reckoned is unknown and it could not be determined if indeed the period had already lapsed or not. Thus, we agree with the CA that prescription has not yet set in

when the instant case was filed on September 5, 1996.



PHILEX MINING CORPORATION V. COMMISSION OF INTERNAL REVENUE

G.R. No. 148187

Ynares-Santiago, J.

Facs

On April 16, 1971, petitioner Philex Mining Corporation entered into an agreement with

Baguio Gold Mining Company for the former to manage and operate the latter’s mining claim,

known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties’agreement was denominated as “Power of Attorney” In the course of managing and operating the

project. Philex Mining made advances of cash and property in accordance with paragraph 5 of

the agreement. However, the mine suffered continuing losses over the years which resulted to petitioner’s withdrawal as manager of the mine. Thereafter, the parties executed a “Compromise

with Dation in Payment wherein Baguio Gold admitted an indebtedness to petitioner and agreed

to pay the same and subsequently executed an “Amendment to Compromise with Dation in

Payment.” In its 1982 annual income tax return, petitioner deducted from its gross income theamount of P112,136,000.00 as “loss on settlement of receivables from Baguio Gold against

reserves and allowances.” However, the Bureau of Internal Revenue disallowed the amount as

deduction for bad debt. Petitioner insists that in determining the nature of its businessrelationship with Baguio Gold it must rely on the “Power of Attorney”, “Compromise with

Dation in Payment,” and “Amended Compromise with Dation in Payment.” These documents,

allegedly evinced the parties’ intent to treat the advances and payments as a loan and establish acreditor-debtor relationship between them. The CTA rejected petitioner’s assertion that the

advances it made for the Sto. Nino mine were in the nature of a loan. It instead characterized the

advances as petitioner’s investment in a partnership with Baguio Gold for the development andexploitation of the Sto. Nino mine.

Issue

Whether or not the relationship between the parties is an agency

Ruling

No. The “Power of Attorney” is the instrument that is material in determining the true

nature of the business relationship between petitioner and Baguio Gold. Before resort may behad to the two compromise agreements, the parties’ contractual intent must first be discovered

from the expressed language of the primary contract under which the parties’ business relations

were founded. It should be noted that the compromise agreements were mere collateraldocuments executed by the parties pursuant to the termination of their business relationship

created under the “Power of Attorney”. An examination of the “Power of Attorney” reveals that

a partnership or joint venture was indeed intended by the parties. They also had a joint interest in

the profits of the business as shown by a 50-50 sharing in the income of the mine. It should bestressed that the main object of the “Power of Attorney” was not to confer a power in favor of

petitioner to contract with third persons on behalf of Baguio Gold but to create a business

relationship between petitioner and Baguio Gold in which the former was to manage and operatethe latter’s mine through the parties’ mutual contribution of material resources and industry. The

essence of an agency, even one that is coupled with interest, is the agent’s ability to represent

his principal and bring about business relations between the latter and third persons. Whererepresentation for and in behalf of the principal is merely incidental or necessary for the proper

discharge of one’s paramount undertaking under a contract, the latter may not necessarily be a

contract of agency, but some other agreement depending on the ultimate undertaking of the parties. In this case, the totality of the circumstances and the stipulations in the parties’agreement indubitably lead to the conclusion that a partnership was formed between petitioner

and Baguio Gold.



RAMNANI V. COURT OF APPEALS

G.R. No. 85494

Sandoval-Gutierrez, J.

Facts

Ishwar Jethmal Ramnani and his wife Sonia had their main business based in New

York, USA. Ishwar received USD150,000 from his father-in-law in Switzerland. In 1965,

Ishwar sent the said amount to Choithram in two bank drafts for the purpose of investingit in real estate in the Philippines. Subsequently, spouses Ishwar executed a general

power of attorney appointing Ishwar’s full blood brothers Choithram and Navalrai as

attorneys-in-fact, empowering them to manage and conduct their business concerns in thePhilippines.

Choithram entered into two agreements for the purchase of two parcels of land

from Ortigas & Company, Ltd. Partnership. Three buildings were constructed therein andwere leased out but unfortunately, two of the said buildings were burned. In 1970, Ishwar

asked Choithram to account for the income and expenses relative to these properties. But

the latter failed to render such accounting, which prompted the former to revoke thegeneral power of attorney. Choithram and Ortigas & Co. were duly notified in writing by

such revocation. Despite such notice, Choitham transferred all rights and interests of

Ishwar spouses in favor of his son’s wife, Nirmla. Ortigas & Co. also executed thecorresponding deed of sale in favor of Nirmla and the TCC was subsequently issued.

The spouses Ishwar filed a complaint in the CFI-Rizal against Choithram, et al.and Ortigas & Co. for the reconveyance of the said properties or payments of its value

plus damages.

Issue

Whether or not there was a partnership between Ishwar and Choithram

Held

Yes. Even without any agreement, a partnership was clearly created. SpousesIshwar supplied the capital of USD150,000 for the business. They entrusted the money to

Choithram to invest the same in a profitable business in the Philippines. For this purpose,

they appointed Choithram as their attorney-in-fact. Choithram, in turn, decided to investin the real estate business. He bought two parcels of land in question from Ortigas & Co.

Instead of paying for the price of the lots in cash, he paid in installments and used the

balance of the capital entrusted to him to build buildings. He leased said buildings and

collected the rentals. Through the industry and wisdom of Choithram, Ishwar’s propertieswere developed and improved into valuable assets worth millions of pesos.

This is a situation where two brothers engaged in a business venture. Onefurnished the capital; the other contributed his industry and talent. Justice and equity

dictate that the two share equally the fruit of their joint investment and efforts. However,

because of the devious machinations and schemes that Choithram employed, he should pay moral and exemplary damages as well as attorney’s fees.



SIREDY ENTERPRISES, INC V. COURT OF APPEALS

G.R. No. 129039

Quisumbing, J.

Facts

Private respondent Conrado De Guzman is an architect-contractor doing business under

the name and style of Jigscon Construction. Petitioner Siredy Enterprises, Inc. is the owner and

developer of Ysmael Village, a subdivision in Sta. Cruz, Marilao, Bulacan. The primarycorporate purpose of Siredy is to acquire lands, subdivide and develop them, erect buildings and

houses thereon, and sell, lease or otherwise dispose of said properties to interested buyers.

Sometime before October 1978, Ismael E. Yanga, the president of Siredy, executed an undatedLetter of Authority authorizing Hermogenes Santos “to do and execute”, among other things, the

act of negotiating and entering into “contract or contracts to build Housing Units on our

subdivision lots in Ysmael Village, Sta. Rosa, Marilao, Bulacan.”

On October 15, 1978, Santos entered into a Deed of Agreement with Conrado De

Guzman where the latter will build for the principal housing units at Ysmael Village. The deed

expressly stated that Santos was representing Siredy Enterprises, Inc. Private respondent wasreferred to as contractor while petitioner Siredy was cited as principal. From October 1978 to

April 1990, De Guzman constructed 26 residential units at Ysmael Village. Thirteen (13) of

these were fully paid but the other 13 remained unpaid. De Guzman tried but failed to collect theunpaid account from petitioner. Thus, he instituted the action below for specific performance

against Siredy, Yanga, and Santos who all denied liability. During the trial, Santos disappeared

and his whereabouts remain unknown. Petitioner, in its defense, presented testimonial evidenceto the effect that Siredy had no contract with De Guzman and had not authorized Santos to enter

into a contract with anyone for the construction of housing units at Ysmael Village.

Issue

Whether Hermogenes B. Santos was a duly constituted agent of Siredy, with authority to

enter into contracts for the construction of residential units in Ysmael Village and thus thecapacity to bind Siredy to the Deed of Agreement

Held

Yes. On its face, the Letter of Authority executed by Yanga clearly and unequivocally

constituted Santos to do and execute, among other things, the act of negotiating and entering intocontract or contracts to build Housing Units on our subdivision lots in Ysmael Village, Sta. Rosa,

Marilao, Bulacan.

A valid agency was created between Siredy and Santos, and the authority conferred uponthe latter includes the power to enter into a construction contract to build houses such as the

Deed of Agreement between Santos and De Guzmans Jigscon Construction. Hence, Siredy is

bound by the contract through the representation of its agent Santos.

Moreover, assuming arguendo that Santos’ mandate was only to sell subdivision lots as

Siredy asserts, the latter is still bound to pay De Guzman. De Guzman is considered a third partyto the agency agreement who had no knowledge of the specific instructions or agreements

between Siredy and its agent. What De Guzman only saw was the written Letter of Authority

where Santos appears to be duly authorized. According to Article 1900 of the Civil Code, thescope of the agent’s authority is what appears in the written terms of the power of attorney.While third persons are bound to inquire into the extent or scope of the agents authority, they are

not required to go beyond the terms of the written power of attorney.



TAI TONG CHUACHE & CO. v. THE INSURANCE COMMISSION

G.R. No. 85494

Gancayco, J.:

Facts

Tai Tong Chuache & Co. (Tai Tong), a partnership, extended a loan to Azucena Palomo.

To secure the payment of said loan, Palomo executed a mortgage over its land and the buildingin favor of Tai Tong. Arsenio Lopez Chua, acting as the managing partner of Tai Tong, insured

the said property with Travellers Multi-Indemnity Corporation (Travellers). Same property were

also insured by a certain Rolando Gonzales and Pedro Palomo with S.S.S. Accredited Group ofInsurers and Philippine British Assurance Company, respectively.

On July 31, 1975, the building and the contents were totally razed by fire. Consequently,

all insurance companies paid their corresponding shares of the total loss except for Travellers.The contention of Travellers, however, is that Tai Tong lacks insurable interest because the

insurance was secured by Chua and that Chua’s acts did not bind Tai Tong.

Issue

Whether or not the acts of Chua has bound the partnership, hence, should make theinsurance company liable

Held

Yes. Chua, as a managing partner of Tai Tong partnership, bound the partnership. He

may execute all acts of administration, including the right to sue debtors of the partnership in thecase of their failure to pay their obligation.

The Supreme Court emphasized that a partnership may sue and be sued in its name or by

its duly authorized representatives. Further, Chua being a partner of petitioner Tai Tong is anagent of the partnership. Being an agent, it is understood that he acted for and in behalf of the

firm. Hence, the insurance company having issued a policy to Chua, acting in behalf of Tai

Tong, must be held liable.



TACAO VS. COURT OF APPEALS

G.R. No. 127405

Ynares-Santiago, J.

Facts

William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed

to form a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao

also contributed some cash and she shall also act as president and general manager; and Anayshall be in charge of marketing. Belo and Tocao specifically asked Anay because of her

experience and connections as a marketer. They agreed further that Anay shall receive the

following:

1. 10% share of annual net profits

2. 6% overriding commission for weekly sales

3.

30% of sales Anay will make herself4. 2% share for her demo services

They operated under the name Geminesse Enterprise, this name was however registered as a

sole proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement

was not reduced to writing because Anay trusted Belo’s assurances.The venture succeeded underAnay’s marketing prowess.But then the relationship between Anay and Tocao soured. One day,

Tocao advised one of the branch managers that Anay was no longer a part of the company. Anay

then demanded that the company be audited and her shares be given to her.

Issue

Whether or not there is a partnership

Held

Yes, even though it was not reduced to writing, for a partnership can be instituted in any

form. The fact that it was registered as a sole proprietorship is of no moment for such registrationwas only for the company’s trade name. Anay was not even an employee because when they

ventured into the agreement, they explicitly agreed to profit sharing this is even though Anay

was receiving commissions because this is only incidental to her efforts as a head marketer.

The Supreme Court also noted that a partner who is excluded wrongfully from a

partnership is an innocent partner. Hence, the guilty partner must give him his due upon the

dissolution of the partnership as well as damages or share in the profits “realized from theappropriation of the partnership business and goodwill.” An innocent partner thus possesses

“pecuniary interest in every existing contract that was incomplete and in the trade name of the

co-partnership and assets at the time he was wrongfully expelled.”



TONGOY V. COURT OF APPEALS

G.R. No. L-45645

Makasiar, J.

Facts

On April 17, 1918, Hacienda Pulo was mortgaged by its registered co-owners to thePhilippine National Bank (PNB), Bacolod Branch, as security for a loan of P11,000.00 payablein ten (10) years at 8% interest per annum. The mortgagors however were unable to keep up withthe yearly amortisations, as a result of which the PNB instituted judicial foreclosure proceedingsover Hacienda Pulo on June 18, 1931. To avoid foreclosure, one of the co-owners andmortgagors, Jose Tongoy, proposed to the PNB an amortization plan that would enable them toliquidate their account. But, on December 23, 1932, the PNB Branch Manager in Bacolodadvised Jose Tongoy by letter that the latter’s proposal was rejected and that the foreclosure suithad to continue. As a matter fact, the suit was pursued to finality up to the Supreme Court whichaffirmed on July 31, 1935 the decision of the CFI giving the PNB the right to foreclose the

mortgage on Hacienda Pulo.In the meantime, Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 aDeclaration of Inheritance wherein they declared themselves as the only heirs of the lateFrancisco Tongoy and thereby entitled to the latter’s share in Hacienda Pulo. On March 13,1934, Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora andPatricio Tongoy executed an Escritura de Venta which by its terms transferred for considerationtheir rights and interests over Hacienda Pulo in favor of Luis D. Tongoy. Thereafter, on October23, 1935 and November 5, 1935, respectively, Jesus Sonora and Jose Tongoy followed suit byeach executing a similar Escritura de Venta (pertaining to their corresponding rights and interestsover Hacienda Pulo in favor also of Luis D. Tongoy. In the case of Jose Tongoy, the execution ofthe Escritura de Venta was preceded by the execution on October 14, 1935 of an Assignment ofRights in favor of Luis D. Tongoy by the Pacific Commercial Company as judgment lien-holder(subordinate to the PNB mortgage) of Jose Tongoy’s share in Hacienda Pulo. On the basis of theforegoing documents, Hacienda Pulo was placed on November 8, 1935 in the name of Luis D.Tongoy, married to Maria Rosario Araneta, under Transfer Certificate of Title No. 20154. In thefollowing year, the title of the adjacent Cuaycong property also came under the name of Luis D.Tongoy, married to Maria Rosario Araneta, per Transfer Certificate of Title No. 21522, by virtueof an Escritura de Venta executed in his favor by the owner Basilisa Cuaycong on June 22, 1936 purportedly for P4,000.00.

On June 26, 1936, Luis D. Tongoy executed a real estate mortgage over the Cuaycong property in favor of the PNB, Bacolod Branch, as security for loan of P4,500.00. Three daysthereafter, on June 29, 1936, he also executed a real estate mortgage over Hacienda Pulo in favorof the same bank to secure an indebtedness of P21,000.00, payable for a period of fifteen (15)years at 8% per annum. After two decades, on April 17, 1956, Luis D. Tongoy paid off all hisobligations with the PNB, amounting to a balance of P34,410.00, including the mortgageobligations on the Cuaycong property and Hacienda Pulo. However, it was only on April 22,1958 that a release of real estate mortgage was executed by the bank in favor of Luis D. Tongoy.On February 5, 1966, Luis D. Tongoy died leaving as heirs his wife Maria Rosario Araneta andhis son Francisco A. Tongoy. Just before his death, however, Luis D. Tongoy received a letterfrom Jesus T. Sonora, dated January 26, 1966, demanding the return of the shares in the properties to the co-owners.

Issues

1.

Whether or not there was a trust constituted on Hacienda Pulo

2. If there is, whether the rights of the respondents have prescribed or barred by latches

Held

1. The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Code. Said provisions state thus:



Art. 1409. The following contracts are inexistentand void from the beginning:x x x x x x x x x.

2) Those which are absolutely simulated or fictitious;

x x x x x x x x x.These contracts cannot be ratified. Neither can theright to set up the defense of illegality be waive

Art. 1410. The action or defense for the declarationof the inexistence of a contract does not prescribe.

Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were fromthe very beginning absolutely simulated or fictitious, since the same were made merely for the

purpose of restructuring the mortgage over the subject properties and thus preventing theforeclosure by the PNB. Considering the law and jurisprudence on simulated or fictitiouscontracts as aforestated, the within action for reconveyance instituted by herein respondentswhich is anchored on the said simulated deeds of transfer cannot and should not be barred by prescription. No amount of time could accord validity or efficacy to such fictitious transactions,the defect of which is permanent. There is no implied trust that was generated by the simulatedtransfers; because being fictitious or simulated, the transfers were null and void ab initio·fromthe very beginning·and thus vested no rights whatsoever in favor of Luis Tongoy or his heirs.That which is inexistent cannot give life to anything at all.

2. But even assuming arguendo that such an implied trust exists between Luis Tongoy astrustee and the private respondents as cestui que trust, still the rights of private respondents toclaim reconveyance is not barred by prescription or laches. While there are some decisionswhich hold that an action upon a trust is imprescriptible, without distinguishing between expressand implied trusts, the better rule, as laid down by this Court in other decisions, is that prescription does supervene where the trust is merely an implied one. The reason has been underSection 40 of the Old Code of Civil Procedure, all actions for recovery of real property prescribein ten years, excepting only actions based on continuing or subsisting trusts that were considered by section 38 as imprescriptible. As held in the case of Diaz vs. Gorricho, L-11229, March 29,1958, however, the continuing or subsisting trusts contemplated in Sec. 38 of the Code of CivilProcedure referred only to express unrepudiated trusts, and did not include constructive trusts(that are imposed by law) where no fiduciary relation exists and the trustee does not recognizethe trust at all.

This doctrine has been reiterated in the latter case of Escay vs. CA. (61 SCRA 370, 387),where WE held that implied or constructive trusts prescribe in ten years. The prescriptibility ofan action for reconveyance based on implied or constructive trust, is now a settled question inthis jurisdiction. It prescribes in ten years (Boñaga vs. Soler, et al., 2 SCRA 755; J.M. Tuazonand Co., Inc. vs. Magdangal, 4 SCRA 88).

Considering that the implied trust resulted from thesimulated sales which were made forthe purpose of enabling the transferee, Luis D. Tongoy, to save the properties from foreclosurefor the benefit of the co-owners, it would not do to apply the theory of constructive noticeresulting from the registration in the trusteeÊs name. Hence, the ten-year prescriptive periodshould not be counted from the date of registration in the name of the trustee, as contemplated inthe earlier case of Juan vs. Zuñiga (4 SCRA 1221). Rather, it should be counted from the date ofrecording of the release of mortgage in the Registry of Deeds, on which date·May 5, 1958·thecestui que trust were charged with the knowledge of the settlement of the mortgage obligation,the attainment of the purpose for which the trust was constituted.



TORRES V. COURT OF APPEALS

GR No. 134559

Panganiban, J.

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 ofland 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. All three of them also agreedto 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.

They alleged against each other faults, which in their opinion, resulted to the nonfulfillment oftheir undertaking.

Petitioners then filed a criminal case for estafa against respondent and his wife, who werehowever acquitted. Thereafter, they filed a civil case against the respondent.

Issues

1. Whether or not the petitioners formed a partnership with the respondents

2. Whether the petitioner can claim that the partnership is void for noncompliance with

the requirements on execution of public instrument whenever an immovable property

or real rights are contributed in such partnership

Held

1. Yes. Under their Joint Venture 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 to form a partnership.

Thus, they must bear the loss suffered by the partnership.

2. No. Article 1773 was intended primarily to protect third persons. Being a complement

of Article 1771, the execution of a public instrument would be useless if there is no inventory of

the property contributed, because without its designation and description, they cannot be subject

to inscription in the Registry of Property, and their contribution cannot prejudice third persons.This will result in fraud to those who contract with the partnership in the belief [in] the efficacy

of the guaranty in which the immovables may consist. This case does not involve third parties

who may be prejudiced. The alleged nullity of the partnership will not prevent courts fromconsidering the Joint Venture Agreement an ordinary contract from which the parties’ rights and

obligations to each other may be inferred and enforced.



VALENZUELA V. COURT OF APPEALS

G.R. No. 83122

Gutierrez, Jr., J.

Facts

Petitioner Arturo Valenzuela, a General Agent of the respondent Philamgen, was

authorized to solicit and sell all kinds of non-life insurance. From 1973 to 1975, Valenzuela

solicited marine insurance from Delta Motors, Inc. in the amount of P4.4 Million from which hewas entitled to a commission of 32%. However, Valenzuela did not receive his full commission

which amounted to P1.6 Million from the P4.4 Million. Premium payments amounting to

P1,946,886.00 were paid directly to Philamgen. Valenzuela’s commission amounted toP632,737.00. Philamgen wanted to cut Valenzuela’s commission to 50% of the amount but the

latter refused. When Philamgen offered again, Valenzuela firmly reiterated his objection.

Philamgen reversed the commission due to Valenzuela, threatened the cancellation of policies

issued by his agency, and started to leak out news that Valenzuela has a substantial account withPhilamgen. His agency contract was terminated. The petitioners sought relief by filing the

complaint against the private respondents.

Issue

Whether or not Philamgen and or its officers can be held liable for damages due to thetermination of the General Agency Agreement it entered into with the petitioners

Held

Yes. The Supreme Court agreed that the principal cause of the termination of Valenzuela

as General Agent of Philamgen arose from his refusal to share his Delta Commission. Also, therecords sustain the conclusion that there was apparent bad faith of the private respondents in

terminating the General Agency Agreement of petitioners.

Such as when Philamgen proposed reduction of the petitioners' commissions by 50% thusgiving them an agent's commission of 16.25%; also, when the company insisted on the reduction

scheme; when the company pressured the agents to share the income with the threat to terminate

the agency; and when the petitioners were told that the Delta commissions would not be creditedto their account.

Furthermore, it is also evident from the records that the agency involving petitioner and private respondent is one coupled with an interest and therefore, should not be freely revocable at

the unilateral will of the later. However, it admits some exceptions and this include when the

agency has been given not only for the interest of the principal but also for the mutual interest of

the principal and the agent. The principal may not defeat the agent's right to indemnification by atermination of the contract of agency. Also, if a principal violates a contractual or quasi-

contractual duty which he owes his agent, the agent may as a rule bring an appropriate action for

the breach of that duty.

Hence, if a principal acts in bad faith and with abuse of right in terminating the agency,

then he is liable in damages. The Civil Code says that "every person must in the exercise of hisrights and in the performance of his duties act with justice, give every one his due, and observe

honesty and good faith: (Art. 19, Civil Code), and every person who, contrary to law, wilfully or

negligently causes damages to another, shall indemnify the latter for the same (Art. 20, CivilCode), any person who wilfully causes loss or injury to another in a manner contrary to morals,good customs, and public policy shall compensate the latter for the damages (Art. 21, Civil

Code)



VICTORIAS MILLING CO., INC. V. COURT OF APPEALS

G.R. No. 117356

Quisumbing, J.

Facts

St. Therese Merchandising regularly bought sugar from Petitioner Victorias Milling Co.,

Inc. In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts

(SLDRs) to St. Therese Merchandising as proof of purchases. Among these was SLDR No.1214M which covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at

P638.00 per bag. The transaction it covered was a direct sale.

On October 25, 1989, St. Therese Merchandising sold to Respondent Consolidated Sugar

Corp. its rights in SLDR No. 1214M for P14,750,000.00. Respondent issued checks in payment.

That same day, Respondent wrote Petitioner that it had been authorized by St. Therese

Merchandising to withdraw the sugar covered by SLDR No. 1214M.

Respondent surrendered SLDR No. 1214M to Petitioner’s NAWACO warehouse and

was allowed to withdraw sugar. However, after 2,000 bags had been released, Petitioner refusedto allow further withdrawals of sugar against SLDR No. 1214M because, according to it, St.

Therese Merchandising had already withdrawn all the sugar covered by the cleared checks.

Respondent demanded the release of the 23,000 bags. Petitioner reiterated that all bags had beenfully withdrawn.

Respondent filed a complaint for specific performance. Trial court rendered judgment infavor of Respondent and Petitioner was ordered to deliver 23,000 bags of sugar.

Petitioner appealed the trial court’s decision to the Court of Appeals and the Court ofAppeals rendered its decision modifying the trial court’s judgment. Hence, the instant petition to

the Supreme Court.

Issue

Whether or not the contract between St. These Merchandising and Respondent

Consolidated Sugar Corp. was one of Agency or Sale

Held

Petition denied. The Supreme Court held that the contract was one of Sale. It is clear

from Article 1868 of the New Civil Code that the basis of agency is representation – on the part

of the principal, there must be an actual intention to appoint or an intention naturally inferable

from his words or actions, while on the part of the agent, there must be an intention to accept theappointment and act on it; One factor which most clearly distinguishes agency from the legal

concepts is control – one person (the agent) agreeing to act under the control or direction of

another (the principal).

An authorization given to another containing the phrase “for and in our behalf” does not

necessarily establish an agency, as ultimately, what is decisive is the intention of the parties, andthe use of the words “sold and endorse” means that the parties intended a contract of sale, and

not an agency.



YU ENG CHO vs. PAN AMERICAN WORLD AIRWAYS, INC.

G.R. No. 123560

Puno, J.

Facts

Yu Eng Cho, owner of Young Hardware Co. and Achilles Marketing, was supposed to go

to Fairfield, New Jersey, USA to buy two lines of infrared heating system processing textured

plastic article. For this purpose, he bought plane tickets with destinations to Hongkong, Tokyoand San Francisco from Claudia Tagunicar who represented herself as agent of Tourist World

Services, Inc. (TWSI). At first, only the flights to Hongkong and Tokyo were confirmed. It was

only after a few days that Tagunicar, after calling Canilao of TWSI, told the petitioners that theirflight to San Francisco was confirmed. The petitioners left for Hongkong and stayed there for

five days. They left Hongkong for Tokyo and upon arrival in Tokyo, they reconfirmed their

flight to San Francisco from the Pan American World Airways office. However, the latter told

them that their names were not in the flight’s manifest. Since the petitioners cannot stay for morethan 72 hours in Japan and because Northwest Airlines was on strike, they had no option but to

accept the airline tickets to Taipei as advised by the Japan Airlines officials. When they reached

Taipei, there were no flights available for them. The petitioners were forced to go back toManila. Because of failure to go to the USA, Yu Eng Cho’s option to buy the infrared heating

systems was cancelled.

Petitioners filed a complaint for damages against Pan American, TWSI, Canilao and

Tagunicar for the expenses incurred as costs of tickets and hotel accommodations when the

petitioners had to stay in Hongkong due to the non-confirmation of their flight booking with PanAmerican. The Regional Trial Court of Manila ruled in favor of the petitioners holding

respondents jointly and severally except Canilao. On appeal of Pan American and Tagunicar to

the Court of Appeals, the appellate court modified the trial court’s decision absolving PanAmerican and TWSI and holding Tagunicar solely liable.

Issue

Whether or not there is an agency relationship among Pan American, TWSI and

Tagunicar

Held

No. By the contract of agency, the person binds himself to render some service or to dosomething in representation or on behalf of another, with the consent or authority of the latter.

The elements of agency are:

(1) consent, express or implied, of the parties to establish the relationship;(2) the object is the execution of a juridical act in relation to a third person;

(3) the agent acts as a representative and not for himself;

(4) the agent acts within the scope of his authority.

It is a settled rule that persons dealing with an assumed agent are bound at their peril, if

they would hold the principal liable, to ascertain not only the fact of agency but also the natureand extent of authority, and in case either is controverted, the burden of proof is upon them to

establish it. The declarations of the agent alone are generally insufficient to establish the fact or

extent of his authority.

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