SECOND DIVISION

[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.
DECISION
DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the
Decisioni dated March 13, 1996 of the former Fifth Division ii of 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 and Elpidio, collectively known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedents brother TAN ENG LAY on February 19,
1990. The complaint,iii docketed as Civil Case No. 1983-R in the Regional Trial Court of
Baguio City was for accounting, liquidation and winding 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 complaint iv impleading 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. v
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 in the business of selling lumber and hardware and construction
supplies. They named their enterprise Benguet Lumber which they jointly managed
until Tan Eng Kees 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 partnership assets,
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 judgment vion April
12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint adventure 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 particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet 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 of
Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber
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 of
Benguet 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 is qualified 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 for reconsiderationvii was denied by the Court of Appeals in a
Resolutionviii dated 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. Petitioners complained 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, 1999, the Municipal
Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered
judgmentix dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I

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: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS 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 THE SELFSERVING 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 THE FOLLOWING

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 RECORDED BEFORE 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 MAKING ORDERS TO
THE SUPPLIERS (PAGE 18, DECISION).
IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS 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 WHEN THE ESTABLISHMENT KNOWN IN
BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 1617, 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 THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO
SUCH PUBLIC INSTRUMENT ESTABLISHED 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. x Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from a
judgment 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.xi [italics supplied]

Admitted exceptions have been recognized, though, and when present, may compel
us to analyze the 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;
(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.xii

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

We note that the Court a quo over extended the issue because while the plaintiffs
mentioned only the existence of a partnership, the Court in turn went beyond that by justifying
the existence of a joint adventure.
When mention is made of a joint adventure, 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:

xxxxxx

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 were confiscated 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 the common 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 Benguet Lumber 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 Kees 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
together at the Benguet Lumber compound, and (5) all their children were employed in the
business in different capacities.

xxx 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, 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
Kees death in 1984. It had no business book, no written account nor 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, effective 1954, 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 4U, inclusive, for the years 1982 to 1983, Kee was similarly 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

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in
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 Securities and 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 public instrument, on the other hand, was never established by
the appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay and
the 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 the latters capital assets,
contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting 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, as testified 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 was supposedly 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 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 evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which
had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
adventure. 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.xiii Inasmuch as the Court of Appeals 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 Benguet Lumber. A contract of partnership is defined by law as one where:
xxx 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.xiv

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. xv 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,xvi and (2) when the partnership has a capital of three thousand pesos or
more.xvii In both cases, a public instrument is required. xviii An inventory to be signed by
the parties and attached to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to the partnership. xix
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a
joint adventure, which it said is akin to a particular partnership. xx 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
be individually 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
continue for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind.xxi

A joint adventure presupposes generally a parity of standing between the joint coventures 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.xxii Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing
Corporation, et. al.,xxiii we expressed the view that a joint adventure may be likened to a
particular partnership, thus:
The legal concept of a joint adventure 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 distinguishable from
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 partnership contemplates a general business with some degree of
continuity, while the joint adventure is formed for the execution of a single transaction, and is
thus of a temporary nature. (Tufts v. 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
adventure 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 adventure 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 articles of 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 Code when 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 required to
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 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;xxiv the quality of their testimonies is to be
considered. None of petitioners witnesses could suitably account for the beginnings of
Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife
was related to Matilde Abubo.xxv 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. sheets
supposedly owned by both brothers.xxvi Tan Eng Lay, however, denied knowledge of this

meeting or of the conversation between Peralta and his brother. xxvii Tan 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, coownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of
the existence of a partnership.xxviii
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly 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. xxix Each
has the right to demand an accounting as long as the partnership exists. xxx 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 in seeing the firm grow rather
than get immediate returns, a deferment of sharing in the profits is perfectly
plausible.xxxi But in the situation in the case at bar, the deferment, if any, had gone on
too long to be plausible. A person is presumed to take ordinary care of his concerns. xxxii
As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, 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 the expenses 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 manner than 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 real contract between them.xxxiii [italics supplied]

A demand for periodic accounting is evidence of a partnership. xxxiv During his lifetime,
Tan Eng Kee 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. As aforesaid, 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:
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 are
not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-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 which the returns

are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:
(a)As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(b) 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 still be 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, they failed 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 a partnership 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 ones who 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 privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers
and 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 employees 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 the
owner, 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 Tan Eng Kee is
the brother of Tan Eng Lay. Naturally, close personal relations existed between 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 quarrelling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence of a
partnership 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.xxxv

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

circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a
finding of the existence of the parties intent. xxxvi Yet, in the case at bench, even the
aforesaid circumstances when taken together are not persuasive indicia of 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. We cannot 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 of
supervision. 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 organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the
Court of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

i Rollo, pp. 129-147.

ii Justice Bernardo LL. Salas, ponente, with Justices Pedro A. Ramirez and Ma. Alicia
Austria-Martinez, concurring.

iii Records, pp. 1-4.

iv Records, pp. 123-126.

v Records, p. 130.

vi Records, pp. 632-647.

vii Rollo, pp. 148-159.

viii Rollo, p. 173.

ix Rollo, pp. 412-419.

x Brusas v. Court of Appeals, 313 SCRA 176, 188 (1999); Guerrero v. Court of Appeals,
285 SCRA 670, 678 (1998); Atillo III v. Court of Appeals, 266 SCRA 596, 605-606 (1997);
Mallari v. Court of Appeals, 265 SCRA 456, 461 (1996).

xi 1997 Rules of Civil Procedure, Rule 45, Sec. 1.

xii Fuentes v. Court of Appeals, 268 SCRA 703, 708-709 (1997).

xiii Cf. Alicbusan v. Court of Appeals, 269 SCRA 336, 340-341(1997).

xiv Civil Code, Art. 1767.

xv Yulo v. Yang Chiao Seng, 106 Phil. 110, 116 (1959).

xvi Civil Code , Art. 1771.

xvii Civil Code , Art. 1772.

xviii Note, however, Article 1768 of the Civil Code which provides: The partnership has a
juridical personality separate and distinct from that of each of the partners, even in case
of failure to comply with the requirements of Article 1772, first paragraph.

xix Civil Code, Art. 1773.

xx A particular partnership has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or vocation. (Civil Code, Art. 1783)

xxi V E. Paras, Civil Code of the Philippines Annotated 546 (13th ed., 1995).

xxii Sevilla v. Court of Appeals, 160 SCRA 171, 181 (1988).

xxiii 180 SCRA 130, 146-147 (1989).

xxiv Revised Rules on Evidence, Rule 133, Sec. 1.

xxv TSN, June 23, 1990, p. 9.

xxvi TSN, January 28, 1993, p. 85.

xxvii TSN, July 1, 1993, p. 13; TSN, July 8, 1993, p. 4.

xxviii Navarro v. Court of Appeals, 222 SCRA 675, 679 (1993); Civil Code, Art. 1769.

xxix Moran v. Court of Appeals, 133 SCRA 88, 95 (1984).

xxx Fue Lung v. Intermediate Appellate Court, 169 SCRA 746, 755 (1989).

xxxi Id., at 754.

xxxii 1997 Rules of Civil Procedure, Rule 131, Sec. 3, Par. (d).

xxxiii Yulo v. Yang Chiao Seng, 106 Phil. 110, 117 (1959).

xxxiv Estanislao, Jr. v. Court of Appeals, 160 SCRA 830, 837 (1988).

xxxv Private Respondents Memorandum, Rollo, p. 390.

xxxvi Evangelista, et. al. v. Collector of Internal Revenue, et. al., 102 Phil. 141, 146 (1957).EN BANC
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, Plaintiffs-Appellants, vs. YANG
CHIAO SENG, Defendant-Appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
LABRADOR, J.:

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Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding,
dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by

plaintiff.

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The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff
Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a
theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of
P3,000 payable quarterly in advance within the first 15 days of each quarter, (2) that the partnership
shall be for a period of two years and six months, starting from July 1, 1945 to December 31, 1947,
with the condition that if the land is expropriated or rendered impracticable for the business, or if the
owner constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner,
then the partnership shall be terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in
the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after December
31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but if the partnership
agreement is terminated before the lapse of one and a half years period under any of the causes
mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all
improvements that the partnership may place in the premises.
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Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to
December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the
exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed
among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in
case of loss, shall be limited to her capital contribution (Exh. "B").
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In June , 1946, they executed a supplementary agreement, extending the partnership for a period of
three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between
them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong
exclusively to the second party, Mrs. Yulo.
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The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion
Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease
shall continue for an indefinite period of time, but that after one year the lease may be cancelled by
either party by written notice to the other party at least 90 days before the date of cancellation. The last
contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the
attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on July
31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil action to the Court of
First Instance of Manila on July 3, 1949 to declare the lease of the premises. On February 9, 1950, the
Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The
judgment was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and

judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the
contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable monthly
rentals of said premises at P100. Both parties appealed from said decision and the Court of Appeals, on
April 30, 1955, affirmed the judgment.
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On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the
payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land against
Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has
not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make good to the
landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
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In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on
May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao
Seng has refused to pay her share from December, 1949 to December, 1950; that after December 31,
1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the
absolute owner of the building occupied by the Cine Astor; that the reasonable rental that the defendant
should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously and refuses
to pay the participation of the plaintiff in the profits of the business amounting to P35,000 from
November, 1949 to October, 1950, and that as a result of such bad faith and malice on the part of the
defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and exemplary damages to the
extent of P5,000. The prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.
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In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to
get around the prohibition contained in the contract of lease between the owners and the plaintiff
against the sublease of the said property. As to the other claims, he denies the same and alleges that the
fair rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an
attachment issued against the properties of the defendant the latter has suffered damages amounting to
P100,000.
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The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard
evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the
defendant to pay to the plaintiff P41,000 for her participation in the business up to December, 1950;
P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision, however, was set aside on a motion for reconsideration.
In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief
that a joint petition for postponement filed by both parties, in view of a possible amicable settlement,
would be granted; that in view of the decision of the Court of Appeals in two previous cases between
the owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged

participation in the profit of the business, etc. The court, finding the above motion, well-founded, set
aside its decision and a new trial was held. After trial the court rendered the decision making the
following findings: that it is not true that a partnership was created between the plaintiff and the
defendant because defendant has not actually contributed the sum mentioned in the Articles of
Partnership, or any other amount; that the real agreement between the plaintiff and the defendant is not
of the partnership but one of the lease for the reason that under the agreement the plaintiff did not share
either in the profits or in the losses of the business as required by Article 1769 of the Civil Code; and
that the fact that plaintiff was granted a "guaranteed participation" in the profits also belies the
supposed existence of a partnership between them. It. therefore, denied plaintiff's claim for damages or
supposed participation in the profits.
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As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of
the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to
the balcony of the theatre which could not be used for business purposes under existing ordinances of
the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground
that the defendant failed to present sufficient evidence to sustain the same. It is against this decision
that the appeal has been prosecuted by plaintiff to this Court.
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The first assignment of error imputed to the trial court is its order setting aside its former decision and
allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the
trial because of a probable amicable settlement, the plaintiff could not take advantage of defendant's
absence at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its
former judgment. The final result of the hearing shown by the decision indicates that the setting aside
of the previous decision was in the interest of justice.
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In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out
the evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff
is one of the sublease and not of partnership. The action of the lower court in admitting evidence is
justified by the express allegation in the defendant's answer that the agreement set forth in the
complaint was one of lease and not of partnership, and that the partnership formed was adopted in view
of a prohibition contained in plaintiff's lease against a sublease of the property.
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The most important issue raised in the appeal is that contained in the fourth assignment of error, to the
effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and we
fully agree with the conclusion of the trial court that the agreement was a sublease, not a partnership.
The following are the requisites of partnership: (1) two or more persons who bind themselves to
contribute money, property, or industry to a common fund; (2) intention on the part of the partners to
divide the profits among themselves. (Art. 1767, Civil Code.).
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In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, 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 ever 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 the expenses 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 a month, which can not be interpreted in any manner than 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 real contract between them.
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Plaintiff claims the sum of P41,000 as representing her share or participation in the business from
December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement
between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to
the lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the
partnership agreement or the agreement for her to receive a participation of P3,000 automatically
ceased as of said date.
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We find no error in the judgment of the court below and we affirm it in toto, with costs against
plaintiff-appellant.
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Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.

THIRD DIVISION

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

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

respondents.
DECISION
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, as well
as the August 17, 1998 and the October 9, 1998 Resolutions, 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 which is hereby
DISMISSED. Costs against [petitioner].

Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as
follows:
WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts
decision dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is AFFIRMED in
toto, with costs against [petitioner].

The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration
of the August 17, 1998 Resolution.
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 were 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 loan payments. 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 Corporation (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, 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 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 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 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 from claiming 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 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 of July 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.
Because of 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 Zabats activities, 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 the partnership between [petitioner] and Gragera.
[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.

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] NIEVES S. 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,
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 of

As
damages from P2,899,739.50 August 3,
1987 until 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

39.4.2

The cost of the suit.

As attorneys fees; and

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 latters Motion for Reconsideration, however, the trial courts Decision was
reinstated in toto. Subsequently, petitioners 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 among the
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 intention to 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 petitioners 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 collect the
amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. 1515DDDDDDDDDD) to keep track of his collections.
Hence, this Petition.
Issue
Petitioner asks this Court to rule on the following issues:
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 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 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-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 was that 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 petitioners 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 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 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 represented Monte 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 a partnership.
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. The Articles of Agreement stipulated that the signatories shall share
the profits of the business in a 70-15-15 manner, with petitioner getting the lions share. 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 and screening 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.

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 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 petitioner and
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 in order that
their respective interests may be properly defined and established for their mutual benefit and understanding.

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 shown by
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.
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 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 the entries 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 the Rules of Court which states:
Sec. 20. Proof of Private Document Before 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.

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 were pro forma and that she signed them not to signify
that she collected the amounts but that she received the documents themselves is more 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 made by 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 daily payment (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 of GRAGERA
[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: 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.

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 latter received 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 as alleged 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 evidence that 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 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 did not present any voucher or receipt
covering the P200,000.00.

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 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, because Exhibit 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. 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 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.
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 to some 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 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 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 to determine 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 on the basis of the facts on record.

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, 5A 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 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, even if true, does not negate NIEVES claim that overall, the
joint venture among them SANTOS, 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 6B) should be deducted from his total share.

After a close examination of respondents exhibits, we find reason to disagree with the CA.
Exhibit 10-I 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 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 money loaned

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. 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 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 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., 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 not reflect 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 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 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 industrial partner does not share in the losses.
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 particular issue, a
review of its factual findings may be conducted, as an exception to the general rule applied to the first
two issues.
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 substantial evidence;
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 the award 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.
Melo, (Chairman), and Sandoval-Gutierrez, JJ., concur.
Vitug, J., on official leave.