Estanislao vs. Court of Appeals

A partnership exists among co-owners of property who agree to contribute advance rentals derived from their co-owned lots as capital for a common business, with the intention of dividing the profits, notwithstanding the designation of only one co-owner as the sole dealer to comply with a third-party company's policy and notwithstanding a subsequent agreement's clause cancelling an earlier joint affidavit, where the cancellation merely resolves a duplication of references to the same fund and does not reflect an intent to dissolve the partnership.

Petitioner Eligio Estanislao, Jr. and private respondents Remedios Estanislao, Emilio Santiago, and Leocadio Santiago are siblings who co-own certain lots at the corner of Annapolis and Aurora Boulevard, Quezon City, which were leased to the Shell Company of the Philippines Limited (SHELL). The lots were subject to lease agreements under which the co-owners received monthly rentals. The dispute centers on whether the siblings formed a partnership to operate a gasoline service station on their co-owned lots, using advance rentals from SHELL as capital, or whether petitioner operated the business as a sole proprietorship. The legal framework governing the inquiry is Article 1767 of the New Civil Code, which defines a partnership as a contract whereby 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.

Petitioner Eligio Estanislao, Jr. and private respondents Remedios Estanislao, Emilio Santiago, and Leocadio Santiago are siblings who co-own certain lots at the corner of Annapolis and Aurora Boulevard, Quezon City, which were then being leased to the Shell Company of the Philippines Limited (SHELL). The siblings agreed to open and operate a gas station on the co-owned lots, to be known as Estanislao Shell Service Station, with an initial investment of ₱15,000.00 to be taken from advance rentals due to them from SHELL for the occupancy of the lots. On April 11, 1966, the parties executed a Joint Affidavit prepared by Atty. Democrito Angeles, in which they stipulated that the ₱15,000.00 advance rental from SHELL would augment their "capital investment" in the operation of the gasoline station, and that said advance rentals would be credited as monthly rentals from May 25, 1966 for approximately four and one-half months or until October 10, 1966. The siblings agreed to help petitioner by allowing him to operate and manage the gasoline service station. Because SHELL's policy required appointment of only one dealer, petitioner applied for the dealership in his name alone. Respondent Remedios assisted in managing the business with petitioner from May 3, 1966 up to February 16, 1967.

On May 26, 1966, the parties entered into an Additional Cash Pledge Agreement with SHELL, in which the co-owners waived and assigned to SHELL their monthly rentals of ₱3,382.29 commencing May 24, 1966 until the accumulated rentals equaled ₱15,000.00, to be treated as an additional cash deposit by petitioner as dealer, increasing his credit limit from ₱10,000.00 to ₱25,000.00. The agreement contained a proviso that it "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS." The latter document was silent as to the statement in the Joint Affidavit that the ₱15,000.00 represented the parties' "capital investment" in the gasoline station business and referred to petitioner as the sole dealer, which arrangement was consistent with SHELL's policy of appointing only one dealer.

For some time, petitioner submitted financial statements regarding the operation of the business to private respondents, but thereafter failed to render subsequent accounting. The financial report of December 31, 1968 showed a profit of ₱87,293.79, and by year-end 1969, a profit of ₱150,000.00 was realized. Petitioner also gave written authority to respondent Remedios to examine and audit the books of their "common business" (aming negosyo). Through Atty. Angeles, a demand was made on petitioner to render an accounting of the profits. When petitioner failed to comply, private respondents filed a complaint in the Court of First Instance of Rizal on August 25, 1970, seeking execution of a public document embodying the partnership agreement, formal accounting, payment of their lawful shares in net profits of no less than ₱150,000.00 with 1% monthly interest, and ₱10,000.00 in attorney's fees. The trial court initially dismissed the complaint but, upon reconsideration, rendered judgment in favor of private respondents. The Court of Appeals affirmed in toto, prompting petitioner to elevate the matter to the Supreme Court via certiorari.

• Cancellation of Partnership Agreement: Petitioner contended that the Additional Cash Pledge Agreement's stipulation that it "cancels and supersedes" the Joint Affidavit of April 11, 1966 abrogated whatever partnership agreement existed in the prior document, thereby negating the existence of a partnership.
• Sole Dealership as Evidence of Sole Proprietorship: Petitioner relied on the fact that the Additional Cash Pledge Agreement spoke of him as the sole dealer and was silent as to any statement of "capital investment" by the co-owners, arguing that the business was his sole proprietorship rather than a partnership.

• Existence of Partnership: Whether a partnership was established among petitioner and private respondents as regards the ownership and operation of the gasoline service station business.
• Legal Effect of the Cancellation Clause: Whether the Additional Cash Pledge Agreement's proviso that it "cancels and supersedes" the Joint Affidavit of April 11, 1966 abrogated the partnership agreement allegedly formed in said Joint Affidavit.

• Existence of Partnership: Yes. A partnership was established, the parties having bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves, as provided under Article 1767 of the New Civil Code.
• Legal Effect of the Cancellation Clause: No. The cancellation clause did not abrogate the partnership; it was necessary to resolve a duplication of references to the same ₱15,000.00 advance rentals appearing in both documents, the Joint Affidavit referring to advance rentals starting May 25, 1966 and the Additional Cash Pledge Agreement referring to advance rentals of the same amount starting May 24, 1966.

• Existence of Partnership: The Court found that the elements of a partnership under Article 1767 of the New Civil Code were satisfied. The parties agreed to contribute the ₱15,000.00 advance rentals from SHELL as their "capital investment" in the gasoline station business, as expressly stipulated in the Joint Affidavit of April 11, 1966. The intent to divide profits was demonstrated by petitioner's submission of periodic financial statements to private respondents and his written authority allowing respondent Remedios to examine and audit the books of their "common business" (aming negosyo). Respondent Remedios's active participation in managing the business from May 3, 1966 to February 16, 1967 further corroborated the existence of a partnership. The sole dealership in petitioner's name and the issuance of all government permits and licenses in his name were merely in compliance with SHELL's policy of appointing only one dealer and the parties' understanding of having only one dealer for SHELL products. The Court also noted that the findings of fact of the Court of Appeals were conclusive in the certiorari proceeding, and its conclusions based on those facts were in accordance with applicable law.

• Legal Effect of the Cancellation Clause: The Court rejected petitioner's argument that the cancellation clause abrogated the partnership. The clause was necessary because the Joint Affidavit spoke of ₱15,000.00 in advance rentals starting May 25, 1966, while the Additional Cash Pledge Agreement also referred to advance rentals of the same amount starting May 24, 1966 — a duplication that required clarification. The silence of the latter document regarding the "capital investment" language and its reference to petitioner as sole dealer was explained by the fact that SHELL was a signatory to the Additional Cash Pledge Agreement, and it would have been contrary to SHELL's policy to state in that agreement that the business was a partnership rather than petitioner's sole proprietorship. The cancellation thus addressed the procedural duplication of rental references, not the substantive partnership arrangement among the siblings.

• Elements of a Partnership (Article 1767, Civil Code) — A partnership is formed when 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. The Court applied this provision by finding that the siblings' agreement to use ₱15,000.00 in advance rentals as "capital investment" in the gas station, their intent to divide profits (evidenced by periodic accounting and the authority to audit books of their "common business"), and the active management participation of one sibling collectively satisfied the statutory elements of a partnership.
• Conclusiveness of Appellate Findings of Fact in Certiorari — Findings of fact of the Court of Appeals are conclusive in a petition for certiorari before the Supreme Court, and conclusions based on those facts are upheld when in accordance with applicable law. The Court relied on this doctrine to affirm the appellate court's factual findings supporting the existence of a partnership.
• Form of Partnership Agreement (Article 1771, Civil Code) — A partnership may be constituted in any form, and a public instrument is required only where immovable property or real rights are contributed. The trial court ordered petitioner to execute a public document embodying the partnership agreement pursuant to this article, and the Supreme Court affirmed.

• "There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the intention of dividing the profits among themselves." — This passage states the ratio decidendi, applying Article 1767 of the Civil Code to the facts and concluding that the statutory elements of a partnership were satisfied.
• "Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequent document that it 'cancels and supersedes' the previous one." — This passage explains why the cancellation clause in the Additional Cash Pledge Agreement did not abrogate the partnership, resolving the central legal issue raised by petitioner.
• "True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the 'capital investment' of the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of petitioner." — This passage clarifies that the omission of partnership language in the Additional Cash Pledge Agreement was dictated by SHELL's policy of appointing only one dealer, not by any intent to dissolve the partnership among the siblings.

• Article 1767, New Civil Code — Defines a partnership as a contract whereby 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. The Court applied this provision to conclude that the siblings' agreement to contribute advance rentals as capital and to divide the profits of the gas station business constituted a partnership.
• Article 1771, New Civil Code — Governs the form of a partnership agreement, providing that a partnership may be constituted in any form, except where immovable property or real rights are contributed. The trial court ordered petitioner to execute a public document embodying the partnership agreement pursuant to this article, and the Supreme Court affirmed that order.

Narvasa, Cruz, and Griño-Aquino, JJ., concurred.