busorg cases week 1

8/12/2019 BusOrg Cases Week 1

1/26

G.R. No. 135813 October 25, 2001

FERNANDO SANTOS,petitioner,vs.

SPOUSES ARSENIO and NIEVES REYES,respondents.

PANGANIBAN, J.:

As a general rule, the factual findings of the Court of Appeals affirming those of the trial court

are binding on the Supreme Court. However, there are several exceptions to this principle. In the

present case, we find occasion to apply both the rule and one of the exceptions.

The Case

Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,1as

well as the August 17, 1998 and the October 9, 1998 Resolutions,2issued by the Court of

Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows:

"WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim

which is hereby DISMISSED. Costs against [petitioner]."3

Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution

ruled as follows:

"WHEREFORE, [respondents'] motion for reconsideration is GRANTED. Accordingly,

the court's decision dated November 28, 1997 is hereby MODIFIED in that the decisionappealed from is AFFIRMED in toto, with costs against [petitioner]."

4

The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion forReconsideration of the August 17, 1998 Resolution.

5

The Facts

The events that led to this case are summarized by the CA as follows:

"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyeswere introduced to each other by one Meliton Zabat regarding a lending business venture

proposed by Nieves. It was verbally agreed that [petitioner would] act as financier while

[Nieves] and Zabat [would] take charge of solicitation of members and collection of loanpayments. The venture was launched on June 13, 1986, with the understanding that[petitioner] would receive 70% of the profits while x x x Nieves and Zabat would earn

15% each.

"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as

chairman of the Monte Maria Development Corporation6(Monte Maria, for brevity),

sought short-term loans for members of the corporation. [Petitioner] and Gragera


2/26

executed an agreement providing funds for Monte Maria's members. Under the

agreement, Monte Maria, represented by Gragera, was entitled to P1.31 commission per

thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books asrepresentative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as

credit investigator.

"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of

Agreement' which formalized their earlier verbal arrangement.

"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same

lending business in competition with their partnership[.] Zabat was thereby expelled from

the partnership. The operations with Monte Maria continued.

"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and

damages. [Petitioner] charged [respondents], allegedly in their capacities as employees of[petitioner], with having misappropriated funds intended for Gragera for the period July

8, 1986 up to March 31, 1987. Upon Gragera's complaint that his commissions wereinadequately remitted, [petitioner] entrusted P200,000.00 to x x x Nieves to be given to

Gragerax x x . Nieves allegedly failed to account for the amount. [Petitioner] asserted thatafter examination of the records, he found that of the total amount of P4,623,201.90

entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby leaving

the balance of P1,555,065.70 unaccounted for.

"In their answer, [respondents] asserted that they were partners and not mere employees

of [petitioner]. The complaint, they alleged, was filed to preempt and prevent them fromclaiming their rightful share to the profits of the partnership.

"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after[petitioner] learned of Zabat's activities. Arsenio resigned from his job at the Asian

Development Bank to join the partnership.

"For her part, x x x Nieves claimed that she participated in the business as a partner, as

the lending activity with Monte Maria originated from her initiative. Except for the

limited period of July 8, 1986 through August 20, 1986, she did not handle sums intendedfor Gragera. Collections were turned over to Gragera because he guaranteed 100%

payment of all sums loaned by Monte Maria. Entries she made on worksheets were based

on this assumptive 100% collection of all loans. The loan releases were made less

Gragera's agreed commission. Because of this arrangement, she neither receivedpayments from borrowers nor remitted any amount to Gragera. Her job was merely to

make worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey to [petitioner] how

much he would earn if all the sums guaranteed by Gragera were collected.

"[Petitioner] on the other hand insisted that [respondents] were his mere employees and

not partners with respect to the agreement with Gragera. He claimed that after hediscovered Zabat's activities, he ceased infusing funds, thereby causing the

extinguishment of the partnership. The agreement with Gragera was a distinct partnership


3/26

[from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents] were hired

as salaried employees with respect to the partnership between [petitioner] and Gragera.

"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she received all

payments from which Nieves deducted Gragera's commission. The commission would

then be remitted to Gragera. She likewise determined loan releases.

"During the pre-trial, the parties narrowed the issues to the following points: whether

[respondents] were employees or partners of [petitioner], whether [petitioner] entrustedmoney to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed

under the complaint was actually remitted to Gragera and whether [respondents] were

entitled to their counterclaim for share in the profits."7

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere

employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner,not his partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves.Thus, respondents' counterclaim for their share in the partnership and for damages was granted.

The trial court disposed as follows:

"39. WHEREFORE, the Court hereby renders judgment as follows:

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 isDISMISSED.

39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the[Respondent] NIEVES S. REYES, the following:

39.2.1. P3,064,428.00 - The 15 percent share of the [respondent]NIEVES S. REYES in the profits of her joint

venture with the [petitioner].

39.2.2. Six(6) percent

of

P3,064,428.00

- As damages from August 3, 1987 until the

P3,064,428.00 is fully paid.

39.2.3. P50,000.00 - As moral damages

39.2.4. P10,000.00 - As exemplary damages

39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the

[respondent] ARSENIO REYES, the following:

39.3.1. P2,899,739.50 - The balance of the 15 percent share of the[respondent] ARSENIO REYES in the profits of

his joint venture with the [petitioner].

39.3.2. Six(6) percent

ofP2,899,739.50

- As damages from August 3, 1987 until the

P2,899,739.50 is fully paid.

39.3.3. P25,000.00 - As moral damages


4/26

39.3.4. P10,000.00 - As exemplary damages

39.4. The [petitioner] FERNANDO J. SANTOS isordered to pay the [respondents]:

39.4.1. P50,000.00 - As attorney's fees; and

39.4.2. The cost of the suit."

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was

dismissed. Upon the latter's Motion for Reconsideration, however, the trial court's Decision was

reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration was denied in the

CA Resolution of October 9, 1998.

The CA ruled that the following circumstances indicated the existence of a partnership amongthe parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending

business and introduced him to Gragera; (2) Arsenio received "dividends" or "profit-shares"covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract was

executed after the Agreement with Gragera and petitioner and thus showed the parties' intentionto consider it as a transaction of the partnership. In their common venture, petitioner invested

capital while respondents contributed industry or services, with the intention of sharing in the

profits of the business.

The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000 which

was supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collectthe amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. "15-

15DDDDDDDDDD") to keep track of his collections.

Hence, this Petition.9

Issue

Petitioner asks this Court to rule on the following issues:10

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion

tantamount to excess or lack of jurisdiction in:

1. Holding that private respondents were partners/joint venturers and not employees of

Santos in connection with the agreement between Santos and Monte Maria/Gragera;

2. Affirming the findings of the trial court that the phrase 'Received by' on documents

signed by Nieves Reyes signified receipt of copies of the documents and not of the sumsshown thereon;

3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;


5/26

4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for

delivery to Gragera;

5 Affirming the dismissal of Santos' [Second] Amended Complaint;

6. Affirming the decision of the trial court, upholding private respondents' counterclaim;

7. Denying Santos' motion for reconsideration dated September 11, 1998."

Succinctly put, the following were the issues raised by petitioner: (1) whether the parties'

relationship was one of partnership or of employer employee; (2) whether Nievesmisappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his

commissions; and (3) whether respondents were entitled to the partnership profits as determined

by the trial court.

The Court's Ruling

The Petition is partly meritorious.

First Issue:

Business Relationship

Petitioner maintains that he employed the services of respondent spouses in the money-lending

venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves

introduced Gragera to Santos did not make her a partner. She was only a witness to the

Agreement between the two. Separate from the partnership between petitioner and Gragera wasthat which existed among petitioner, Nieves and Zabat, a partnership that was dissolved when

Zabat was expelled.

On the other hand, both the CA and the trial court rejected petitioner's contentions and ruled that

the business relationship was one of partnership. We quote from the CA Decision, as follows:

"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself provided the

initiative in the lending activities with Monte Maria. In consonance with the agreement

between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents]contributed industry to the common fund with the intention of sharing in the profits of the

partnership. [Respondents] provided services without which the partnership would not

have [had] the wherewithal to carry on the purpose for which it was organized and as

such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416[1973]).

"While concededly, the partnership between [petitioner,] Nieves and Zabat was

technically dissolved by the expulsion of Zabat therefrom, the remaining partners simply

continued the business of the partnership without undergoing the procedure relative todissolution. Instead, they invited Arsenio to participate as a partner in their operations.

There was therefore, no intent to dissolve the earlier partnership. The partnership between


6/26

[petitioner,] Nieves and Arsenio simply took over and continued the business of the

former partnership with Zabat, one of the incidents of which was the lending operations

with Monte Maria.

xxx xxx xxx

"Gragera and [petitioner] were not partners. The money-lending activities undertaken

with Monte Maria was done in pursuit of the business for which the partnership between

[petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who representedMonte Maria was merely paid commissions in exchange for the collection of loans. The

commissions were fixed on gross returns, regardless of the expenses incurred in the

operation of the business. The sharing of gross returns does not in itself establish apartnership."

11

We agree with both courts on this point. By the contract of partnership, two or more persons bindthemselves to contribute money, property or industry to a common fund, with the intention of

dividing the profits among themselves.

12

The "Articles of Agreement" stipulated that thesignatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting

the lion's share.13

This stipulation clearly proved the establishment of a partnership.

We find no cogent reason to disagree with the lower courts that the partnership continuedlending money to the members of the Monte Maria Community Development Group, Inc., whichlater on changed its business name to Private Association for Community Development, Inc.

(PACDI). Nieves was not merely petitioner's employee. She discharged her bookkeeping duties

in accordance with paragraphs 2 and 3 of the Agreement, which states as follows:

"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and

screening of prospective borrowers, and shall x x x each be responsible in handling thecollection of the loan payments of the borrowers that they each solicited.

"3. That the bookkeeping and daily balancing of account of the business operation shall

be handled by the SECOND PARTY."14

The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other

hand, Arsenio's duties as credit investigator are subsumed under the phrase "screening of

prospective borrowers." Because of this Agreement and the disbursement of monthly

"allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factualfinding of both courts that he replaced Zabat in the partnership.

Indeed, the partnership was established to engage in a money-lending business, despite the factthat it was formalized only after the Memorandum of Agreement had been signed by petitioner

and Gragera. Contrary to petitioner's contention, there is no evidence to show that a different

business venture is referred to in this Agreement, which was executed on August 6, 1986, orabout a month after the Memorandum had been signed by petitioner and Gragera on July 14,

1986. The Agreement itself attests to this fact:


7/26

"WHEREAS, the parties have decided to formalize the terms of their business

relationship in order that their respective interests may be properly defined and

established for their mutual benefit and understanding."15

Second Issue:

No Proof of Misappropriation of Gragera's Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera's

commission. According to him, Gragera remitted his daily collection to Nieves. This is shown byExhibit "B." (the "Schedule of Daily Payments"), which bears her signature under the words

"received by." For the period July 1986 to March 1987, Gragera should have earned a total

commission of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus,petitioner infers that she misappropriated the difference of P1,214,296.10, which represented the

unpaid commissions. Exhibit "H." is an untitled tabulation which, according to him, shows that

Gragera was also entitled to a commission of P200,000, an amount that was never delivered by

Nieves.16

On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves

received for delivery to Gragera any amount from which the P1,214,296.10 unpaid commissionwas supposed to come, and that such exhibits were insufficient proof that she had embezzled

P200,000. Said the CA:

"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not

clearly establish that Nieves received amounts from Monte Maria's members. The

document does not clearly state what amounts the entries thereon represent. Moreimportantly, Nieves made the entries for the limited period of January 11, 1987 to

February 17, 1987 only while the rest were made by Gragera's own staff.

"Neither can we give probative value to Exhibit 'E' which allegedly shows

acknowledgment of the remittance of commissions to Verona Gonzales. The document is

a private one and its due execution and authenticity have not been duly proved asrequired in [S]ection 20, Rule 132 of the Rules of Court which states:

'SECTION 20.Proof of Private DocumentBefore any private documentoffered as authentic is received in evidence, its due execution and authenticity

must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of themaker.

'Any other private document need only be identified as that which it is claimed to

be.'

"The court a quoeven ruled that the signature thereon was a forgery, as it found that:


8/26

'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a

forgery. The initial stroke of Exh. E-1 starts from up and goes downward. The

initial stroke of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, amongothers) starts from below and goes upward. This difference in the start of the

initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends

credence to Nieves' claim that the signature Exh. E-1 is a forgery.'

xxx xxx xxx

"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F') were based on

the predetermined 100% collection as guaranteed by Gragera is credible and clearly in

accord with the evidence. A perusal of Exhs. "B" and "F" as well as Exhs. '15' to 15-DDDDDDDDDD' reveal that the entries were indeed based on the 100% assumptive

collection guaranteed by Gragera. Thus, the total amount recorded on Exh. 'B' is exactly

the number of borrowers multiplied by the projected collection of P150.00 per borrower.

This holds true for Exh. 'F.'

"Corollarily, Nieves' explanation that the documents werepro formaand that she signed

them not to signify that she collected the amounts but that she received the documentsthemselves is more believable than [petitioner's] assertion that she actually handled the

amounts.

"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish that x x

x Nieves received P200,000.00 as commission for Gragera. As correctly stated by the

court a quo, the document showed a liquidation ofP240.000 00and not P200,000.00.

"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were

made by Gragera believable and worthy of credence. Since Gragera guaranteed a daily100% payment of the loans, he took charge of the collections. As [petitioner's]

representative,

Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to

enable [petitioner] to keep track of Gragera's operations. Gragera on the other hand

devised the schedule of daily payment (Exhs. 'B' and 'F') to record the projected grossdaily collections.

"As aptly observed by the court a quo:

'26.1. As between the versions of SANTOS and NIEVES on how thecommissions of GRAGERA [were] paid to him[,] that of NIEVES is more logicaland practical and therefore, more believable. SANTOS' version would have given

rise to this improbable situation: GRAGERA would collect the daily

amortizations and then give them to NIEVES; NIEVES would get GRAGERA'scommissions from the amortizations and then give such commission to

GRAGERA."'17


9/26

These findings are in harmony with the trial court's ruling, which we quote below:

"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter receivedP200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column

'ADDITIONAL CASH' that the additional cash was P240,000.00. If Exh. H were the

liquidation of the P200,000.00 as alleged by SANTOS, then his claim is not true. This isso because it is a liquidation of the sum of P240,000.00.

"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 toGRAGERA when he received the latter's letter complaining of its delayed release.

Assuming as true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is no

competent evidence that NIEVES did not give it to GRAGERA. The only proof thatNIEVES did not give it is the letter. But SANTOS did not even present the letter in

evidence. He did not explain why he did not.

"21.2. The evidence shows that all money transactions of the money-lending business of

SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS didnot present any voucher or receipt covering the P200,000.00."18

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from

the partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted hiscommissions before remitting his collections. Exhibits "B" and "F" are merely computations ofwhat Gragera should collect for the day; they do not show that Nieves received the amounts

stated therein. Neither is there sufficient proof that she misappropriated P200,000, because

Exhibit "H." does not indicate that such amount was received by her; in fact, it shows a differentfigure.

Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted.Well-entrenched is the basic rule that factual findings of the Court of Appeals affirming those of

the trial court are binding and conclusive on the Supreme Court.19

Although there are exceptions

to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.

Third Issue:

Accounting of Partnership

Petitioner refuses any liability for respondents' claims on the profits of the partnership. He

maintains that "both business propositions were flops," as his investments were "consumed andeaten up by the commissions orchestrated to be due Gragera" a situation that "could not have

been rendered possible without complicity between Nieves and Gragera."

Respondent spouses, on the other hand, postulate that petitioner instituted the action below to

avoid payment of the demands of Nieves, because sometime in March 1987, she "signified to

petitioner that it was about time to get her share of the profits which had already accumulated tosome P3 million." Respondents add that while the partnership has not declared dividends or

liquidated its earnings, the profits are already reflected on paper. To prove the counterclaim of

Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled


10/26

P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that income, her 15 percent share

under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus

the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").

The CA originally held that respondents' counterclaim was premature, pending an accounting of

the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.Affirming the trial court's ruling on the counterclaim, it held as follows:

"We earlier ruled that there is still need for an accounting of the profits and losses of thepartnership before we can rule with certainty as to the respective shares of the partners.

Upon a further review of the records of this case, however, there appears to be sufficient

basis to determine the amount of shares of the parties and damages incurred by[respondents]. The fact is that the court a quoalready made such a determination [in its]

decision dated August 13, 1991 on the basis of the facts on record."20

The trial court's ruling alluded to above is quoted below:

"27. The defendants' counterclaim for the payment of their share in the profits of theirjoint venture with SANTOS is supported by the evidence.

"27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement(Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I,

inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash

flow reports of which Exh. 3 is a sample. The originals of the daily cash flow reports(Exhs. 3 and 15 to 15-D(10) were given to SANTOS. The joint venture had a net profit of

P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to April 19, 1987

(Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about

P2,926,000.00, in the profits.

"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending business hewas engaged in netted a profit and that the originals of the daily case flow reports were

furnished to him. SANTOS however alleged that the money-lending operation of his joint

venture with NIEVES and ZABAT resulted in a loss of about half a million pesos to him.

But such loss, even if true, does not negate NIEVES' claim that overall, the joint ventureamong themSANTOS, NIEVES and ARSENIO netted a profit. There is no reason

for the Court to doubt the veracity of [the testimony of] NIEVES.

"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs.

6, 6-A and 6-B) should be deducted from his total share."21

After a close examination of respondents' exhibits, we find reason to disagree with the CA.

Exhibit "10-I"22

shows that the partnership earned a "total income" of P20,429,520 for the period

June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts under thefollowing column headings: "2-Day Advance Collection," "Service Fee," "Notarial Fee,"

"Application Fee," "Net Interest Income" and "Interest Income on Investment." Such entries

represent the collections of the money-lending business or its gross income.


11/26

The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the

partnership. For instance, it did not factor in the "gross loan releases" representing the money

loaned to clients. Since the business is money-lending, such releases are comparable with theinventory or supplies in other business enterprises.

Noticeably missing from the computation of the "total income" is the deduction of the weeklyallowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq.23

show that Arsenio

received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;

and Nieves, from July 12, 1986 to March 27, 1987, in the total amount of P25,600. Theseallowances are different from the profit already received by Arsenio. They represent expenses

that should have been deducted from the business profits. The point is that all expenses incurred

by the money-lending enterprise of the parties must first be deducted from the "total income" in

order to arrive at the "net profit" of the partnership. The share of each one of them should bebased on this "net profit" and not from the "gross income" or "total income" reflected in Exhibit

"10-I," which the two courts invariably referred to as "cash flow" sheets.

Similarly, Exhibits "15" et seq.,

24

which are the "Daily Cashflow Reports," do not reflect thebusiness expenses incurred by the parties, because they show only the daily cash collections.

Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits do notreflect the completefinancial condition of the money-lending business. The lower courts

obviously labored over a mistaken notion that Exhibit " 10-I-1" represented the "net profits"

earned by the partnership.

For the purpose of determining the profit that should go to an industrial partner (who shares in

the profits but is not liable for the losses), the gross income from all the transactions carried on

by the firm must be added together, and from this sum must be subtracted the expenses or thelosses sustained in the business. Only in the difference representing the net profits does the

industrial partner share. But if, on the contrary, the losses exceed the income, the industrialpartner does not share in the losses.25

When the judgment of the CA is premised on a misapprehension of facts or a failure to notice

certain relevant facts that would otherwise justify a different conclusion, as in this particularissue, a review of its factual findings may be conducted, as an exception to the general rule

applied to the first two issues.26

The trial court has the advantage of observing the witnesses while they are testifying, an

opportunity not available to appellate courts. Thus, its assessment of the credibility of witnesses

and their testimonies are accorded great weight, even finality, when supported by substantialevidence; more so when such assessment is affirmed by the CA. But when the issue involves the

evaluation of exhibits or documents that are attached to the case records, as in the third issue, the

rule may be relaxed. Under that situation, this Court has a similar opportunity to inspect,

examine and evaluate those records, independently of the lower courts. Hence, we deem theaward of the partnership share, as computed by the trial court and adopted by the CA, to be

incomplete and not binding on this Court.


12/26

WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is

AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are

REVERSED and SET ASIDE. No costs.

SO ORDERED.


13/26

G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE,petitioners,vs.

COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its

President TAN ENG LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision1dated

March 13, 1996 of the former Fifth Division2of the Court of Appeals in CA-G.R. CV No.

47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the

complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law

spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon andElpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against

the decedent's brother TAN ENG LAY on February 19, 1990. The complaint,3docketed as Civil

Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation andwinding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan

Eng Lay. On March 18, 1991, the petitioners filed an amended complaint4impleading private

respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The

amended complaint was admitted by the trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and

Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged inthe business of selling lumber and hardware and construction supplies. They named their

enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners

herein averred that the business prospered due to the hard work and thrift of the alleged partners.However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the

partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The

incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful

participation in the profits of the business. Petitioners prayed for accounting of the partnershipassets, and the dissolution, winding up and liquidation thereof, and the equal division of the net

assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6on April 12, 1995,

to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt1http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt1http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt2http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt2http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt3http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt3http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt3http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt4http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt4http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt4http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt5http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt5http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt5http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt6http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt6http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt6http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt6http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt5http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt4http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt3http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt2http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt1


14/26

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 Tan Eng Lay are joint adventurers

and/or partners in a business venture and/or particular partnership called Benguet Lumber

and as such should share in the profits and/or losses of the business venture or particularpartnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over toBenguet Lumber Co. Inc. and as such the heirs or legal representatives of the deceased

Tan Eng Kee have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or

as partner in a particular partnership have descended to the plaintiffs who are his legal

heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager ofBenguet Lumber Company Inc. to render an accounting of all the assets of BenguetLumber Company, Inc. so the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets ofBenguet Lumber Company, Inc. until such time that said corporation is finally liquidated

are directed to submit the name of any person they want to be appointed as receiver

failing in which this Court will appoint the Branch Clerk of Court or another one who isqualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in

filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered

the assailed decision reversing the judgment of the trial court. Petitioners' motion forreconsideration

7was denied by the Court of Appeals in a Resolution

8dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay

and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitionerscomplained that Exhibits "4" to "4-U" offered by the defendants before the trial court, 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 Eng Kee. They also filed Criminal Cases Nos.78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed

Tan, for alleged falsification of commercial documents by a private individual. On March 20,
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt7http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt7http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt8http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt8http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt8http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt7


15/26

1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed,

rendered judgment9dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

I

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THEREWAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS

BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B)

THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THEREWAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT

AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE

DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THESELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT

BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE

WAS ONLY AN EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THEFOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF

BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST

BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDEDBEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE

ALL LIVING AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE

COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING

THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES

DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC;AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKINGORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt9http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt9http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt9http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt9


16/26

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THEREWAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN

ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR

WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHENTHE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS

STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

V

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE

WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS

BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF

BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THEEXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP

SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENTESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will

not be disturbed on appeal if such are supported by the evidence.10

Our jurisdiction, it must beemphasized, does not include review of factual issues. Thus:

Filing of petition with Supreme Court.A party desiring to appeal by certiorari from ajudgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the

Regional Trial Court or other courts whenever authorized by law, may file with the

Supreme Court a verified petition for review on certiorari. The petition shall raise only

questions of law which must be distinctly set forth.

11

[emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyzethe evidentiary basis on which the lower court rendered judgment. Review of factual issues is

therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is

manifestly mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case,

and such findings are contrary to the admissions of both appellant and appellee;
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt10http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt10http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt10http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt11http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt11http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt11http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt11http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt10


17/26

(6) when the judgment of the Court of Appeals is premised on a misapprehension of

facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly

considered, will justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on

which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of

evidence but such findings are contradicted by the evidence on record.12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quoover extended the issue because while the plaintiffsmentioned only the existence of a partnership, the Court in turn went beyond that by

justifying the existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between

the parties, equal proprietary interest and the exercise by the parties equally of the

conduct of the business, thus:

xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet

Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6)this is because during the war, the entire stocks of the pre-war Benguet Lumber wereconfiscated if not burned by the Japanese. After the war, because of the absence of capital

to start a lumber and hardware business, Lay and Kee pooled the proceeds of their

individual businesses earned from buying and selling military supplies, so that thecommon fund would be enough to form a partnership, both in the lumber and hardware

business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was

even testified to by witnesses. Because of the pooling of resources, the post-war BenguetLumber was eventually established. That the father of the plaintiffs and Lay were

partners, is obvious from the fact that: (1) they conducted the affairs of the business

during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3)

they were the ones preparing orders from the suppliers, (4) their families stayed togetherat the Benguet Lumber compound, and (5) all their children were employed in the

business in different capacities.

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was

no firm account, no firm letterheads submitted as evidence, no certificate of partnership,
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt12http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt12http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt12http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt12


18/26

no agreement as to profits and losses, and no time fixed for the duration of the

partnership. There was even no attempt to submit an accounting corresponding to the

period after the war until Kee's death in 1984. It had no business book, no written accountnor any memorandum for that matter and no license mentioning the existence of a

partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification

dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered

owner of the Benguet Lumber and Hardware. His application for registration, effective1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the

incorporation). The deceased, Kee, on the other hand, was merely an employee of the

Benguet Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit "3".

In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee wassimilarly listed only as an employee; precisely, he was on the payroll listing. In the

Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constitutedin any form, but when an immovable is constituted, the execution of a public instrument

becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which

case a public instrument is also necessary, and which is to be recorded with the Securitiesand Exchange Commission. In this case at bar, we can easily assume that the business

establishment, which from the language of the appellees, prospered (pars. 5 & 9,

Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real

properties and to the fact that it is now a compound. The execution of a publicinstrument, on the other hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay andthe members of his family. There is no proof either that the capital assets of the

partnership, assuming them to be in existence, were maliciously assigned or transferred

by Lay, supposedly to the corporation and since then have been treated as a part of thelatter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.

These are not evidencessupporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in

the bunk house in Trinidad, but within the compound of the lumber establishment, astestified to by Tandoc; 2) that both Lay and Kee were seated on a table and were

"commanding people" as testified to by the son, Elpidio Tan; 3) that both were

supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta wassupposedly being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were

added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either

oral or written. However, if it involves real property or where the capital is P3,000.00 or


19/26

more, the execution of a contract is necessary; 2) the capacity of the parties to execute the

contract; 3) money property or industry contribution; 4) community of funds and interest,

mentioning equality of the partners or one having 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 thereafter to be

divided, must be established. We cannot see these elements from the testimonial evidenceof the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudgedthat TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this

connection, we have held that whether a partnership exists is a factual matter; consequently,

since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the

correctness of the assessment of the evidence by the court a quo.13

Inasmuch as the Court ofAppeals and the trial court had reached conflicting conclusions, perforce we must examine the

record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in BenguetLumber. A contract of partnership is defined by law as one where:

. . . 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.

Two or more persons may also form a partnership for the exercise of a profession.14

Thus, in order to constitute a partnership, it must be established that (1) two or more

persons bound themselves to contribute money, property, or industry to a common fund,

and (2) they intend to divide the profits among themselves.15

The agreement need not be

formally reduced into writing, since statute allows the oral constitution of a partnership,save in two instances: (1) when immovable property or real rights are contributed,16

and

(2) when the partnership has a capital of three thousand pesos or more.17

In both cases, a

public instrument is required.18

An inventory to be signed by the parties and attached tothe public instrument is also indispensable to the validity of the partnership whenever

immovable property is contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture,

which it said is akin to a particular partnership.20

A particular partnership is distinguished from a

joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of

informal partnership, with no firm name and no legal personality. In a joint account, the

participating merchants can transact business under their own name, and can beindividually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE

TRANSACTION, although the business of pursuing to a successful termination may
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt13http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt13http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt13http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt14http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt14http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt14http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt15http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt15http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt15http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt16http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt16http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt16http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt17http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt17http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt17http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt18http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt18http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt18http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt19http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt19http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt19http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt20http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt20http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt20http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt20http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt19http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt18http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt17http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt16http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt15http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt14http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt13


20/26

continue for a number of years; a partnership generally relates to a continuing business of

various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or

partners, in which each party has an equal proprietary interest in the capital or property

contributed, and where each party exercises equal rights in the conduct of the business."

22

Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23

we

expressed the view that a joint venture may be likened to a particular partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal

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

temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishablefrom the partnership, since their elements are similar community of interest in the

business, sharing of profits and losses, and a mutual right of control. (Blackner v.

McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];

Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main

distinction cited by most opinions in common law jurisdiction is that the partnershipcontemplates a general business with some degree of continuity, while the joint venture is

formed for the execution of a single transaction, and is thus of a temporary nature. (Tuftsv. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE

2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely

accurate in this jurisdiction, since under the Civil Code, a partnership may be particular

or universal, and a particular partnership may have for its object a specific undertaking.(Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture

is a form of partnership and should thus be governed by the law of partnerships. The

Supreme Court has however recognized a distinction between these two business forms,and has held that although a corporation cannot enter into a partnership contract, it may

however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906

[1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation

Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articlesof partnership 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 formed sometime in 1945, although the contrary may well be argued

that nothing prevented the parties from complying with the provisions of the New Civil Codewhen it took effect on August 30, 1950. But all that is in the past. The net effect, however, is that

we are asked to determine whether a partnership existed based purely on circumstantial evidence.

A review of the record persuades us that the Court of Appeals correctly reversed the decision of

the trial court. The evidence presented by petitioners falls short of the quantum of proof requiredto establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,could have expounded on the precise nature of the business relationship between them. In the

absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly

contributed his resources to a common fund for the purpose of establishing a partnership. The
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt21http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt21http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt21http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt22http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt22http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt23http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt23http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt23http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt23http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt22http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt21


21/26

testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It

should be noted that it is not with the number of witnesses wherein preponderance lies;24

the

quality of their testimonies is to be considered. None of petitioners' witnesses could suitablyaccount for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta

whose deceased wife was related to Matilde Abubo.25

He stated that when he met Tan Eng Kee

after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheetssupposedly owned by both brothers.26

Tan Eng Lay, however, denied knowledge of this meetingor of the conversation between Peralta and his brother.

27Tan Eng Lay consistently testified that

he had his business and his brother had his, that it was only later on that his said brother, Tan

Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specificallyhere, of the G.I. sheets) is not an indicium of the existence of a partnership.

28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership wasallegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership

is that the partners share in the profits and losses.29

Each has the right to demand an accounting

as long as the partnership exists.30

We have allowed a scenario wherein "[i]f excellent relations

exist among the partners at the start of the business and all the partners are more interested inseeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is

perfectly plausible."31

But in the situation in the case at bar, the deferment, if any, had gone ontoo long to be plausible. A person is presumed to take ordinary care of his concerns.

32As we

explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the secondplace, she did not furnish any help or intervention in the management of the theatre. In

the third place, it does not appear that she has even demanded from defendant any

accounting of the expenses and earnings of the business. Were she really a partner, her

first concern should have been to find out how the business was progressing, whether theexpenses were legitimate, whether the earnings were correct, etc. She was absolutely

silent with respect to any of the acts that a partner should have done; all that she did was

to receive her share of P3,000.00 a month, which cannot be interpreted in any mannerthan a payment for the use of the premises which she had leased from the owners.

Clearly, plaintiff had always acted in accordance with the original letter of defendant of

June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the realcontract between them.

33[emphasis supplied]

A demand for periodic accounting is evidence of a partnership.34

During his lifetime, Tan EngKee appeared never to have made any such demand for accounting from his brother, Tang Eng

Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of

payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as

it was then called. The authenticity of these documents was questioned by petitioners, to the

extent that they filed criminal charges against Tan Eng Lay and his wife and children. Asaforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U"

in fact shows that Tan Eng Kee received sums as wages of an employee. In connection therewith,

Article 1769 of the Civil Code provides:
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt24http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt24http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt24http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt25http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt25http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt25http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt26http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt26http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt26http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt27http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt27http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt27http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt28http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt28http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt28http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt29http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt29http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt29http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt30http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt30http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt30http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt31http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt31http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt31http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt32http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt32http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt32http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt33http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt33http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt33http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt34http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt34http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt34http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt34http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt33http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt32http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt31http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt30http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt29http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt28http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt27http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt26http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt25http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt24


22/26

In determining whether a partnership exists, these rules shall apply:

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

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

property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not

the persons sharing them have a joint or common right or interest in any property whichthe returns are derived;

(4) The receipt by a person of a share of the profits of a business is aprima facie

evidence that he is a partner in the business, but no such inference shall be drawn if suchprofits 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 a deceased partner;

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

the business;

(e) As the consideration for the sale of a goodwill of a business or other property

by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an

employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would stillbe back to square one, so to speak, since they did not present and offer evidence that would show

that Tan Eng Kee received amounts of money allegedly representing his share in the profits of

the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any,

as his share in the profits of Benguet Lumber Company for any particular period. Hence, theyfailed to prove that Tan Eng Kee and Tan Eng Lay intended to divide 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 or believe the alleged existence of apartnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were

commanding the employees; that both were supervising the employees; that both were the oneswho determined the price at which the stocks were to be sold; and that both placed orders to the

suppliers of the Benguet Lumber Company. They also point out that the families of the brothers

Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilegenot extended to its ordinary employees.


23/26

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powersand privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in

Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to

his subordinates. So long, therefore, that an employee's position is higher in rank, it is not

unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by theowner, can order materials from suppliers for and in behalf of Benguet Lumber.

Furthermore, even a partner does not necessarily have to perform this particular task. It

is, 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 was not accorded to other employees, the undisputed fact remains that TanEng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existedbetween them. Whatever privileges Tan Eng Lay gave his brother, and which were not

given the other employees, only proves the kindness and generosity of Tan Eng Lay

towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in

connection with the pricing of stocks, this does not adequately prove the existence of apartnership relation between them. Even highly confidential employees and the owners of

a company sometimes argue with respect to certain matters which, in no way indicates

that they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where

circumstances taken singly may be inadequate to prove the intent to form a partnership,nevertheless, the collective effectof these circumstances may be such as to support a finding of

the existence of the parties' intent.36

Yet, in the case at bench, even the aforesaid circumstances

when taken together are not persuasive indiciaof a partnership. They only tend to show that Tan

Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. Wecannot discount the likelihood that as a member of the family, he occupied a niche above the

rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin,

such as his residence in the Benguet Lumber Company compound. He would have moral, if not

actual, superiority over his fellow employees, thereby entitling him to exercise powers ofsupervision. It may even be that among his duties is to place orders with suppliers. Again, the

circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired;

these are not inconsistent with the powers and duties of a manager, even in a business organizedand run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation tospeak of. Hence, the petition must fail.
http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt35http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt35http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt35http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt36http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt36http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt36http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt36http://www.lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html#fnt35


24/26

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals

is hereby AFFIRMEDin toto. No pronouncement as to costs.

SO ORDERED.


25/26

G.R. No. L-12541 March 30, 1960

ROSARIO U. YULO, assisted by her husband Jose C. Yulo,plaintiffs-appellants,vs.

YANG CHIAO SENG,defendant-appellee.

Punzalan, Yabut and Eusebio for appellants.

A. Francisco and J. T. Ocampo for appellee.

LABRADOR, J.:

This concerns a "Petition to Reopen Case," dated December 14, 1959, presented by attorneys for

plaintiffs-appellants, alleging that the relationship between Rosario U. Yulo, plaintiff-appellant

and Yang Chiao Seng, defendant-appellee, as lessor and lessee, has already been definitely

decided by the Court of Appeals in the case of Sta. Marina, et al., and Rosario U. Yulo and YangChiao Seng, C. A. G. R. No. 8143-R. We have gone out of our way to review our conclusion that

no relation of partnership existed between said parties because we had denied the motion forreconsideration of plaintiff-appellant questioning the conclusion of this Court withoutexplanation.

The claim of plaintiff-appellant Rosario U. Yulo is that the relationship between her anddefendant-appellee Yang Chiao Seng as partners had already been passed upon by the Court of

Appeals in the above-indicated decision. The portion of the decision of the Court of Appeals is

contained on page 8 of the motion for reconsideration in which it held that articles of partnershipof Young & Co., Ltd. show that the parties to this case are partners in the construction of the

Astor Theatre. It is to be noted, however, that the decision of the Court of Appeals was one in

which Emilia and Maria Carrion Sta. Marina are plaintiffs and the defendants are Rosario Yulo

and Yang Chiao Seng; the action was one to eject the defendants from the land occupied bythem; the issue was the reasonable value for the use and occupation of the land. The Court of

Appeals said that the plaintiffs in that case had claimed that the reasonable value was P3,000,

while the defendants claimed that it was only P1,000, and the Court of Appeals held that in viewof the partnership papers P3,000 represent the share of Rosario U. Yulo in the profits of the

partnership and not the reasonable rent of the property.

It is evident that no res judicata can be claimed for the previous judgment of the Court of

Appeals. In the first place, the parties in that case were Emilia and Maria Carrion Sta. Marina

and the defendants, Rosaria U. Yulo and Yang Chiao Seng; in the second place, the issue

decided by the Court of Appeals was the rental value of the property in question; that the causeof action was for ejectment of Rosario U. Yulo and Yang Chiao Seng. In the case at bar, the

action is between Rosario U. Yulo as plaintiff and Yang Chiao Seng as defendant; the issue is

whether or not the plaintiff is partner in the cinematograph business, as claimed by plaintiff, orsaid plaintiff is merely a sublessee, as claimed by the defendant. There is, therefore, no identity

of parties nor identity of issue, nor identity of cause of action. We call attention to the very

citation contained in appellant's motion for reconsideration, which reads as follows:


26/26

Parties to a judgment are not bound by it, in a subsequent controversy between each other

unless they were adversary parties in the original action. There must have been an issue

or controversy between them. The reason for this rule obviously is the same as that whichunderlies the whole doctrine of res judicata, namely, that a person should not be bound by

a judgment except to the extent that he, or someone representing him, had an adequate

opportunity not only to litigate the matters adjudicated, but to litigate them against theparty (or his prodecessor in interest) who seeks to use the judgment against him. (Sec.422, 1 Freeman on Judgments, 5th ed., p. 918).

Without going further, we are fully satisfied of the correctness of our conclusion that the

relationship between plaintiff-appellant Rosario U. Yulo and Yang Chiao Seng is merely that of

sublessor and sublessee, and not that of partners. The motion to reopen the case is hereby denied

and considering that judgment had become final since October 29, 1959, order is hereby given toremand the record to the court below.

busorg cases week 1

Documents