Litong Lim vs Phil. Gear Industries, Inc., GR No. 136448, 3 November 1999
136448 November 3, 1999
FACTS
Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest
Fishing Corporation for the purchase of fishing nets from respondent Philippine
Fishing Gear Industries, Inc. Chua and Yao claimed that they were engaged in
business venture with petitioner Lim Tong Lim, who, however, was not a signatory
to the contract. The buyers failed to pay the fishing nets. Respondent filed a
collection against Chua, Yao and petitioner Lim in their capacities as general
partners because it turned out that Ocean Quest Fishing Corporation is a non-
existent corporation. The trial court issued a Writ of Preliminary Attachment, which
the sheriff enforced by attaching the fishing nets. The trial court rendered its
decision ruling that respondent was entitled to the Writ of Attachment and that
Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. Lim
appealed to the Court of Appeals, but the appellate court affirmed the decision of
the trial court that petitioner Lim is a partner and may thus be held liable as such.
Hence, the present petition. Petitioner claimed that since his name did not appear
on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.
ISSUE
WON petitioner can be held liable as a general partner.
ISSUE: Whether Lim Tong Lim is liable as a partner
HELD: Yes. It is apparent from the factual milieu that the three decided to engage
in a fishing business. Moreover, their Compromise Agreement had revealed their
intention to pay the loan with the proceeds of the sale and to divide equally among
them the excess or loss. The boats and equipment used for their business entails
their common fund. The contribution to such fund need not be cash or fixed assets;
it could be an intangible like credit or industry. That the parties agreed that any
loss or profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership. The principle
of corporation by estoppel cannot apply in the case as Lim Tong Lim also benefited
from the use of the nets in the boat, which was an asset of the partnership. Under
the law on estoppel, those acting in behalf of a corporation and those benefited by
it, knowing it to be without valid existence are held liable as general partners.
Hence, the question as to whether such was legally formed for unknown reasons
is immaterial to the case.
yes. From the factual findings of both lower courts, it is clear that Chua, Yao and
Lim had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim. In their
Compromise Agreement, they subsequently revealed their intention to pay the
loan with the proceeds of the sale of the boats, and to divide equally among them
the excess or loss. These boats, the purchase and the repair of which were financed
with borrowed money, fell under the term common fund under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible
like credit or industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also shows that
they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only
be imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use
of the nets found in his boats, the boat which has earlier been proven to be an
asset of the partnership. Lim, Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a corporation and
those benefited by it, knowing it to be without valid existence, are held liable as
general partners.
G.R. No.
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money
to pursue a business and to divide the profits or losses that may arise therefrom,
even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partner, they are all liable for debts incurred
by or on behalf of the partnership. The liability for a contract entered into on behalf
of an unincorporated association or ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but reaped benefits from that
contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision, the same
is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court
on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject
to the modifications as hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered
by the Agreement plus P68,000.00 representing the unpaid price of the floats not
covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices and computed
on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for P146,868.00 dated
February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated
February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per
appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the
nets counted from September 20, 1990 (date of attachment) to September 12,
1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal obligation or for
the unpaid price of nets and floats in the amount of P532,045.00 and P68,000.00,
respectively, or for the total amount P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be rendered in favor of
the plaintiff but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at public auction
for not less than P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In
effect, the amount of P900,000.00 replaced the attached property as a guaranty
for any judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the
sheriff to plaintiff as the highest bidder in the public auction sale. It has also been
noted that ownership of the nets [was] retained by the plaintiff until full payment
[was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its
own properties. It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to serve as
its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment the plaintiff
may be entitled to in this case will have to be satisfied from the amount of
P900,000.00 as this amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess
to the defendants who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that they are not
the owners of the nets and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary judgment obligation
enumerated above and for plaintiff to retain possession and ownership of the nets
and floats and for the reimbursement of the P900,000.00 deposited by it with the
Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the agreement. The total price of
the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim
with a prayer for a writ of preliminary attachment. The suit was brought against
the three in their capacities as general partners, on the allegation that "Ocean
Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission. 5 On September 20,
1990, the lower court issued a Writ of Preliminary Attachment, which the sheriff
enforced by attaching the fishing nets on board F/B Lourdes which was then
docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his
liability and requesting a reasonable time within which to pay. He also turned over
to respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear
in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. 6 The trial court maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the said court the sales
proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao
and Lim, as general partners, were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1)
on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c) a declaration
of ownership of fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold
in the amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall
be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation
and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than
P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever
the deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature
of their obligations, but that joint liability could be presumed from the equal
distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the
RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and
Yao in a fishing business and may thus be held liable as a such for the fishing nets
and floats purchased by and for the use of the partnership. The appellate court
ruled:
The evidence establishes that all the defendants including herein appellant Lim
Tong Lim undertook a partnership for a specific undertaking, that is for commercial
fishing . . . . Oviously, the ultimate undertaking of the defendants was to divide the
profits among themselves which is what a partnership essentially is . . . . By a
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 (Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN
QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE
FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF
PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats
from respondent, the Court must resolve this key issue: whether by their acts, Lim,
Chua and Yao could be deemed to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding
on the Compromise Agreement alone. Furthermore, he disclaims any direct
participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the representatives
of the respondent company. Petitioner further argues that he was a lessor, not a
partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990,
showed that he had merely leased to the two the main asset of the purported
partnership the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which provides:
Art. 1767 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.
Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing,
dry docking and other expenses for the boats would be shouldered by Chua and
Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended a loan
to the partnership in the amount of P1 million secured by a check, because of
which, Yao and Chua entrusted the ownership papers of two other boats, Chua's FB
Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term "common
fund" under Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties agreed that
any loss or profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the
boat, but also to that of the nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business.
It would have been inconceivable for Lim to involve himself so much in buying the
boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and
Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and
the CA are binding on this Court, absent any cogent proof that the present action
is embraced by one of the exceptions to the rule. 16 In assailing the factual findings
of the two lower courts, petitioner effectively goes beyond the bounds of a petition
for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence
of a partnership was the Compromise Agreement. He also claims that the
settlement was entered into only to end the dispute among them, but not to
adjudicate their preexisting rights and obligations. His arguments are baseless. The
Agreement was but an embodiment of the relationship extant among the parties
prior to its execution.
A proper adjudication of claimants' rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document alone, petitioner
fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law,
logic and fairness. Verily, the two lower courts' factual findings mentioned above
nullified petitioner's argument that the existence of a partnership was based only
on the Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of
the boats to Chua and Yao, not a partner in the fishing venture. His argument
allegedly finds support in the Contract of Lease and the registration papers showing
that he was the owner of the boats, including F/B Lourdes where the nets were
found.
His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved that there was a
preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement
with Chua and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property but an asset of
the partnership. It is not uncommon to register the properties acquired from a loan
in the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his
property to pay a debt he did not incur, if the relationship among the three of them
was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can
be imputed only to Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for
all debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not
be allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a
party may be estopped from denying its corporate existence. "The reason behind
this doctrine is obvious an unincorporated association has no personality and
would be incompetent to act and appropriate for itself the power and attributes of
a corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it
is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of
all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes
such privileges and obligations and becomes personally liable for contracts entered
into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and
to a third party. In the first instance, an unincorporated association, which
represented itself to be a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good faith on such
representation. It cannot allege lack of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received
advantages and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received benefits from
it, may be barred from denying its corporate existence in a suit brought against the
alleged corporation. In such case, all those who benefited from the transaction
made by the ostensible corporation, despite knowledge of its legal defects, may be
held liable for contracts they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is
entitled to be paid for the nets it sold. The only question here is whether petitioner
should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation
should be held liable. Since his name does not appear on any of the contracts and
since he never directly transacted with the respondent corporation, ergo, he
cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership.
He in fact questions the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided
to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties
in representation of it. Clearly, under the law on estoppel, those acting on behalf
of a corporation and those benefited by it, knowing it to be without valid existence,
are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract entered into by
persons with whom he previously had an existing relationship, he is deemed to be
part of said association and is covered by the scope of the doctrine of corporation
by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position, entraps and destroys the other.
It is, rather, a contest in which each contending party fully and fairly lays before
the court the facts in issue and then, brushing aside as wholly trivial and indecisive
all imperfections of form and technicalities of procedure, asks that justice be done
upon the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant consideration from courts. There
should be no vested rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now moot
and academic. As previously discussed, F/B Lourdes was an asset of the partnership
and that it was placed in the name of petitioner, only to assure payment of the
debt he and his partners owed. The nets and the floats were specifically
manufactured and tailor-made according to their own design, and were bought
and used in the fishing venture they agreed upon. Hence, the issuance of the Writ
to assure the payment of the price stipulated in the invoices is proper. Besides, by
specific agreement, ownership of the nets remained with Respondent Philippine
Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice
Artemio V. Panganiban, particularly the finding that Antonio Chua, Peter Yao and
petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely
would wish to elucidate a bit, albeit briefly, the liability of partners in a general
partnership.
When a person by his act or deed represents himself as a partner in an existing
partnership or with one or more persons not actual partners, he is deemed an
agent of such persons consenting to such representation and in the same manner,
if he were a partner, with respect to persons who rely upon the
representation. 1 The association formed by Chua, Yao and Lim, should be, as it has
been deemed, a de facto partnership with all the consequent obligations for the
purpose of enforcing the rights of third persons. The liability of general partners (in
a general partnership as so opposed to a limited partnership) is laid down in Article
1816 2 which posits that all partners shall be liable pro rata beyond the partnership
assets for all the contracts which may have been entered into in its name, under
its signature, and by a person authorized to act for the partnership. This rule is to
be construed along with other provisions of the Civil Code which postulate that the
partners can be held solidarily liable with the partnership specifically in these
instances (1) where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of his co-
partners, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act; (2) where one partner
acting within the scope of his apparent authority receives money or property of a
third person and misapplies it; and (3) where the partnership in the course of its
business receives money or property of a third person and the money or property
so received is misapplied by any partner while it is in the custody of the
partnership 3 consistently with the rules on the nature of civil liability in delicts
and quasi-delicts.
JARANTILLA, JR. vs. JARANTILLA636 SCRA 299, G.R. No. 154486, December 1,
2010, Leonardo-De Castro, J.: p
FACTS:
The present case stems from the complaint filed by Antonieta Jarantilla against
Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets and income of the
co-ownership, for its partition and the delivery of her share corresponding to eight
percent (8%), and for
damages. Antonieta claimed that in 1946, she had entered into an agreement wit
h the defendants to engage in business through the execution of a document
denominated as "Acknowledgement of
Participating Capital. Antonieta also alleged that she had helped in the
management of the business they co-owned without receiving any salary.
Antonieta further claimed co-ownership of certain properties (the subject real
properties) in the name of the defendants since the only way the defendants could
have purchased these properties were through the partnership as they had no
other source of income. The respondents did not deny the existence and validity
of the "Acknowledgement of Participating Capital" and in fact used this as evidence
to support their
claim that Antonietas 8% share was limited to the businesses enumerated therein.
The respondents denied using the partnerships income to purchase the subject
real properties. During the course of the trial at the RTC, petitioner Federico
Jarantilla, Jr., who was one of the original defendants, entered into a compromise
agreement with Antonieta Jarantilla wherein he supported Antonietas claims and
asserted that he too was entitled to six percent (6%) of thesupposed partnership
in the same manner as Antonieta was.
ISSUE:
Whether or not the partnership subject of the Acknowledgement of Participating
Capital funded the subject real properties.
HELD:
Under Article 1767 of the Civil Code, there are two essential elements in a contract
of partnership:
(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, all the
parties in this case 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
. It is not denied that all the parties in this case have agreed to contributecapital to
a common fund to be able to later on share its profits. They have admitted this
fact, agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of Participating
Capital. The petitioner himself claims hisshare to be 6%, as stated in the
Acknowledgement of Participating Capital. However, petitioner fails to realize that
this document specifically enumerated the businesses covered by the partnership:
Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the capital the partners
contributed went to the three businesses, then there is no reason to deviate from
such agreement and go beyond the stipulations in the document. There is no
evidence that the subject real properties were assets of the partnership referred
to in the Acknowledgement of Participating Capital. Petition denied.
-----
G.R. No. 154486 December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari1 seeks to modify the Decision2 of the Court
of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set aside the
Decision3 dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon
City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children:
Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4
Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by
their son Federico Jarantilla, Sr. and his wife Leda Jamili.5 Petitioner also has two
other brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while
Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-respondents before
he joined his aunt Antonieta in her complaint, were his late aunt Conchita
Jarantillas husband Buenaventura Remotigue, who died during the pendency of
the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita
Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas
Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real
properties of their deceased parents.7 With the exception of the real property
adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce of the
said real properties for the years 1947-1949 for the studies of Rafael and Antonieta
Jarantilla.8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered
into an agreement with the spouses Buenaventura Remotigue and Conchita
Jarantilla to provide mutual assistance to each other by way of financial support to
any commercial and agricultural activity on a joint business arrangement. This
business relationship proved to be successful as they were able to establish a
manufacturing and trading business, acquire real properties, and construct
buildings, among other things.9 This partnership ended in 1973 when the parties,
in an "Agreement,"10 voluntarily agreed to completely dissolve their "joint
business relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a
document wherein they acknowledged that while registered only in Buenaventura
Remotigues name, they were not the only owners of the capital of the businesses
Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real,
Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement
of Participating Capital," they stated the participating capital of their co-owners as
of the year 1952, with Antonieta Jarantillas stated as eight thousand pesos
(P8,000.00) and Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00).12
The present case stems from the amended complaint13 dated April 22, 1987 filed
by Antonieta Jarantilla against Buenaventura Remotigue, Cynthia Remotigue,
Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the accounting
of the assets and income of the co-ownership, for its partition and the delivery of
her share corresponding to eight percent (8%), and for damages. Antonieta
claimed that in 1946, she had entered into an agreement with Conchita and
Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to
engage in business. Antonieta alleged that the initial contribution of property and
money came from the heirs inheritance, and her subsequent annual investment
of seven thousand five hundred pesos (P7,500.00) as additional capital came from
the proceeds of her farm. Antonieta also alleged that from 1946-1969, she had
helped in the management of the business they co-owned without receiving any
salary. Her salary was supposedly rolled back into the business as additional
investments in her behalf. Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of the defendants since the
only way the defendants could have purchased these properties were through the
partnership as they had no other source of income.
The respondents, including petitioner herein, in their Answer,15 denied having
formed a partnership with Antonieta in 1946. They claimed that she was in no
position to do so as she was still in school at that time. In fact, the proceeds of the
lands they partitioned were devoted to her studies. They also averred that while
she may have helped in the businesses that her older sister Conchita had formed
with Buenaventura Remotigue, she was paid her due salary. They did not deny the
existence and validity of the "Acknowledgement of Participating Capital" and in
fact used this as evidence to support their claim that Antonietas 8% share was
limited to the businesses enumerated therein. With regard to Antonietas claim in
their other corporations and businesses, the respondents said these should also be
limited to the number of her shares as specified in the respective articles of
incorporation. The respondents denied using the partnerships income to purchase
the subject real properties and said that the certificates of title should be binding
on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was
one of the original defendants, entered into a compromise agreement17 with
Antonieta Jarantilla wherein he supported Antonietas claims and asserted that he
too was entitled to six percent (6%) of the supposed partnership in the same
manner as Antonieta was. He prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an
accounting from the other defendants, and the partition of the properties of the
co-ownership and the delivery to the plaintiff and to defendant Federico Jarantilla,
Jr. of their rightful share of the assets and properties in the co-
ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to
Approve Compromise Agreement20 and on December 18, 1992, decided in favor
of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in favor of
the plaintiff Antonieta Jarantilla and against defendants Cynthia Remotigue,
Doroteo Jarantilla and Tomas Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real
properties covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the
Registry of Deeds of Quezon City; TCT Nos. (18303)23341, 142882 & 490007(4615),
all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of
Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the
Remotigue Agro-Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber
Products, Inc. and Buendia Recapping Corporation based on the shares of stocks
present book value;
3. to account for the assets and income of the co-ownership and deliver to plaintiff
her rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as attorneys fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to the Court of
Appeals. The petitioner claimed that the RTC "erred in not rendering a complete
judgment and ordering the partition of the co-ownership and giving to [him] six per
centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTCs factual findings, it also
established that Antonieta Jarantilla was not part of the partnership formed in
1946, and that her 8% share was limited to the businesses enumerated in the
Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals
rendered the herein challenged decision setting aside the RTCs decision, as
follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE
and a new one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the
assets and profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of
the assets and profits of the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the
extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration
but the Court of Appeals denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review on
certiorari25 dated September 16, 2002, assailing the Court of Appeals decision on
"similar grounds and similar assignments of errors as this present case"26 but it
was dismissed on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of
the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT
PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%)
SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER
DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD
OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the
Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and
Quintin Vismanos, as evidenced by the Acknowledgement of Participating Capital
the Remotigue spouses executed in 1957. He contends that from this partnership,
several other corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his 6% share
in the subject real properties. He is relying on the Acknowledgement of
Participating Capital, on his own testimony, and Antonieta Jarantillas testimony to
support this contention.
The core issue is whether or not the partnership subject of the Acknowledgement
of Participating Capital funded the subject real properties. In other words, what is
the petitioners right over these real properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the
Rules of Civil Procedure, only questions of law may be raised by the parties and
passed upon by this Court.29
A question of law arises when there is doubt as to what the law is on a certain state
of facts, while there is a question of fact when the doubt arises as to the truth or
falsity of the alleged facts. For a question to be one of law, the same must not
involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the
law provides on the given set of circumstances. Once it is clear that the issue invites
a review of the evidence presented, the question posed is one of fact. Thus, the
test of whether a question is one of law or of fact is not the appellation given to
such question by the party raising the same; rather, it is whether the appellate
court can determine the issue raised without reviewing or evaluating the evidence,
in which case, it is a question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this
Court, in resolving the questions of law that are now in issue, shall look into the
facts only in so far as the two courts a quo differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was
affirmed in the 1957 document, the "Acknowledgement of Participating Capital."
The RTC used this as its basis for giving Antonieta Jarantilla an 8% share in the three
businesses listed therein and in the other businesses and real properties of the
respondents as they had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to Antonietas 8%
share in the business enumerated in the Acknowledgement of Participating Capital,
but not as to her share in the other corporations and real properties. The Court of
Appeals ruled that Antonietas claim of 8% is based on the "Acknowledgement of
Participating Capital," a duly notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to pattern her share in the
other corporations from her share in the partnerships businesses. The Court of
Appeals also said that her claim in the respondents real properties was more
"precarious" as these were all covered by certificates of title which served as the
best evidence as to all the matters contained therein.32 Since petitioners claim
was essentially the same as Antonietas, the Court of Appeals also ruled that
petitioner be given his 6% share in the same businesses listed in the
Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals, are final
and conclusive except in the following cases: (1) when the inference made is
manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of
discretion; (3) when the finding is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial court; (8)
when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly considered, would
justify a different conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with the
respondents as a co-ownership, but in the same breath, assert that a verbal
partnership was formed in 1946 and was affirmed in the 1957 Acknowledgement
of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to different
persons.34 It is a partnership when 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.35 The Court, in Pascual v. The
Commissioner of Internal Revenue,36 quoted the concurring opinion of Mr. Justice
Angelo Bautista in Evangelista v. The Collector of Internal Revenue37 to further
elucidate on the distinctions between a co-ownership and a partnership, to wit:
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;
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.
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.
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.
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.
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.
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. x x x.
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.38 (Citations
omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a contract
of partnership: (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, all the
parties in this case 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.39 It is not denied that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its profits. They have
admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement of
Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of
Participating Capital, it would be instructive to examine the pertinent portions of
this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de
Remotigue, both of legal age, Filipinos and residents of Loyola Heights, Quezon
City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of
Calle Real, Iloilo City and the Remotigue Trading, Cotabato Branch, Cotabato, P.I.,
all dealing in athletic goods and equipments, and general merchandise are
recorded in their respective books with Buenaventura Remotigue as the registered
owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and
their participation in the capital of the three establishments together with the
other co-owners as of the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)P25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
That aside from the persons mentioned in the next preceding paragraph, no other
person has any interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th
day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document
voluntarily executed by Conchita Jarantilla-Remotigue and Buenaventura
Remotigue in 1957. Petitioner does not dispute its contents and is actually relying
on it to prove his participation in the partnership. Article 1797 of the Civil Code
provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If besides
his services he has contributed capital, he shall also receive a share in the profits in
proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed
upon, or in the absence of any such stipulations, then to his share in proportion to
his contribution to the partnership. The petitioner himself claims his share to be
6%, as stated in the Acknowledgement of Participating Capital. However, petitioner
fails to realize that this document specifically enumerated the businesses covered
by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and
Remotigue Trading in Cotabato City. Since there was a clear agreement that the
capital the partners contributed went to the three businesses, then there is no
reason to deviate from such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err in limiting petitioners share
to the assets of the businesses enumerated in the Acknowledgement of
Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate
juridical entity, the shares to be paid out to the partners is necessarily limited only
to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated. After all the creditors have
been paid, whatever is left of the partnership assets becomes available for the
payment of the partners shares.42
There is no evidence that the subject real properties were assets of the partnership
referred to in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents properties based
on the concept of trust. He claims that since the subject real properties were
purchased using funds of the partnership, wherein he has a 6% share, then "law
and equity mandates that he should be considered as a co-owner of those
properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the
concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties, while
implied trusts come into being by operation of law, either through implication of
an intention to create a trust as a matter of law or through the imposition of the
trust irrespective of, and even contrary to, any such intention. In turn, implied
trusts are either resulting or constructive trusts. Resulting trusts are based on the
equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by
the parties. They arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested with legal
title but is obligated in equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting
the need to prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting
its existence, and such proof must be clear and satisfactorily show the existence of
the trust and its elements. While implied trusts may be proved by oral evidence,
the evidence must be trustworthy and received by the courts with extreme
caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be
fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject real
properties. Aside from his bare allegations, he has failed to show that the
respondents used the partnerships money to purchase the said properties. Even
assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came
from his share in the partnership profits. After all, by his own admission, and as
stated in the Acknowledgement of Participating Capital, he owned a mere 6%
equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties, by
relying on his own self-serving testimony and the equally biased testimony of
Antonieta Jarantilla. Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents did not have the
means to fund their other businesses and real properties without the partnerships
income. On the other hand, the respondents have not only, by testimonial
evidence, proven their case against the petitioner, but have also presented
sufficient documentary evidence to substantiate their claims, allegations and
defenses. They presented preponderant proof on how they acquired and funded
such properties in addition to tax receipts and tax declarations.47 It has been held
that "while tax declarations and realty tax receipts do not conclusively prove
ownership, they may constitute strong evidence of ownership when accompanied
by possession for a period sufficient for prescription."48 Moreover, it is a rule in
this jurisdiction that testimonial evidence cannot prevail over documentary
evidence.49 This Court had on several occasions, expressed our disapproval on
using mere self-serving testimonies to support ones claim. In Ocampo v.
Ocampo,50 a case on partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was sufficiently
proved by their witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree.
Their testimonies cannot prevail over the array of documents presented by Belen.
A claim of ownership cannot be based simply on the testimonies of witnesses;
much less on those of interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title over
the particular property described therein. Registration in the Torrens system does
not create or vest title as registration is not a mode of acquiring ownership; hence,
this cannot deprive an aggrieved party of a remedy in law.52 However, petitioner
asserts ownership over portions of the subject real properties on the strength of
his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held
by this Court in Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land
referred to therein, and a strong presumption exists that a Torrens title was
regularly issued and valid. A Torrens title is incontrovertible against any
informacion possessoria, of other title existing prior to the issuance thereof not
annotated on the Torrens title. Moreover, persons dealing with property covered
by a Torrens certificate of title are not required to go beyond what appears on its
face.54
As we have settled that this action never really was for partition of a co-ownership,
to permit petitioners claim on these properties is to allow a collateral, indirect
attack on respondents admitted titles. In the words of the Court of Appeals, "such
evidence cannot overpower the conclusiveness of these certificates of title, more
so since plaintiffs [petitioners] claims amount to a collateral attack, which is
prohibited under Section 48 of Presidential Decree No. 1529, the Property
Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. A certificate of title shall not
be subject to collateral attack. It cannot be altered, modified, or cancelled except
in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when its
objective is to nullify the title, thereby challenging the judgment pursuant to which
the title was decreed."56 In Aguilar v. Alfaro,57 this Court further distinguished
between a direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief
and as an incident to the present action, an attack is made against the judgment
granting the title. This manner of attack is to be distinguished from a direct attack
against a judgment granting the title, through an action whose main objective is to
annul, set aside, or enjoin the enforcement of such judgment if not yet
implemented, or to seek recovery if the property titled under the judgment had
been disposed of. x x x.
Petitioners only piece of documentary evidence is the Acknowledgement of
Participating Capital, which as discussed above, failed to prove that the real
properties he is claiming co-ownership of were acquired out of the proceeds of the
businesses covered by such document. Therefore, petitioners theory has no
factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.
SO ORDERED.

G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE ABROGAR,
respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals,
dated November 29, 1990, which reversed the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed
the petition for declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Private respondent and her late husband, Ruben M. Abrogar,
were the registered owners of a house and lot, covered by Transfer Certificate of
Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent,
with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
petitioner, entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-
described property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and
pursuant to this agreement, a Deed of Absolute Sale shall be executed by the FIRST
PARTY conveying the property to the SECOND PARTY for and in consideration of
the sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to
repurchase the said property within a period of ninety (90) days from the execution
of this memorandum of agreement effective April 18, 1991, for the amount of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to
repurchase the said property within a period of ninety (90) days, the FIRST PARTY
is obliged to deliver peacefully the possession of the property to the SECOND
PARTY within fifteen (15) days after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file
any lis pendens or whatever claims on the property nor shall be cause the
annotation of say claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of the SECOND
PARTY against any party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be
for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the
property to the SECOND PARTY after the expiration of the 15-day grace period
given in paragraph 3 above, the FIRST PARTY shall pay an amount equivalent to
Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the
property within ninety (90) days period above-mentioned, this memorandum of
agreement shall be deemed cancelled and the Deed of Absolute Sale, executed by
the parties shall be the final contract considered as entered between the parties
and the SECOND PARTY shall proceed to transfer ownership of the property above
described to its name free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale, 3 dated June 11, 1991, wherein private respondent, with the consent of her
late husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000,00. In a special power of attorney dated the same day,
April 18, 1991, private respondent authorized petitioner to cause the cancellation
of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C.
Aguila and Sons, Co., in the event she failed to redeem the subject property as
provided in the Memorandum of Agreement. 4
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power
of attorney mentioned above, petitioner caused the cancellation of TCT No.
195101 and the issuance of a new certificate of title in the name of A.C. Aguila and
Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty.
Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she
vacate the premises within 15 days after receipt of the letter and surrender its
possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring
the appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila
& Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court,
Branch 76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the
Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that
private respondent did not redeem the subject property before the expiration of
the 90-day period provided in the Memorandum of Agreement. Private
respondent appealed first to the Regional Trial Court, Branch 163, Pasig, Metro
Manila, then to the Court of Appeals, and later to this Court, but she lost in all the
cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale
with the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4,
1993. She alleged that the signature of her husband on the deed of sale was a
forgery because he was already dead when the deed was supposed to have been
executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City
which was dismissed in a resolution, dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery because they
could not personally appear before Notary Public Lamberto C. Nanquil on June 11,
1991 because her husband, Ruben Abrogar, died on May 8, 1991 or one month and
2 days before the execution of the Deed of Absolute Sale, while the plaintiff was
still in the Quezon City Medical Center recuperating from wounds which she
suffered at the same vehicular accident on May 8, 1991, cannot be sustained. The
Court is convinced that the three required documents, to wit: the Memorandum
of Agreement, the Special Power of Attorney, and the Deed of Absolute Sale were
all signed by the parties on the same date on April 18, 1991. It is a common and
accepted business practice of those engaged in money lending to prepare an
undated absolute deed of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff
never questioned receiving the sum of P200,000.00 representing her loan from the
defendant. Common sense dictates that an established lending and realty firm like
the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses,
who are virtual strangers to it, without the simultaneous accomplishment and
signing of all the required documents, more particularly the Deed of Absolute Sale,
to protect its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is hereby
ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New
Civil Code finds strong application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the
residential house of plaintiff-appellant stands. The property is inside a
subdivision/village. The property is situated in Marikina which is already part of
Metro Manila. The alleged sale took place in 1991 when the value of the land had
considerably increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33
per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides that
plaintiff-appellant is obliged to deliver peacefully the possession of the property to
the SECOND PARTY within fifteen (15) days after the expiration of the said ninety
(90) day grace period. Otherwise stated, plaintiff-appellant is to retain physical
possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property "sold" as if they were
still the absolute owners. There was no provision for maintenance or expenses,
much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on
the property "sold". It is well-known that payment of taxes accompanied by actual
possession of the land covered by the tax declaration, constitute evidence of great
weight that a person under whose name the real taxes were declared has a claim
of right over the land.
It is well-settled that the presence of even one of the circumstances in Article 1602
of the New Civil Code is sufficient to declare a contract of sale with right to
repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually
inadequate, has retained possession of the subject property and has continued
paying the realty taxes over the subject property, (circumstances mentioned in par.
(1) (2) and (5) of Article 1602 of the New Civil Code), it must be conclusively
presumed that the transaction the parties actually entered into is an equitable
mortgage, not a sale with right to repurchase. The factors cited are in support to
the finding that the Deed of Sale/Memorandum of Agreement with right to
repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was
executed by reason of the loan extended by defendant-appellee to plaintiff-
appellant. The amount of loan being the same with the amount of the purchase
price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt, now deemed
to be repurchase price: the transaction shall then be considered to be an equitable
mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a
pactum commissorium which is clearly prohibited by Article 2088 of the New Civil
Code. Article 2088 of the New Civil Code reads:
Art. 2088. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium
to exist: (1) that there should be a pledge or mortgage wherein a property is
pledged or mortgaged by way of security for the payment of principal obligation;
and (2) that there should be a stipulation for an automatic appropriation by the
creditor of the thing pledged and mortgaged in the event of non-payment of the
principal obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-
appellant secured by a mortgage on the property of plaintiff-appellant. The loan
was payable within ninety (90) days, the period within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure
of plaintiff-appellee to pay the P230,000.00 within the ninety (90) days period, the
property shall automatically belong to defendant-appellee by virtue of the deed of
sale executed.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby
so declare to be invalid, for being violative of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and
SET ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101
issued in favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in
favor of defendant-appellee pursuant to the questioned Deed of Sale is hereby
declared VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101 of
the Registry of Marikina is hereby ordered REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days from the finality of this decision.
In case of failure to pay the amount of P230,000.00 from the period therein stated,
the property shall be sold at public auction to satisfy the mortgage debt and costs
and if there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila
& Co., against which this case should have been brought; (2) the judgment in the
ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held
by the appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that "every action must be prosecuted and defended in the name
of the real party in interest." A real party in interest is one who would be benefited
or injured by the judgment, or who is entitled to the avails of the suit. 7 This ruling
is now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case
cannot be executed. 8 Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action. 9
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate
and distinct from that of each of the partners." The partners cannot be held liable
for the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal
purposes. 10 In this case, private respondent has not shown that A.C. Aguila &
Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila
& Sons, Co. and the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. 11 We
cannot understand why both the Regional Trial Court and the Court of Appeals
sidestepped this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this
action should be prosecuted makes it unnecessary to discuss the other issues
raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED. SO ORDERED.
HEIRS OF TAN ENG KEE vs.CA 341 SCRA 740, G.R. No. 126881, October 3, 2000
FACTS:
After the second World War, Tan EngKee 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 EngKee'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 EngKee 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. The RTC ruled in favor of
petitioners, declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership. The Court of Appeals rendered the assailed decision
reversing the judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee 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
RULING:
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. Also, the trial court determined that Tan EngKee
and Tan Eng Lay had entered into a joint venture, which it said is akin to a particular
partnership. 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 maycontinue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind.
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. The evidence presented by petitioners falls short of the
quantum of proof required to establish a partnership. In the absence of evidence,
we cannot accept as an established fact that Tan EngKee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership. Besides,
it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan EngKee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses .Each has the right
to demand an accounting as long as the partnership exists. A demand for periodic
accounting is evidence of a partnership. During his lifetime, Tan EngKee appeared
never to have made any such demand for accounting from his brother, Tang Eng
Lay. We conclude that Tan EngKee was only an employee, not a partner since they
did not present and offer evidence that would show that Tan EngKee received
amounts of money allegedly representing his share in the profits of the enterprise.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of.
G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY, respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
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 judgment6 on
April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers
and/or partners in a business venture and/or particular partnership called Benguet
Lumber and as such should share in the profits and/or losses of the business
venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer
and/or as partner in a particular partnership have descended to the plaintiffs who
are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all the assets
of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the
business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets
of Benguet Lumber Company, Inc. until such time that said corporation is finally
liquidated are directed to submit the name of any person they want to be
appointed as receiver failing in which this Court will appoint the Branch Clerk of
Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for 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 contradictory;
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND
(E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE 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 pooling of resources, the post-war Benguet Lumber was eventually established.
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
(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
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.26 Tan 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
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]
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.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of these
documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal
cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact
shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or interest in any
property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is 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.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was
only an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not present
and offer evidence that would show that Tan Eng Kee received amounts of money
allegedly representing his share in the profits of the enterprise. Petitioners failed
to show how much their father, Tan Eng Kee, received, if any, as his share in the
profits of Benguet Lumber Company for any particular period. Hence, they failed
to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the
business between themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged
existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan
Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks
were to be sold; and that both placed orders to the suppliers of the Benguet
Lumber Company. They also point out that the families of the brothers Tan Eng Kee
and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not
extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated
powers and privileges granted in favor of Tan Eng Kee, were indicative of his being
a partner in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's position is
higher in rank, it is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed
by 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 hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
AFISCO Insurance Corporation vs CAGR NO. 112675 January 25, 1999
Facts: The petitioners are 41 local non-life insurance corporations. Upon their
issuance of Erection, Machinery Breakdown, Boiler Explosion and Contractors All
Risk insurance policies, the petitioners entered into a Quota Share Reinsurance
Treaty and a Surplus Reinsurance Treaty with the foreign insurance orporation,
Munchener Ruckversicherungs-Gesselschaft (Munich).
The reinsurance treaties required petitioners to form a pool which was created on
the same day. Subsequently, the pool of insurers submitted
a financial statement and filed an Information Return of Organization Exempt
from Income Tax for the year ending in 1975, on the basis of which, it was assessed
by the Commissioner of Internal Revenue a deficiency in corporate taxes in the
amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39
and P89,438.68 on dividends paid to Munich and to the petitioners, respectively.
The petitioners filed a protest which the Commissioner of Internal Revenue denied.
The Court of Tax Appeals affirmed this decision. Concurrently, the CA ruled that
the pool of insurers was considered as a partnership taxable as a corporation, and
that the latters collection of premiums on behalf of its members was taxable
income.
Issue: Whether or not the pool is a partnership whose dividends are subject to tax.
HELD:
The petition also challenges the November 15, 1993 Court of Appeals (CA)
Resolution 6 denying reconsideration.
The Facts
The antecedent facts, 7 as found by the Court of Appeals, are as follows:
The petitioners are 41 non-life insurance corporations, organized and existing
under the laws of the Philippines. Upon issuance by them of Erection, Machinery
Breakdown, Boiler Explosion and Contractors' All Risk insurance policies, the
petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and
a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft
(hereafter called Munich), a non-resident foreign insurance corporation. The
reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement
and filed an "Information Return of Organization Exempt from Income Tax" for the
year ending in 1975, on the basis of which it was assessed by the Commissioner of
Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and
withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends
paid to Munich and to the petitioners, respectively. These assessments were
protested by the petitioners through its auditors Sycip, Gorres, Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest
G.R. No. 112675 January 25, 1999 and ordered the petitioners, assessed as "Pool of Machinery Insurers," to pay
deficiency income tax, interest, and with [h]olding tax, itemized as follows:
AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION; CHARTER
INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION; COMMONWEALTH Net income per information return P3,737,370.00
INSURANCE COMPANY; CONSOLIDATED INSURANCE CO., INC.; DEVELOPMENT
INSURANCE & SURETY CORPORATION DOMESTIC INSURANCE COMPANY OF THE ===========
PHILIPPINE; EASTERN ASSURANCE COMPANY & SURETY CORP; EMPIRE
INSURANCE COMPANY; EQUITABLE INSURANCE CORPORATION; FEDERAL Income tax due thereon P1,298,080.00
INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION; FIDELITY &
SURETY COMPANY OF THE PHILS., INC.; FILIPINO MERCHANTS' INSURANCE CO., Add: 14% Int. fr. 4/15/76
INC.; GOVERNMENT SERVICE INSURANCE SYSTEM; MALAYAN INSURANCE CO.,
INC.; MALAYAN ZURICH INSURANCE CO.; INC.; MERCANTILE INSURANCE CO., to 4/15/79 545,193.60
INC.; METROPOLITAN INSURANCE COMPANY; METRO-TAISHO INSURANCE
CORPORATION; NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN
INSURANCE CORPORATION; PARAMOUNT INSURANCE CORPORATION; PEOPLE'S
TRANS-EAST ASIA INSURANCE CORPORATION; PERLA COMPANIA DE SEGUROS, TOTAL AMOUNT DUE & P1,843,273.60
INC.; PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE
CO., INC.; PIONEER INSURANCE & SURETY CORP.; PIONEER INTERCONTINENTAL COLLECTIBLE
INSURANCE CORPORATION; PROVIDENT INSURANCE COMPANY OF THE
PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY & INSURANCE Dividend paid to Munich
COMPANY; RIZAL SURETY & INSURANCE COMPANY; SANPIRO INSURANCE
CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.; SOLID GUARANTY, Reinsurance Company P3,728,412.00
INC.; SOUTH SEA SURETY & INSURANCE CO., INC.; STATE BONDING & INSURANCE
CO., INC.; SUMMA INSURANCE CORPORATION; TABACALERA INSURANCE CO.,
INC. all assessed as "POOL OF MACHINERY INSURERS, petitioner,
vs. 35% withholding tax at
COURT OF APPEALS, COURT OF TAX APPEALS and COMISSIONER OF INTERNAL
REVENUE, respondent. source due thereon P1,304,944.20

PANGANIBAN, J.: Add: 25% surcharge 326,236.05

Pursuant to "reinsurance treaties," a number of local insurance firms formed 14% interest from
themselves into a "pool" in order to facilitate the handling of business contracted
with a nonresident foreign insurance company. May the "clearing house" or 1/25/76 to 1/25/79 137,019.14
"insurance pool" so formed be deemed a partnership or an association that is
taxable as a corporation under the National Internal Revenue Code (NIRC)? Should Compromise penalty-
the pool's remittances to the member companies and to the said foreign firm be
taxable as dividends? Under the facts of this case, has the goverment's right to non-filing of return 300.00
assess and collect said tax prescribed?
late payment 300.00
The Case

These are the main questions raised in the Petition for Review on Certiorari before
us, assailing the October 11, 1993 Decision 1 of the Court of Appeals 2 in CA-GR SP TOTAL AMOUNT DUE & P1,768,799.39
25902, which dismissed petitioners' appeal of the October 19, 1992 Decision 3 of
the Court of Tax Appeals 4 (CTA) which had previously sustained petitioners' COLLECTIBLE ===========
liability for deficiency income tax, interest and withholding tax. The Court of
Appeals ruled: Dividend paid to Pool Members P655,636.00

WHEREFORE, the petition is DISMISSED, with costs against petitioner 5 ===========

10% withholding tax at
source due thereon P65,563.60
Add: 25% surcharge 16,390.90
14% interest from
1/25/76 to 1/25/79 6,884.18
Compromise penalty-
non-filing of return 300.00
late payment 300.00
tax is hereby imposed upon the taxable net income received during each taxable
TOTAL AMOUNT DUE & P89,438.68
COLLECTIBLE =========== 8
The CA ruled in the main that the pool of machinery insurers was a partnership
taxable as a corporation, and that the latter's collection of premiums on behalf of
its members, the ceding companies, was taxable income. It added that prescription
did not bar the Bureau of Internal Revenue (BIR) from collecting the taxes due,
because "the taxpayer cannot be located at the address given in the information
return filed." Hence, this Petition for Review before us. 9
The Issues
Before this Court, petitioners raise the following issues:
1. Whether or not the Clearing House, acting as a mere agent and
performing strictly administrative functions, and which did not insure or assume
any risk in its own name, was a partnership or association subject to tax as a
corporation;
2. Whether or not the remittances to petitioners and MUNICHRE of their
respective shares of reinsurance premiums, pertaining to their individual and
separate contracts of reinsurance, were "dividends" subject to tax; and
3. Whether or not the respondent Commissioner's right to assess the
Clearing House had already prescribed. 10
The Court's Ruling
The petition is devoid of merit. We sustain the ruling of the Court of Appeals that
the pool is taxable as a corporation, and that the government's right to assess and
collect the taxes had not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding that the pool of
clearing house was an informal partnership, which was taxable as a corporation
under the NIRC. They point out that the reinsurance policies were written by them
"individually and separately," and that their liability was limited to the extent of
their allocated share in the original risk thus reinsured. 11 Hence, the pool did not
act or earn income as a reinsurer. 12 Its role was limited to its principal function of
"allocating and distributing the risk(s) arising from the original insurance among
the signatories to the treaty or the members of the pool based on their ability to
absorb the risk(s) ceded[;] as well as the performance of incidental functions, such
as records, maintenance, collection and custody of funds, etc." 13
Petitioners belie the existence of a partnership in this case, because (1) they, the
reinsurers, did not share the same risk or solidary liability, 14 (2) there was no
common fund; 15 (3) the executive board of the pool did not exercise control and
management of its funds, unlike the board of directors of a corporation; 16 and (4)
the pool or clearing house "was not and could not possibly have engaged in the
business of reinsurance from which it could have derived income for itself." 17
The Court is not persuaded. The opinion or ruling of the Commission of Internal
Revenue, the agency tasked with the enforcement of tax law, is accorded much
weight and even finality, when there is no showing. that it is patently wrong, 18
particularly in this case where the findings and conclusions of the internal revenue
commissioner were subsequently affirmed by the CTA, a specialized body created
for the exclusive purpose of reviewing tax cases, and the Court of Appeals. 19
Indeed,
[I]t has been the long standing policy and practice of this Court to respect the
conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by
the nature of its functions, is dedicated exclusively to the study and consideration
of tax problems and has necessarily developed an expertise on the subject, unless
there has been an abuse or improvident exercise of its authority. 20
This Court rules that the Court of Appeals, in affirming the CTA which had
previously sustained the internal revenue commissioner, committed no reversible
error. Section 24 of the NIRC, as worded in the year ending 1975, provides:
Sec. 24. Rate of tax on corporations. (a) Tax on domestic corporations. A
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 co-partnership (compaias colectivas), general professional
partnerships, private educational institutions, and building and loan associations .
...
Ineludibly, the Philippine legislature included in the concept of corporations those
entities that resembled them such as unregistered partnerships and associations.
Parenthetically, the NIRC's inclusion of such entities in the tax on corporations was
made even clearer by the tax Reform Act of 1997, 21 which amended the Tax Code.
Pertinent provisions of the new law read as follows:
Sec. 27. Rates of Income Tax on Domestic Corporations.
(A) In General. Except as otherwise provided in this Code, an income tax
of thirty-five percent (35%) is hereby imposed upon the taxable income derived
during each taxable year from all sources within and without the Philippines by
every corporation, as defined in Section 22 (B) of this Code, and taxable under this
Title as a corporation . . . .
Sec. 22. Definition. When used in this Title:
xxx xxx xxx
(B) The term "corporation" shall include partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies, but does not include general professional
partnerships [or] a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and
other energy operations pursuant to an operating or consortium agreement under
a service contract without the Government. "General professional partnerships"
are partnerships formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is derived from engaging in
any trade or business.
xxx xxx xxx
Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that Section
24 covered these unregistered partnerships and even associations or joint
accounts, which had no legal personalities apart from their individual members. 23
The Court of Appeals astutely applied Evangelista. 24
. . . Accordingly, a pool of individual real property owners dealing in real estate
business was considered a corporation for purposes of the tax in sec. 24 of the Tax
Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court
said:
The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. *** (8 Merten's Law of Federal Income
Taxation, p. 562 Note 63)
Art. 1767 of the Civil Code recognizes the creation of a contract of partnership
when "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." 25 Its requisites are: "(1) mutual contribution to a common stock, and
(2) a joint interest in the profits." 26 In other words, a partnership is formed when
persons contract "to devote to a common purpose either money, property, or labor
with the intention of dividing the profits between
themselves." 27 Meanwhile, an association implies associates who enter into a
"joint enterprise . . . for the transaction of business." 28
In the case before us, the ceding companies entered into a Pool Agreement 29 or
an association 30 that would handle all the insurance businesses covered under
their quota-share reinsurance treaty 31 and surplus reinsurance treaty 32 with
Munich. The following unmistakably indicates a partnership or an association
covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables
that are deposited in the name and credit of the pool. 33 This common fund pays
for the administration and operation expenses of the pool. 24
(2) The pool functions through an executive board, which resembles the
board of directors of a corporation, composed of one representative for each of
the ceding companies. 35
(3) True, the pool itself is not a reinsurer and does not issue any insurance
policy; however, its work is indispensable, beneficial and economically useful to
the business of the ceding companies and Munich, because without it they would
not have received their premiums. The ceding companies share "in the business
ceded to the pool" and in the "expenses" according to a "Rules of Distribution"
annexed to the Pool Agreement. 36 Profit motive or business is, therefore, the
primordial reason for the pool's formation. As aptly found by the CTA:
. . . The fact that the pool does not retain any profit or income does not obliterate
an antecedent fact, that of the pool being used in the transaction of business for
profit. It is apparent, and petitioners admit, that their association or coaction was
indispensable [to] the transaction of the business, . . . If together they have
conducted business, profit must have been the object as, indeed, profit was
earned. Though the profit was apportioned among the members, this is only a
matter of consequence, as it implies that profit actually resulted. 37
The petitioners' reliance on Pascuals v. Commissioner 38 is misplaced, because the
facts obtaining therein are not on all fours with the present case. In Pascual, there
was no unregistered partnership, but merely a co-ownership which took up only
two isolated transactions. 39 The Court of Appeals did not err in applying
Evangelista, which involved a partnership that engaged in a series of transactions
spanning more than ten years, as in the case before us.
Second Issue:
Pool's Remittances are Taxable
Petitioners further contend that the remittances of the pool to the ceding
companies and Munich are not dividends subject to tax. They insist that such
remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and "would
be tantamount to an illegal double taxation as it would result in taxing the same
taxpayer" 40 Moreover, petitioners argue that since Munich was not a signatory to
the Pool Agreement, the remittances it received from the pool cannot be deemed
dividends. 41 They add that even if such remittances were treated as dividends,
they would have been exempt under the previously mentioned sections of the
1977 NIRC, 42 as well as Article 7 of paragraph 1 43 and Article 5 of paragraph 5 44
of the RP-West German Tax Treaty. 45
Petitioners are clutching at straws. Double taxation means taxing the same
property twice when it should be taxed only once. That is, ". . . taxing the same
person twice by the same jurisdiction for the same thing" 46 In the instant case,
the pool is a taxable entity distinct from the individual corporate entities of the
ceding companies. The tax on its income is obviously different from the tax on the
dividends received by the said companies. Clearly, there is no double taxation here.
The tax exemptions claimed by petitioners cannot be granted, since their
entitlement thereto remains unproven and unsubstantiated. It is axiomatic in the
law of taxation that taxes are the lifeblood of the nation. Hence, "exemptions
therefrom are highly disfavored in law and he who claims tax exemption must be
able to justify his claim or right." 47 Petitioners have failed to discharge this burden
of proof. The sections of the 1977 NIRC which they cite are inapplicable, because
these were not yet in effect when the income was earned and when the subject
information return for the year ending 1975 was filed.
Referring, to the 1975 version of the counterpart sections of the NIRC, the Court
still cannot justify the exemptions claimed. Section 255 provides that no tax shall
". . . be paid upon reinsurance by any company that has already paid the tax . . ."
This cannot be applied to the present case because, as previously discussed, the
pool is a taxable entity distinct from the ceding companies; therefore, the latter
cannot individually claim the income tax paid by the former as their own.
On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign corporations;
hence, it cannot be claimed by the ceding companies which are domestic
corporations. Nor can Munich, a foreign corporation, be granted exemption based
solely on this provision of the Tax Code, because the same subsection specifically
taxes dividends, the type of remittances forwarded to it by the pool. Although not
a signatory to the Pool Agreement, Munich is patently an associate of the ceding
companies in the entity formed, pursuant to their reinsurance treaties which
required the creation of said pool.
Under its pool arrangement with the ceding companies; Munich shared in their
income and loss. This is manifest from a reading of Article 3 49 and 10 50 of the
Quota-Share Reinsurance treaty and Articles 3 51 and 10 52 of the Surplus
Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1) is in line with
the doctrine that a tax exemption must be construed strictissimi juris, and the
statutory exemption claimed must be expressed in a language too plain to be
mistaken. 53
Finally the petitioners' claim that Munich is tax-exempt based on the RP- West
German Tax Treaty is likewise unpersuasive, because the internal revenue
commissioner assessed the pool for corporate taxes on the basis of the information
return it had submitted for the year ending 1975, a taxable year when said treaty
was not yet in effect. 54 Although petitioners omitted in their pleadings the date
of effectivity of the treaty, the Court takes judicial notice that it took effect only
later, on December 14, 1984. 55
Third Issue:
Prescription
Petitioners also argue that the government's right to assess and collect the subject
tax had prescribed. They claim that the subject information return was filed by the
pool on April 14, 1976. On the basis of this return, the BIR telephoned petitioners
on November 11, 1981, to give them notice of its letter of assessment dated March
27, 1981. Thus, the petitioners contend that the five-year statute of limitations
then provided in the NIRC had already lapsed, and that the internal revenue
commissioner was already barred by prescription from making an assessment. 56
We cannot sustain the petitioners. The CA and the CTA categorically found that the
prescriptive period was tolled under then Section 333 of the NIRC, 57 because "the
taxpayer cannot be located at the address given in the information return filed and
for which reason there was delay in sending the assessment." 58 Indeed, whether
the government's right to collect and assess the tax has prescribed involves facts
which have been ruled upon by the lower courts. It is axiomatic that in the absence
of a clear showing of palpable error or grave abuse of discretion, as in this case,
this Court must not overturn the factual findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for Reconsideration before the
Court of Appeals that the pool changed its address, for they stated that the pool's
information return filed in 1980 indicated therein its "present address." The Court
finds that this falls short of the requirement of Section 333 of the NIRC for the
suspension of the prescriptive period. The law clearly states that the said period
will be suspended only "if the taxpayer informs the Commissioner of Internal
Revenue of any change in the address."
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals dated
October 11, 1993 and November 15, 1993 are hereby AFFIRMED. Cost against
petitioners.1wphi1.nt
SO ORDERED.