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.

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.

DE LEON, JR., J.:

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.
In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March 13, 1996 of the former Fifth Division2 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
decedent's brother TAN ENG LAY on February 19, 1990. The complaint, 3 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 complaint4 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. 5
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and
industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies. They named
their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business
prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a
ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the
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 6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

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 reconsideration7 was denied by the Court of Appeals in a Resolution8 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 judgment9 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).

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;
II
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.

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS
ONLY AN EMPLOYEE THEREOF.
III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT 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 BAGUIO CITY AS BENGUET
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE
TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER
IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH 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.10 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.11 [emphasis 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.12
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 venture.
When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal proprietary interest
and the exercise by the parties equally of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The appellees
however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet Lumber
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 postwar 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 Kee's lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers, (4) their families stayed together at the Benguet Lumber
compound, and (5) all their children were employed in the business in different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads
submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of
the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kee's death in

1984. It had no business book, no written 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 "4-U", 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

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 latter's 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 venture. In this connection, we have held that whether a partnership exists is a factual matter; consequently, since
the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the assessment of the evidence by the
court a quo.13 Inasmuch as the Court 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:

. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits
among themselves.
Two or more persons may also form a partnership for the exercise of a profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute
money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. 15 The agreement need
not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when
immovable property or real rights are contributed,16 and (2) when the partnership has a capital of three thousand pesos or
more.17 In both cases, a public instrument is required.18 An inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership. 19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a particular
partnership.20 A particular partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm name and no
legal personality. In a joint account, the participating merchants can transact business under their own name, and can 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.21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal
proprietary interest in the capital or property contributed, and where each party exercises equal rights in the conduct of the
business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture
may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
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
venture 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 venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954])
(Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the 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;24 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.25 He stated that when he met Tan
Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother. 27 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, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a
partnership.28

(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 a 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;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

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.29 Each has the right to demand an accounting
as long as the partnership exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the
business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible."31 But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.32 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. 33 [emphasis supplied]

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:

A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng Kee appeared never to have made any such
demand for accounting from his brother, Tang Eng Lay.

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:

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:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore, that
an employee's position is higher in rank, it is not unusual that he orders around those lower in rank.

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;

(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 quarreling 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. 35
In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be inadequate to prove
the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence
of the parties' intent.36 Yet, in the case at bench, even the aforesaid circumstances when taken together are not persuasive 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 herebyAFFIRMED in toto. No
pronouncement as to costs.

sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a
total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the
real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was
subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the unregistered partnership was subject
to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax; and that
the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did
not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax
assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due course, the respondent
court by a majority decision of March 30, 1987, 2 affirmed the decision and action taken by respondent commissioner with costs against
petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact formed by petitioners which like a
corporation was subject to corporate income tax distinct from that imposed on the partners.

SO ORDERED.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case, although there
might in fact be a co-ownership between the petitioners, there was no adequate basis for the conclusion that they thereby formed an
unregistered partnership which made "hem liable for corporate income tax under the Tax Code.

G.R. No. 78133 October 18, 1988

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT

COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION
THERETO RESTS UPON THE PETITIONERS.

De la Cuesta, De las Alas and Callanta Law Offices for petitioners.

The Solicitor General for respondents

GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three
(3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir Development Corporation, while
the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN

UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT
WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE SHOULD
BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF OTHER
TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they used in buying
several real properties. They appointed their brother to manage their properties with full power to lease, collect, rent, issue receipts, etc. They
had the real properties rented or leased to various tenants for several years and they gained net profits from the rental income. Thus, the
Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from them.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein. The
properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.

In resolving the issue, this Court held as follows:

4. Since August, 1945, the properties have been under the management of one person, namely, Simeon Evangelists,
with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse
and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same
belonged to a corporation or business enterprise operated for profit.

The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax
for corporations and the real estate dealers' fixed tax. With respect to the tax on corporations, the issue hinges on the
meaning of the terms corporation and partnership as used in sections 24 and 84 of said Code, the pertinent parts of
which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid annually upon the
total net income received in the preceding taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized but not including duly registered general copartnerships (companies collectives), a tax upon such income equal to the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock companies,
joint accounts (cuentas en participation), associations or insurance companies, but does not include duly registered
general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The
first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and then divide the same among themselves, because:

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since
the first property was acquired, and over twelve (12) years, since Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already
adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in
petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common
fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these
conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was not limited
to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to
business transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon. In
1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after which
they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions were isolated.
The character of habituality peculiar to business transactions for the purpose of gain was not present.

1. Said common fund was not something they found already in existence. It was not a property inherited by them pro
indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to
establish said common fund.

In Evangelista, the properties were leased out to tenants for several years. The business was under the management of one of the partners.
Such condition existed for over fifteen (15) years. None of the circumstances are present in the case at bar. The co-ownership started only in
1965 and ended in 1970.

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed, on
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got
a fourth lot for P237,234.14. The number of lots (24) acquired and transcations undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design
that was not limited to the conservation and preservation of the aforementioned common fund or even of the property
acquired by petitioners in February, 1943. In other words, one cannot but perceive a character of habituality peculiar
to business transactions engaged in for purposes of gain.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides;
(2) Co-ownership or co-possession does not 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 from which the returns are derived;

their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

From the above it appears that the fact that those who agree to form a co- ownership share or do not share any
profits made by the use of the property held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have
a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the
presence of other elements constituting partnership is necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign
any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol.
I, 1953 ed., pp. 635-636)

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing
unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then
petitioners can be held individually liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners have availed of
the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax liability arising therefrom.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for
profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

SO ORDERED.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not
thereby rendered partners. They have no common stock or capital, and no community of interest as principal
proprietors in the business itself which the proceeds derived. (Elements of the Law of Partnership by Flord D.
Mechem 2nd Ed., section 83, p. 74.)

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March 30, 1987 is hereby
REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the corporate income tax liability in this case,
without pronouncement as to costs.

G.R. No. 135813

October 25, 2001

FERNANDO SANTOS, petitioner,

vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to
share the profits and losses on the sale of land create a partnership; the parties are only tenants in common. (Clark
vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in
common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three parties, whatever their relation may have been as to third
parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

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,1 as well as the August 17, 1998 and the October 9,
1998 Resolutions,2 issued by the Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows:

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating
in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables
each party to make contract, manage the business, and dispose of the whole property.-Municipal Paving Co. vs.
Herring 150 P. 1067, 50 III 470.)

"WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is hereby DISMISSED. Costs
against [petitioner]."3

The common ownership of property does not itself create a partnership between the owners, though they may use it
for the purpose of making gains; and they may, without becoming partners, agree among themselves as to the
management, and use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.W.
363,160 No. App. 14.) 6

"WHEREFORE, [respondents'] motion for reconsideration is GRANTED. Accordingly, the court's decision dated November 28,
1997 is hereby MODIFIED in that the decision appealed from is AFFIRMED in toto, with costs against [petitioner]."4

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition
that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a
few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on

Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:

The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for Reconsideration of the August 17, 1998 Resolution. 5
The Facts
The events that led to this case are summarized by the CA as follows:
"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves 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
Corporation6 (Monte Maria, for brevity), sought short-term loans for members of the corporation. [Petitioner] and Gragera executed
an agreement providing funds for Monte Maria's members. Under the agreement, Monte Maria, represented by Gragera, was
entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books as representative of
[petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator.

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:

"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner] charged [respondents],
allegedly in their capacities as employees of [petitioner], with having misappropriated funds intended for Gragera for the period
July 8, 1986 up to March 31, 1987. Upon Gragera's complaint that his commissions were inadequately remitted, [petitioner]
entrusted P200,000.00 to x x x Nieves to be given to Gragerax x x . Nieves allegedly failed to account for the amount. [Petitioner]
asserted 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.

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].

"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.

39.2.2.

Six(6) percent of
P3,064,428.00

- As damages from August 3, 1987 until the P3,064,428.00 is fully paid.

39.2.3.

P50,000.00

- As moral damages

39.2.4.

P10,000.00

- As exemplary damages

39.3.

The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the following:

39.3.1.

P2,899,739.50

- The balance of the 15 percent share of the [respondent] ARSENIO REYES in the
profits of his joint venture with the [petitioner].

39.3.2.

Six(6) percent of
P2,899,739.50

- As damages from August 3, 1987 until the P2,899,739.50 is fully paid.

39.3.3.

P25,000.00

- As moral damages

"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.

"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner] learned of Zabat's activities.
Arsenio resigned from his job at the Asian Development Bank to join the partnership.
"For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending activity with Monte Maria
originated from her initiative. Except for the limited period of July 8, 1986 through August 20, 1986, she did not handle sums
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 Gragera's 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 Zabat's 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
Gragera's commission. The commission would then be remitted to Gragera. She likewise determined loan releases.
"During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were employees or partners of
[petitioner], whether [petitioner] 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."7
Ruling of the Trial Court

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

39.3.4.

P10,000.00

- As exemplary damages

6. Affirming the decision of the trial court, upholding private respondents' counterclaim;
7. Denying Santos' motion for reconsideration dated September 11, 1998."

39.4.

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

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.

39.4.1.

P50,000.00

- As attorney's fees; and

The Court's Ruling

39.4.2.

The Petition is partly meritorious.

The cost of the suit."8

First Issue:
Business Relationship
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was dismissed. Upon the latter's Motion for
Reconsideration, however, the trial court's Decision was reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration was
denied in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership 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 petitioner's claim that Nieves had misappropriated a total of P200,000 which was supposed to be delivered to Gragera to
cover unpaid commissions. It was his task to 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.9
Issue
Petitioner asks this Court to rule on the following issues:10
"Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not employees of Santos in connection with the agreement
between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase 'Received by' on documents signed by Nieves Reyes signified receipt of
copies of the documents and not of the 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;

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 petitioner's contentions and ruled that the business relationship was one of
partnership. We quote from the CA Decision, as follows:
"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself provided the initiative in the lending activities with
Monte Maria. In consonance with the agreement between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents]
contributed industry to the common fund with the intention of sharing in the profits of the partnership. [Respondents] provided
services without which the partnership would not have [had] the wherewithal to carry on the purpose for which it was organized
and as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by the expulsion of Zabat
therefrom, the remaining partners simply continued the business of the partnership without undergoing the procedure relative 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."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. 12 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 lion's share. 13 This stipulation clearly proved
the establishment of a partnership.

We find no cogent reason to disagree with the lower courts that the partnership 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 petitioner's employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:
"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of prospective borrowers, and shall x
x x each be responsible in handling the collection of the loan payments of the borrowers that they each solicited.

'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.'

"3. That the bookkeeping and daily balancing of account of the business operation shall be handled by the SECOND PARTY."14
xxx
The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other hand, Arsenio's duties as credit investigator are
subsumed under the phrase "screening of prospective borrowers." Because of this Agreement and the disbursement of monthly "allowances"
and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the 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 petitioner's contention, there is no evidence to show that
a different business venture is referred to in this Agreement, which was executed on August 6, 1986, 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."15
Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera's commission. According to him, Gragera
remitted his daily collection to Nieves. This is shown 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.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves received for delivery to Gragera any amount from which
the P1,214,296.10 unpaid 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 Maria's 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 Gragera's own staff.
"Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment of the remittance of commissions to
Verona Gonzales. The document is a private one and its due execution and authenticity have not been duly proved as required in
[S]ection 20, Rule 132 of the Rules of Court which states:
'SECTION 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.

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 [petitioner's] assertion that she actually handled
the amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish that x x x Nieves received P200,000.00 as
commission for Gragera. As correctly stated by the court a quo, the document showed a liquidation 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 [petitioner's]
representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to enable [petitioner] to keep track of
Gragera's operations. Gragera on the other hand devised the schedule of daily payment (Exhs. 'B' and 'F') to record the projected
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 GRAGERA's commissions from the amortizations and then give such commission to GRAGERA."' 17
These findings are in harmony with the trial court's ruling, which we quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter 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 latter's
letter complaining of its delayed release. Assuming as true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is no
competent evidence that NIEVES did not give it to GRAGERA. The only proof 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." 18

"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and 6-B) should be deducted from
his total share."21

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.

After a close examination of respondents' exhibits, we find reason to disagree with the CA. Exhibit "10-I" 22 shows that the partnership earned a
"total income" of P20,429,520 for the period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts under 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.

Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-entrenched is the basic rule that factual
findings of the Court of Appeals affirming those of the trial court are binding and conclusive on the Supreme Court.19 Although there are
exceptions to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the partnership. He maintains that "both business propositions were
flops," as his investments were "consumed 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 Arsenio's, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6,
6-A to 6-B").
The CA originally held that respondents' counterclaim was premature, pending an accounting of the partnership. However, in its assailed
Resolution of August 17, 1998, it turned volte face. Affirming the trial court's ruling on the counterclaim, it held as follows:
"We earlier ruled that there is still need for an accounting of the profits and losses of 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." 20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their share in the profits of 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.

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.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 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.,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 not reflect
the complete financial condition of the money-lending business. The lower courts obviously labored over a mistaken notion that Exhibit " 10-I1" 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. 25
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain relevant facts that would otherwise justify
a different conclusion, as in this particular issue, a review of its factual findings may be conducted, as an exception to the general rule applied
to the first two issues.26
The trial court has the advantage of observing the witnesses while they are testifying, an opportunity not available to appellate courts. Thus, its
assessment of the credibility of witnesses and their testimonies are accorded great weight, even finality, when supported by 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.
G.R. No. L-68118 October 29, 1985

"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.

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

Demosthenes B. Gadioma for petitioners.

was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state. It had to be terminated
sooner or later. Castan Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters located
at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to build their
residences. The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens
titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga
Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or P33,584 for each of
them. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the four
petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed
P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of
which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in
addition to the tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of
sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the instant
appeal.
We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would
obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that
isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone
necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon
del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en
su integridad la cosa comun y favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho
positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de
sociedad, la moderna orientacion de la doctrina cientifica seala como nota fundamental de diferenciacion aparte del
origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun
partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2,
Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "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 from which the returns are derived". There must be an
unmistakable intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to
purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:
Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the De Leon
case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their
deceased parents; they did not contribute or invest additional ' capital to increase or expand the inherited properties;
they merely continued dedicating the property to the use to which it had been put by their forebears; they individually
reported in their tax returns their corresponding shares in the income and expenses of the 'hacienda', and they
continued for many years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the
'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling
purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.Co-Ownership who own properties which produce
income should not automatically be considered partners of an unregistered partnership, or a corporation, within the
purview of the income tax law. To hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an
income at all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on
corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Araas, 1977 Tax Code Annotated,
Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the
inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an
unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building,
entrusted the administration of the building to an administrator and divided equally the net income, and from Evangelista vs. Collector of
Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of real property which they leased to various tenants
and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and
whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed.

Even if Tan Eng Kee was granted certain privileges not given to regular employees, (such as being allowed to live with his family on the
grounds of the Lumber Compound, and having supervisory powers over the regular employees) the Court found that these privileges were a
result of being related to the owner of the company and not because he was a partner.
Tan Eng Kee never represented himself as a partner to any third person his actions, when he was alive, taken together with how his brother
treated him, strongly indicate that he was NOT a partner.
Article 1825 is meant to protect third persons who were misled by a person acting as a partner even if he really isnt. Since Tan Eng Kee
never represented himself as a partner, and there is no evidence or documentation of him being a partner, then he is not a partner.
PASCUAL v. Commissioner of Internal Revenue #10 BUSORG
G.R. No. 78133 October 18, 1988

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.
GANCAYCO, J.:
SO ORDERED.
FACTS:
DIGESTS
Heirs of Tan Eng Kee v. CA & Benguet Lumber Co. & Tan Eng Lay
October 3, 2000
De Leon Jr. J.:
Doctrine: 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 existence of the parties intent.
The Doctrine is the essence of 1825.
Facts:
After Tan Eng Kees Death, his common-law wife Matilde Abuho and their children filed an action against his brother, Tan Eng Lay for
accounting, liquidation and winding up of the alleged partnership Tan Eng Kee had with Tan Eng Lay.
The heirs claim that the two brothers were partners in Benguet Lumber Co. and had been partners since the company was operating after the
end of World War 2. Tan Eng Lay, the president of the company claims that Tan Eng Kee was only an employee and presented documents
showing that Tan Eng Kee was receiving salary from the company payroll.
The RTC ruled in favor of the Heirs of Tan Eng Kee.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three
(3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while
the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioner realized a net profit in the
sale made in 1968 in the amount of P165, 224.70, while they realized a net profit of P60,000 in the sale made in 1970. The corresponding
capital gains taxes were paid by petitioners in 1973 and 1974 .
Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions
formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes
prescribed under Section 24, both of the National Internal Revenue Code; that the unregistered partnership was subject to corporate income
tax as distinguished from profits derived from the partnership by them which is subject to individual income tax.
ISSUE:
Whether petitioners formed an unregistered partnership subject to corporate income tax (partnership vs. co-ownership)
RULING:

The CA reversed the RTC and found that no such partnership existed between the brothers.
Issue:
Whether the two brothers were partners in Benguet Lumber Co.
Held:
NO. They were never partners.
Ratio:
Tan Eng Kee, in his lifetime never executed any acts which would indicate that he was a partner.
1.
He never demanded for periodic accountings of the common fund, which would be expected of a real partner;
2.
He never received any shares in the profits of Benguet Lumber, he only received salary as evidenced by the payroll documents
presented by Tan Eng Lay;
3.
The Heirs were unable to prove that the brothers intended to divide the profits of the business between themselves.

Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides:(2) Co-ownership or co-possession does not 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 from which the returns are
derived;
The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or
interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the individual
partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition
that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a
few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital gains taxes on

their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to have formed an unregistered
partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such existing
unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income tax, then
petitioners can be held individually liable as partners for this unpaid obligation of the partnership.
Fernando Santos vs Spouses Arsenio and Nieves Reyes
Facts:

engaged in the same lending business. Hence, Zabat was expelled from the partnership. On June 1987, Santos filed a complaint for recovery
of sum of money and damages against the respondents, alleging them as employees who misappropriated the funds. Respondents assert
they were partners and not mere employees. Santos claimed that after discovery of Zabat's activities, he ceased infusing funds thereby
extinguishing the partnership.
Issue:
Whether or not the parties' relationship was one of partnership or of employer-employee
Held:
Yes they were partners. By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a

This is a petition for review on certiorari assailing CA decision which affirmed the RTC decision. Santos and Nieves Reyes verbally agreed that
Santos would act as financier while Nieves and Meliton Zabat would act as solicitors for membership and collectors of loan payment. 70% of
the profits would go to Santos while Nieves and Zabat would get 15% each.

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 lion's share. This stipulation clearly proved the establishment
of a partnership.

It was a lending venture business.

Nieves introduced Gragera of Monte Maria Corp, who obtained short term loans for the partnership in consideration of commissions. In 1986,

Indeed, the partnership was established to engage in a money-lending business, despite the fact that it was formalized only after the

Nieves and Zabat executed an agreement which formalized their earlier verbal agreement. But, Santis and Nieves later discovered that Zabat

Memorandum of Agreement had been signed by petitioner and Gragera.