partnership full case

7/29/2019 partnership full case

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[G.R. No. 135813. October 25, 2001]

FERNANDO SANTOS,petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.

D E C I S I O N

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, i[1] as

well as the August 17, 1998 and the October 9, 1998 Resolutions,ii[2] issued 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 whichis hereby DISMISSED. Costs against [petitioner].iii[3]

Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled asfollows:

WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, thecourts decision dated November 28, 1997 is hereby MODIFIED in that the decision appealed

from is AFFIRMED in toto, with costs against [petitioner].iv[4]

The October 9, 1998 Resolution denied for lack of merit petitioners Motion for

Reconsideration of the August 17, 1998 Resolution.v[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 Reyes wereintroduced 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 loan payments. The venturewas launched on June 13, 1986, with the understanding that [petitioner] would receive 70% ofthe 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 ofthe Monte Maria Development Corporationvi[6] (Monte Maria, for brevity), sought short-term

loans for members of the corporation. [Petitioner] and Gragera executed an agreement providing

funds for Monte Marias members. Under the agreement, Monte Maria, represented by Gragera,


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was entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh. A). x x x

Nieves kept the books as representative 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 thepartnership. 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 Grageras complaint that his commissions were inadequately remitted, [petitioner]entrusted P200,000.00 to x x x Nieves to be given to Gragera. x x x Nieves allegedly failed to

account for the amount. [Petitioner] asserted that after examination of the records, he found thatof 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 from claimingtheir 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 Zabats 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 ofJuly 8, 1986 through August 20, 1986, she did not handle sums intended for 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 Grageras agreed commission. Becauseof this arrangement, she neither received payments 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 he discovered Zabatsactivities, he ceased infusing funds, thereby causing the extinguishment of the partnership. The

agreement with Gragera was a distinct partnership [from] that of [respondent] and Zabat.

[Petitioner] asserted that [respondents] were hired as salaried employees with respect to thepartnership between [petitioner] and Gragera.


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

from which Nieves deducted Grageras 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] entrusted money 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.vii[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 is DISMISSED.

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] NIEVESS. REYES in the profits of her

joint venture with the[petitioner].

39.2.2. Six (6) percent of -

As damages from

P3,064,428.00 August 3, 1987until 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] ARSENIOREYES, the following:

39.3.1. P2,899,739.50 -The balance of the 15 percent


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share of the [respondent]

ARSENIO REYES in the

profits of his joint venturewith the [petitioner].

39.3.2. Six (6) percent of -

As damages fromP2,899,739.50 August 3, 1987until the P2,899,739.50 is fully

paid.

39.3.3. P25,000.00 - As moral damages

39.3.4. P10,000.00 - As exemplary damages

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

39.4.1. P50,000.00 - As attorneys fees; and

39.4.2 The cost of the suit.viii[8]

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents wasdismissed. Upon the lattersMotion for Reconsideration, however, the trial courts Decision was

reinstated in toto. Subsequently, petitioners own Motion for Reconsideration was denied in theCA 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-lendingbusiness 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 intention

to consider it as a transaction of the partnership. In their common venture, petitioner investedcapital while respondents contributed industry or services, with the intention of sharing in the

profits of the business.

The CA disbelieved petitioners claim that Nieves had misappropriated a total ofP200,000

which was supposed to be delivered to Gragera to cover unpaid commissions. It was his task to

collect the 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.ix[9]

Issue

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


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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 sums shown

thereon;

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

4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes ofP200,000.00 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 partiesrelationship was one of partnership or of employer-employee; (2) whether Nieves

misappropriated 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 Courts Ruling

The Petition is partly meritorious.

First Issue:

Business Relationship

Petitioner maintains that he employed the services of respondent spouses in the money-lendingventure 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 whenZabat was expelled.

On the other hand, both the CA and the trial court rejected petitioners contentions and ruled thatthe business relationship was one of partnership. We quote from the CA Decision, as follows:


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[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 thecommon 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 technicallydissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the

business of the partnership without undergoing the procedure relative to dissolution. 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 [petitioner,] Nieves and Arseniosimply 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.

x x x x x x x x x

Gragera and [petitioner] were not partners. The money-lending activities undertaken withMonte Maria was done in pursuit of the business for which the partnership between [petitioner],

Nieves and Zabat (later Arsenio) was organized. Gragera who represented Monte Maria was

merely paid commissions in exchange for the collection of loans. The commissions were fixedon gross returns, regardless of the expenses incurred in the operation of the business. The

sharing ofgross returns does not in itself establish a partnership.xi[11]

We agree with both courts on this point. By the contract of partnership, two or more persons

bind themselves to contribute money, property or industry to a common fund, with the intention

of dividing the profits among themselves.xii[12]

The Articles of Agreement stipulated that thesignatories shall share the profits of the business in a 70-15-15 manner, with petitioner gettingthe lions share.xiii[13] This stipulation clearly proved the establishment of a partnership.

We find no cogent reason to disagree with the lower courts that the partnership continued

lending money to the members of the Monte Maria Community Development Group, Inc., which

later on changed its business name to Private Association for Community Development, Inc.(PACDI). Nieves was not merely petitioners 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 andscreening of prospective borrowers, and shall x x x each be responsible in handling the collection

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.xiv[14]

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

hand, Arsenios duties as credit investigator are subsumed under the phrase screening of


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

allowances and profit shares or dividends (Exh. 6) to Arsenio, we uphold the factual

finding of both courts that he replaced Zabat in the partnership.

Indeed, the partnership was established to engage in a money-lending business, despite the fact

that it was formalized only after the Memorandum of Agreement had been signed by petitionerand Gragera. Contrary to petitioners 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, or

about a month after the Memorandum had been signed by petitioner and Gragera on July 14,1986. The Agreement itself attests to this fact:

WHEREAS, the parties have decided to formalize the terms of their business relationship inorder that their respective interests may be properly defined and established for their mutual

benefit and understanding.xv[15]

Second Issue:

No Proof of Misappropriation of Grageras Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras

commission. According to him, Gragera remitted his daily collection to Nieves. This is shownby Exhibit 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.xvi[16]

On thispoint, the CA ruled that Exhibits B, F, E and H did not show that Nievesreceived for delivery to Gragera any amount from which the P1,214,296.10 unpaid commission

was 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 Marias members. The document does not

clearly state what amounts the entries thereon represent. More importantly, Nieves made theentries for the limited period of January 11, 1987 to February 17, 1987 only while the rest were

made by Grageras 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 as required in [S]ection 20, Rule 132 of theRules of Court which states:


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Sec. 20. Proof of Private DocumentBefore any private document offered 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 the maker.

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

The court a quo even ruled that the signature thereon was a forgery, as it found that:

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, among others) 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.

x x x x x x x x x

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 ofExhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD

reveal that the entries were indeed based on the 100% assumptive collection guaranteed byGragera. 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 forma and that she signed them

not to signify that she collected the amounts but that she received the documents themselves ismore believable than [petitioners] assertion that she actually handled the amounts.

Contrary to [petitioners] 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 of P240,000.00 and not P200,000.00.

Accordingly, we find Nieves testimony that after August 20, 1986, all collections were madeby Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment

of the loans, he took charge of the collections. As [petitioners] representative, Nieves merely

prepared the daily cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner]

to keep track of Grageras operations. Gragera on the other hand devised the schedule of dailypayment (Exhs. B and F) to record the projected gross daily collections.

As aptly observed by the court a quo:

26.1. As between the versions of SANTOS and NIEVES on how the commissions ofGRAGERA [were] paid to him[,] that of NIEVES is more logical and practical and therefore,

more believable. SANTOS version would have given rise to this improbable situation:


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GRAGERA would collect the daily amortizations and then give them to NIEVES; NIEVES

would get GRAGERAs commissions from the amortizations and then give such commission to

GRAGERA.xvii[17]

These findings are in harmony with the trial courts ruling, which we quote below:

21. Exh. H does not prove that SANTOS gave to NIEVES and the latterreceived P200,000.00

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 asalleged by SANTOS, then his claim is not true. This is so 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 to

GRAGERA when he received the latters letter complaining of its delayed release. Assuming as

true SANTOS claim that he gave P200,000.00 to GRAGERA, there is no competent evidencethat NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give it is the

letter. But SANTOS did not even present the letter in evidence. He did not explain why he didnot.

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 did notpresent any voucher or receipt covering the P200,000.00.xviii[18]

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 fromthe partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his

commissions before remitting his collections. Exhibits B and F are merely computations of

what 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, becauseExhibit H does not indicate that such amount was received by her; in fact, it shows a different

figure.

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.xix[19] Although there areexceptions 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 forrespondents claims on the profits of the partnership. Hemaintains that both business propositions were flops, as his investments were consumed and

eaten up by the commissions orchestrated to be due Gragera a situation that could not have

been rendered possible without complicity between Nieves and Gragera.


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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 totaledP20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on that income, her 15 percent shareunder the joint venture amounts to P3,064,428 (Exh. 10-I-3); and Arsenios, 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 courts 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 the

partnership 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 todetermine the amount of shares of the parties and damages incurred by [respondents]. The fact is

that the court a quo already made such a determination [in its] decision dated August 13, 1991 onthe basis of the facts on record.xx[20]

The trial courts ruling alluded to above is quoted below:

27. The defendants counterclaim for the payment of their share in the profits of their joint

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.

27.1.1SANTOS never denied NIEVES testimony that the money-lending business he was

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, evenif true, does not negate NIEVES claim that overall, the joint venture among them SANTOS,

NIEVES and ARSENIOnetted 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.xxi[21]


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

Exhibit 10-Ixxii[22]shows that the partnership earned a total income ofP20,429,520 for the

period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amountsunder the following 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.

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 moneyloaned to clients. Since the business is money-lending, such releases are comparable with the

inventory or supplies in other business enterprises.

Noticeably missing from the computation of the total income is the deduction of the weekly

allowance disbursed to respondents. Exhibits I et seq. and J et seq.xxiii[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. These

allowances are different from the profit already received by Arsenio. They represent expensesthat 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 inorder to arrive at the net profit of the partnership. The share of each one of them should be

based 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.,xxiv[24]which are the Daily Cashflow Reports, do not reflect the

business 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 complete financial condition of the money-lending business. The lower courts

obviously labored over a mistaken notion that Exhibit 10-I-1 represented the net profitsearned 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 onby the firm must be added together, and from this sum must be subtracted the expenses or the

losses 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.xxv[25]

When the judgment of the CA is premised on a misapprehension of facts or a failure to noticecertain relevant facts that would otherwise justify a different conclusion, as in this particular

issue, a review of its factual findings may be conducted, as an exception to the general rule

applied to the first two issues.xxvi[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 witnessesand their testimonies are accorded great weight, even finality, when supported by substantial

evidence; more so when such assessment is affirmed by the CA. But when the issue involves the


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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.

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.

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

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,vs.THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEOS.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J .:

The petitioners invoke the provisions on human relations of the Civil Code in this appealby certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the firstpart; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of thesecond part, and hereinafter referred to as appellants, the Tourist World Service, Inc.leased the premises belonging to the party of the first part at Mabini St., Manila for theformer-s use as a branch office. In the said contract the party of the third part held herselfsolidarily liable with the party of the part for the prompt payment of the monthly rentalagreed on. When the branch office was opened, the same was run by the hereinappellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any farebrought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to

be withheld by the Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears tohave been informed that Lina Sevilla was connected with a rival firm, the PhilippineTravel Bureau, and, since the branch office was anyhow losing, the Tourist World Serviceconsidered closing down its office. This was firmed up by two resolutions of the board ofdirectors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the firstabolishing the office of the manager and vice-president of the Tourist World Service, Inc.,Ermita Branch, and the second,authorizing the corporate secretary to receive theproperties of the Tourist World Service then located at the said branch office. It further


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appears that on Jan. 3, 1962, the contract with the appellees for the use of the BranchOffice premises was terminated and while the effectivity thereof was Jan. 31, 1962, theappellees no longer used it. As a matter of fact appellants used it since Nov. 1961.Because of this, and to comply with the mandate of the Tourist World Service, thecorporate secretary Gabino Canilao went over to the branch office, and, finding thepremises locked, and, being unable to contact Lina Sevilla, he padlocked the premiseson June 4, 1962 to protect the interests of the Tourist World Service. When neither theappellant Lina Sevilla nor any of her employees could enter the locked premises, acomplaint wall filed by the herein appellants against the appellees with a prayer for theissuance of mandatory preliminary injunction. Both appellees answered withcounterclaims. For apparent lack of interest of the parties therein, the trial court orderedthe dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing hercounterclaim which the court a quo, in an order dated June 8, 1963, granted permittingher to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees andafter the issues were joined, the reinstated counterclaim of Segundina Noguera and the

new complaint of appellant Lina Sevilla were jointly heard following which the court a quoordered both cases dismiss for lack of merit, on the basis of which was elevated theinstant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OFPLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TOHOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS.

LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MEREEMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN ASAGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NORIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICEBY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEENOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLEDISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS.LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

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

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at thebranch office on Ermita;


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2. Whether or not the padlocking of the office by the Tourist World Service wasactionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguerawas appellees TWS or TWS and the appellant.

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

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of aneminent eye, ear and nose specialist as well as a imediately columnisthad been in the travel business prior to the establishment of the jointbusiness venture with appellee Tourist World Service, Inc. and appelleeEliseo Canilao, her compadre, she being the godmother of one of hischildren, with her own clientele, coming mostly from her own social circle(pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19October 1960 (Exh. 'A') covering the premises at A. Mabini St., sheexpressly warranting and holding [sic] herself 'solidarily' liable withappellee Tourist World Service, Inc. for the prompt payment of themonthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn.Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee TouristWorld Service, Inc., which had its own, separate office located at theTrade & Commerce Building; nor was she an employee thereof, havingno participation in nor connection with said business at the Trade &Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers,her own bookings her own business (and not for any of the business ofappellee Tourist World Service, Inc.) obtained from the airlinecompanies. She shared the 7% commissions given by the airlinecompanies giving appellee Tourist World Service, Lic. 3% thereof aidretaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintainingthe A. Mabini St. office, paying for the salary of an office secretary, MissObieta, and other sundry expenses, aside from desicion the officefurniture and supplying some of fice furnishings (pp. 15,18 tsn. April6,1965), appellee Tourist World Service, Inc. shouldering the rental andother expenses in consideration for the 3% split in the co procured by

appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevillawould be given the title of branch manager for appearance's sake only(p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title fordignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilaopp. 38-39 tsn April 61965-testimony of corporate secretary GabinoCanilao (pp- 2-5, Appellants' Reply Brief)


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Upon the other hand, appellee TWS contend that the appellant was an employee of theappellee Tourist World Service, Inc. and as such was designated manager.

1

xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private

respondent, Tourist World Service, Inc., being the true lessee, it was within itsprerogative to terminate the lease and padlock the premises. 3 It likewise found thepetitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. andas such, she was bound by the acts of her employer. 4 The respondent Court of Appeal5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court,erred. Specifically, they state:

I

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELYABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THEPREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE ANDCONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINAO. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSELFOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKINGINCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OFTOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THESAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSYBETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ...(DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP.

7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERESTO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELYABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSESHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS

AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN."(ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELYABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND21 OF THE CIVIL CODE ON RELATIONS.

IV


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THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELYABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEFYET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITHTOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH ANINTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY

BY TOURIST WORLD SERVICE INC.

6

As a preliminary inquiry, the Court is asked to declare the true nature of the relationbetween Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit torule on the question, the crucial issue, in its opinion being "whether or not thepadlocking of the premises by the Tourist World Service, Inc. without the knowledgeand consent of the appellant Lina Sevilla entitled the latter to the relief of damagesprayed for and whether or not the evidence for the said appellant supports thecontention that the appellee Tourist World Service, Inc. unilaterally and without theconsent of the appellant disconnected the telephone lines of the Ermita branch office ofthe appellee Tourist World Service, Inc. 7Tourist World Service, Inc., insists, on the

other hand, that Lina SEVILLA was a mere employee, being "branch manager" of itsErmita "branch" office and that inferentially, she had no say on the lease executed withthe private respondent, Segundina Noguera. The petitioners contend, however, thatrelation between the between parties was one of joint venture, but concede that"whatever might have been the true relationship between Sevilla and Tourist WorldService,"the Rule of Law enjoined Tourist World Service and Canilao from taking thelaw into their own hands, 8in reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent,Tourist World Service, Inc., maintains, that the relation between the parties was in thecharacter of employer and employee, the courts would have been without jurisdiction to

try the case, labor disputes being the exclusive domain of the Court of IndustrialRelations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of anemployer-employee relation. In general, we have relied on the so-called right of controltest, "where the person for whom the services are performed reserves a right to controlnot only the endto be achieved but also the means to be used in reaching such end." 10Subsequently, however, we have considered, in addition to the standard of right-ofcontrol, the existing economic conditions prevailing between the parties, like theinclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by theprivate respondent Tourist World Service, Inc., either as to the result of the enterprise oras to the means used in connection therewith. In the first place, under the contract oflease covering the Tourist Worlds Ermita office, she had bound herself in solidum asand for rental payments, an arrangement that would be like claims of a master-servantrelationship. True the respondent Court would later minimize her participation in thelease as one of mere guaranty, 12 that does not make her an employee of Tourist World,


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since in any case, a true employee cannot be made to part with his own money inpursuance of his employer's business, or otherwise, assume any liability thereof. In thatevent, the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was

opened, the same was run by the herein appellant Lina O. Sevilla payable to TouristWorld Service, Inc. by any airline for any fare brought in on the effort of Mrs. LinaSevilla. 13Under these circumstances, it cannot be said that Sevilla was under thecontrol of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing thebusiness, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, sheretained 4% in commissions from airline bookings, the remaining 3% going to TouristWorld. Unlike an employee then, who earns a fixed salary usually, she earnedcompensation in fluctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo,Tourist World's employee. As we said, employment is determined by the right-of-controltest and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as aconsequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a

joint venture or otherwise, a partnership. And apparently, Sevilla herself did notrecognize the existence of such a relation. In her letter of November 28, 1961, sheexpressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation ofyour branch office 14 in effect, accepting Tourist World Service, Inc.'s control over themanner in which the business was run. A joint venture, including a partnership,

presupposes generally a of standing between the joint co-venturers or partners, inwhich each party has an equal proprietary interest in the capital or property contributed15 and where each party exercises equal rights in the conduct of the business. 16furthermore, the parties did not hold themselves out as partners, and the building itselfwas embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinctpartnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to(wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she musthave done so pursuant to a contract of agency. It is the essence of this contract that theagent renders services "in representation or on behalf of another. 18 In the case at bar,Sevilla solicited airline fares, but she did so for and on behalf of her principal, TouristWorld Service, Inc. As compensation, she received 4% of the proceeds in the conceptof commissions. And as we said, Sevilla herself based on her letter of November 28,1961, pre-assumed her principal's authority as owner of the business undertaking. Weare convinced, considering the circumstances and from the respondent Court's recital offacts, that the ties had contemplated a principal agent relationship, rather than a jointmanagament or a partnership..


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But unlike simple grants of a power of attorney, the agency that we hereby declare to becompatible with the intent of the parties, cannot be revoked at will. The reason is that itis one coupled with an interest, the agency having been created for mutual interest, ofthe agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agentherself, and as such, she had acquired an interest in the business entrusted to her.

Moreover, she had assumed a personal obligation for the operation thereof, holdingherself solidarily liable for the payment of rentals. She continued the business, using herown name, after Tourist World had stopped further operations. Her interest, obviously,is not to the commissions she earned as a result of her business transactions, but onethat extends to the very subject matter of the power of management delegated to her. Itis an agency that, as we said, cannot be revoked at the pleasure of the principal.

Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, todamages.

As we have stated, the respondent Court avoided this issue, confining itself to thetelephone disconnection and padlocking incidents. Anent the disconnection issue, it is

the holding of the Court of Appeals that there is 'no evidence showing that the TouristWorld Service, Inc. disconnected the telephone lines at the branch office. 20Yet, whatcannot be denied is the fact that Tourist World Service, Inc. did not take pains to havethem reconnected. Assuming, therefore, that it had no hand in the disconnection nowcomplained of, it had clearly condoned it, and as owner of the telephone lines, it mustshoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlockingincident. For the fact that Tourist World Service, Inc. was the lessee named in the leasecon-tract did not accord it any authority to terminate that contract without notice to itsactual occupant, and to padlock the premises in such fashion. As this Court has ruled,

the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, andnecessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not astranger to that contract having been explicitly named therein as a third party in chargeof rental payments (solidarily with Tourist World, Inc.). She could not be ousted frompossession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed somemalevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosuresthat she had worked for a rival firm. To be sure, the respondent court speaks of allegedbusiness losses to justify the closure '21 but there is no clear showing that Tourist WorldErmita Branch had in fact sustained such reverses, let alone, the fact that Sevilla hadmoonlit for another company. What the evidence discloses, on the other hand, is thatfollowing such an information (that Sevilla was working for another company), TouristWorld's board of directors adopted two resolutions abolishing the office of 'manager"and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect thetakeover of its branch office properties. On January 3, 1962, the private respondentsended the lease over the branch office premises, incidentally, without notice to her.


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It was only on June 4, 1962, and after office hours significantly, that the Ermita officewas padlocked, personally by the respondent Canilao, on the pretext that it wasnecessary to Protect the interests of the Tourist World Service. " 22 It is strange indeedthat Tourist World Service, Inc. did not find such a need when it cancelled the lease fivemonths earlier. While Tourist World Service, Inc. would not pretend that it sought to

locate Sevilla to inform her of the closure, but surely,it was aware that after office hours,she could not have been anywhere near the premises. Capping these series of"offensives," it cut the office's telephone lines, paralyzing completely its businessoperations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punishSevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, toelementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, theprivate respondent, Tourist World Service, Inc., should be sentenced to pay damages.

Under the Civil Code, moral damages may be awarded for "breaches of contract wherethe defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moralinjury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of thepower of attorney granted to her on the authority of Article 21 of the Civil Code, inrelation to Article 2219 (10) thereof

ART. 21. Any person who wilfully causes loss or injury to another in a manner that iscontrary to morals, good customs or public policy shall compensate the latter for thedamage.

24

ART. 2219. Moral damages25

may be recovered in the following and analogous cases:

xxx xxx xxx

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

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered torespond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, noevidence has been shown that she had connived with Tourist World Service, Inc. in the

disconnection and padlocking incidents. She cannot therefore be held liable as acotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00as exemplary damages, 25and P5,000.00 as nominal 26and/or temperate 27damages, tobe just, fair, and reasonable under the circumstances.


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WHEREFORE, the Decision promulgated on January 23, 1975 as well as theResolution issued on July 31, 1975, by the respondent Court of Appeals is herebyREVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., andEliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, LinaSevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and

for exemplary damages, and the sum of P5,000.00, as and for nominal and/ortemperate damages.

Costs against said private respondents.

SO ORDERED.

Sevilla vs. CA

FACTS:

A contract by and between Noguera and Tourist World Service (TWS), represented by Canilao,

wherein TWS leased the premises belonging to Noguera as branch office of TWS. When the branch

office was opened, it was run by appellant Sevilla payable to TWS by any airline for any fare brought in

on the efforts of Mrs. Sevilla, 4% was to go to Sevilla and 3% was to be withheld by the TWS.

Later, TWS was informed that Sevilla was connected with rival firm, and since the branch office

was losing, TWS considered closing down its office.

On January 3, 1962, the contract with appellee for the use of the branch office premises was

terminated and while the effectivity thereof was January 31, 1962, the appellees no longer used it.

Because of this, Canilao, the secretary of TWS, went over to the branch office, and finding the premises

locked, he padlocked the premises. When neither appellant Sevilla nor any of his employees could enter,

a complaint was filed by the appellants against the appellees.

TWS insisted that Sevilla was a mere employee, being the branch manager of its branch office

and that she had no say on the lease executed with the private respondent, Noguera.

ISSUE: W/N ER-EE relationship exists between Sevilla and TWS

HELD:

The records show that petitioner, Sevilla, was not subject to control by the private respondent

TWS. In the first place, under the contract of lease, she had bound herself in solidum as and for rental

payments, an arrangement that would belie claims of a master-servant relationship. That does not make


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her an employee of TWS, since a true employee cannot be made to part with his own money in

pursuance of his employers business, or otherwise, assume any liability thereof.

In the second place, when the branch office was opened, the same was run by the appellant

Sevilla payable to TWS by any airline for any fare brought in on the effort of Sevilla. Thus, it cannot be

said that Sevilla was under the control of TWS. Sevilla in pursuing the business, relied on her owncapabilities.

It is further admitted that Sevilla was not in the companys payroll. For her efforts, she retained

4% in commissions from airline bookings, the remaining 3% going to TWS. Unlike an employee, who

earns a fixed salary, she earned compensation in fluctuating amount depending on her booking

successes.

The fact that Sevilla had been designated branch manager does not make her a TWS

employee. It appears that Sevilla is a bona fide travel agent herself, and she acquired an interest in the

business entrusted to her. She also had assumed personal obligation for the operation thereof, holding

herself solidary liable for the payment of rentals.

Wherefore, TWS and Canilao are jointly and severally liable to indemnify the petitioner, Sevilla.

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

ELIGIO ESTANISLAO, JR., petitioner,vs.THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and

LEOCADIO SANTIAGO, respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

GANCAYCO, J .:

By this petition for certiorari the Court is asked to determine if a partnership exists

between members of the same family arising from their joint ownership of certainproperties.

Petitioner and private respondents are brothers and sisters who are co-owners ofcertain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were thenbeing leased to the Shell Company of the Philippines Limited (SHELL). They agreed toopen and operate a gas station thereat to be known as Estanislao Shell Service Stationwith an initial investment of P 15,000.00 to be taken from the advance rentals due to


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them from SHELL for the occupancy of the said lots owned in common by them. A jointaffidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito

Angeles 1 They agreed to help their brother, petitioner herein, by allowing him to operateand manage the gasoline service station of the family. They negotiated with SHELL. Forpractical purposes and in order not to run counter to the company's policy of appointing

only one dealer, it was agreed that petitioner would apply for the dealership.Respondent Remedios helped in managing the bussiness with petitioner from May 3,1966 up to February 16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreementwith SHELL wherein it was reiterated that the P 15,000.00 advance rental shall bedeposited with SHELL to cover advances of fuel to petitioner as dealer with a provisothat said agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation of

the business to private respondents, but therafter petitioner failed to render subsequentaccounting. Hence through Atty. Angeles, a demand was made on petitioner to renderan accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make aprofit of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 wasrealized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of FirstInstance of Rizal against petitioner praying among others that the latter be ordered:

1. to execute a public document embodying all the provisions of the partnershipagreement entered into between plaintiffs and defendant as provided in Article 1771 ofthe New Civil Code;

2. to render a formal accounting of the business operation covering the period from May6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the order isissued and that the same be subject to proper audit;

3. to pay the plaintiffs their lawful shares and participation in the net profits of thebusiness in an amount of no less than P l50,000.00 with interest at the rate of 1% permonth from date of demand until full payment thereof for the entire duration of thebusiness; and

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

After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then thetemporary presiding judge of Branch IV of the trial court, rendered judgment dismissingthe complaint and counterclaim and ordering private respondents to pay petitioner P3,000.00 attorney's fee and costs. Private respondent filed a motion for reconsiderationof the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly


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appointed presiding judge of the same branch, set aside the aforesaid derision andrendered another decision in favor of said respondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsideredand a new judgment is hereby rendered in favor of the plaintiffs and as against thedefendant:

(1) Ordering the defendant to execute a public instrument embodying all the provisions ofthe partnership agreement entered into between plaintiffs and defendant as provided forin Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation fromApril 1969 up to the time this order is issued, the same to be subject to examination andaudit by the plaintiff,

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net

profits of the business in the amount of P 150,000.00, with interest thereon at the rate ofOne (1%) Per Cent per month from date of demand until full payment thereof;

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney'sfees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal).

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7)errors allegedly committed by the trial court. In due course, a decision was rendered bythe Court of Appeals on November 28,1978 affirming in toto the decision of the lowercourt with costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on January

30, 1979. Not satisfied therewith, the petitioner now comes to this court by way of thispetition for certiorari alleging that the respondent court erred:

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

2. In declaring that a partnership was established by and among the petitioner and theprivate respondents as regards the ownership and or operation of the gasoline servicestation business.

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (ExhibitA) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which areherein reproduced-

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

(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates ofTitle Nos. 45071 and 71244 of the Register of Deeds of Quezon City, in favor of theLESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a corporation dulylicensed to do business in the Philippines;


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(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITEDadvanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00)Philippine Currency, so that we can use the said amount to augment our capitalinvestment in the operation of that gasoline station constructed ,by the said company onour two lots aforesaid by virtue of an outstanding Lease Agreement we have entered intowith the said company;

(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of itsbenevolence and desire to help us in aumenting our capital investment in the operation ofthe said gasoline station, has agreed to give us the said amount of P 15,000.00, whichamount will partake the nature of ADVANCED RENTALS;

(4) That we have freely and voluntarily agreed that upon receipt of the said amount ofFIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THEPHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied asmonthly rentals for the sai two lots under our Lease Agreement starting on the 25th ofMay, 1966 until such time that the said of P 15,000.00 be applicable, which time to ourestimate and one-half months from May 25, 1966 or until the 10th of October, 1966 moreor less;

(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THEPHILIPPINES LIMITED execute an instrument for us to sign embodying our conformitythat the said amount that it will generously grant us as requested be applied asADVANCED RENTALS; and

(6) FURTHER AFFIANTS SAYETH NOT.,

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

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc.Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the NotarialRegisters of Notaries Public Rosauro Marquez, and R.D. Liwanag, respectively) executedin favour of SHELL by the herein CO-OWNERS and another Lease Agreement dated19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios andMARIA ESTANISLAO for the lease of adjoining portions of two parcels of land at AuroraBlvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental ofPESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P3,382.29), Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Stationconstructed on the leased land, and as Dealer under the Cash Pledge Agreement datedllth May 1966, he deposited to SHELL in cash the amount of PESOS TEN THOUSAND(P 10,000), Philippine Currency, to secure his purchase on credit of Shell petroleumproducts; . . .

WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P25,000, has secured the conformity of his CO-OWNERS to waive and assign to SHELLthe total monthly rentals due to all of them to accumulate the equivalent amount of P15,000, commencing 24th May 1966, this P 15,000 shall be treated as additional cashdeposit to SHELL under the same terms and conditions of the aforementioned CashPledge Agreement dated llth May 1966.


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NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutualcovenants among the CO-OWNERS herein and SHELL, said parties have agreed andhereby agree as follows:

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to allCO-OWNERS, collectively, under the above describe two Lease Agreements, one dated

13th November 1963 and the other dated 19th March 1964 to enable DEALER toincrease his existing cash deposit to SHELL, from P 10,000 to P 25,000, for suchpurpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to SHELLthe monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly,commencing 24th May 1966, until such time that the monthly rentals accumulated, shallbe equal to P l5,000.

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

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to

purchase from SHELL petroleum products, on credit, up to the amount of P 25,000.

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

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by theparties that the P 15,000.00 advance rental due to them from SHELL shall augmenttheir "capital investment" in the operation of the gasoline station, which advance rentalsshall be credited as rentals from May 25, 1966 up to four and one-half months or until10 October 1966, more or less covering said P 15,000.00.

In the subsequent document entitled "Additional Cash Pledge Agreement" abovereproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL themonthly rentals due them commencing the 24th of May 1966 until such time that themonthly rentals accumulated equal P 15,000.00 which private respondents agree to bea cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer. Asabove-stated it provided therein that "This agreement, therefore, cancels andsupersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding thatprevious Joint Affidavit, whatever partnership agreement there was in said previousagreement had thereby been abrogated. We find no merit in this argument. Said

cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00advance rentals starting May 25, 1966 while the latter agreement also refers to advancerentals of the same amount starting May 24, 1966. There is, therefore, a duplication ofreference to the P 15,000.00 hence the need to provide in the subsequent documentthat it "cancels and supersedes" the previous one. True it is that in the latter document,it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the"capital investment" of the parties in the gasoline station business and it speaks ofpetitioner as the sole dealer, but this is as it should be for in the latter document SHELL


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was a signatory and it would be against its policy if in the agreement it should be statedthat the business is a partnership with private respondents and not a sole proprietorshipof petitioner.

Moreover other evidence in the record shows that there was in fact such partnership

agreement between the parties. This is attested by the testimonies of privaterespondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to privaterespondents periodic accounting of the business. 4 Petitioner gave a written authority toprivate respondent Remedies Estanislao, his sister, to examine and audit the books oftheir "common business' aming negosyo). 5 Respondent Remedios assisted in therunning of the business. There is no doubt that the parties hereto formed a partnershipwhen they bound themselves to contribute money to a common fund with the intentionof dividing the profits among themselves. 6 The sole dealership by the petitioner and theissuance of all government permits and licenses in the name of petitioner was incompliance with the afore-stated policy of SHELL and the understanding of the partiesof having only one dealer of the SHELL products.

Further, the findings of facts of the respondent court are conclusive in this proceeding,and its conclusion based on the said facts are in accordancewith the applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs againstpetitioner. This decision is immediately executory and no motion for extension of time tofile a motion for reconsideration shag beentertained.

SO ORDERED.


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