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G.R. No. 126881. October 3, 2000

HEIRS OF TAN ENG KEE, Petitioners, v. COURT OF APPEALS and BENGUET LUMBER COMPANY,

represented by its President TAN ENGLAY, Respondents.

FACTS: Following the death of Tan Eng Kee on

September 13, 1984, Matilde Abubo, the common-lawspouse of the decedent, joined by their childrenTeresita, Nena, Clarita, Carlos, Corazon and Elpidio,collectively known as herein petitioners HEIRS OF TANENG KEE,filed suit against the decedent’s brother TANENG LAY on February 19, 1990. The complaint was foraccounting, liquidation and winding up of the allegedpartnership formed after World War II between TanEng Kee and Tan Eng Lay. On March 18, 1991, thepetitioners filed an amended complaint impleadingprivate respondent herein BENGUET LUMBERCOMPANY, as represented by Tan Eng Lay.

It was alleged that the father of the plaintiffs was not apartner of the Benguet Lumber before the war. Theappellees however argued that this is because duringthe war, the entire stocks of the pre-war BenguetLumber were confiscated if not burned by the Japanese.

After the war, because of the absence of capital to start alumber and hardware business, Lay and Kee pooled theproceeds of their individual businesses earned frombuying and selling military supplies, so that thecommon fund would be enough to form a partnership,both in the lumber and hardware business. Because ofthe pooling of resources, the post-war Benguet Lumber

was eventually established. They named their enterprise"Benguet Lumber" which they jointly managed until TanEng Kee’s death. That the father of the plaintiffs andLay were partners, is obvious from the fact that: (1) theyconducted the affairs of the busi ness during Kee’slifetime, jointly, (2) they were the ones giving orders tothe employees, (3) they were the ones preparing ordersfrom the suppliers, (4) their families stayed together atthe Benguet Lumber compound, and (5) all theirchildren were employed in the business in differentcapacities.

It was also found that there was no partnership. Except

for a firm name, there was no firm account, no firmletterheads submitted as evidence, no certificate ofpartnership, no agreement as to profits and losses, andno time fixed for the duration of the partnership. There

was even no attempt to submit an accountingcorresponding to the period after the war until Kee’sdeath in 1984. It had no business book, no writtenaccount nor any memorandum for that matter and nolicense mentioning the existence of a partnership.

Also, the exhibits support the establishment of only aproprietorship. The certification dated March 4, 1971,mentioned co-defendant Lay as the only registeredowner of the Benguet Lumber and Hardware. Hisapplication for registration, effective 1954, in factmentioned that his business started in 1945 until 1985(thereafter, the incorporation). The deceased, Kee, on

the other hand, was merely an employee of the BenguetLumber Company, on the basis of his SSS coverageeffective 1958. In the Payrolls, for the years 1982 to 1983,Kee was similarly listed only as an employee; precisely,he was on the payroll listing.

Regional Trial Court of Baguio City rendered judgment :a) Declaring that Benguet Lumber is a joint venture

which is akin to a particular partnership;b) Declaring that the deceased Tan Eng Kee and TanEng Lay are joint adventurers and/or partners in abusiness venture and/or particular partnership calledBenguet Lumber and as such should share in the profitsand/or losses of the business venture or particularpartnership;c) Declaring that the assets of Benguet Lumber are thesame assets turned over to Benguet Lumber Co. Inc. andas such the heirs or legal representatives of the deceasedTan Eng Kee have a legal right to share in said assets;d) Declaring that all the rights and obligations of TanEng Kee as joint adventurer and/or as partner in aparticular partnership have descended to the plaintiffs

who are his legal heirs.e) Ordering the defendant Tan Eng Lay and/or thePresident and/or General Manager of Benguet LumberCompany Inc. to render an accounting of all the assetsof Benguet Lumber Company, Inc. so the plaintiffsknow their proper share in the business;f) Ordering the appointment of a receiver to preserveand/or administer the assets of Benguet LumberCompany, Inc. until such time that said corporation isfinally liquidated are directed to submit the name of anyperson they want to be appointed as receiver failing in

which this Court will appoint the Branch Clerk of Courtor another one who is qualified to act as such.g) Denying the award of damages to the plaintiffs forlack of proof except the expenses in filing the instant

case.h) Dismissing the counter-claim of the defendant forlack of merit.

Private respondent sought relief before the Court of Appeals which reversed the judgment of the trialcourt. Petitioners’ motion for reconsideration wasdenied by the Court of Appeals .Petitioners filed a case against Tan Eng Lay and WilbornTan for the use of allegedly falsified documents in a

judicial proceeding. Petitioners complained that

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evidences offered by the defendants before the trialcourt, consisting of payrolls indicating that Tan Eng Kee

was a mere employee of Benguet Lumber, were fake,based on the discrepancy in the signatures of Tan EngKee. They also filed a case against Gloria, Julia, Juliano,

Willie, Wilfredo, Jean, Mary and Willy, all surnamedTan, for alleged falsification of commercial documentsby a private individual. Municipal Trial Court ofBaguio City dismissed the cases for insufficiency ofevidence .

Petitioners claimed that:1. The honorable Court of Appeals erred in holding thatthere was no partnership between the late Tan Eng Keeand his brother tan eng lay because: (a) there was nofirm account; (b) there was no firm letterheadssubmitted as evidence; (c) there was no certificate ofpartnership; (d) there was no agreement as to profitsand losses; and (e) there was no time fixed for theduration of the partnership (page 13, decision).

2. The honorable Court of Appeals erred in relyingsolely on the self-serving testimony of respondent taneng lay that benguet lumber was a sole proprietorshipand that Tan Eng Kee was only an employee thereof.3. The honorable Court of Appeals erred in holding thatthe following facts which were duly supported byevidence of both parties do not support the existence ofa partnership just because there was no articles ofpartnership duly recorded before the securities andexchange commission: a. that the families of Tan EngKee and Tan Eng Lay were all living at the BenguetLumber compound; b. that both Tan Eng Lay and TanEng Kee were commanding the employees of BenguetLumber; c. that both Tan Eng Kee and Tan Eng Lay weresupervising the employees therein; d. that Tan Eng Keeand Tan Eng Lay were the ones determining the pricesof stocks to be sold to the public; and e. that Tan EngLay and Tan Eng Kee were the ones making orders tothe suppliers4. The honorable Court of Appeals erred in holding thatthere was no partnership just because the children ofthe late Tan Eng Kee: Elpidio Tan and Veronica Choi,together with their witness Beatriz Tandoc, admittedthat they do not know when the establishment knownin Baguio City as Benguet Lumber was started as a

partnership (page 16-17, decision).5. The honorable Court of Appeals erred in holding thatthere was no partnership between the late Tan Eng Keeand his brother Tan Eng Lay because the present capitalor assets of Benguet Lumber is definitely more thanPhp3,000.00 and as such the execution of a publicinstrument creating a partnership should have beenmade and no such public instrument established by theappellees.

In reversing the trial court, the Court of Appeals

ruled : We would like to refer to Arts. 771 and 772 , NCC, that apartner may be constituted in any form, but when animmovable is constituted, the execution of a publicinstrument becomes necessary. This is equally true ifthe capitalization exceeds P3,000.00, in which case apublic instrument is also necessary, and which is to berecorded with the Securities and Exchange Commission.In this case at bar, we can easily assume that thebusiness establishment, which from the language of theappellees, prospered (pars. 5 & 9, Complaint), definitelyexceeded P3,000.00, in addition to the accumulation ofreal properties and to the fact that it is now acompound. The execution of a public instrument, onthe other hand, was never established by the appellees.

As can be seen, the appellate court disputed anddiffered from the trial court which had adjudged thatTAN ENG KEE and TAN ENG LAY had allegedly enteredinto a joint venture. In this connection, we have heldthat whether a partnership exists is a factual matter;

consequently, since the appeal is brought to us underRule 45, we cannot entertain inquiries relative to thecorrectness of the assessment of the evidence by thecourt a quo.

ISSUE: Whether Tan Eng Kee and Tan Eng Lay werepartners in Benguet Lumber.

HELD: A contract of partnership is defined by law asone where two or more persons bind themselves tocontribute money, property, or industry to a commonfund, with the intention of dividing the profits amongthemselves.

Two or more persons may also form a partnership forthe exercise of a profession.

Thus, in order to constitute a partnership , it must beestablished that (1) two or more persons boundthemselves to contribute money, property, or industryto a common fund, and (2) they intend to divide theprofits among themselves. The agreement need not beformally reduced into writing, since statute allows theoral constitution of a partnership, save in two instances:(1) when immovable property or real rights are

contributed, 16 and (2) when the partnership has acapital of three thousand pesos or more. In both cases, apublic instrument is required. An inventory to be signedby the parties and attached to the public instrument isalso indispensable to the validity of the partnership

whenever immovable property is contributed to thepartnership.

These are not evidences supporting the existence ofa partnership :

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1) That Kee was living in a bunk house just across thelumber store, and then in a room in the bunk house inTrinidad, but within the compound of the lumberestablishment, as testified to by Tandoc; 2) that bothLay and Kee were seated on a table and were"commanding people" as testified to by the son, ElpidioTan; 3) that both were supervising the laborers, astestified to by Victoria Choi; and 4) that Dionisio Peralta

was supposedly being told by Kee that the proceeds ofthe 80 pieces of the G.I. sheets were added to thebusiness.

Partnership presupposes the following elements 1)a contract, either oral or written. However, if it involvesreal property or where the capital is P3,000.00 or more,the execution of a contract is necessary; 2) the capacityof the parties to execute the contract; 3) money propertyor industry contribution; 4) community of funds andinterest, mentioning equality of the partners or onehaving a proportionate share in the benefits; and 5)intention to divide the profits, being the true test of the

partnership. The intention to join in the business venture for the purpose of obtaining profits thereafterto be divided, must be established. We cannot see theseelements from the testimonial evidence of the appellees.

The trial court determined that Tan Eng Kee and TanEng Lay had entered into a joint venture, which it said isakin to a particular partnership. A particularpartnership is distinguished from a jointadventure :

(a) A joint adventure (an American concept similar toour joint accounts) is a sort of informal partnership,

with no firm name and no legal personality. In a jointaccount, the participating merchants can transactbusiness under their own name, and can be individuallyliable therefor.

(b) Usually, but not necessarily a joint adventure islimited to a SINGLE TRANSACTION, although thebusiness of pursuing to a successful termination maycontinue for a number of years; a partnership generallyrelates to a continuing business of various transactionsof a certain kind.

A joint venture "presupposes generally a parity ofstanding between the joint co-ventures or partners, in

which each party has an equal proprietary interest inthe capital or property contributed, and where eachparty exercises equal rights in the conduct of thebusiness."

The legal concept of a joint venture is of common laworigin. It has no precise legal definition, but it has beengenerally understood to mean an organization formedfor some temporary purpose. It is hardly distinguishable

from the partnership, since their elements are similar — community of interest in the business, sharing of profitsand losses, and a mutual right of control. The maindistinction cited by most opinions in common law

jurisdiction is that the partnership contemplates ageneral business with some degree of continuity, whilethe joint venture is formed for the execution of a singletransaction, and is thus of a temporary nature. Thisobservation is not entirely accurate in this jurisdiction,since under the Civil Code, a partnership may beparticular or universal, and a particular partnership mayhave for its object a specific undertaking. (Art. 1783,Civil Code). It would seem therefore that underPhilippine law, a joint venture is a form of partnershipand should thus be governed by the law of partnerships.The Supreme Court has however recognized adistinction between these two business forms, and hasheld that although a corporation cannot enter into apartnership contract, it may however engage in a joint

venture with others.Undoubtedly, the best evidence would have been the

contract of partnership itself, or the articles ofpartnership but there is none. The alleged partnership,though, was never formally organized. In addition,petitioners point out that the New Civil Code was not

yet in effect when the partnership was allegedly formedsometime in 1945, although the contrary may well beargued that nothing prevented the parties fromcomplying with the provisions of the New Civil Code

when it took effect on August 30, 1950.

Unfortunately for petitioners, Tan Eng Kee has passedaway. Only he, aside from Tan Eng Lay, could haveexpounded on the precise nature of the businessrelationship between them. In the absence of evidence,

we cannot accept as an established fact that Tan EngKee allegedly contributed his resources to a commonfund for the purpose of establishing a partnership. Thetestimonies to that effect o f petitioners’ witnesses isdirectly controverted by Tan Eng Lay. It should benoted that it is not with the number of witnesses

wherein preponderance lies; the quality of theirtestimonies is to be considered. None of petitioners’

witnesses could suitably account for the beginnings ofBenguet Lumber Company, except perhaps for DionisioPeralta whose deceased wife was related to Matilde

Abubo. He stated that when he met Tan Eng Kee afterthe liberation, the latter asked the former to accompanyhim to get 80 pieces of G.I. sheets supposedly owned byboth brothers. Tan Eng Lay, however, denied knowledgeof this meeting or of the conversation between Peraltaand his brother. Tan Eng Lay consistently testified thathe had his business and his brother had his, that it wasonly later on that his said brother, Tan Eng Kee, came to

work for him. Be that as it may, co-ownership or co-possession is not an indicium of the existence of apartnership.

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Besides, it is indeed odd, if not unnatural, that despitethe forty years the partnership was allegedly inexistence, Tan Eng Kee never asked for an accounting.The essence of a partnership is that the partners sharein the profits and losses. Each has the right to demandan accounting as long as the partnership exists. We haveallowed a scenario wherein" if excellent relations existamong the partners at the start of the business and allthe partners are more interested in seeing the firm growrather than get immediate returns, a deferment ofsharing in the profits is perfectly plausible."

As explained in one case, first, plaintiff did not furnishthe supposed P20,000.00 capital. In the second place,she did not furnish any help or intervention in themanagement of the theatre. In the third place, it doesnot appear that she has even demanded from defendantany accounting of the expenses and earnings of thebusiness. Were she really a partner, her first concernshould have been to find out how the business was

progressing, whether the expenses were legitimate, whether the earnings were correct, etc . She wasabsolutely silent with respect to any of the acts that apartner should have done; all that she did was to receiveher share of P3,000.00 a month, which cannot beinterpreted in any manner than a payment for the use ofthe premises which she had leased from the owners.

A demand for periodic accounting is evidence of apartnership. During his lifetime, Tan Eng Kee appearednever to have made any such demand for accountingfrom his brother, Tang Eng Lay.

With respect to the payrolls purporting to show thatTan Eng Kee was an ordinary employee of BenguetLumber, as it was then called. The authenticity of thesedocuments was questioned by petitioners, to the extentthat they filed criminal charges against Tan Eng Lay andhis wife and children. As aforesaid, the criminal cases

were dismissed for insufficiency of evidence. Art. 1769 provides that in determining whether apartnership exists , these rules shall apply:

(1) Except as provided by Article 1825, persons who arenot partners as to each other are not partners as to third

persons;

(2) Co-ownership or co-possession does not of itselfestablish a partnership, whether such co-owners or co-possessors do or do not share any profits made by theuse of the property;

(3) The sharing of gross returns does not of itselfestablish a partnership, whether or not the personssharing them have a joint or common right or interestin any property which the returns are derived;

(4) The receipt by a person of a share of the profits of abusiness is a prima facie evidence that he is a partner inthe business, but no such inference shall be drawn ifsuch profits were received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of adeceased partner;

(d) As interest on a loan, though the amount ofpayment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of abusiness or other property by installments or otherwise.

The Court conclude that Tan Eng Kee was only anemployee, not a partner. Even if the payrolls as evidence

were discarded, since petitioners did not present andoffer evidence that would show that Tan Eng Keereceived amounts of money allegedly representing hisshare in the profits of the enterprise. Petitioners failedto show how much their father, Tan Eng Kee, received,if any, as his share in the profits of Benguet LumberCompany for any particular period. Hence, they failedto prove that Tan Eng Kee and Tan Eng Lay intended todivide the profits of the business between themselves,

which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer orbelieve the alleged existence of a partnership from thisset of circumstances: that Tan Eng Lay and Tan Eng Kee

were commanding the employees; that both weresupervising the employees; that both were the ones whodetermined the price at which the stocks were to besold; and that both placed orders to the suppliers of theBenguet Lumber Company. They also point out that thefamilies of the brothers Tan Eng Kee and Tan Eng Laylived at the Benguet Lumber Company compound, aprivilege not extended to its ordinary employees.

However, private respondent counters that:

(i) Even a mere supervisor in a company, factory orstore gives orders and directions to his subordinates. Solong, therefore, that an employee’s position is higher inrank, it is not unusual that he orders around those lowerin rank.

(ii) Even a messenger or other trusted employee, over whom confidence is reposed by the owner, can ordermaterials from suppliers for and in behalf of BenguetLumber. Furthermore, even a partner does notnecessarily have to perform this particular task. It is,

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thus, not an indication that Tan Eng Kee was a partner.

(iii) Although Tan Eng Kee, together with his family,lived in the lumber compound and this privilege wasnot accorded to other employees, the undisputed factremains that Tan Eng Kee is the brother of Tan Eng Lay.Naturally, close personal relations existed betweenthem. Whatever privileges Tan Eng Lay gave hisbrother, and which were not given the other employees,only proves the kindness and generosity of Tan Eng Laytowards a blood relative.

(iv) Even if it is assumed that Tan Eng Kee wasquarreling with Tan Eng Lay in connection with thepricing of stocks, this does not adequately prove theexistence of a partnership relation between them. Evenhighly confidential employees and the owners of acompany sometimes argue with respect to certainmatters which, in no way indicates that they arepartners as to each other.

Where circumstances taken singly may be inadequate toprove the intent to form a partnership, nevertheless, thecollective effect of these circumstances may be such asto support a finding of the existence of the parties’intent. In the case at bar the circumstances when takentogether are not persuasive indicia of a partnership.They only tend to show that Tan Eng Kee was involvedin the operations of Benguet Lumber, but in whatcapacity is unclear. We cannot discount the likelihoodthat as a member of the family, he occupied a nicheabove the rank-and-file employees. He would haveenjoyed liberties otherwise unavailable were he not kin,such as his residence in the Benguet Lumber Companycompound. He would have moral, if not actual,superiority over his fellow employees, thereby entitlinghim to exercise powers of supervision. It may even bethat among his duties is to place orders with suppliers.

Again, the circumstances proffered by petitioners notinconsistent with the powers and duties of a manager,even in a business organized and run as informally asBenguet Lumber Company.

There being no partnership, it follows that there is nodissolution, winding up or liquidation to speak of.

G.R. No. L-47045 November 22, 1988

NOBIO SARDANE, petitioner, vs.THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents. .

FACTS: Petitioner brought an action in the City Courtof Dipolog for collection of a sum of P5,217.25 based onpromissory notes executed by the herein private

respondent Nobio Sardane in favor of the hereinpetitioner. Petitioner bases his right to collect onExhibits B, C, D, E, F, and G executed on different datesand signed by private respondent Nobio Sardane.Exhibit B is a printed promissory note involving Pl,117.25and dated May 13, 1972. Exhibit C is likewise a printedpromissory note and denotes on its face that the sumloaned was Pl,400.00. Exhibit D is also a printedpromissory note dated May 31, 1977 involving an amountof P100.00. Exhibit E is what is commonly known to thelayman as 'vale' which reads: 'Good for: two hundredpesos (Sgd) Nobio Sardane'. Exhibit F is stated in thefollowing tenor: 'Received from Mr. Romeo Acojedo thesum Pesos: Two Thousand Two Hundred (P2,200.00)ONLY, to be paid on or before December 25, 1975. (Sgd)Nobio Sardane.' Exhibit G and H are both vales'involving the same amount of one hundred pesos, anddated August 25, 1972 and September 12, 1972respectively.

It has been established in the trial court that on manyoccasions, the petitioner demanded the payment of thetotal amount of P5,217.25. The failure of the privaterespondent to pay the said amount prompted thepetitioner to seek the services of lawyer who made aletter formally demanding the return of the sum loaned.Because of the failure of the private respondent to heedthe demands extrajudicially made by the petitioner, thelatter was constrained to bring an action for collectionof sum of money.

During the scheduled day for trial, private respondentfailed to appear and to file an answer. On motion by the

petitioner, the City Court of Dipolog issued an orderdated May 18, 1976 declaring the private respondent indefault and allowed the petitioner to present hisevidence ex-parte . Based on petitioner's evidence, thecourt rendered judgment by default in favor of thepetitioner.

Private respondent filed a motion to lift the order ofdefault which was granted by the City Court in an orderdated May 24, 1976, taking into consideration that theanswer was filed within two hours after the hearing ofthe evidence presented ex-parte by the petitioner.

Court rendered a decision in favor of the plaintiff andagainst the defendant as follows:

(a) Ordering the defendant to pay unto the plaintiff thesum of Five Thousand Two Hundred Seventeen Pesosand Twenty-five centavos (P5,217.25) plus legal interestto commence from April 23, 1976 when this case wasfiled in court; and

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