Business Org Cases

8/6/2019 Business Org Cases

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-9996 October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, andFRANCISCA EVANGELISTA, petitioners,vs.THE COLLECTOR OF INTERNAL REVENUE and THE COURTOF TAX APPEALS, respondents.

Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for

Respondents.

CONCEPCION, J .:

This is a petition filed by Eufemia Evangelista, Manuela Evangelista andFrancisca Evangelista, for review of a decision of the Court of TaxAppeals, the dispositive part of which reads:

FOR ALL THE FOREGOING, we hold that the petitioners areliable for the income tax, real estate dealer's tax and the residencetax for the years 1945 to 1949, inclusive, in accordance with therespondent's assessment for the same in the total amount of P6,878.34, which is hereby affirmed and the petition for reviewfiled by petitioner is hereby dismissed with costs against

petitioners.

It appears from the stipulation submitted by the parties:


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1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together with their personal monieswas used by them for the purpose of buying real properties,.

2. That on February 2, 1943, they bought from Mrs. JosefinaFlorentino a lot with an area of 3,713.40 sq. m. includingimprovements thereon from the sum of P100,000.00; this propertyhas an assessed value of P57,517.00 as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus21 parcels of land with an aggregate area of 3,718.40 sq. m.including improvements thereon for P130,000.00; this property hasan assessed value of P82,255.00 as of 1948;

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including improvementsthereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afablea lot of 8,371 sq. m. including improvements thereon for

P237,234.34. This property has an assessed value of P59,140.00 asof 1948;

6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their properties with full power to lease; to collect and receive rents; to issue receiptstherefor; in default of such payment, to bring suits against thedefaulting tenants; to sign all letters, contracts, etc., for and in their

behalf, and to endorse and deposit all notes and checks for them;

7. That after having bought the above-mentioned real propertiesthe petitioners had the same rented or leases to various tenants;

8. That from the month of March, 1945 up to an includingDecember, 1945, the total amount collected as rents on their real


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properties was P9,599.00 while the expenses amounted toP3,650.00 thereby leaving them a net rental income of P5,948.33;

9. That on 1946, they realized a gross rental income of in the sum

of P24,786.30, out of which amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental incomeof P7,498.13;

10. That in 1948, they realized a gross rental income of P17,453.00out of the which amount was deducted the sum of P4,837.65 asexpenses, thereby leaving them a net rental income of P12,615.35.

It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations,real estate dealer's fixed tax and corporation residence tax for the years1945-1949, computed, according to assessment made by said officer, asfollows:

INCOME TAXES

1945 14.84

1946 1,144.71 1947 10.34

1948 1,912.30

1949 1,575.90

Total includingsurcharge and

compromise

P6,157.09

REAL ESTATE DEALER'SFIXED TAX

1946 P37.50


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1947 150.00

1948 150.00

1949 150.00 Total includingpenalty

P527.00

RESIDENCE TAXES OFCORPORATION

1945 P38.75

1946 38.75

1947 38.75

1948 38.75

1949 38.75

Total includingsurcharge

P193.75

TOTAL TAXES DUE P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they instituted the presentcase in the Court of Tax Appeals, with a prayer that "the decision of therespondent contained in his letter of demand dated September 24, 1954"

be reversed, and that they be absolved from the payment of the taxes inquestion, with costs against the respondent.

After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and a petition for reconsiderationand new trial having been subsequently denied, the case is now beforeUs for review at the instance of the petitioners.


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The issue in this case whether petitioners are subject to the tax oncorporations provided for in section 24 of Commonwealth Act. No. 466,otherwise known as the National Internal Revenue Code, as well as tothe residence tax for corporations and the real estate dealers fixed tax.With respect to the tax on corporations, the issue hinges on the meaningof the terms "corporation" and "partnership," as used in section 24 and84 of said Code, the pertinent parts of which read:

SEC. 24. Rate of tax on corporations .There shall be levied,assessed, collected, and paid annually upon the total net incomereceived in the preceding taxable year from all sources by everycorporation organized in, or existing under the laws of the

Philippines, no matter how created or organized but not includingduly registered general co-partnerships ( compaias colectivas ), atax upon such income equal to the sum of the following: . . .

SEC. 84 (b). The term 'corporation' includes partnerships, nomatter how created or organized, joint-stock companies, jointaccounts ( cuentas en participacion ), associations or insurancecompanies, but does not include duly registered generalcopartnerships. ( compaias colectivas ).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bindthemselves to contribute money, properly, or industry to a commonfund, with the intention of dividing the profits among themselves.

Pursuant to the article, the essential elements of a partnership are two,namely: (a) an agreement to contribute money, property or industry to a

common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly present in the case at bar, for,admittedly, petitioners have agreed to, and did, contribute money and

property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts andcircumstances surrounding the case, we are fully satisfied that their


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purpose was to engage in real estate transactions for monetary gain andthen divide the same among themselves, because:

1. Said common fund was not something they found already in

existence. It was not property inherited by them pro indiviso . Theycreated it purposely. What is more they jointly borrowed asubstantial portion thereof in order to establish said common fund.

2. They invested the same, not merely not merely in onetransaction, but in a series of transactions. On February 2, 1943,they bought a lot for P100,000.00. On April 3, 1944, they

purchased 21 lots for P18,000.00. This was soon followed on April23, 1944, by the acquisition of another real estate for P108,825.00.Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactionsundertaken, as well as the brief interregnum between each,

particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservationand preservation of the aforementioned common fund or even of the property acquired by the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to

business transactions engaged in the purpose of gain.

3. The aforesaid lots were not devoted to residential purposes, or toother personal uses, of petitioners herein. The properties wereleased separately to several persons, who, from 1945 to 1948inclusive, paid the total sum of P70,068.30 by way of rentals.Seemingly, the lots are still being so let, for petitioners do not evensuggest that there has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under themanagement of one person, namely Simeon Evangelista, with full

power to lease, to collect rents, to issue receipts, to bring suits, tosign letters and contracts, and to indorse and deposit notes andchecks. Thus, the affairs relative to said properties have been


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handled as if the same belonged to a corporation or business andenterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10)

years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since SimeonEvangelista became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or onthe causes for its continued existence. They did not even try tooffer an explanation therefor.

Although, taken singly, they might not suffice to establish the intentnecessary to constitute a partnership, the collective effect of thesecircumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of the aforementionedcircumstances were present in the cases cited by petitioners herein, and,hence, those cases are not in point.

Petitioners insist, however, that they are mere co-owners, not copartners,

for, in consequence of the acts performed by them, a legal entity, with a personality independent of that of its members, did not come intoexistence, and some of the characteristics of partnerships are lacking inthe case at bar. This pretense was correctly rejected by the Court of TaxAppeals.

To begin with, the tax in question is one imposed upon "corporations",which, strictly speaking, are distinct and different from "partnerships".When our Internal Revenue Code includes "partnerships" among the

entities subject to the tax on "corporations", said Code must allude,therefore, to organizations which are not necessarily "partnerships", inthe technical sense of the term. Thus, for instance, section 24 of saidCode exempts from the aforementioned tax "duly registered general

partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of


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said Code, "the term corporation includes partnerships, no matter howcreated or organized ." This qualifying expression clearly indicates that a

joint venture need not be undertaken in any of the standard forms, or inconformity with the usual requirements of the law on partnerships, inorder that one could be deemed constituted for purposes of the tax oncorporations. Again, pursuant to said section 84(b), the term"corporation" includes, among other, joint accounts, ( cuentas en

participation )" and "associations," none of which has a legal personalityof its own, independent of that of its members . Accordingly, thelawmaker could not have regarded that personality as a conditionessential to the existence of the partnerships therein referred to. In fact,as above stated, "duly registered general copartnerships" which are

possessed of the aforementioned personality have been expresslyexcluded by law (sections 24 and 84 [b] from the connotation of the term"corporation" It may not be amiss to add that petitioners' allegation tothe effect that their liability in connection with the leasing of the lotsabove referred to, under the management of one person even if true,on which we express no opinion tends to increase the similarity

between the nature of their venture and that corporations, and is,therefore, an additional argument in favor of the imposition of said taxon corporations.

Under the Internal Revenue Laws of the United States, "corporations"are taxed differently from "partnerships". By specific provisions of saidlaws, such "corporations" include "associations, joint-stock companiesand insurance companies." However, the term "association" is not usedin the aforementioned laws.

. . . in any narrow or technical sense. It includes any organization,

created for the transaction of designed affairs, or the attainment of some object, which like a corporation, continues notwithstandingthat its members or participants change, and the affairs of which,like corporate affairs, are conducted by a single individual, acommittee, a board, or some other group, acting in a representativecapacity. It is immaterial whether such organization is created by


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an agreement, a declaration of trust, a statute, or otherwise. Itincludes a voluntary association, a joint-stock corporation or company, a 'business' trusts a 'Massachusetts' trust, a 'common law'trust, and 'investment' trust (whether of the fixed or themanagement type), an interinsuarance exchange operating throughan attorney in fact, a partnership association, and any other type of organization (by whatever name known) which is not, within themeaning of the Code, a trust or an estate, or a partnership. (7AMertens Law of Federal Income Taxation, p. 788; emphasissupplied.).

Similarly, the American Law.

. . . provides its own concept of a partnership, under the term'partnership 'it includes not only a partnership as known atcommon law but, as well, a syndicate, group, pool, joint venture or other unincorporated organizations which carries on any business

financial operation, or venture , and which is not, within themeaning of the Code, a trust, estate, or a corporation. . . (7AMerten's Law of Federal Income taxation, p. 789; emphasissupplied.)

The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization, through or bymeans of which any business, financial operation, or venture iscarried on , . . .. ( 8 Merten's Law of Federal Income Taxation, p.562 Note 63; emphasis supplied.) .

For purposes of the tax on corporations, our National Internal RevenueCode, includes these partnerships with the exception only of dulyregistered general copartnerships within the purview of the term"corporation." It is, therefore, clear to our mind that petitioners hereinconstitute a partnership, insofar as said Code is concerned and aresubject to the income tax for corporations.


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As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how

created or organized, whether domestic or resident foreign,engaged in or doing business in the Philippines shall pay an annualresidence tax of five pesos and an annual additional tax which inno case, shall exceed one thousand pesos, in accordance with thefollowing schedule: . . .

The term 'corporation' as used in this Act includes joint-stock company, partnership , joint account ( cuentas en participacion ),association or insurance company, no matter how created or organized . (emphasis supplied.)

Considering that the pertinent part of this provision is analogous to thatof section 24 and 84 (b) of our National Internal Revenue Code(commonwealth Act No. 466), and that the latter was approved on June15, 1939, the day immediately after the approval of said CommonwealthAct No. 465 (June 14, 1939), it is apparent that the terms "corporation"and "partnership" are used in both statutes with substantially the same

meaning. Consequently, petitioners are subject, also, to the residence taxfor corporations.

Lastly, the records show that petitioners have habitually engaged inleasing the properties above mentioned for a period of over twelve years,and that the yearly gross rentals of said properties from June 1945 to1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax

provided in section 193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s) thereof:

'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting property or hisown account as principal and holding himself out as a full or parttime dealer in real estate or as an owner of rental property or


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properties rented or offered to rent for an aggregate amount of three thousand pesos or more a year. . . (emphasis supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby

affirmed with costs against the petitioners herein. It is so ordered. B engzon, Paras, C.J., Padilla, Reyes, A., Reyes, J. B .L., Endencia and Felix, JJ., concur.

B AUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed moneyto a common fund with express purpose of engaging in real estate business for profit. The series of transactions which they had undertakenattest to this. This appears in the following portion of the decision:

2. They invested the same, not merely in one transaction, but in aseries of transactions. On February 2, 1943, they bought a lot for P100,000. On April 3, 1944, they purchase 21 lots for P18,000.This was soon followed on April 23, 1944, by the acquisition of another real state for P108,825. Five (5) days later (April 28,1944), they got a fourth lot for P237,234.14. The number of lots(24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last three purchases, isstrongly indicative of a pattern or common design that was notlimited to the conservation and preservation of the aforementionedcommon fund or even of the property acquired by the petitioner inFebruary, 1943, In other words, we cannot but perceive a character

of habitually peculiar to business transactions engaged in for purposes of gain.

I wish however to make to make the following observation:


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Article 1769 of the new Civil Code lays down the rule for determiningwhen a transaction should be deemed a partnership or a co-ownership.Said article paragraphs 2 and 3, provides:

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do notshare any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish partnership, whether or not the person sharing them have a joint or common right or interest in any property from which the returnsare derived;

From the above it appears that the fact that those who agree to form aco-ownership shared or do not share any profits made by the use of

property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a

joint or common right or interest in the property. This only means that,aside from the circumstance of profit, the presence of other elementsconstituting partnership is necessary, such as the clear intent to form a

partnership, the existence of a judicial personality different from that of the individual partners, and the freedom to transfer or assign any interestin the property by one with the consent of the others (Padilla, Civil Codeof the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636).

It is evident that an isolated transaction whereby two or more personscontribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a

partnership.

Persons who contribute property or funds for a common enterpriseand agree to share the gross returns of that enterprise in proportionto their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners. Theyhave no common stock or capital, and no community of interest as


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principal proprietors in the business itself which the proceedsderived. (Elements of the law of Partnership by Floyd R. Mechem,2n Ed., section 83, p. 74.)

A joint venture purchase of land, by two, does not constitute acopartnership in respect thereto; nor does not agreement to sharethe profits and loses on the sale of land create a partnership; the

parties are only tenants in common. (Clark vs. Sideway, 142 U.S.682, 12 S Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become ownersof a single tract of reality, holding as tenants in common, and todivide the profits of disposing of it, the brother and the other not

being entitled to share in plaintiff's commissions, no partnershipexisted as between the parties, whatever relation may have been asto third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass.341.)

In order to constitute a partnership inter sese there must be: (a) Anintent to form the same; (b) generally a participating in both profitsand losses; (c) and such a community of interest, as far as third

persons are concerned as enables each party to make contract,manage the business, and dispose of the whole property.(Municipal Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.)

The common ownership of property does not itself create a partnership between the owners, though they may use it for purpose of making gains; and they may, without becoming partners, agree among themselves as to the management and use of such property and the application of the proceeds therefrom.(Spurlock vs. Wilson, 142 S. W. 363, 160 No. App. 14.)

This is impliedly recognized in the following portion of the decision:"Although, taken singly, they might not suffice to establish the intentnecessary to constitute a partnership, the collective effect of these


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circumstances (referring to the series of transactions) such as to leave noroom for doubt on the existence of said intent in petitioners herein."

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs. THE COURT OF APPEALS, TOURIST WORLDSERVICE, INC., ELISEO S.CANILAO, and SEGUNDINANOGUERA, respondents-appellees.

virtual law library

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the CivilCode in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx virtual law library


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On the strength of a contract (Exhibit A for the appellantExhibit 2 for the appellees) entered into on Oct. 19, 1960 byand between Mrs. Segundina Noguera, party of the first part;the Tourist World Service, Inc., represented by Mr. EliseoCanilao as party of the second part, and hereinafter referredto as appellants, the Tourist World Service, Inc. leased the

premises belonging to the party of the first part at Mabini St.,Manila for the former-s use as a branch office. In the saidcontract the party of the third part held herself solidarilyliable with the party of the part for the prompt payment of themonthly rental agreed on. When the branch office wasopened, the same was run by the herein appellant Una 0.

Sevilla payable to Tourist World Service Inc. by any airlinefor any fare brought in on the efforts of Mrs. Lina Sevilla,4% was to go to Lina Sevilla and 3% was to be withheld bythe Tourist World Service, Inc.virtualawlibrary virtual lawlibrary

On or about November 24, 1961 (Exhibit 16) the TouristWorld Service, Inc. appears to have been informed that LinaSevilla was connected with a rival firm, the Philippine TravelBureau, and, since the branch office was anyhow losing, theTourist World Service considered closing down its office.This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961(Exhibits 12 and 13), the first abolishing the office of themanager and vice-president of the Tourist World Service,Inc., Ermita Branch, and the second,authorizing the corporatesecretary to receive the properties of the Tourist World

Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appelleesfor the use of the Branch Office premises was terminated andwhile the effectivity thereof was Jan. 31, 1962, the appelleesno longer used it. As a matter of fact appellants used it since

Nov. 1961. Because of this, and to comply with the mandate


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of the Tourist World Service, the corporate secretary GabinoCanilao went over to the branch office, and, finding the

premises locked, and, being unable to contact Lina Sevilla,he padlocked the premises on June 4, 1962 to protect theinterests of the Tourist World Service. When neither theappellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the hereinappellants against the appellees with a prayer for the issuanceof mandatory preliminary injunction. Both appelleesanswered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of thecase without prejudice.virtualawlibrary virtual law library

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo,in an order dated June 8, 1963, granted permitting her to

present evidence in support of her counterclaim.virtualawlibrary virtual law library

On June 17,1963, appellant Lina Sevilla refiled her caseagainst the herein appellees and after the issues were joined,

the reinstated counterclaim of Segundina Noguera and thenew complaint of appellant Lina Sevilla were jointly heardfollowing which the court a quo ordered both cases dismissfor lack of merit, on the basis of which was elevated theinstant appeal on the following assignment of errors: virtuallaw library

I. THE LOWER COURT ERRED EVEN INAPPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'SCOMPLAINT.virtualawlibrary virtual law library

II. THE LOWER COURT ERRED IN HOLDING THATAPPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT(WITH APPELLEE TOURIST WORLD SERVICE, INC.)


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WAS ONE MERELY OF EMPLOYER-EMPLOYEERELATION AND IN FAILING TO HOLD THAT THESAID ARRANGEMENT WAS ONE OF JOINT BUSINESSVENTURE.virtualawlibrary virtual law library

III. THE LOWER COURT ERRED IN RULING THATPLAINTIFF-APPELLANT MRS. LINA O. SEVILLA ISESTOPPED FROM DENYING THAT SHE WAS A MEREEMPLOYEE OF DEFENDANT-APPELLEE TOURISTWORLD SERVICE, INC. EVEN AS AGAINST THELATTER.virtualawlibrary virtual law library

IV. THE LOWER COURT ERRED IN NOT HOLDINGTHAT APPELLEES HAD NO RIGHT TO EVICTAPPELLANT MRS. LINA O. SEVILLA FROM THE A.MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.virtualawlibrary virtual law library

V. THE LOWER COURT ERRED IN NOTCONSIDERING AT .ALL APPELLEE NOGUERA'SRESPONSIBILITY FOR APPELLANT LINA O.

SEVILLA'S FORCIBLE DISPOSSESSION OF THE A.MABINI PREMISES.virtualawlibrary virtual law library

VI. THE LOWER COURT ERRED IN FINDING THATAPPELLANT APPELLANT MRS. LINA O. SEVILLASIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterallydisco the telephone line at the branch office on Ermita;virtual law library


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2. Whether or not the padlocking of the office by the TouristWorld Service was actionable or not; and virtual law library

3. Whether or not the lessee to the office premises belonging

to the appellee Noguera was appellees TWS or TWS and theappellant.virtualawlibrary virtual law library

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her andappellee TWS with offices at the Ermita branch office andthat she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business ventureappellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominentfigure and wife of an eminent eye, ear and nosespecialist as well as a imediately columnist had

been in the travel business prior to theestablishment of the joint business venture withappellee Tourist World Service, Inc. and appelleeEliseo Canilao, her compadre, she being the

godmother of one of his children, with her ownclientele, coming mostly from her own socialcircle (pp. 3-6 tsn. February16,1965).virtualawlibrary virtual law library

2. Appellant Mrs. Sevilla was signatory to a leaseagreement dated 19 October 1960 (Exh. 'A')covering the premises at A. Mabini St., sheexpressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist WorldService, Inc. for the prompt payment of themonthly rentals thereof to other appellee Mrs.

Noguera (pp. 14-15, tsn. Jan.18,1964).virtualawlibrary virtual law library


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3. Appellant Mrs. Sevilla did not receive anysalary from appellee Tourist World Service, Inc.,which had its own, separate office located at theTrade & Commerce Building; nor was she anemployee thereof, having no participation in nor connection with said business at the Trade &Commerce Building (pp. 16-18 tsn Id .). virtuallaw library

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own

business (and not for any of the business of

appellee Tourist World Service, Inc.) obtainedfrom the airline companies. She shared the 7%commissions given by the airline companiesgiving appellee Tourist World Service, Lic. 3%thereof aid retaining 4% for herself (pp. 18 tsn.

Id .) virtual law library

5. Appellant Mrs. Sevilla likewise shared in theexpenses of maintaining the A. Mabini St. office,

paying for the salary of an office secretary, MissObieta, and other sundry expenses, aside fromdesicion the office furniture and supplying someof fice furnishings (pp. 15,18 tsn. April 6,1965),appellee Tourist World Service, Inc. shoulderingthe rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs.Sevilla (p. 35 tsn Feb. 16,1965).virtualawlibrary

virtual law library6. It was the understanding between them thatappellant Mrs. Sevilla would be given the title of

branch manager for appearance's sake only (p. 31tsn. Id .), appellee Eliseo Canilao admit that it was


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just a title for dignity (p. 36 tsn. June 18, 1965-testimony of appellee Eliseo Canilao pp. 38-39 tsnApril 61965-testimony of corporate secretaryGabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that theappellant was an employee of the appellee Tourist WorldService, Inc. and as such was designated manager. 1

xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, itwas within its prerogative to terminate the lease and padlock the

premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mereemployee of said Tourist World Service, Inc. and as such, she was

bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance.virtualawlibrary virtual law library

The petitioners now claim that the respondent Court, in sustaining thelower court, erred. Specifically, they state: virtual law library

I virtual law library

THE COURT OF APPEALS ERRED ON A QUESTION OF LAWAND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT"THE PADLOCKING OF THE PREMISES BY TOURIST WORLDSERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OFTHE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS.LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND

WITHOUT INFORMING COUNSEL FOR THE APPELLANT(SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKINGINCIDENT, WAS IN CONFERENCE WITH THE CORPORATESECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLYTHE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN


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THE APPELLANT (SEVILLA) AND THE TOURIST WORLDSERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEFOF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2)DECISION AGAINST DUE PROCESS WHICH ADHERES TO THERULE OF LAW.virtualawlibrary virtual law library

II virtual law library

THE COURT OF APPEALS ERRED ON A QUESTION OF LAWAND GRAVELY ABUSED ITS DISCRETION IN DENYINGAPPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFEREDTO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMSAND COUNTERCLAIMS LODGED BY BOTH APPELLEES WEREWITHDRAWN." (ANNEX "A" P. 8) virtual law library

III virtual law library

THE COURT OF APPEALS ERRED ON A QUESTION OF LAWAND GRAVELY ABUSED ITS DISCRETION IN DENYING-INFACT NOT PASSING AND RESOLVING-APPELLANT SEVILLASCAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF

THE CIVIL CODE ON RELATIONS.virtualawlibrary virtual lawlibrary

IV virtual law library

THE COURT OF APPEALS ERRED ON A QUESTION OF LAWAND GRAVELY ABUSED ITS DISCRETION IN DENYINGAPPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVINGHER CLAIM THAT SHE WAS IN JOINT VENTURE WITH

TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENTCOUPLED WITH AN INTEREST WHICH COULD NOT BETERMINATED OR REVOKED UNILATERALLY BY TOURISTWORLD SERVICE INC. 6 virtual law library


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As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. Therespondent Court of see fit to rule on the question, the crucial issue, inits opinion being "whether or not the padlocking of the premises by theTourist World Service, Inc. without the knowledge and consent of theappellant Lina Sevilla entitled the latter to the relief of damages prayedfor and whether or not the evidence for the said appellant supports thecontention that the appellee Tourist World Service, Inc. unilaterally andwithout the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that LinaSEVILLA was a mere employee, being "branch manager" of its Ermita

"branch" office and that inferentially, she had no say on the leaseexecuted with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between partieswas one of joint venture, but concede that "whatever might have beenthe true relationship between Sevilla and Tourist World Service," theRule of Law enjoined Tourist World Service and Canilao from takingthe law into their own hands, 8 in reference to the padlocking nowquestioned.virtualawlibrary virtual law library

The Court finds the resolution of the issue material, for if, as the privaterespondent, Tourist World Service, Inc., maintains, that the relation

between the parties was in the character of employer and employee, thecourts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations,later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9 virtual law library

In this jurisdiction, there has been no uniform test to determine theevidence of an employer-employee relation. In general, we have reliedon the so-called right of control test, "where the person for whom theservices are performed reserves a right to control not only the end to beachieved but also the means to be used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard


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of right-of control, the existing economic conditions prevailing betweenthe parties, like the inclusion of the employee in the payrolls, indetermining the existence of an employer-employee relationship. 11 virtual law library

The records will show that the petitioner, Lina Sevilla, was not subjectto control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connectiontherewith. In the first place, under the contract of lease covering theTourist Worlds Ermita office, she had bound herself in solidum as andfor rental payments, an arrangement that would be like claims of amaster-servant relationship. True the respondent Court would later

minimize her participation in the lease as one of mere guaranty,12

thatdoes not make her an employee of Tourist World, since in any case, atrue employee cannot be made to part with his own money in pursuanceof his employer's business, or otherwise, assume any liability thereof. Inthat event, the parties must be bound by some other relation, butcertainly not employment.virtualawlibrary virtual law library

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina

O. Sevilla payable to Tourist World Service, Inc. by any airline for anyfare brought in on the effort of Mrs. Lina Sevilla. 13 Under thesecircumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuingthe business, obviously relied on her own gifts andcapabilities.virtualawlibrary virtual law library

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, theremaining 3% going to Tourist World. Unlike an employee then, whoearns a fixed salary usually, she earned compensation in fluctuatingamounts depending on her booking successes.virtualawlibrary virtuallaw library


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The fact that Sevilla had been designated 'branch manager" does notmake her, ergo, Tourist World's employee. As we said, employment isdetermined by the right-of-control test and certain economic parameters.But titles are weak indicators.virtualawlibrary virtual law library

In rejecting Tourist World Service, Inc.'s arguments however, we arenot, as a consequence, accepting Lina Sevilla's own, that is, that the

parties had embarked on a joint venture or otherwise, a partnership. Andapparently, Sevilla herself did not recognize the existence of such arelation. In her letter of November 28, 1961, she expressly 'concedesyour [Tourist World Service, Inc.'s] right to stop the operation of your

branch office 14 in effect, accepting Tourist World Service, Inc.'s control

over the manner in which the business was run. A joint venture,including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and whereeach party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the

building itself was embellished with the electric sign "Tourist WorldService, Inc. 17in lieu of a distinct partnership name.virtualawlibraryvirtual law library

It is the Court's considered opinion, that when the petitioner, LinaSevilla, agreed to (wo)man the private respondent, Tourist WorldService, Inc.'s Ermita office, she must have done so pursuant to acontract of agency. It is the essence of this contract that the agentrenders services "in representation or on behalf of another. 18 In the caseat bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received

4% of the proceeds in the concept of commissions. And as we said,Sevilla herself based on her letter of November 28, 1961, pre-assumedher principal's authority as owner of the business undertaking. We areconvinced, considering the circumstances and from the respondentCourt's recital of facts, that the ties had contemplated a principal agent


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relationship, rather than a joint managament or a partnership..virtualawlibrary virtual law library

But unlike simple grants of a power of attorney, the agency that we

hereby declare to be compatible with the intent of the parties, cannot berevoked at will. The reason is that it is one coupled with an interest, theagency having been created for mutual interest, of the agent and the

principal. 19 It appears that Lina Sevilla is a bona fide travel agentherself, and as such, she had acquired an interest in the businessentrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist

World had stopped further operations. Her interest, obviously, is not tothe commissions she earned as a result of her business transactions, butone that extends to the very subject matter of the power of managementdelegated to her. It is an agency that, as we said, cannot be revoked atthe pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.virtualawlibraryvirtual law library

As we have stated, the respondent Court avoided this issue, confining

itself to the telephone disconnection and padlocking incidents. Anent thedisconnection issue, it is the holding of the Court of Appeals that there is'no evidence showing that the Tourist World Service, Inc. disconnectedthe telephone lines at the branch office. 20 Yet, what cannot be denied isthe fact that Tourist World Service, Inc. did not take pains to have themreconnected. Assuming, therefore, that it had no hand in thedisconnection now complained of, it had clearly condoned it, and asowner of the telephone lines, it must shoulder responsibility

therefor.virtualawlibrary virtual law libraryThe Court of Appeals must likewise be held to be in error with respect tothe padlocking incident. For the fact that Tourist World Service, Inc.was the lessee named in the lease con-tract did not accord it anyauthority to terminate that contract without notice to its actual occupant,


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and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the businessitself, and necessarily, in the equipment pertaining thereto. Furthermore,Sevilla was not a stranger to that contract having been explicitly namedtherein as a third party in charge of rental payments (solidarily withTourist World, Inc.). She could not be ousted from possession assummarily as one would eject an interloper.virtualawlibrary virtual lawlibrary

The Court is satisfied that from the chronicle of events, there was indeedsome malevolent design to put the petitioner, Lina Sevilla, in a bad lightfollowing disclosures that she had worked for a rival firm. To be sure,

the respondent court speaks of alleged business losses to justify theclosure ' 21 but there is no clear showing that Tourist World ErmitaBranch had in fact sustained such reverses, let alone, the fact that Sevillahad moonlit for another company. What the evidence discloses, on theother hand, is that following such an information (that Sevilla wasworking for another company), Tourist World's board of directorsadopted two resolutions abolishing the office of 'manager" andauthorizing the corporate secretary, the respondent Eliseo Canilao, toeffect the takeover of its branch office properties. On January 3, 1962,the private respondents ended the lease over the branch office premises,incidentally, without notice to her.virtualawlibrary virtual law library

It was only on June 4, 1962, and after office hours significantly, that theErmita office was padlocked, personally by the respondent Canilao, onthe pretext that it was necessary to Protect the interests of the TouristWorld Service. " 22 It is strange indeed that Tourist World Service, Inc.did not find such a need when it cancelled the lease five months earlier.

While Tourist World Service, Inc. would not pretend that it sought tolocate Sevilla to inform her of the closure, but surely, it was aware thatafter office hours, she could not have been anywhere near the premises.Capping these series of "offensives," it cut the office's telephone lines,

paralyzing completely its business operations, and in the process,depriving Sevilla articipation therein.virtualawlibrary virtual law library


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This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It isoffensive, in any event, to elementary norms of justice and fair

play.virtualawlibrary virtual law library

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should besentenced to pay damages. Under the Civil Code, moral damages may beawarded for "breaches of contract where the defendant acted ... in badfaith. 23 virtual law library

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazenconduct subsequent to the cancellation of the power of attorney grantedto her on the authority of Article 21 of the Civil Code, in relation toArticle 2219 (10) thereof -

ART. 21. Any person who wilfully causes loss or injury toanother in a manner that is contrary to morals, good customsor public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages25

may be recovered in thefollowing and analogous cases: virtual law library

xxx xxx xxx virtual law library

(10) Acts and actions refered into article 21, 26, 27, 28, 29,30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise herebyordered to respond for the same damages in a solidarycapacity.virtualawlibrary virtual law library

Insofar, however, as the private respondent, Segundina Noguera isconcerned, no evidence has been shown that she had connived withTourist World Service, Inc. in the disconnection and padlocking


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incidents. She cannot therefore be held liable as acotortfeasor.virtualawlibrary virtual law library

The Court considers the sums of P25,000.00 as and for moral

damages,24 P10,000.00 as exemplary damages,25

and P5,000.00 asnominal 26 and/or temperate 27 damages, to be just, fair, and reasonableunder the circumstances.virtualawlibrary virtual law library

WHEREFORE, the Decision promulgated on January 23, 1975 as wellas the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The privaterespondent, Tourist World Service, Inc., and Eliseo Canilao, areORDERED jointly and severally to indemnify the petitioner, LinaSevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00,as and for nominal and/or temperate damages.virtualawlibrary virtuallaw library

Costs against said private respondents.virtualawlibrary virtual lawlibrary

SO ORDERED.


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Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

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

ELIGIO ESTANISLAO, JR., Petitioner , vs. THE HONORA B LECOURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO andLEOCADIO SANTIAGO, Respondents .

GANCAYCO, J.:

By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same family arising fromtheir joint ownership of certain properties.virtualawlibrary virtual lawlibrary

Petitioner and private respondents are brothers and sisters who are co-

owners of certain lots at the corner of Annapolis and Aurora Blvd.,QuezonCity which were then being leased to the Shell Company of thePhilippines Limited (SHELL). They agreed to open and operate a gasstation thereat to be known as Estanislao Shell Service Station with aninitial investment of P 15,000.00 to be taken from the advance rentalsdue to them from SHELL for the occupancy of the said lots owned incommon by them. A joint affidavit was executed by them on April 11,1966 which was prepared byAtty. Democrito Angeles 1 They agreed tohelp their brother, petitioner herein, by allowing him to operate andmanage the gasoline service station of the family. They negotiated withSHELL. For practical purposes and in order not to run counter to thecompany's policy of appointing only one dealer, it was agreed that

petitioner would apply for the dealership. Respondent Remedios helped


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in managing the bussiness with petitioner from May 3, 1966 up toFebruary 16, 1967.virtualawlibrary virtual law library

On May 26, 1966, the parties herein entered into an Additional Cash

Pledge Agreement with SHELL wherein it was reiterated that the P15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that saidagreement "cancels and supersedes the Joint Affidavit dated 11 April1966 executed by the co-owners." 2 virtual law library

For sometime, the petitioner submitted financial statements regardingthe operation of the business to private respondents, but therafter

petitioner failed to render subsequent accounting. Hence through Atty.Angeles, a demand was made on petitioner to render an accounting of the profits.virtualawlibrary virtual law library

The financial report of December 31, 1968 shows that the business wasable to make a profit of P 87,293.79 and that by the year ending 1969, a

profit of P 150,000.00 was realized. 3 virtual law library

Thus, on August 25, 1970 private respondents filed a complaint in the

Court of First Instance of Rizal against petitioner praying among othersthat the latter be ordered:

1. to execute a public document embodying all the provisionsof the partnership agreement entered into between plaintiffsand defendant as provided in Article 1771 of the New CivilCode; virtual law library

2. to render a formal accounting of the business operation

covering the period from May 6, 1966 up to December 21,1968 and from January 1, 1969 up to the time the order isissued and that the same be subject to proper audit; virtuallaw library


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3. to pay the plaintiffs their lawful shares and participation inthe net profits of the business in an amount of no less than Pl50,000.00 with interest at the rate of 1% per month fromdate of demand until full payment thereof for the entireduration of the business; and virtual law library

4. to pay the plaintiffs the amount of P 10,000.00 asattorney's fees and costs of the suit (pp. 13-14 Record onAppeal.)

After trial on the merits, on October 15, 1975, Hon. Lino Anover whowas then the temporary presiding judge of Branch IV of the trial court,rendered judgment dismissing the complaint and counterclaim andordering private respondents to pay petitioner P 3,000.00 attorney's feeand costs. Private respondent filed a motion for reconsideration of thedecision. On December 10, 1975, Hon. Ricardo Tensuan who was thenewly appointed presiding judge of the same branch, set aside theaforesaid derision and rendered another decision in favor of saidrespondents.virtualawlibrary virtual law library

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14,1975 is hereby reconsidered and a new judgment is herebyrendered in favor of the plaintiffs and as against thedefendant: virtual law library

(1) Ordering the defendant to execute a public instrumentembodying all the provisions of the partnership agreemententered into between plaintiffs and defendant as provided for

in Article 1771, Civil Code of the Philippines; virtual lawlibrary

(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up to the time this


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order is issued, the same to be subject to examination andaudit by the plaintiff, virtual law library

(3) Ordering the defendant to pay plaintiffs their lawful

shares and participation in the net profits of the business inthe amount of P 150,000.00, with interest thereon at the rateof One (1%) Per Cent per month from date of demand untilfull payment thereof; virtual law library

(4) Ordering the defendant to pay the plaintiffs the sum of P5,000.00 by way of attorney's fees of plaintiffs' counsel; aswell as the costs of suit. (pp. 161-162. Record on Appeal).

Petitioner then interposed an appeal to the Court of Appeals enumeratingseven (7) errors allegedly committed by the trial court. In due course, adecision was rendered by the Court of Appeals on November 28,1978affirming in toto the decision of the lower court with costs against

petitioner. * virtual law library

A motion for reconsideration of said decision filed by petitioner wasdenied on January 30, 1979. Not satisfied therewith, the petitioner now

comes to this court by way of this petition for certiorari alleging that therespondent court erred:

1. In interpreting the legal import of the Joint Affidavit (Exh.'A') vis-a-vis the Additional Cash Pledge Agreement (Exhs."B-2","6", and "L"); and virtual law library

2. In declaring that a partnership was established by andamong the petitioner and the private respondents as regards

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

Petitioner relies heavily on the provisions of the Joint Affidavit of April11, 1966 (Exhibit A) and the Additional Cash Pledge Agreement of May20, 1966 (Exhibit 6) which are herein reproduced- virtual law library


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(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

(1) That we are the Lessors of two parcels of land fullydescribe in Transfer Certificates of Title Nos. 45071 and

71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINESLIMITED a corporation duly licensed to do business in thePhilippines; virtual law library

(2) That we have requested the said SHELL COMPANY OFTHE PHILIPPINE LIMITED advanced rentals in the totalamount of FIFTEEN THOUSAND PESOS (P l5,000.00)Philippine Currency, so that we can use the said amount toaugment our capital investment in the operation of thatgasoline station constructed ,by the said company on our twolots aforesaid by virtue of an outstanding Lease Agreementwe have entered into with the said company; virtual lawlibrary

(3) That the and SHELL COMPANY OF THE PHILIPPINELIMITED out of its benevolence and desire to help us in

aumenting our capital investment in the operation of the saidgasoline station, has agreed to give us the said amount of P15,000.00, which amount will partake the nature of ADVANCED RENTALS; virtual law library

(4) That we have freely and voluntarily agreed that uponreceipt of the said amount of FIFTEEN THOUSAND PESOS(P l6,000.00) from he SHELL COMPANY OF THEPHILIPPINES LIMITED, the said sum as ADVANCEDRENTALS to us be applied as monthly rentals for the sai twolots under our Lease Agreement starting on the 25th of May,1966 until such time that the said of P 15,000.00 beapplicable, which time to our estimate and one-half monthsfrom May 25, 1966 or until the 10th of October, 1966 moreor less; virtual law library


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(5) That we have likewise agreed among ourselves that theSHELL COMPANY OF THE PHILIPPINES LIMITEDexecute an instrument for us to sign embodying our conformity that the said amount that it will generously grantus as requested be applied as ADVANCED RENTALS; andvirtual law library

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6,is as follows:

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez, andR.D. Liwanag, respectively) executed in favour of SHELL bythe herein CO-OWNERS and another Lease Agreementdated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios and MARIAESTANISLAO for the lease of adjoining portions of two

parcels of land at Aurora Blvd./ Annapolis, Quezon City, theCO OWNERS RECEIVE a total monthly rental of PESOSTHREE THOUSAND THREE HUNDRED EIGHTY TWOAND 29/100 (P 3,382.29), Philippine Currency; virtual lawlibrary

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased land, and asDealer under the Cash Pledge Agreement dated llth May1966, he deposited to SHELL in cash the amount of PESOSTEN THOUSAND (P 10,000), Philippine Currency, tosecure his purchase on credit of Shell petroleum products; . ..virtualawlibrary virtual law library


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WHEREAS, said DEALER, in his desire, to be granted anincreased the limit up to P 25,000, has secured theconformity of his CO-OWNERS to waive and assign toSHELL the total monthly rentals due to all of them toaccumulate the equivalent amount of P 15,000, commencing24th May 1966, this P 15,000 shall be treated as additionalcash deposit to SHELL under the same terms and conditionsof the aforementioned Cash Pledge Agreement dated llthMay 1966.virtualawlibrary virtual law library

NOW, THEREFORE, for and in consideration of theforegoing premises,and the mutual covenants among the CO-

OWNERS herein and SHELL, said parties have agreed andhereby agree as follows: virtual law library

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-OWNERS, collectively,under the above describe two Lease Agreements, one dated13th November 1963 and the other dated 19th March 1964 toenable DEALER to increase his existing cash deposit toSHELL, from P 10,000 to P 25,000, for such purpose, the

SHELL CO-OWNERS and DEALER hereby irrevocablyassign to SHELL the monthly rental of P 3,382.29 payable tothem respectively as they fall due, monthly, commencing24th May 1966, until such time that the monthly rentalsaccumulated, shall be equal to P l5,000.virtualawlibraryvirtual law library

2. The above stated monthly rentals accumulated shall betreated as additional cash deposit by DEALER to SHELL,thereby in increasing his credit limit from P 10,000 to P25,000. This agreement, therefore, cancels and supersedesthe Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.


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3. Effective upon the signing of this agreement, SHELLagrees to allow DEALER to purchase from SHELL

petroleum products, on credit, up to the amount of P25,000.virtualawlibrary virtual law library

4. This increase in the credit shall also be subject to the sameterms and conditions of the above-mentioned Cash PledgeAgreement dated llth May 1966. (Exhs. "B-2," "L," and "6";emphasis supplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it isclearly stipulated by the parties that the P 15,000.00 advance rental dueto them from SHELL shall augment their "capital investment" in theoperation of the gasoline station, which advance rentals shall be creditedas rentals from May 25, 1966 up to four and one-half months or until 10October 1966, more or less covering said P 15,000.00.virtualawlibraryvirtual law library

In the subsequent document entitled "Additional Cash PledgeAgreement" above reproduced (Exhibit 6), the private respondents and

petitioners assigned to SHELL the monthly rentals due them

commencing the 24th of May 1966 until such time that the monthlyrentals accumulated equal P 15,000.00 which private respondents agreeto be a cash deposit of petitioner in favor of SHELL to increase hiscredit limit as dealer. As above-stated it provided therein that "Thisagreement, therefore, cancels and supersedes the Joint Affidavit dated 11April 1966 executed by the CO-OWNERS." virtual law library

Petitioner contends that because of the said stipulation cancelling andsuperseding that previous Joint Affidavit, whatever partnershipagreement there was in said previous agreement had thereby beenabrogated. We find no merit in this argument. Said cancelling provisionwas necessary for the Joint Affidavit speaks of P 15,000.00 advancerentals starting May 25, 1966 while the latter agreement also refers toadvance rentals of the same amount starting May 24, 1966. There is,therefore, a duplication of reference to the P 15,000.00 hence the need to


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provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in the latter document, it is silent as to thestatement in the Joint Affidavit that the P 15,000.00 represents the"capital investment" of the parties in the gasoline station business and itspeaks of petitioner as the sole dealer, but this is as it should be for in thelatter document SHELL was a signatory and it would be against its

policy if in the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of petitioner.virtualawlibrary virtual law library

Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by the

testimonies of private respondent Remedies Estanislao and Atty.Angeles. Petitioner submitted to private respondents periodic accountingof the business. 4 Petitioner gave a written authority to privaterespondent Remedies Estanislao, his sister, to examine and audit the

books of their "common business' aming negosyo). 5 RespondentRemedios assisted in the running of the business. There is no doubt thatthe parties hereto formed a partnership when they bound themselves tocontribute money to a common fund with the intention of dividing the

profits among themselves. 6 The sole dealership by the petitioner and theissuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and theunderstanding of the parties of having only one dealer of the SHELL

products.virtualawlibrary virtual law library

Further, the findings of facts of the respondent court are conclusive inthis proceeding, and its conclusion based on the said facts are inaccordancewith the applicable law.virtualawlibrary virtual law library

WHEREFORE, the judgment appealed from is AFFIRMED in toto withcosts against petitioner. This decision is immediately executory and nomotion for extension of time to file a motion for reconsideration shag

beentertained.virtualawlibrary virtual law library

SO ORDERED.


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Republic of the Philippines

SUPREME COURT Manila

THIRD DIVISION

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,vs.HO

N. INTERMEDIATE APPELLATE CO

URT and LEUNG YIU,respondents.

John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the thenIntermediate Appellate Court in AC-G.R. No. CV-00881 whichaffirmed the decision of the then Court of First Instance of Manila,Branch II in Civil Case No. 116725 declaring private respondentLeung Yiu a partner of petitioner Dan Fue Leung in the business


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of Sun Wah Panciteria and ordering the petitioner to pay to theprivate respondent his share in the annual profits of the saidrestaurant.

This case originated from a complaint filed by respondent LeungYiu with the then Court of First Instance of Manila, Branch II torecover the sum equivalent to twenty-two percent (22%) of theannual profits derived from the operation of Sun Wah Panciteriasince October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at FlorentinoTorres Street, Sta. Cruz, Manila, was established sometime inOctober, 1955. It was registered as a single proprietorship and itslicenses and permits were issued to and in favor of petitioner DanFue Leung as the sole proprietor. Respondent Leung Yiuadduced evidence during the trial of the case to show that SunWah Panciteria was actually a partnership and that he was one of the partners having contributed P4,000.00 to its initialestablishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to becomeoperational, the private respondent gave P4,000.00 as hiscontribution to the partnership. This is evidenced by a receiptidentified as Exhibit "A" wherein the petitioner acknowledged hisacceptance of the P4,000.00 by affixing his signature thereto. Thereceipt was written in Chinese characters so that the trial courtcommissioned an interpreter in the person of Ms. Florence Yap totranslate its contents into English. Florence Yap issued acertification and testified that the translation to the best of her knowledge and belief was correct. The private respondentidentified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (privaterespondents') presence. Witnesses So Sia and Antonio Ah Hengcorroborated the private respondents testimony to the effect that


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The petitioner did not receive any contribution at the time hestarted the Sun Wah Panciteria. He used his savings from hissalaries as an employee at Camp Stotsenberg in Clark Field andlater as waiter at the Toho Restaurant amounting to a little morethan P2,000.00 as capital in establishing Sun Wah Panciteria. Tobolster his contention that he was the sole owner of therestaurant, the petitioner presented various government licensesand permits showing the Sun Wah Panciteria was and still is asingle proprietorship solely owned and operated by himself alone.Fue Leung also flatly denied having issued to the privaterespondent the receipt (Exhibit G) and the Equitable BankingCorporation's Check No. 13389470 B in the amount of

P12,000.00 (Exhibit B). As between the conflicting evidence of the parties, the trial courtgave credence to that of the plaintiffs. Hence, the court ruled infavor of the private respondent. The dispositive portion of thedecision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering thelatter to deliver and pay to the former, the sumequivalent to 22% of the annual profit derived from theoperation of Sun Wah Panciteria from October, 1955,until fully paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p. 125, Rollo)

The private respondent filed a verified motion for reconsiderationin the nature of a motion for new trial and, as supplement to thesaid motion, he requested that the decision rendered shouldinclude the net profit of the Sun Wah Panciteria which was notspecified in the decision, and allow private respondent to adduceevidence so that the said decision will be comprehensivelyadequate and thus put an end to further litigation.


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The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended decision, thedispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, themotion for reconsideration filed by the plaintiff, whichwas granted earlier by the Court, is hereby reiteratedand the decision rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of said decision should read now as follows:

WHEREFORE, judgment is hereby rendered, orderingthe plaintiff (sic) and against the defendant, ordering thelatter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of

judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.(p. 150, Rollo)

The petitioner appealed the trial court's amended decision to thethen Intermediate Appellate Court. The questioned decision was

further modified by the appellate court. The dispositive portion of the appellate court's decision reads:

WHEREFORE, the decision appealed from is modified,the dispositive portion thereof reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of P2,000.00a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profitof P8,000.00 a day from May 16, 1971 to August 30,1975;


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3. And thereafter until fully paid the sum equivalent to22% of the net profit of P8,000.00 a day.

Except as modified, the decision of the court a quo is

affirmed in all other respects. (p. 102, Rollo)Later, the appellate court, in a resolution, modified its decisionand affirmed the lower court's decision. The dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:

WHEREFORE, judgment is rendered in favor of theplaintiff and against the defendant, ordering the latter topay to the former the sum equivalent to 22% of the netprofit of P8,000.00 per day from the time of judicialdemand, until fully paid, plus the sum of P5,000.00 asand for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understoodthat the date of judicial demand is July 13, 1978. (pp. 105-106,Rollo).

In the same resolution, the motion for reconsideration filed bypetitioner was denied.

Both the trial court and the appellate court found that the privaterespondent is a partner of the petitioner in the setting up andoperations of the panciteria. While the dispositive portions merely

ordered the payment of the respondents share, there is noquestion from the factual findings that the respondent invested inthe business as a partner. Hence, the two courts declared that theprivate petitioner is entitled to a share of the annual profits of therestaurant. The petitioner, however, claims that this factual findingis erroneous. Thus, the petitioner argues: "The complaint avers


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that private respondent extended 'financial assistance' to hereinpetitioner at the time of the establishment of the Sun WahPanciteria, in return of which private respondent allegedly willreceive a share in the profits of the restaurant. The samecomplaint did not claim that private respondent is a partner of thebusiness. It was, therefore, a serious error for the lower court andthe Hon. Intermediate Appellate Court to grant a relief not calledfor by the complaint. It was also error for the Hon. Intermediate

Appellate Court to interpret or construe 'financial assistance' tomean the contribution of capital by a partner to a partnership;" (p.75, Rollo)

The pertinent portions of the complaint state:xxx xxx xxx

2. That on or about the latter (sic) of September, 1955 ,defendant sought the financial assistance of plaintiff inoperating the defendant's eatery known as Sun WahPanciteria, located in the given address of defendant;as a return for such financial assistance . plaintiff would

be entitled to twenty-two percentum (22%) of theannual profit derived from the operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to thedefendant the sum of four thousand pesos (P4,000.00),Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by the defendant isattached hereto as A nnex " A " , and form an integral parthereof; (p. 11, Rollo)

In essence, the private respondent alleged that when Sun WahPanciteria was established, he gave P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-twopercent (22%) of the annual profit derived from the operation of


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the said panciteria. These allegations, which were proved, makethe private respondent and the petitioner partners in theestablishment of Sun Wah Panciteria because Article 1767 of theCivil Code provides that "By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing theprofits among themselves".

Therefore, the lower courts did not err in construing the complaintas one wherein the private respondent asserted his rights aspartner of the petitioner in the establishment of the Sun WahPanciteria, notwithstanding the use of the term financial

assistance therein. We agree with the appellate court'sobservation to the effect that "... given its ordinary meaning,financial assistance is the giving out of money to another withoutthe expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state of destitution. Butthis circumstance under which the P4,000.00 was given to thepetitioner does not obtain in this case.' (p. 99, Rollo) Thecomplaint explicitly stated that "as a return for such financial assistance , plaintiff (private respondent) would be entitled totwenty-two percentum (22%) of the annual profit derived from theoperation of the said panciteria.' (p. 107, Rollo) The well-settleddoctrine is that the '"... nature of the action filed in court isdetermined by the facts alleged in the complaint as constitutingthe cause of action." (De Tavera v. Philippine TuberculosisSociety, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of

Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue inthe instant case was whether or not the private respondent is apartner of the petitioner in the establishment of Sun WahPanciteria.


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The petitioner raises the issue of prescription. He argues: TheHon. Respondent Intermediate Appellate Court gravely erred innot resolving the issue of prescription in favor of petitioner. Thealleged receipt is dated October 1, 1955 and the complaint wasfiled only on July 13, 1978 or after the lapse of twenty-two (22)years, nine (9) months and twelve (12) days. From October 1,1955 to July 13, 1978, no written demands were ever made byprivate respondent.

The petitioner's argument is based on Article 1144 of the CivilCode which provides:

Art. 1144. The following actions must be brought withinten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interruptedwhen they are filed before the court, when there is awritten extra-judicial demand by the creditor, and whenthere is any written acknowledgment of the debt by thedebtor.'

The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun WahPanciteria. The requisites of a partnership which are 1) two or more persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the part of thepartners to divide the profits among themselves (Article 1767,Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been


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established. As stated by the respondent, a partner shares notonly in profits but also in the losses of the firm. If excellentrelations exist among the partners at the start of business and allthe partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits isperfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime within ten years from the startof operations, such rights are irretrievably lost. The privaterespondent's cause of action is premised upon the failure of thepetitioner to give him the agreed profits in the operation of SunWah Panciteria. In effect the private respondent was asking for anaccounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144and 1155 which is applicable. Article 1842 states:

The right to an account of his interest shall accrue toany partner, or his legal representative as against thewinding up partners or the surviving partners or theperson or partnership continuing the business, at thedate of dissolution, in the absence or any agreement tothe contrary.

Regarding the prescriptive period within which the privaterespondent may demand an accounting, Articles 1806, 1807, and1809 show that the right to demand an accounting exists as longas the partnership exists. Prescription begins to run only upon thedissolution of the partnership when the final accounting is done.

Finally, the petitioner assails the appellate court's monetaryawards in favor of the private respondent for being excessive andunconscionable and above the claim of private respondent asembodied in his complaint and testimonial evidence presented bysaid private respondent to support his claim in the complaint.


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Apart from his own testimony and allegations, the privaterespondent presented the cashier of Sun Wah Panciteria, acertain Mrs. Sarah L. Licup, to testify on the income of therestaurant.

Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs.Licup).

Q Mrs. Witness, you stated that among your duties was that you were in charge of thecustody of the cashier's box, of the money,being the cashier, is that correct?

A Yes, sir.

Q So that every time there is a customer whopays, you were the one who accepted themoney and you gave the change, if any, isthat correct?

A Yes.

Q Now, after 11:30 (P.M.) which is theclosing time as you said, what do you do withthe money?

A We balance it with the manager, Mr. DanFue Leung.

ATTY. HIPOLITO:

I see.

Q So, in other words, after your job, youhuddle or confer together?


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A Yes, count it all. I total it. We sum it up.

Q Now, Mrs. Witness, in an average day,more or less, will you please tell us, how

much is the gross income of the restaurant? A For regular days, I received aroundP7,000.00 a day during my shift alone andduring pay days I receive more thanP10,000.00. That is excluding the cateringoutside the place.

Q What about the catering service, will youplease tell the Honorable Court how manytimes a week were there catering services?

A Sometimes three times a month;sometimes two times a month or more.

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receivesthe payment also of the catering.

Q How much is that?

A That ranges from two thousand to sixthousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to


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11:30 P.M. in the evening the restaurantgrosses an income of P7,000.00 in a regular day?

A Yes.Q And ten thousand pesos during pay day.?

A Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx xxx xxxCOURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p.65, November 15, 1978). (Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did thepetitioner's counsel waive the cross-examination on the matter of income but he failed to comply with his promise to producepertinent records. When a subpoena duces tecum was issued tothe petitioner for the production of their records of sale, hiscounsel voluntarily offered to bring them to court. He asked for sufficient time prompting the court to cancel all hearings for

January, 1981 and reset them to the later part of the followingmonth. The petitioner's counsel never produced any books,prompting the trial court to state:

Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales


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book. ledgers, journals and for this purpose, employeda bookkeeper. This inspired the Court to ask counselfor the defendant to bring said records and counsel for the defendant promised to bring those that wereavailable. Seemingly, that was the reason why this casedragged for quite sometime. To bemuddle the issue,defendant instead of presenting the books where thesame, etc. were recorded, presented witnesses whoclaimed to have supplied chicken, meat, shrimps, eggand other poultry products which, however, did notshow the gross sales nor does it prove that the same isthe best evidence. This Court gave warning to the

defendant's counsel that if he failed to produce thebooks, the same will be considered a waiver on the partof the defendant to produce the said books inimitablyshowing decisive records on the income of the eaterypursuant to the Rules of Court (Sec. 5(e) Rule 131)."Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145)

The records show that the trial court went out of its way to accorddue process to the petitioner.

The defendant was given all the chance to present allconceivable witnesses, after the plaintiff has rested hiscase on February 25, 1981, however, after presentingseveral witnesses, counsel for defendant promised thathe will present the defendant as his last witness.Notably there were several postponement asked by

counsel for the defendant and the last one was onOctober 1, 1981 when he asked that this case bepostponed for 45 days because said defendant wasthen in Hongkong and he (defendant) will be back after said period. The Court acting with great concern andunderstanding reset the hearing to November 17, 1981.


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On said date, the counsel for the defendant who againfailed to present the defendant asked for another postponement, this time to November 24, 1981 in order to give said defendant another judicial magnanimity andsubstantial due process. It was however a condition inthe order granting the postponement to said date that if the defendant cannot be presented, counsel is deemedto have waived the presentation of said witness and willsubmit his case for decision.

On November 24, 1981, there being a typhoonprevailing in Manila said date was declared a partial

non-working holiday, so much so, the hearing was resetto December 7 and 22, 1981. On December 7, 1981, onmotion of defendant's counsel, the same was againreset to December 22, 1981 as previously scheduledwhich hearing was understood as intransferable incharacter. Again on December 22, 1981, thedefendant's counsel asked for postponement on theground that the defendant was sick. the Court, after much tolerance and judicial magnanimity, denied saidmotion and ordered that the case be submitted for resolution based on the evidence on record and gavethe parties 30 days from December 23, 1981, withinwhich to file their simultaneous memoranda. (Rollo, pp.148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz,Manila in front of the Republic Supermarket. It is near the corner

of Claro M. Recto Street. According to the trial court, it is in theheart of Chinatown where people who buy and sell jewelries,businessmen, brokers, manager, bank employees, and peoplefrom all walks of life converge and patronize Sun Wah.


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There is more than substantial evidence to support the factualfindings of the trial court and the appellate court. If the respondentcourt awarded damages only from judicial demand in 1978 andnot from the opening of the restaurant in 1955, it is because of thepetitioner's contentions that all profits were being plowed backinto the expansion of the business. There is no basis in therecords to sustain the petitioners contention that the damagesawarded are excessive. Even if the Court is minded to modify thefactual findings of both the trial court and the appellate court, itcannot refer to any portion of the records for such modification.There is no basis in the records for this Court to change or setaside the factual findings of the trial court and the appellate court.

The petitioner was given every opportunity to refute or rebut therespondent's submissions but, after promising to do so, itdeliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering thepayment of the petitioner's obligation shows that the samecontinues until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into thefuture with no fixed ending date.

Considering the facts of this case, the Court may decree adissolution of the partnership under Article 1831 of the Civil Codewhich, in part, provides:

Art. 1831. On application by or for a partner the courtshall decree a dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tendsto affect prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breachof the partnership agreement, or otherwise so conducts


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himself in matters relating to the partnership businessthat it is not reasonably practicable to carry on thebusiness in partnership with him;

xxx xxx xxx(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs,return of capital, and other incidents of dissolution because thecontinuation of the partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for

lack of merit. The decision of the respondent court is AFFIRMEDwith a MODIFICATION that as indicated above, the partnership of the parties is ordered dissolved.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

ManilaEN BANC

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


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