[1]
" The incorporation was
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 Division 2 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 complaint 4 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
PARTNERSHIP- A2 ARTICLE 1769-1770
a corporation called "Benguet Lumber Company.
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.
1
 g) Denying the award of damages to the plaintiffs for lack of proof II
except the expenses in filing the instant case.
THE HONORABLE COURT OF APPEALS ERRED IN RELYING
h) Dismissing the counter-claim of the defendant for lack of merit. SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS
SO ORDERED. A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS
ONLY AN EMPLOYEE THEREOF.
Private respondent sought relief before the Court of Appeals which, on
March 13, 1996, rendered the assailed decision reversing the judgment of the III
trial court. Petitioners' motion for reconsideration 7 was denied by the Court of
Appeals in a Resolution8 dated October 11, 1996. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE FOLLOWING FACTS WHICH WERE DULY
Hence, the present petition. SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP
against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified DULY RECORDED BEFORE THE SECURITIES AND
documents in a judicial proceeding. Petitioners complained that Exhibits "4" EXCHANGE COMMISSION:
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 a. THAT THE FAMILIES OF TAN ENG KEE AND TAN
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng ENG LAY WERE ALL LIVING AT THE BENGUET
Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, LUMBER COMPOUND;
Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, b. THAT BOTH TAN ENG LAY AND TAN ENG KEE
1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the WERE COMMANDING THE EMPLOYEES OF
charges were filed, rendered judgment 9 dismissing the cases for insufficiency BENGUET LUMBER;
of evidence.
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY
In their assignment of errors, petitioners claim that: WERE SUPERVISING THE EMPLOYEES THEREIN;

I d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
ONES DETERMINING THE PRICES OF STOCKS TO BE
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING SOLD TO THE PUBLIC; AND
THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE
TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
(A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE 18, DECISION).
WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS
NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) IV
THERE WAS NO TIME FIXED FOR THE DURATION OF THE
PARTNERSHIP (PAGE 13, DECISION).

PARTNERSHIP- A2 ARTICLE 1769-1770 2

 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 (5) when the appellate court, in making its findings, goes beyond the
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
In reversing the trial court, the Court of Appeals ruled, to wit:
courts whenever authorized by law, may file with the Supreme Court
a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth.11 [emphasis
supplied]
Admitted exceptions have been recognized, though, and when present, may
compel us to analyze the evidentiary basis on which the lower court rendered
judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial
court are contradictory;
PARTNERSHIP- A2 ARTICLE 1769-1770
(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;
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
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
3
 We have the admission that the father of the plaintiffs was not a
partner of the Benguet Lumber before the war. The appellees
however argued that (Rollo, p. 104; Brief, p. 6) this is because during
the war, the entire stocks of the pre-war Benguet Lumber were
confiscated if not burned by the Japanese. After the war, because of
the absence of capital to start a lumber and hardware business, Lay
and Kee pooled the proceeds of their individual businesses earned
from buying and selling military supplies, so that the common fund
would be enough to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses.
Because of the pooling of resources, the post-war Benguet Lumber
was eventually established. That the father of the plaintiffs and Lay
were partners, is obvious from the fact that: (1) they conducted the
affairs of the business during 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
PARTNERSHIP- A2 ARTICLE 1769-1770
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
4
 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
PARTNERSHIP- A2 ARTICLE 1769-1770
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
5
 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. Bolaños, 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
PARTNERSHIP- A2 ARTICLE 1769-1770
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
6
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.
PARTNERSHIP- A2 ARTICLE 1769-1770
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
7
 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.
[2]
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. G.R. No. 148187 April 16, 2008

SO ORDERED.

PARTNERSHIP- A2 ARTICLE 1769-1770 8

PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of
the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the
Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed
is the April 3, 2001 Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
entered into an agreement 4 with Baguio Gold Mining Company ("Baguio
Gold") for the former to manage and operate the latter’s mining claim,
known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province.
The parties’ agreement was denominated as "Power of Attorney" and
provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
Gold) shall make available to the MANAGERS (Philex Mining) up
to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts
as from time to time may be required by the MANAGERS within the
said 3-year period, for use in the MANAGEMENT of the STO.
NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the
owner’s account in the Sto. Nino PROJECT. Any part of any income
of the PRINCIPAL from the STO. NINO MINE, which is left with
the Sto. Nino PROJECT, shall be added to such owner’s account.
5. Whenever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO.
NINO MINE, they may transfer their own funds or property to the
Sto. Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the
cash, shall be carried by the Sto. Nino PROJECT as a special
fund to be known as the MANAGERS’ account.
PARTNERSHIP- A2 ARTICLE 1769-1770
(b) The total of the MANAGERS’ account shall not exceed
P11,000,000.00, except with prior approval of the
PRINCIPAL; provided, however, that if the compensation of
the MANAGERS as herein provided cannot be paid in cash
from the Sto. Nino PROJECT, the amount not so paid in
cash shall be added to the MANAGERS’ account.
(c) The cash and property shall not thereafter be withdrawn
from the Sto. Nino PROJECT until termination of this
Agency.
(d) The MANAGERS’ account shall not accrue interest.
Since it is the desire of the PRINCIPAL to extend to the
MANAGERS the benefit of subsequent appreciation of
property, upon a projected termination of this Agency, the
ratio which the MANAGERS’ account has to the owner’s
account will be determined, and the corresponding
proportion of the entire assets of the STO. NINO MINE,
excluding the claims, shall be transferred to the
MANAGERS, except that such transferred assets shall not
include mine development, roads, buildings, and similar
property which will be valueless, or of slight value, to the
MANAGERS. The MANAGERS can, on the other hand,
require at their option that property originally transferred by
them to the Sto. Nino PROJECT be re-transferred to them.
Until such assets are transferred to the MANAGERS, this
Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent
(50%) of the net profit of the Sto. Nino PROJECT before income tax.
It is understood that the MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the
MANAGERS’ compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor
9
 of the MANAGERS. This Power of Attorney has been executed as
security for the payment and satisfaction of all such obligations of
the PRINCIPAL in favor of the MANAGERS and as a means to
fulfill the same. Therefore, this Agency shall be irrevocable while
any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS’ account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS
may withdraw from this Agency by giving 6-month notice to the
PRINCIPAL. The MANAGERS shall not in any manner be held
liable to the PRINCIPAL by reason alone of such withdrawal.
Paragraph 5(d) hereof shall be operative in case of the MANAGERS’
withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioner’s withdrawal as manager of the mine on January
28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with
Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to
petitioner in the amount of P179,394,000.00 and agreed to pay the same in
three segments by first assigning Baguio Gold’s tangible assets to petitioner,
transferring to the latter Baguio Gold’s equitable title in its Philodrill assets
and finally settling the remaining liability through properties that Baguio
Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise
with Dation in Payment"8 where the parties determined that Baguio Gold’s
indebtedness to petitioner actually amounted to P259,137,245.00, which sum
included liabilities of Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to long-term loans
amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank
PARTNERSHIP- A2 ARTICLE 1769-1770
of America NT & SA and Citibank N.A. This time, Baguio Gold undertook
to pay petitioner in two segments by first assigning its tangible assets for
P127,838,051.00 and then transferring its equitable title in its Philodrill
assets for P16,302,426.00. The parties then ascertained that Baguio Gold had
a remaining outstanding indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and P2,860,768.00 to the
1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of receivables
from Baguio Gold against reserves and allowances." 9 However, the Bureau
of Internal Revenue (BIR) disallowed the amount as deduction for bad debt
and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be
allowed since all requisites for a bad debt deduction were satisfied, to wit: (a)
there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was
determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract
it entered into with Baguio Gold. The bad debt deduction represented
advances made by petitioner which, pursuant to the management contract,
formed part of Baguio Gold’s "pecuniary obligations" to petitioner. It also
included payments made by petitioner as guarantor of Baguio Gold’s long-
term loans which legally entitled petitioner to be subrogated to the rights of
the original creditor.
Petitioner also asserted that due to Baguio Gold’s irreversible losses, it
became evident that it would not be able to recover the advances and
payments it had made in behalf of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither required to institute a judicial
action for collection against the debtor nor to sell or dispose of collateral
assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent
efforts to enforce collection and exhausted all reasonable means to collect.
10
On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and
factual basis. It held that the alleged debt was not ascertained to be worthless
since Baguio Gold remained existing and had not filed a petition for
bankruptcy; and that the deduction did not consist of a valid and subsisting
debt considering that, under the management contract, petitioner was to be
paid fifty percent (50%) of the project’s net profit. 10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered
judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED for lack of merit. The assessment in
question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby
ORDERED to PAY respondent Commissioner of Internal Revenue
the amount of P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date after the 20-day
grace period given by the respondent within which petitioner has to
pay the deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the advances it made for the Sto.
Nino mine were in the nature of a loan. It instead characterized the advances
as petitioner’s investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the
"Power of Attorney" executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the nature of
an investment, it could not be deducted as a bad debt from petitioner’s gross
income.
The CTA likewise held that the amount paid by petitioner for the long-term
loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner did
was to pre-pay the loans as evidenced by the notice sent by Bank of America
showing that it was merely demanding payment of the installment and
interests due. Moreover, Citibank imposed and collected a "pre-termination
penalty" for the pre-payment.
PARTNERSHIP- A2 ARTICLE 1769-1770
The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon denial
of its motion for reconsideration, 13petitioner took this recourse under Rule 45
of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by
Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather than
a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the
net profits of the Sto. Nino Mine indicates that Philex is a partner of
Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex
and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney
and in completely disregarding the Compromise Agreement and the
Amended Compromise Agreement when it construed the nature of
the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its business relationship
with Baguio Gold, we should not only rely on the "Power of Attorney", but
also on the subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that the parties executed in
1982. These documents, allegedly evinced the parties’ intent to treat the
advances and payments as a loan and establish a creditor-debtor relationship
between them.
The petition lacks merit.
11
The lower courts correctly held that the "Power of Attorney" is the
instrument that is material in determining the true nature of the business
relationship between petitioner and Baguio Gold. Before resort may be had
to the two compromise agreements, the parties’ contractual intent must first
be discovered from the expressed language of the primary contract under
which the parties’ business relations were founded. It should be noted that the
compromise agreements were mere collateral documents executed by the
parties pursuant to the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is the latter which
established the juridical relation of the parties and defined the parameters of
their dealings with one another.
The execution of the two compromise agreements can hardly be considered
as a subsequent or contemporaneous act that is reflective of the parties’ true
intent. The compromise agreements were executed eleven years after the
"Power of Attorney" and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the
"Power of Attorney". The parties entered into the compromise agreements as
a consequence of the dissolution of their business relationship. It did not
define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint
venture was indeed intended by the parties. Under 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.15 While a corporation, like petitioner, cannot generally enter into
a contract of partnership unless authorized by law or its charter, it has been
held that it may enter into a joint venture which is akin to a particular
partnership:
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. x x x It is
in fact 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. x x x The main
distinction cited by most opinions in common law jurisdictions 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. x
x x This observation is not entirely accurate in this jurisdiction, since
PARTNERSHIP- A2 ARTICLE 1769-1770
under the Civil Code, a partnership may be particular or universal,
and a particular partnership may have for its object a specific
undertaking. x x x It would seem therefore that under Philippine law,
a joint venture is a form of partnership and should 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. x x x (Citations
omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates
that the parties had intended to create a partnership and establish a common
fund for the purpose. They also had a joint interest in the profits of the
business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to
contribute money, property and industry to the common fund known as the
Sto. Niño mine.17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development
and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint venture
assets under their respective accounts. Baguio Gold would
contribute P11M under its owner’s account plus any of its income that is left
in the project, in addition to its actual mining claim. Meanwhile, petitioner’s
contribution would consist of its expertise in the management and operation
of mines, as well as the manager’s account which is comprised of P11M in
funds and property and petitioner’s "compensation" as manager that cannot
be paid in cash.
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not "bind" itself to contribute
money or property to the project; that under paragraph 5 of the agreement, it
was only optional for petitioner to transfer funds or property to the Sto. Niño
project "(w)henever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NIÑO
MINE."18
The wording of the parties’ agreement as to petitioner’s contribution to the
common fund does not detract from the fact that petitioner transferred its
funds and property to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract, particularly paragraph 5(c)
12
which prohibits petitioner from withdrawing the advances until termination
of the parties’ business relations. As can be seen, petitioner became bound by
its contributions once the transfers were made. The contributions acquired an
obligatory nature as soon as petitioner had chosen to exercise its option under
paragraph 5.
There is no merit to petitioner’s claim that the prohibition in paragraph 5(c)
against withdrawal of advances should not be taken as an indication that it
had entered into a partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually a contract of agency
coupled with an interest which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends
upon it, or the mutual interest of both principal and agent. 19 In this case, the
non-revocation or non-withdrawal under paragraph 5(c) applies to
the advances made by petitioner who is supposedly the agent and not the
principal under the contract. Thus, it cannot be inferred from the stipulation
that the parties’ relation under the agreement is one of agency coupled with
an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the
relationship of the parties was one of agency and not a partnership. Although
the said provision states that "this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the MANAGERS is outstanding,
inclusive of the MANAGERS’ account," it does not necessarily follow that
the parties entered into an agency contract coupled with an interest that
cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not
to confer a power in favor of petitioner to contract with third persons on
behalf of Baguio Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage and operate
the latter’s mine through the parties’ mutual contribution of material
resources and industry. The essence of an agency, even one that is coupled
with interest, is the agent’s ability to represent his principal and bring about
business relations between the latter and third persons. 20 Where
representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of one’s paramount undertaking under a
contract, the latter may not necessarily be a contract of agency, but some
other agreement depending on the ultimate undertaking of the parties. 21
PARTNERSHIP- A2 ARTICLE 1769-1770
In this case, the totality of the circumstances and the stipulations in the
parties’ agreement indubitably lead to the conclusion that a partnership was
formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to
return the advances made by petitioner under the agreement. Paragraph 5 (d)
thereof provides that upon termination of the parties’ business relations, "the
ratio which the MANAGER’S account has to the owner’s account will be
determined, and the corresponding proportion of the entire assets of the STO.
NINO MINE, excluding the claims" shall be transferred to petitioner. 22 As
pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mine’s assets upon dissolution of the parties’
business relations. There was nothing in the agreement that would require
Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Niño mine upon termination, a provision that
is more consistent with a partnership than a creditor-debtor relationship. It
should be pointed out that in a contract of loan, a person who receives a loan
or money or any fungible thing acquires ownership thereof and is bound to
pay the creditor an equal amount of the same kind and quality. 23 In this case,
however, there was no stipulation for Baguio Gold to actually repay
petitioner the cash and property that it had advanced, but only the return of
an amount pegged at a ratio which the manager’s account had to the owner’s
account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nino mine. The "Power of Attorney" clearly provides
that petitioner would only be entitled to the return of a proportionate share of
the mine assets to be computed at a ratio that the manager’s account had to
the owner’s account. Except to provide a basis for claiming the advances as a
bad debt deduction, there is no reason for Baguio Gold to hold itself liable to
petitioner under the compromise agreements, for any amount over and above
the proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation with
neither security, or collateral, nor a specific deed evidencing the terms and
13
conditions of such loans. The parties also did not provide a specific maturity
date for the advances to become due and demandable, and the manner of
payment was unclear. All these point to the inevitable conclusion that the
advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Niño mine is
the fact that it would receive 50% of the net profits as "compensation" under
paragraph 12 of the agreement. The entirety of the parties’ contractual
stipulations simply leads to no other conclusion than that petitioner’s
"compensation" is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a
person of a share in the profits of a business is prima facie evidence that he is
a partner in the business." Petitioner asserts, however, that no such inference
can be drawn against it since its share in the profits of the Sto Niño project
was in the nature of compensation or "wages of an employee", under the
exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid "wages" pursuant to an
employer-employee relationship. To begin with, petitioner was the manager
of the project and had put substantial sums into the venture in order to ensure
its viability and profitability. By pegging its compensation to profits,
petitioner also stood not to be remunerated in case the mine had no income. It
is hard to believe that petitioner would take the risk of not being paid at all
for its services, if it were truly just an ordinary employee.
Consequently, we find that petitioner’s "compensation" under paragraph 12
of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in the
income of the mine if it were just an employee of Baguio Gold. 25 It is not
surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal
contribution of the parties to the St. Nino mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties’ relations were
indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioner’s advances as
investments in a partnership known as the Sto. Nino mine. The advances
were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the
PARTNERSHIP- A2 ARTICLE 1769-1770
"Power of Attorney". As for the amounts that petitioner paid as guarantor to
Baguio Gold’s creditors, we find no reason to depart from the tax court’s
factual finding that Baguio Gold’s debts were not yet due and demandable at
the time that petitioner paid the same. Verily, petitioner pre-paid Baguio
Gold’s outstanding loans to its bank creditors and this conclusion is
supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from its
gross income. Deductions for income tax purposes partake of the nature of
tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction
claimed.27 In this case, petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that could be deducted from
its gross income. Consequently, it could not claim the advances as a valid bad
debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of
Appeals in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the
decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to
PAY the deficiency tax on its 1982 income in the amount of P62,811,161.31,
with 20% delinquency interest computed from February 10, 1995, which is
the due date given for the payment of the deficiency income tax, up to the
actual date of payment.
SO ORDERED.
[3]
[G.R. No. L-68118. October 29, 1985.]
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS
and REMEDIOS P. OBILLOS, brothers and sisters, Petitioners, v.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, Respondents.
Demosthenes B. Gadioma for petitioners.
DECISION AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who
14
sold two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co.,
Ltd. on two lots with areas of 1,124 and 963 square meters located at
Greenhills, San Juan, Rizal. The next day he transferred his rights to his four
children, the petitioners, to enable them to build their residences. The
company sold the two lots to petitioners for P178,708.12 on March 13 (Exh.
A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would
show that they were co-owners of the two lots.cralawnad
In 1974, or after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz Canda
for the total sum of P313,050 (Exh. C and D). They derived from the sale a
total profit of P134,341.88 or P33,584 for each of them. They treated the
profit as a capital gain and paid an income tax on one-half thereof or on
P16,792.
In April, 1980, or one day before the expiration of the five year prescriptive
period, the Commissioner of Internal Revenue required the four petitioners to
pay corporate income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof. He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as
42% accumulated interest, or a total of P71,074 56.cralawnad
Not only that. He considered the share of the profits of each petitioner in the
sum of P33,584 as a "distributive dividend" taxable in full (not a mere capital
gain of which 1/2 is taxable) and required them to pay deficiency income
taxes aggregating P56,707.20 including the 50% fraud surcharge and the
accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and
penalties totalling P127,781.76 on their profit of P134, 336, in addition to the
tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed
an unregistered partnership or joint venture within the meaning of sections
24(a) and 84(b) of the Tax Code (Collector of Internal Revenue v. Batangas
Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court
sustained the same. Judge Roaquin dissented. Hence, the instant appeal.
PARTNERSHIP- A2 ARTICLE 1769-1770
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed P178,708.12 to buy the two lots, resold the same and
divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership
would result in oppressive taxation and confirm the dictum that the power to
tax involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-
owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later
on they found it not feasible to build their residences on the lots because of
the high cost of construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was merely incidental
to the dissolution of the co-ownership which was in the nature of things a
temporary state. It had to be terminated sooner or later. Castan Tobeñas
says:jgc:chanrobles.com.ph
"Como establecer el deslinde entre la comunidad ordinaria o copropiedad y
la sociedad?
"El criterio diferencial — seg’un la doctrina m s generalizada — est : por raz
"n del origen, en que la sociedad presupone necesariamente la convencion,
mientras que la comunidad puede existir y existe ordinariamente sin ella; y
por raz "n del fin u objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es s’olo mantener en su integridad la cosa
comun y favorecer su conservacion.
"Reflejo de este criterio es la sentencia de 15 de octubre de 1940, en la que se
dice que si en nuestro Derecho positivo se ofrecen a veces dificultades al
tratar de fijar la linea divisoria entre comunidad de bienes y contrato de
sociedad, la moderna orientacion de la doctrina cientifica señala como nota
fundamental de diferenciacion, aparte del origen o fuente de que surgen, no
siempre uniforme, la finalidad perseguida por los interesados: lucro comun
partible en la sociedad, y mera conservacion y aprovechamiento en la
comunidad." (Derecho Civil Español, Vol. 2, Part 1, 10 Ed., 1971, 328-329).
15
Article 1769(3) of the Civil Code provides that "the sharing of gross returns
does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which the
returns are derived." There must be an unmistakable intention to form a
partnership or joint venture. **

Such intent was present in Gatchalian v. Collector of Internal Revenue, 67

Phil. 666 where 15 persons contributed small amounts to purchase a two-
peso sweepstakes ticket with the agreement that they would divide the prize.
The ticket won the third prize of P50,000. The 15 persons were held liable
for income tax as an unregistered partnership.chanrobles virtual lawlibrary

The instant case is distinguishable from the cases where the parties engaged
in joint ventures for profit. Thus, in Ona v. Commissioner of Internal
Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial
settlement the co-heirs used the inheritance or the incomes derived therefrom
as a common fund to produce profits for themselves, it was held that they
were taxable as an unregistered partnership.

It is likewise different from Reyes v. Commissioner of Internal Revenue, 24

SCRA 198 where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the net
income, and from Evangelista v. Collector of Internal Revenue, 102 Phil. 140
where the three Evangelista sisters bought four pieces of real property which
they leased to various tenants and derived rentals therefrom. Clearly, the
petitioners in these two cases had formed an unregistered partnership.
[4]
In the instant case, what the Commissioner should have investigated was
whether the father donated the two lots to the petitioners and whether he paid [G.R. No. L-78133. October 18, 1988.]
the donor’s tax (See art. 1448, Civil Code). We are not prejudging this matter.
It might have already prescribed. MARIANO P. PASCUAL and RENATO P. DRAGON, Petitioners, v.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The TAX APPEALS, Respondents.
assessments are cancelled. No costs.
De la Cuesta, De las Alas and Callanta Law Offices, for Petitioners.
SO ORDERED.
The Solicitor General for Respondents.

SYLLABUS

PARTNERSHIP- A2 ARTICLE 1769-1770 16

1. CIVIL LAW; PARTNERSHIP; HOW ESTABLISHED. — The sharing of
returns does not in itself establish a partnership whether or not the persons
sharing therein have a joint or common right or interest in the property. There
must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each
party to transfer or assign the whole property.
2. COMMERCIAL LAW; CORPORATE INCOME TAX; PARTIES IN
CASE AT BAR NOT LIABLE FOR THE PAYMENT THEREOF. — In the
present case, there is clear evidence of co-ownership between the petitioners.
There is no adequate basis to support the proposition that they thereby
formed an unregistered partnership. The two isolated transactions whereby
they purchased properties and sold the same a few years thereafter did not
thereby make them partners. They shared in the gross profits as co-owners
and paid their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be considered to have
formed an unregistered partnership which is thereby liable for corporate
income tax, as the respondent commissioner proposes. As petitioners have
availed of the benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax liability arising
therefrom.
DECISION GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or
joint venture for income tax purposes is the issue in this
petition.chanrobles.com.ph : virtual law library
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, Et. Al. and on May 28, 1966, they bought another three (3)
parcels of land from Juan Roque. The first two parcels of land were sold by
petitioners in 1968 to Marenir Development Corporation, while the three
parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson
on March 19, 1970. Petitioners realized a net profit in the sale made in 1968
in the amount of P165,224.70, while they realized a net profit of P60,000.00
in the sale made in 1970. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties granted in the
said years.chanrobles law library
PARTNERSHIP- A2 ARTICLE 1769-1770
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner
Efren I. Plana, petitioners were assessed and required to pay a total amount
of P107,101.70 as alleged deficiency corporate income taxes for the years
1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting
that they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed
petitioners that in the years 1968 and 1970, petitioners as co-owners in the
real estate transactions formed an unregistered partnership or joint venture
taxable as a corporation under Section 20(b) and its income was subject to
the taxes prescribed under Section 24, both of the National Internal Revenue
Code; 1 that the unregistered partnership was subject to corporate income tax
as distinguished from profits derived from the partnership by them which is
subject to individual income tax; and that the availment of tax amnesty under
P.D. No. 23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the tax liability
of the unregistered partnership. Hence, the petitioners were required to pay
the deficiency income tax assessed.chanrobles virtual lawlibrary
Petitioners filed a petition for review with the respondent Court of Tax
Appeals docketed as CTA Case No. 3045. In due course, the respondent court
by a majority decision of March 30, 1987, 2 affirmed the decision and action
taken by respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista, 3 an
unregistered partnership was in fact formed by petitioners which like a
corporation was subject to corporate income tax distinct from that imposed
on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated
that considering the circumstances of this case, although there might in fact
be a co-ownership between the petitioners, there was no adequate basis for
the conclusion that they thereby formed an unregistered partnership which
made them liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following
alleged errors of the respondent court:jgc:chanrobles.com.ph
17
"A. IN HOLDING AS PRESUMPTIVELY CORRECT THE respect to the tax on corporations, the issue hinges on the meaning of the
DETERMINATION OF THE RESPONDENT COMMISSIONER, TO THE terms ‘corporation’ and ‘partnership’ as used in sections 24 and 84 of said
EFFECT THAT PETITIONERS FORMED AN UNREGISTERED Code, the pertinent parts of which read:chanrob1es virtual 1aw library
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT
THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION THERETO ‘Sec. 24. Rate of the tax on corporations. — There shall be levied, assessed,
RESTS UPON THE PETITIONERS. collected, and paid annually upon the total net income received in the
preceding taxable year from all sources by every corporation organized in, or
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED existing under the laws of the Philippines, no matter how created or
SALE TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP organized but not including duly registered general co-partnerships
EXISTED, THUS IGNORING THE REQUIREMENTS LAID DOWN BY (companias colectivas), a tax upon such income equal to the sum of the
LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION following: . . .’
THAT A PARTNERSHIP EXISTS.
‘Sec. 84(b). The term ‘corporation’ includes partnerships, no matter how
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE created or organized, joint—stock companies, joint accounts (cuentas en
EVANGELISTA CASE AND THEREFORE SHOULD BE DECIDED participation), associations or insurance companies, but does not include duly
ALONGSIDE THE EVANGELISTA CASE. registered general co-partnerships (companias colectivas).’

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE "Article 1767 of the Civil Code of the Philippines provides:chanrob1es
PETITIONERS FROM PAYMENT OF OTHER TAXES FOR THE PERIOD virtual 1aw library
COVERED BY SUCH AMNESTY." (pp. 12-13, Rollo.)
‘By the contract of partnership two or more persons bind themselves to
The petition is meritorious. contribute money, property, or industry to a common fund, with the intention
of dividing the profits among themselves.’
The basis of the subject decision of the respondent court is the ruling of this
Court in Evangelista. 4 "Pursuant to this article, the essential elements of a partnership are two,
namely: (a) an agreement to contribute money, property or industry to a
In the said case, petitioners borrowed a sum of money from their father common fund; and (b) intent to divide the profits among the contracting
which together with their own personal funds they used in buying several parties. The first element is undoubtedly present in the case at bar, for,
real properties. They appointed their brother to manage their properties with admittedly, petitioners have agreed to, and did, contribute money and
full power to lease, collect, rent, issue receipts, etc. They had the real property to a common fund. Hence, the issue narrows down to their intent in
properties rented or leased to various tenants for several years and they acting as they did. Upon consideration of all the facts and circumstances
gained net profits from the rental income. Thus, the Collector of Internal surrounding the case, we are fully satisfied that their purpose was to engage
Revenue demanded the payment of income tax on a corporation, among in real estate transactions for monetary gain and then divide the same among
others, from them. themselves, because:chanrob1es virtual 1aw library

In resolving the issue, this Court held as follows:jgc:chanrobles.com.ph
"The issue in this case is whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers’ fixed tax. With
1. Said common fund was not something they found already in existence. It
was not a property inherited by them pro indiviso. They created it purposely.
What is more they jointly borrowed a substantial portion thereof in order to
establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of

PARTNERSHIP- A2 ARTICLE 1769-1770 18

transactions. On February 2, I943, they bought a lot for P100,000.00. On
April 3, 1944, they purchased 21 lots for P18,000.00. This was soon
followed, on April 23, 1944, by the acquisition of another real estate for
P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transactions undertaken,
as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned common
fund or even of the property acquired by petitioners in February, 1943. In
other words, one cannot but perceive a character of habituality peculiar to
business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of
one person, namely, Simeon Evangelista, with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign letters and contracts, and to
indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to
be exact, over fifteen (15) years since the first property was acquired, and
over twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent
necessary to constitute a partnership, the collective effect of these
circumstance is such as to leave no room for doubt on the existence of said
intent in petitioners herein. Only one or two of the aforementioned
circumstances were present in the cases cited by petitioners herein, and,
hence, those cases are not in point." 5 ‘(3) The sharing of gross returns does not of itself establish a partnership,
PARTNERSHIP- A2 ARTICLE 1769-1770
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and
that they intended to divide the profits among themselves. Respondent
commissioner and/or his representative just assumed these conditions to be
present on the basis of the fact that petitioners purchased certain parcels of
land and became co-owners thereof.
In Evangelista, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the
conservation or preservation of the common fund or even the properties
acquired by them. The character of habituality peculiar to business
transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They
did not sell the same nor make any improvements thereon. In 1966, they
bought another three (3) parcels of land from one seller. It was only 1968
when they sold the two (2) parcels of land after which they did not make any
additional or new purchase. The remaining three (3) parcels were sold by
them in 1970. The transactions were isolated. The character of habituality
peculiar to business transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years.
The business was under the management of one of the partners. Such
condition existed for over fifteen (15) years. None of the circumstances are
present in the case at bar. The co-ownership started only in 1965 and ended
in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista
he said:jgc:chanrobles.com.ph
"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;
whether or not the persons sharing them have a joint or common right or
19
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
(Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-
636)
"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. (Elements of the Law of Partnership by Flord D. Mechem,
2nd Ed., section 83, p. 74.)
‘A joint purchase of land, by two, does not constitute a co-partnership in
respect thereto; nor does an agreement to share the profits and losses on the
sale of land create a partnership; the parties are only tenants in common.’
(Clark v. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
‘Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the profits
of disposing of it, the brother and the other not being entitled to share in
plaintiffs commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.’ (Magee v. Magee,
123 N.E. 673, 233 Mass. 341.)
‘In order to constitute a partnership inter sese there must be: (a) An intent to
PARTNERSHIP- A2 ARTICLE 1769-1770
form the same; (b) generally participating in both profits and losses; (c) and
such a community of interest, as far as third persons are concerned as enables
each party to make contract, manage the business and dispose of the whole
property.’ — Municipal Paving Co. v. Herring, 150 P. 1067, 50 III 470.)
‘The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making gains;
and they may, without becoming partners, agree among themselves as to the
management, and use of such property and the application of the proceeds
therefrom.’ — (Spurlock v. Wilson, 142 S.W. 363, 160 No. App. 14.)" 6
The sharing of returns does not in itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the
property. There must be a clear intent to form a partnership, the existence of a
juridical personality different from the individual partners, and the freedom
of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the
petitioners. There is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter
did not thereby make them partners. They shared in the gross profits as co-
owners and paid their capital gains taxes on their net profits and availed of
the tax amnesty thereby. Under the circumstances, they cannot be considered
to have formed an unregistered partnership which is thereby liable for
corporate income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered
partnership appears to have been formed, since there is no such existing
unregistered partnership with a distinct personality nor with assets that can be
held liable for said deficiency corporate income tax, then petitioners can be
held individually liable as partners for this unpaid obligation of the
partnership. 7 However, as petitioners have availed of the benefits of tax
amnesty as individual taxpayers in these transactions, they are thereby
relieved of any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the
respondent Court of Tax Appeals of March 30, 1987 is hereby REVERSED
and SET ASIDE and another decision is hereby rendered relieving petitioners
of the corporate income tax liability in this case, without pronouncement as
to costs.
20
 several exceptions to this principle. In the present case, we find occasion to
SO ORDERED. apply both the rule and one of the exceptions.

The Case

Before us is a Petition for Review on Certiorari assailing the November 28,

1997 Decision,1 as well as the August 17, 1998 and the October 9, 1998
Resolutions,2 issued by the Court of Appeals (CA) in CA-GR CV No. 34742.
The Assailed Decision disposed as follows:

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

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

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

Resolution ruled as follows:

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

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

The October 9, 1998 Resolution denied "for lack of merit" petitioner's

Motion for Reconsideration of the August 17, 1998 Resolution. 5

The Facts

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

[5] "Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent]

Nieves Reyes were introduced to each other by one Meliton Zabat regarding
G. R. No. 135813 - October 25, 2001 a lending business venture proposed by Nieves. It was verbally agreed that
[petitioner would] act as financier while [Nieves] and Zabat [would] take
charge of solicitation of members and collection of loan payments. The
FERNANDO SANTOS, Petitioner, v. SPOUSES ARSENIO and NIEVES
venture was launched on June 13, 1986, with the understanding that
REYES, Respondents.
[petitioner] would receive 70% of the profits while x x x Nieves and Zabat
would earn 15% each.
PANGANIBAN, J.:
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner].
As a general rule, the factual findings of the Court of Appeals affirming those Gragera, as chairman of the Monte Maria Development Corporation 6 (Monte
of the trial court are binding on the Supreme Court. However, there are Maria, for brevity), sought short-term loans for members of the corporation.
PARTNERSHIP- A2 ARTICLE 1769-1770 21
[Petitioner] and Gragera executed an agreement providing funds for Monte
Maria's members. Under the agreement, Monte Maria, represented by
Gragera, was entitled to P1.31 commission per thousand paid daily to
[petitioner] (Exh. 'A')x x x . Nieves kept the books as representative of
[petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the
'Article of Agreement' which formalized their earlier verbal arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in
the same lending business in competition with their partnership[.] Zabat was
thereby expelled from the partnership. The operations with Monte Maria
continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of
money and damages. [Petitioner] charged [respondents], allegedly in their
capacities as employees of [petitioner], with having misappropriated funds
intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Gragera's complaint that his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragerax x
x . Nieves allegedly failed to account for the amount. [Petitioner] asserted
that after examination of the records, he found that of the total amount of
P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was remitted
to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.
"In their answer, [respondents] asserted that they were partners and not mere
employees of [petitioner]. The complaint, they alleged, was filed to preempt
and prevent them from claiming their rightful share to the profits of the
partnership.
"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of
Zabat after [petitioner] learned of Zabat's activities. Arsenio resigned from
his job at the Asian Development Bank to join the partnership.
"For her part, x x x Nieves claimed that she participated in the business as a
partner, as the lending activity with Monte Maria originated from her
initiative. Except for the limited period of July 8, 1986 through August 20,
1986, she did not handle sums intended for Gragera. Collections were turned
over to Gragera because he guaranteed 100% payment of all sums loaned by
Monte Maria. Entries she made on worksheets were based on this assumptive
PARTNERSHIP- A2 ARTICLE 1769-1770
100% collection of all loans. The loan releases were made less Gragera's
agreed commission. Because of this arrangement, she neither received
payments from borrowers nor remitted any amount to Gragera. Her job was
merely to make worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey
to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.
"[Petitioner] on the other hand insisted that [respondents] were his mere
employees and not partners with respect to the agreement with Gragera. He
claimed that after he discovered Zabat's activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and Zabat.
[Petitioner] asserted that [respondents] were hired as salaried employees with
respect to the partnership between [petitioner] and Gragera.
"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she
received all payments from which Nieves deducted Gragera's commission.
The commission would then be remitted to Gragera. She likewise determined
loan releases.
"During the pre-trial, the parties narrowed the issues to the following points:
whether [respondents] were employees or partners of [petitioner], whether
[petitioner] entrusted money to [respondents] for delivery to Gragera,
whether the P1,555,068.70 claimed under the complaint was actually
remitted to Gragera and whether [respondents] were entitled to their
counterclaim for share in the profits."7
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents were
partners, not mere employees, of petitioner. It further ruled that Gragera was
only a commission agent of petitioner, not his partner. Petitioner moreover
failed to prove that he had entrusted any money to Nieves. Thus, respondents'
counterclaim for their share in the partnership and for damages was granted.
The trial court disposed as follows:
"39. WHEREFORE, the Court hereby renders judgment as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is
DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the
22
 [Respondent] NIEVES S. REYES, the following: common venture, petitioner invested capital while respondents contributed
industry or services, with the intention of sharing in the profits of the
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES S.
business.
REYES in the profits of her joint venture with the
[petitioner].
The CA disbelieved petitioner's claim that Nieves had misappropriated a total
39.2.2. Six(6) percent of - As damages from August 3, 1987 until the of P200,000 which was supposed to be delivered to Gragera to cover unpaid
P3,064,428.00 P3,064,428.00 is fully paid. commissions. It was his task to collect the amounts due, while hers was
39.2.3. P50,000.00 - As moral damages merely to prepare the daily cash flow reports (Exhs. "15-
15DDDDDDDDDD") to keep track of his collections.
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the Hence, this Petition.9
[respondent] ARSENIO REYES, the following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the Issue
[respondent] ARSENIO REYES in the profits of his
joint venture with the [petitioner]. Petitioner asks this Court to rule on the following issues: 10
39.3.2. Six(6) percent of - As damages from August 3, 1987 until the
P2,899,739.50 P2,899,739.50 is fully paid. "Whether or not Respondent Court of Appeals acted with grave abuse of
discretion tantamount to excess or lack of jurisdiction in:
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages 1. Holding that private respondents were partners/joint venturers and not
39.4. The [petitioner] FERNANDO J. SANTOS is ordered employees of Santos in connection with the agreement between Santos and
to pay the [respondents]: Monte Maria/Gragera;
39.4.1. P50,000.00 - As attorney's fees; and
2. Affirming the findings of the trial court that the phrase 'Received by' on
39.4.2. The cost of the suit."8 documents signed by Nieves Reyes signified receipt of copies of the
documents and not of the sums shown thereon;
Ruling of the Court of Appeals
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;
On appeal, the Decision of the trial court was upheld, and the counterclaim of
respondents was dismissed. Upon the latter's Motion for Reconsideration, 4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of
however, the trial court's Decision was reinstated in toto. Subsequently, P200,000.00 for delivery to Gragera;
petitioner's own Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998. 5 Affirming the dismissal of Santos' [Second] Amended Complaint;

The CA ruled that the following circumstances indicated the existence of a 6. Affirming the decision of the trial court, upholding private respondents'
partnership among the parties: (1) it was Nieves who broached to petitioner counterclaim;
the idea of starting a money-lending business and introduced him to Gragera;
(2) Arsenio received "dividends" or "profit-shares" covering the period July 7. Denying Santos' motion for reconsideration dated September 11, 1998."
15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract was
executed after the Agreement with Gragera and petitioner and thus showed
the parties' intention to consider it as a transaction of the partnership. In their
PARTNERSHIP- A2 ARTICLE 1769-1770 23
Succinctly put, the following were the issues raised by petitioner: (1) whether
the parties' relationship was one of partnership or of employer employee; (2)
whether Nieves misappropriated the sums of money allegedly entrusted to
her for delivery to Gragera as his commissions; and (3) whether respondents
were entitled to the partnership profits as determined by the trial court.
The Court's Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in
the money-lending venture with Gragera, with Nieves as bookkeeper and
Arsenio as credit investigator. That Nieves introduced Gragera to Santos did
not make her a partner. She was only a witness to the Agreement between the
two. Separate from the partnership between petitioner and Gragera was that
which existed among petitioner, Nieves and Zabat, a partnership that was
dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioner's
contentions and ruled that the business relationship was one of partnership.
We quote from the CA Decision, as follows:
"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself
provided the initiative in the lending activities with Monte Maria. In
consonance with the agreement between appellant, Nieves and Zabat (later
replaced by Arsenio), [respondents] contributed industry to the common fund
with the intention of sharing in the profits of the partnership. [Respondents]
provided services without which the partnership would not have [had] the
wherewithal to carry on the purpose for which it was organized and as such
[were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA
416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat
was technically dissolved by the expulsion of Zabat therefrom, the remaining
partners simply continued the business of the partnership without undergoing
the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to
dissolve the earlier partnership. The partnership between [petitioner,] Nieves
PARTNERSHIP- A2 ARTICLE 1769-1770
and Arsenio simply took over and continued the business of the former
partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.
xxx - xxx - xxx
"Gragera and [petitioner] were not partners. The money-lending activities
undertaken with Monte Maria was done in pursuit of the business for which
the partnership between [petitioner], Nieves and Zabat (later Arsenio) was
organized. Gragera who represented Monte Maria was merely paid
commissions in exchange for the collection of loans. The commissions were
fixed on gross returns, regardless of the expenses incurred in the operation of
the business. The sharing of gross returns does not in itself establish a
partnership."11
We agree with both courts on this point. By the contract of partnership, two
or more persons bind themselves to contribute money, property or industry to
a common fund, with the intention of dividing the profits among
themselves.12 The "Articles of Agreement" stipulated that the signatories
shall share the profits of the business in a 70-15-15 manner, with petitioner
getting the lion's share.13 This stipulation clearly proved the establishment of
a partnership.
We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte Maria
Community Development Group, Inc., which later on changed its business
name to Private Association for Community Development, Inc. (PACDI).
Nieves was not merely petitioner's employee. She discharged her
bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement,
which states as follows:
"2. That the SECOND PARTY and THIRD PARTY shall handle the
solicitation and screening of prospective borrowers, and shall x x x each be
responsible in handling the collection of the loan payments of the borrowers
that they each solicited.
"3. That the bookkeeping and daily balancing of account of the business
operation shall be handled by the SECOND PARTY." 14
The "Second Party" named in the Agreement was none other than Nieves
Reyes. On the other hand, Arsenio's duties as credit investigator are
24
subsumed under the phrase "screening of prospective borrowers." Because of
this Agreement and the disbursement of monthly "allowances" and "profit
shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual finding of
both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending
business, despite the fact that it was formalized only after the Memorandum
of Agreement had been signed by petitioner and Gragera. Contrary to
petitioner's contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6,
1986, or about a month after the Memorandum had been signed by petitioner
and Gragera on July 14, 1986. The Agreement itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their
business relationship in order that their respective interests may be properly
defined and established for their mutual benefit and understanding." 15
Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money
intended for Gragera's commission. According to him, Gragera remitted his
daily collection to Nieves. This is shown by Exhibit "B." (the "Schedule of
Daily Payments"), which bears her signature under the words "received by."
For the period July 1986 to March 1987, Gragera should have earned a total
commission of P4,282,429.30. However, only P3,068,133.20 was received
by him. Thus, petitioner infers that she misappropriated the difference of
P1,214,296.10, which represented the unpaid commissions. Exhibit "H." is
an untitled tabulation which, according to him, shows that Gragera was also
entitled to a commission of P200,000, an amount that was never delivered by
Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show
that Nieves received for delivery to Gragera any amount from which the
P1,214,296.10 unpaid commission was supposed to come, and that such
exhibits were insufficient proof that she had embezzled P200,000. Said the
CA:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger'
does not clearly establish that Nieves received amounts from Monte Maria's
members. The document does not clearly state what amounts the entries
PARTNERSHIP- A2 ARTICLE 1769-1770
thereon represent. More importantly, Nieves made the entries for the limited
period of January 11, 1987 to February 17, 1987 only while the rest were
made by Gragera's own staff.
"Neither can we give probative value to Exhibit 'E' which allegedly shows
acknowledgment of the remittance of commissions to Verona Gonzales. The
document is a private one and its due execution and authenticity have not
been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court
which states:
'SECTION 20. Proof of Private Document Before any private document
offered as authentic is received in evidence, its due execution and
authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the
maker.
'Any other private document need only be identified as that which it is
claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery, as it
found that:
'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that it
is a forgery. The initial stroke of Exh. E-1 starts from up and goes downward.
The initial stroke of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1,
among others) starts from below and goes upward. This difference in the start
of the initial stroke of the signatures Exhs. E-1 and of the genuine signatures
lends credence to Nieves' claim that the signature Exh. E-1 is a forgery.'
xxx - xxx - xxx
"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F')
were based on the predetermined 100% collection as guaranteed by Gragera
is credible and clearly in accord with the evidence. A perusal of Exhs. "B"
and "F" as well as Exhs. '15' to 15-DDDDDDDDDD' reveal that the entries
were indeed based on the 100% assumptive collection guaranteed by
Gragera. Thus, the total amount recorded on Exh. 'B' is exactly the number of
25
borrowers multiplied by the projected collection of P150.00 per borrower.
This holds true for Exh. 'F.'
"Corollarily, Nieves' explanation that the documents were pro forma and that
she signed them not to signify that she collected the amounts but that she
received the documents themselves is more believable than [petitioner's]
assertion that she actually handled the amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally
establish that x x x Nieves received P200,000.00 as commission for Gragera.
As correctly stated by the court a quo, the document showed a liquidation
of P240.000 00 and not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all
collections were made by Gragera believable and worthy of credence. Since
Gragera guaranteed a daily 100% payment of the loans, he took charge of the
collections. As [petitioner's] representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15
DDDDDDDDDD') to enable [petitioner] to keep track of Gragera's
operations. Gragera on the other hand devised the schedule of daily payment
(Exhs. 'B' and 'F') to record the projected gross daily collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS' version would
have given rise to this improbable situation: GRAGERA would collect the
daily amortizations and then give them to NIEVES; NIEVES would get
GRAGERA's commissions from the amortizations and then give such
commission to GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we quote
below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter
received P200,000.00 for delivery to GRAGERA. Exh. H shows under its
sixth column 'ADDITIONAL CASH' that the additional cash was
P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by
PARTNERSHIP- A2 ARTICLE 1769-1770
SANTOS, then his claim is not true. This is so because it is a liquidation of
the sum of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give the
P200,000.00 to GRAGERA when he received the latter's letter complaining
of its delayed release. Assuming as true SANTOS' claim that he gave
P200,000.00 to GRAGERA, there is no competent evidence that NIEVES
did not give it to GRAGERA. The only proof that NIEVES did not give it is
the letter. But SANTOS did not even present the letter in evidence. He did
not explain why he did not.
"21.2. The evidence shows that all money transactions of the money-lending
business of SANTOS were covered by petty cash vouchers. It is therefore
strange why SANTOS did not present any voucher or receipt covering the
P200,000.00."18
In sum, the lower courts found it unbelievable that Nieves had embezzled
P1,555,068.70 from the partnership. She did not remit P1,214,296.10 to
Gragera, because he had deducted his commissions before remitting his
collections. Exhibits "B" and "F" are merely computations of what Gragera
should collect for the day; they do not show that Nieves received the amounts
stated therein. Neither is there sufficient proof that she misappropriated
P200,000, because Exhibit "H." does not indicate that such amount was
received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual
findings is warranted. Well-entrenched is the basic rule that factual findings
of the Court of Appeals affirming those of the trial court are binding and
conclusive on the Supreme Court.19 Although there are exceptions to this
rule, petitioner has not satisfactorily shown that any of them is applicable to
this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the
partnership. He maintains that "both business propositions were flops," as his
investments were "consumed and eaten up by the commissions orchestrated
to be due Gragera" a situation that "could not have been rendered possible
without complicity between Nieves and Gragera."
26
Respondent spouses, on the other hand, postulate that petitioner instituted the
action below to avoid payment of the demands of Nieves, because sometime
in March 1987, she "signified to petitioner that it was about time to get her
share of the profits which had already accumulated to some P3 million."
Respondents add that while the partnership has not declared dividends or
liquidated its earnings, the profits are already reflected on paper. To prove the
counterclaim of Nieves, the spouses show that from June 13, 1986 up to
April 19, 1987, the profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et
seq.). Based on that income, her 15 percent share under the joint venture
amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus the
P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6,
6-A to 6-B").
The CA originally held that respondents' counterclaim was premature,
pending an accounting of the partnership. However, in its assailed Resolution
of August 17, 1998, it turned volte face. Affirming the trial court's ruling on
the counterclaim, it held as follows:
"We earlier ruled that there is still need for an accounting of the profits and
losses of the partnership before we can rule with certainty as to the respective
shares of the partners. Upon a further review of the records of this case,
however, there appears to be sufficient basis to determine the amount of
shares of the parties and damages incurred by [respondents]. The fact is that
the court a quo already made such a determination [in its] decision dated
August 13, 1991 on the basis of the facts on record."20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their share in the
profits of their joint venture with SANTOS is supported by the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is based on
the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the working
papers (Exhs. 10 to 10-I, inclusive) which she prepared. Exhs. 10 to 10-I
(inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-
D(10) were given to SANTOS. The joint venture had a net profit of
P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to
April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.
PARTNERSHIP- A2 ARTICLE 1769-1770
"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending
business he was engaged in netted a profit and that the originals of the daily
case flow reports were furnished to him. SANTOS however alleged that the
money-lending operation of his joint venture with NIEVES and ZABAT
resulted in a loss of about half a million pesos to him. But such loss, even if
true, does not negate NIEVES' claim that overall, the joint venture among
them SANTOS, NIEVES and ARSENIO netted a profit. There is no reason
for the Court to doubt the veracity of [the testimony of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share in the
profits (Exhs. 6, 6-A and 6-B) should be deducted from his total share." 21
After a close examination of respondents' exhibits, we find reason to disagree
with the CA. Exhibit "10-I"22shows that the partnership earned a "total
income" of P20,429,520 for the period June 13, 1986 until April 19, 1987.
This entry is derived from the sum of the amounts under the following
column headings: "2-Day Advance Collection," "Service Fee," "Notarial
Fee," "Application Fee," "Net Interest Income" and "Interest Income on
Investment." Such entries represent the collections of the money-lending
business or its gross income.
The "total income" shown on Exhibit "10-I" did not consider the expenses
sustained by the partnership. For instance, it did not factor in the "gross loan
releases" representing the money loaned to clients. Since the business is
money-lending, such releases are comparable with the inventory or supplies
in other business enterprises.
Noticeably missing from the computation of the "total income" is the
deduction of the weekly allowance disbursed to respondents. Exhibits "I" et
seq. and "J" et seq.23 show that Arsenio received allowances from July 19,
1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves,
from July 12, 1986 to March 27, 1987, in the total amount of P25,600. These
allowances are different from the profit already received by Arsenio. They
represent expenses that should have been deducted from the business profits.
The point is that all expenses incurred by the money-lending enterprise of the
parties must first be deducted from the "total income" in order to arrive at the
"net profit" of the partnership. The share of each one of them should be based
on this "net profit" and not from the "gross income" or "total income"
reflected in Exhibit "10-I," which the two courts invariably referred to as
"cash flow" sheets.
27
Similarly, Exhibits "15" et seq., 24 which are the "Daily Cashflow Reports," do
not reflect the business expenses incurred by the parties, because they show
only the daily cash collections. Contrary to the rulings of both the trial and
the appellate courts, respondents' exhibits do not reflect
the complete financial condition of the money-lending business. The lower
courts obviously labored over a mistaken notion that Exhibit " 10-I-1"
represented the "net profits" earned by the partnership.

For the purpose of determining the profit that should go to an industrial

partner (who shares in the profits but is not liable for the losses), the gross
income from all the transactions carried on by the firm must be added
together, and from this sum must be subtracted the expenses or the losses
sustained in the business. Only in the difference representing the net profits
does the industrial partner share. But if, on the contrary, the losses exceed the
income, the industrial partner does not share in the losses. 25

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

failure to notice certain relevant facts that would otherwise justify a different
conclusion, as in this particular issue, a review of its factual findings may be
conducted, as an exception to the general rule applied to the first two issues. 26

The trial court has the advantage of observing the witnesses while they are
testifying, an opportunity not available to appellate courts. Thus, its
assessment of the credibility of witnesses and their testimonies are accorded
great weight, even finality, when supported by substantial evidence; more so
when such assessment is affirmed by the CA. But when the issue involves
the evaluation of exhibits or documents that are attached to the case records,
as in the third issue, the rule may be relaxed. Under that situation, this Court
has a similar opportunity to inspect, examine and evaluate those records,
independently of the lower courts. Hence, we deem the award of the
partnership share, as computed by the trial court and adopted by the CA, to
be incomplete and not binding on this Court.
[6]
WHEREFORE, the Petition is partly GRANTED. The assailed November
28, 1997 Decision is AFFIRMED, but the challenged Resolutions dated
August 17, 1998 and October 9, 1998 are REVERSED and SET ASIDE. No G.R. No. 172690 March 3, 2010
costs.
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,
SO ORDERED. vs.
JULIET VILLA LIM, Respondent.

PARTNERSHIP- A2 ARTICLE 1769-1770 28

DECISION NACHURA, J.:
Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Civil Procedure, assailing the Court of Appeals (CA)
Decision2 dated June 29, 2005, which reversed and set aside the decision 3 of
the Regional Trial Court (RTC) of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda,
Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito
Lim (Elenito). They filed a Complaint 4 for Partition, Accounting and
Damages against respondent Juliet Villa Lim (respondent), widow of the late
Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends
Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to
engage in the trucking business. Initially, with a contribution of ₱50,000.00
each, they purchased a truck to be used in the hauling and transport of lumber
of the sawmill. Jose managed the operations of this trucking business until
his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and
partners agreed to continue the business under the management of Elfledo.
The shares in the partnership profits and income that formed part of the estate
of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to
use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his father’s driver in the trucking business. He was never
a partner or an investor in the business and merely supervised the purchase of
additional trucks using the income from the trucking business of the partners.
By the time the partnership ceased, it had nine trucks, which were all
registered in Elfledo's name. Petitioners asseverated that it was also through
Elfledo’s management of the partnership that he was able to purchase
numerous real properties by using the profits derived therefrom, all of which
were registered in his name and that of respondent. In addition to the nine
trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the
PARTNERSHIP- A2 ARTICLE 1769-1770
aforementioned properties, which belonged to the estate of Jose, without
their consent and approval. Claiming that they are co-owners of the
properties, petitioners required respondent to submit an accounting of all
income, profits and rentals received from the estate of Elfledo, and to
surrender the administration thereof. Respondent refused; thus, the filing of
this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was
himself a partner of Norberto and Jimmy. Respondent also claimed that per
testimony of Cresencia, sometime in 1980, Jose gave Elfledo ₱50,000.00 as
the latter's capital in an informal partnership with Jimmy and Norberto.
When Elfledo and respondent got married in 1981, the partnership only had
one truck; but through the efforts of Elfledo, the business flourished. Other
than this trucking business, Elfledo, together with respondent, engaged in
other business ventures. Thus, they were able to buy real properties and to
put up their own car assembly and repair business. When Norberto was
ambushed and killed on July 16, 1993, the trucking business started to falter.
When Elfledo died on May 18, 1995 due to a heart attack, respondent talked
to Jimmy and to the heirs of Norberto, as she could no longer run the
business. Jimmy suggested that three out of the nine trucks be given to him
as his share, while the other three trucks be given to the heirs of Norberto.
However, Norberto's wife, Paquita Uy, was not interested in the vehicles.
Thus, she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his demise.
Respondent also stressed that Jose left no properties that Elfledo could have
held in trust. Respondent maintained that all the properties involved in this
case were purchased and acquired through her and her husband’s joint efforts
and hard work, and without any participation or contribution from petitioners
or from Jose. Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an accounting for
the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision
in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
29
 1) Ordering the partition of the above-mentioned properties equally
between the plaintiffs and heirs of Jose Lim and the defendant Juliet
Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes,
profits and rentals received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted, petitioners
filed their Motion for Reconsideration,5 which the CA, however, denied in its
Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE
SUBMITTED BY THE PARTIES, CAN THE TESTIMONY OF ONE OF
THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE
OTHER PARTNERS IN THE PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of Jimmy, the
sole surviving partner, Elfledo was not a partner; and that he and Norberto
entered into a partnership with Jose. Thus, the CA erred in not giving that
testimony greater weight than that of Cresencia, who was merely the spouse
of Jose and not a party to the partnership.8
Respondent counters that the issue raised by petitioners is not proper in a
petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review, evaluation, calibration, and re-
weighing of the factual findings of the CA. Moreover, respondent invokes
the rationale of the CA decision that, in light of the admissions of Cresencia
and Edison and the testimony of respondent, the testimony of Jimmy was
effectively refuted; accordingly, the CA's reversal of the RTC's findings was
fully justified.9
We resolve first the procedural matter regarding the propriety of the instant
Petition.
PARTNERSHIP- A2 ARTICLE 1769-1770
Verily, the evaluation and calibration of the evidence necessarily involves
consideration of factual issues — an exercise that is not appropriate for a
petition for review on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the Supreme Court is not a
trier of facts. Generally, we are not duty-bound to analyze again and weigh
the evidence introduced in and considered by the tribunals below. 10 When
supported by substantial evidence, the findings of fact of the CA are
conclusive and binding on the parties and are not reviewable by this Court,
unless the case falls under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on
speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or
impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a 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 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 facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the
respondents; and
(10) When the findings of fact of the Court of Appeals are premised
on the supposed absence of evidence and contradicted by the
evidence on record.11
30
We note, however, that the findings of fact of the RTC are contrary to those
of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses among them. A contract of partnership is defined by the Civil Code 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.12
Undoubtedly, the best evidence would have been the contract of partnership
or the articles of partnership. Unfortunately, there is none in this case,
because the alleged partnership was never formally organized. Nonetheless,
we are asked to determine who between Jose and Elfledo was the "partner" in
the trucking business.
A careful review of the records persuades us to affirm the CA decision. The
evidence presented by petitioners falls short of the quantum of proof required
to establish that: (1) Jose was the partner and not Elfledo; and (2) all the
properties acquired by Elfledo and respondent form part of the estate of Jose,
having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one
piece of evidence against respondent. It must be considered and weighed
along with petitioners' other evidence vis-à-vis respondent's contrary
evidence. In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. "Preponderance of evidence" is the
weight, credit, and value of the aggregate evidence on either side and is
usually considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence." "Preponderance of
evidence" is a phrase that, in the last analysis, means probability of the truth.
It is evidence that is more convincing to the court as worthy of belief than
that which is offered in opposition thereto. 13 Rule 133, Section 1 of the Rules
of Court provides the guidelines in determining preponderance of evidence,
thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the
party having burden of proof must establish his case by a preponderance of
PARTNERSHIP- A2 ARTICLE 1769-1770
evidence. In determining where the preponderance or superior weight of
evidence on the issues involved lies, the court may consider all the facts and
circumstances of the case, the witnesses' manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they
are testifying, the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of interest, and also
their personal credibility so far as the same may legitimately appear upon the
trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is
enlightening. Therein, we cited Article 1769 of the Civil Code, which
provides:
Art. 1769. 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 from 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 installments 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;
31
 (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.
Applying the legal provision to the facts of this case, the following
circumstances tend to prove that Elfledo was himself the partner of Jimmy
and Norberto: 1) Cresencia testified that Jose gave Elfledo ₱50,000.00, as
share in the partnership, on a date that coincided with the payment of the
initial capital in the partnership;15 (2) Elfledo ran the affairs of the
partnership, wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners herein; 16 (3) all
of the properties, particularly the nine trucks of the partnership, were
registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not
receive wages or salaries from the partnership, indicating that what he
actually received were shares of the profits of the business; 17 and (5) none of
the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs
of Tan Eng Kee,18 a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real
and personal properties acquired and registered in the names of Elfledo and
respondent formed part of the estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses.
Edison even admitted that Elfledo also sold Interwood lumber as a
sideline.19 Petitioners could not offer any credible evidence other than their
bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight. 20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of
the partners in the trucking business, active and visible in the running of its
affairs from day one until this ceased operations upon his demise. The extent
of his control, administration and management of the partnership and its
business, the fact that its properties were placed in his name, and that he was
not paid salary or other compensation by the partners, are indicative of the
fact that Elfledo was a partner and a controlling one at that. It is apparent that
PARTNERSHIP- A2 ARTICLE 1769-1770
the other partners only contributed in the initial capital but had no say
thereafter on how the business was ran. Evidently it was through Elfredo’s
efforts and hard work that the partnership was able to acquire more trucks
and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.1avvphi1
It is notable too that Jose Lim died when the partnership was barely a year
old, and the partnership and its business not only continued but also
flourished. If it were true that it was Jose Lim and not Elfledo who was the
partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done
but instead its operation continued under the helm of Elfledo and without any
participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was
through their own concerted efforts and hard work. Elfledo did not limit
himself to the business of their partnership but engaged in other lines of
businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the
CA as they are amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of
Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against
petitioners.
SO ORDERED.
[7]
G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
vs.
32
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-
appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956
and the order of May 21, 1956, all of the Court of First Instance of Davao, in
civil case 629. The basic action is for specific performance, and damages
resulting from an alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of
swampy land in the then Sitio of Malalag (now the Municipality of Malalag),
Municipality of Padada, Davao. No action was taken thereon by the
authorities concerned. During the Japanese occupation, he filed another
fishpond application for the same area, but because of the conditions then
prevailing, it was not acted upon either. On December 12, 1945 he filed a
third fishpond application for the same area, which, after a survey, was found
to contain 178.76 hectares. Upon investigation conducted by a representative
of the Bureau of Forestry, it was discovered that the area applied for was still
needed for firewood production. Hence on May 13, 1946 this third
application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised
by the district forester of Davao City that no further action would be taken on
his motion, unless he filed a new application for the area concerned. So he
filed on May 27, 1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for
portions of the area covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202
covering 10 hectares of land found inside the area applied for by Casteel; he
was later granted fishpond permit F-289-C covering 9.3 hectares certified as
available for fishpond purposes by the Bureau of Forestry.
PARTNERSHIP- A2 ARTICLE 1769-1770
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a
portion of the land applied for by Casteel. Alejandro Cacam's fishpond
application 1276, filed on December 26, 1946, was given due course on
December 9, 1947 with the issuance to him of fishpond permit F-539-C to
develop 30 hectares of land comprising a portion of the area applied for by
Casteel, upon certification of the Bureau of Forestry that the area was
likewise available for fishpond purposes. On November 17, 1948 Felipe
Deluao filed his own fishpond application for the area covered by Casteel's
application.
Because of the threat poised upon his position by the above applicants who
entered upon and spread themselves within the area, Casteel realized the
urgent necessity of expanding his occupation thereof by constructing dikes
and cultivating marketable fishes, in order to prevent old and new squatters
from usurping the land. But lacking financial resources at that time, he
sought financial aid from his uncle Felipe Deluao who then extended loans
totalling more or less P27,000 with which to finance the needed
improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were
already occupied by rival applicants, Casteel immediately filed the
corresponding protests. Consequently, two administrative cases ensued
involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No.
661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp.
A. No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-
B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp.
Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above
administrative cases that Casteel had already introduced improvements on
portions of the area applied for by him in the form of dikes, fishpond gates,
clearings, etc., the Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all the
improvements which he had introduced on the land, and ordered that the land
be leased through public auction. Failing to secure a favorable resolution of
his motion for reconsideration of the Director's order, Casteel appealed to the
Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they
will be taken up in our discussion of the appellant's third assignment of error.
33
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of
the first part, and Nicanor Casteel as party of the second part, executed a
contract — denominated a "contract of service" — the salient provisions of
which are as follows:
That the Party of the First Part in consideration of the mutual
covenants and agreements made herein to the Party of the Second
Part, hereby enter into a contract of service, whereby the Party of the
First Part hires and employs the Party of the Second Part on the
following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby
financed the sum of TWENTY SEVEN THOUSAND PESOS
(P27,000.00), Philippine Currency, to the Party of the Second Part
who renders only his services for the construction and improvements
of a fishpond at Barrio Malalag, Municipality of Padada, Province of
Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer
of all the produce of the fish that will be produced from said
fishpond;
That the Party of the First Part will be the administrator of the same
she having financed the construction and improvement of said
fishpond;
That this contract was the result of a verbal agreement entered into
between the Parties sometime in the month of November, 1947, with
all the above-mentioned conditions enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao
executed a special power of attorney in favor of Jesus Donesa, extending to
the latter the authority "To represent me in the administration of the fishpond
at Malalag, Municipality of Padada, Province of Davao, Philippines, which
has been applied for fishpond permit by Nicanor Casteel, but rejected by the
Bureau of Fisheries, and to supervise, demand, receive, and collect the value
of the fish that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application
filed by Felipe Deluao on November 17, 1948. Unfazed by this rejection,
Deluao reiterated his claim over the same area in the two administrative
PARTNERSHIP- A2 ARTICLE 1769-1770
cases (DANR Cases 353 and 353-B) and asked for reinvestigation of the
application of Nicanor Casteel over the subject fishpond. However, by letter
dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and
Natural Resources (now Secretary of Agriculture and Natural Resources),
Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources
issued a decision in DANR Case 353, the dispositive portion of which reads
as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp.
A. No. 1717) of Nicanor Casteel should be, as hereby it is, reinstated
and given due course for the area indicated in the sketch drawn at the
back of the last page hereof; and Fp. A. No. 762 of Victorio D.
Carpio shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B,
the dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos
and Fishpond Permit No. F-539-C of Alejandro Cacam, should be, as
they are hereby cancelled and revoked; Nicanor Casteel is required
to pay the improvements introduced thereon by said permittees in
accordance with the terms and dispositions contained elsewhere in
this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from
further administering the fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between
Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao
on April 3, 1951 filed an action in the Court of First Instance of Davao for
specific performance and damages against Nicanor Casteel and Juan Depra
(who, they alleged, instigated Casteel to violate his contract), praying inter
alia, (a) that Casteel be ordered to respect and abide by the terms and
conditions of said contract and that Inocencia Deluao be allowed to continue
administering the said fishpond and collecting the proceeds from the sale of
the fishes caught from time to time; and (b) that the defendants be ordered to
pay jointly and severally to plaintiffs the sum of P20,000 in damages.
34
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a
preliminary injunction, praying among other things, that during the pendency
of the case and upon their filling the requisite bond as may be fixed by the
court, a preliminary injunction be issued to restrain Casteel from doing the
acts complained of, and that after trial the said injunction be made
permanent. The lower court on April 26, 1951 granted the motion, and, two
days later, it issued a preliminary mandatory injunction addressed to Casteel,
the dispositive portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden,
usted, el demandado y todos usu abogados, agentes, mandatarios y
demas personas que obren en su ayuda, desista de impedir a la
demandante Inocencia R. Deluao que continue administrando
personalmente la pesqueria objeto de esta causa y que la misma
continue recibiendo los productos de la venta de los pescados
provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho
demandado Nicanor Casteel a desahuciar mediante fuerza al
encargado de los demandantes llamado Jesus Donesa de la pesqueria
objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging
among others, that he was the owner, lawful applicant and occupant of the
fishpond in question. This motion, opposed by the plaintiffs on June 15,
1951, was denied by the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim,
amended on January 8, 1952, denying the material averments of the
plaintiffs' complaint. A reply to the defendants' amended answer was filed by
the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint
as to him. On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the
ground that the plaintiffs' complaint failed to state a claim upon which relief
may be granted. The motion, opposed by the plaintiffs on October 12, 1951,
was denied for lack of merit by the lower court in its order of October 22,
1951. The defendants' motion for reconsideration filed on October 31, 1951
suffered the same fate when it was likewise denied by the lower court in its
order of November 12, 1951.
PARTNERSHIP- A2 ARTICLE 1769-1770
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A.
Fernandez) finally issued on March 21, 1956 an order in open court, reading
as follows: .
Upon petition of plaintiffs, without any objection on the part of
defendants, the hearing of this case is hereby transferred to May 2
and 3, 1956 at 8:30 o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this
Court will not entertain any other transfer of hearing of this case and
if the parties will not be ready on that day set for hearing, the court
will take the necessary steps for the final determination of this case.
(emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated
April 21, 1956, issued by the office of the Clerk of Court (thru the special
deputy Clerk of Court) of the Court of First Instance of Davao, setting the
hearing of the case for May 2 and 3, 1956 before Judge Amador Gomez of
Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for
postponement. Acting on this motion, the lower court (Branch II, presided by
Judge Gomez) issued an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for
May 2 and 3, 1956. The motion is filed by the counsel for the
defendants and has the conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was
initiated as early as April 1951 and that the same has been under
advisement of the Honorable Enrique A. Fernandez, Presiding Judge
of Branch No. I, since September 24, 1953, and that various
incidents have already been considered and resolved by Judge
Fernandez on various occasions. The last order issued by Judge
Fernandez on this case was issued on March 21, 1956, wherein he
definitely states that the Court will not entertain any further
postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that
the consideration and termination of any incident referring to this
case should be referred back to Branch I, so that the same may be
disposed of therein. (emphasis supplied)
35
A copy of the abovequoted order was served on the defendants' counsel on
May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court
(Branch I, with Judge Fernandez presiding), when informed about the
defendants' motion for postponement filed on April 26, 1956, issued an order
reiterating its previous order handed down in open court on March 21, 1956
and directing the plaintiffs to introduce their evidence ex parte, there being
no appearance on the part of the defendants or their counsel. On the basis of
the plaintiffs' evidence, a decision was rendered on May 4, 1956 the
dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los
demandantes y en contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el
demandado;
(b) Ordena al demandado entregue la demandante la posesion y
administracion de la mitad (½) del "fishpond" en cuestion con todas
las mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de
P200.00 mensualmente en concepto de danos a contar de la fecha de
la expiracion de los 30 dias de la promulgacion de esta decision hasta
que entregue la posesion y administracion de la porcion del
"fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de
P2,000.00 valor de los pescado beneficiados, mas los intereses
legales de la fecha de la incoacion de la demanda de autos hasta el
completo pago de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de
P2,000.00, por gastos incurridos por aquella durante la pendencia de
esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de
honorarios, la suma de P2,000.00;
PARTNERSHIP- A2 ARTICLE 1769-1770
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de
pruebas, en tanto en cuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados
por falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting
the case for trial. The petition, however, was denied by the lower court in its
order of May 21, 1956, the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court
whether the trial of this case has been transferred or not, but to
inquire from the presiding Judge, particularly because his motion
asking the transfer of this case was not set for hearing and was not
also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March
21, 1956, which reads as follows:
Upon petition of the plaintiff without any objection on the
part of the defendants, the hearing of this case is hereby
transferred to May 2 and 3, 1956, at 8:30 o'clock in the
morning.
This case was filed on April 3, 1951, and under any
circumstance this Court will not entertain any other transfer
of the hearing of this case, and if the parties will not be ready
on the day set for hearing, the Court will take necessary
steps for the final disposition of this case.
In view of the order above-quoted, the Court will not accede to any
transfer of this case and the duty of Atty. Ruiz is no other than to be
present in the Sala of this Court and to call the attention of the same
to the existence of his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the
defendant, not well taken, the same is hereby denied.
36
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals
which certified the case to us for final determination on the ground that it
involves only questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion
when it ordered reception of the appellees' evidence in the absence of
the appellant at the trial on May 2, 1956, thus depriving the appellant
of his day in court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of discretion
when it denied the verified petition for relief from judgment filed by
the appellant on May 11, 1956 in accordance with Rule 38, Rules of
Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of
a writ of preliminary injunction against defendant-appellant, and in
not dismissing appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March
21, 1956, the lower court set the case for hearing on May 2 and 3, 1956 at
8:30 o'clock in the morning and empathically stated that, since the case had
been pending since April 3, 1951, it would not entertain any further motion
for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very
date and time of promulgation,1 and amounts to a legal notification for all
legal purposes.2 The order of March 21, 1956, given in open court, was a
valid notice to the parties, and the notice of hearing dated April 21, 1956 or
one month thereafter, was a superfluity. Moreover, as between the order of
March 21, 1956, duly promulgated by the lower court, thru Judge Fernandez,
and the notice of hearing signed by a "special deputy clerk of court" setting
the hearing in another branch of the same court, the former's order was the
one legally binding. This is because the incidents of postponements and
adjournments are controlled by the court and not by the clerk of court,
pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of the Rules of Court.
PARTNERSHIP- A2 ARTICLE 1769-1770
Much less had the clerk of court the authority to interfere with the order of
the court or to transfer the cage from one sala to another without authority or
order from the court where the case originated and was being tried. He had
neither the duty nor prerogative to re-assign the trial of the case to a different
branch of the same court. His duty as such clerk of court, in so far as the
incident in question was concerned, was simply to prepare the trial calendar.
And this duty devolved upon the clerk of court and not upon the "special
deputy clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of
the appellees' counsel. The postponement of hearings does not depend upon
agreement of the parties, but upon the court's discretion. 3
The record further discloses that Casteel was represented by a total of 12
lawyers, none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz
of the order dated March 21, 1956 intransferably setting the case for hearing
for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven
other counsel of record. This is a well-settled rule in our jurisdiction. 4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding
the appellant himself, to appear before Judge Fernandez on the scheduled
dates of hearing Parties and their lawyers have no right to presume that their
motions for postponement will be granted.5 For indeed, the appellant and his
12 lawyers cannot pretend ignorance of the recorded fact that since
September 24, 1953 until the trial held on May 2, 1956, the case was under
the advisement of Judge Fernandez who presided over Branch I. There was,
therefore, no necessity to "re-assign" the same to Branch II because Judge
Fernandez had exclusive control of said case, unless he was legally inhibited
to try the case — and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of
court — not of the Court — to prepare the trial calendar. But the assignment
or reassignment of cases already pending in one sala to another sala, and the
setting of the date of trial after the trial calendar has been prepared, fall
within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956,
the office of the clerk of court of the Court of First Instance of Davao was
located directly below Branch I. If the appellant and his counsel had
exercised due diligence, there was no impediment to their going upstairs to
the second storey of the Court of First Instance building in Davao on May 2,
37
1956 and checking if the case was scheduled for hearing in the said sala. The
appellant after all admits that on May 2, 1956 his counsel went to the office
of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice
of trial, is correct. But he was properly accorded this right. He was notified in
open court on March 21, 1956 that the case was definitely and intransferably
set for hearing on May 2 and 3, 1956 before Branch I. He cannot argue that,
pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a
timely notice of the denial of his motion for postponement. In the cited case
the motion for postponement was the first one filed by the defendant; in the
case at bar, there had already been a series of postponements. Unlike the case
at bar, the Siochi case was not intransferably set for hearing. Finally, whereas
the cited case did not spend for a long time, the case at bar was only finally
and intransferably set for hearing on March 21, 1956 — after almost five
years had elapsed from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked
ample time to prepare for trial is unacceptable because between March 21,
1956 and May 2, 1956, they had one month and ten days to do so. In effect,
the appellant had waived his right to appear at the trial and therefore he
cannot be heard to complain that he has been deprived of his property
without due process of law. 7 Verily, the constitutional requirements of due
process have been fulfilled in this case: the lower court is a competent court;
it lawfully acquired jurisdiction over the person of the defendant (appellant)
and the subject matter of the action; the defendant (appellant) was given an
opportunity to be heard; and judgment was rendered upon lawful hearing. 8
2. Finally, the appellant contends that the lower court incurred an error in
ordering the issuance ex parte of a writ of preliminary injunction against him,
and in not dismissing the appellee's complaint. We find this contention
meritorious.
Apparently, the court a quo relied on exhibit A — the so-called "contract of
service" — and the appellees' contention that it created a contract of co-
ownership and partnership between Inocencia Deluao and the appellant over
the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone
is conclusively presumed to know the law. It must be assumed, conformably
to such rule, that the parties entered into the so-called "contract of service"
PARTNERSHIP- A2 ARTICLE 1769-1770
cognizant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said
laws, it must likewise be assumed — in fairness to the parties — that they
did not intend to violate them. This view must perforce negate the appellees'
allegation that exhibit A created a contract of co-ownership between the
parties over the disputed fishpond. Were we to admit the establishment of a
co-ownership violative of the prohibitory laws which will hereafter be
discussed, we shall be compelled to declare altogether the nullity of the
contract. This would certainly not serve the cause of equity and justice,
considering that rights and obligations have already arisen between the
parties. We shall therefore construe the contract as one of partnership,
divided into two parts — namely, a contract of partnership to exploit the
fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a
contract of partnership to divide the fishpond between them after such award.
The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant
entered into the so-called "contract of service" on November 25, 1949, there
were two pending applications over the fishpond. One was Casteel's which
was appealed by him to the Secretary of Agriculture and Natural Resources
after it was disallowed by the Director of Fisheries on October 25, 1949. The
other was Felipe Deluao's application over the same area which was likewise
rejected by the Director of Fisheries on November 29, 1949, refiled by
Deluao and later on withdrawn by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources. Clearly, although the
fishpond was then in the possession of Casteel, neither he nor, Felipe Deluao
was the holder of a fishpond permit over the area. But be that as it may, they
were not however precluded from exploiting the fishpond pending resolution
of Casteel's appeal or the approval of Deluao's application over the same area
— whichever event happened first. No law, rule or regulation prohibited
them from doing so. Thus, rather than let the fishpond remain idle they
cultivated it.
The evidence preponderates in favor of the view that the initial intention of
the parties was not to form a co-ownership but to establish a partnership —
Inocencia Deluao as capitalist partner and Casteel as industrial partner — the
ultimate undertaking of which was to divide into two equal parts such portion
of the fishpond as might have been developed by the amount extended by the
plaintiffs-appellees, with the further provision that Casteel should reimburse
the expenses incurred by the appellees over one-half of the fishpond that
38
would pertain to him. This can be gleaned, among others, from the letter of
Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will
redound to your benefit because you are the ones interested in half of
the work we have done so far, besides I did not insist on our being
partners in my fishpond permit, but it was you "Tatay" Eping the one
who wanted that we be partners and it so happened that we became
partners because I am poor, but in the midst of my poverty it never
occurred to me to be unfair to you. Therefore so that each of us may
be secured, let us have a document prepared to the effect that we are
partners in the fishpond that we caused to be made here in
Balasinon, but it does not mean that you will treat me as one of your
"Bantay" (caretaker) on wage basis but not earning wages at all,
while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as "Bantay" (caretaker)
instead, do not blame me if I withdraw all my cases and be left
without even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be
drawn evidencing their partnership, the appellee Inocencia Deluao and the
appellant executed exhibit A which, although denominated a "contract of
service," was actually the memorandum of their partnership agreement. That
it was not a contract of the services of the appellant, was admitted by the
appellees themselves in their letter10 to Casteel dated December 19, 1949
wherein they stated that they did not employ him in his (Casteel's) claim but
because he used their money in developing and improving the fishpond, his
right must be divided between them. Of course, although exhibit A did not
specify any wage or share appertaining to the appellant as industrial partner,
he was so entitled — this being one of the conditions he specified for the
execution of the document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent
to divide the fishpond. In a letter,12dated March 24, 1950, the appellant
suggested that they divide the fishpond and the remaining capital, and offered
to pay the Deluaos a yearly installment of P3,000 — presumably as
reimbursement for the expenses of the appellees for the development and
improvement of the one-half that would pertain to the appellant. Two days
later, the appellee Felipe Deluao replied, 13expressing his concurrence in the
appellant's suggestion and advising the latter to ask for a reconsideration of
PARTNERSHIP- A2 ARTICLE 1769-1770
the order of the Director of Fisheries disapproving his (appellant's)
application, so that if a favorable decision was secured, then they would
divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao
saw no further need to maintain his petition for the reinvestigation of
Casteel's application. Thus by letter14 dated March 15, 1950 addressed to the
Secretary of Agriculture and Natural Resources, he withdrew his petition on
the alleged ground that he was no longer interested in the area, but stated
however that he wanted his interest to be protected and his capital to be
reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the
decisions both dated September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the
other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the
dissolution of a partnership, "... any event which makes it unlawful for the
business of the partnership to be carried on or for the members to carry it on
in partnership." The approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore several
provisions of law which made the continuation of the partnership unlawful
and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond
permit (the permittee) from transferring or subletting the fishpond granted to
him, without the previous consent or approval of the Secretary of Agriculture
and Natural Resources.15 To the same effect is Condition No. 3 of the
fishpond permit which states that "The permittee shall not transfer or sublet
all or any area herein granted or any rights acquired therein without the
previous consent and approval of this Office." Parenthetically, we must
observe that in DANR Case 353-B, the permit granted to one of the parties
therein, Leoncio Aradillos, was cancelled not solely for the reason that his
permit covered a portion of the area included in the appellant's prior fishpond
application, but also because, upon investigation, it was ascertained thru the
admission of Aradillos himself that due to lack of capital, he allowed one
Lino Estepa to develop with the latter's capital the area covered by his
39
fishpond permit F-289-C with the understanding that he (Aradillos) would be
given a share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act,
likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the
violation of this condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case: Provided, further, That nothing
contained in this section shall be understood or construed to permit
the assignment, encumbrance, or subletting of lands leased under this
Act, or under any previous Act, to persons, corporations, or
associations which under this Act, are not authorized to lease public
lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of
Agriculture and Natural Resources issued in August 1937, prohibits a transfer
or sublease unless first approved by the Director of Lands and under such
terms and conditions as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be
allowed. — If the permittee or lessee had, unless otherwise
specifically provided, held the permit or lease and actually operated
and made improvements on the area for at least one year, he/she may
request permission to sub-lease or transfer the area and
improvements under certain conditions.
(a) Transfer subject to approval. — A sub-lease or transfer shall only
be valid when first approved by the Director under such terms and
conditions as may be prescribed, otherwise it shall be null and void.
A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and
forfeiture of the bond and for granting the area to a qualified
applicant or bidder, as provided in subsection (r) of Sec. 33 of this
Order.
Since the partnership had for its object the division into two equal parts of
the fishpond between the appellees and the appellant after it shall have been
awarded to the latter, and therefore it envisaged the unauthorized transfer of
PARTNERSHIP- A2 ARTICLE 1769-1770
one-half thereof to parties other than the applicant Casteel, it was dissolved
by the approval of his application and the award to him of the fishpond. The
approval was an event which made it unlawful for the business of the
partnership to be carried on or for the members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application,
the Secretary of Agriculture and Natural Resources likewise recognized
and/or confirmed their property right to one-half of the fishpond by virtue of
the contract of service, exhibit A. But the untenability of this argument would
readily surface if one were to consider that the Secretary of Agriculture and
Natural Resources did not do so for the simple reason that he does not
possess the authority to violate the aforementioned prohibitory laws nor to
exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's
application, coupled with the foregoing prohibitory laws, was not enough to
cause the dissolution ipso facto of their partnership, succeeding events reveal
the intent of both parties to terminate the partnership by refusing to share the
fishpond with the other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao,
expressing his desire to divide the fishpond so that he could administer his
own share, such division to be subject to the approval of the Secretary of
Agriculture and Natural Resources. By letter dated December 29, 1950, 18 the
appellee Felipe Deluao demurred to Casteel's proposition because there were
allegedly no appropriate grounds to support the same and, moreover, the
conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter 19 to the appellee Felipe
Deluao wherein the former expressed his determination to administer the
fishpond himself because the decision of the Government was in his favor
and the only reason why administration had been granted to the Deluaos was
because he was indebted to them. In the same letter, the appellant forbade
Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the
fishpond. In reply thereto, Felipe Deluao wrote a letter 20 dated January 5,
1951 in which he reiterated his refusal to grant the administration of the
fishpond to the appellant, stating as a ground his belief "that only the
competent agencies of the government are in a better position to render any
equitable arrangement relative to the present case; hence, any action we may
privately take may not meet the procedure of legal order."
40
Inasmuch as the erstwhile partners articulated in the aforecited letters their
respective resolutions not to share the fishpond with each other — in direct
violation of the undertaking for which they have established their partnership
— each must be deemed to have expressly withdrawn from the partnership,
thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code
which provides, inter alia, that dissolution is caused "by the express will of
any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources
possesses executive and administrative powers with regard to the survey,
classification, lease, sale or any other form of concession or disposition and
management of the lands of the public domain, and, more specifically, with
regard to the grant or withholding of licenses, permits, leases and contracts
over portions of the public domain to be utilized as fishponds. 21, Thus, we
held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated
in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and
Commerce (Natural Resources) by law regarding the disposition of
public lands such as granting of licenses, permits, leases, and
contracts, or approving, rejecting, reinstating, or cancelling
applications, or deciding conflicting applications, are all executive
and administrative in nature. It is a well-recognized principle that
purely administrative and discretionary functions may not be
interfered with by the courts (Coloso v. Board of Accountancy, G.R.
No. L-5750, April 20, 1953). In general, courts have no supervising
power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to
acts involving the exercise of judgment or discretion, and findings of
fact. (54 Am. Jur. 558-559) Findings of fact by an administrative
board or official, following a hearing, are binding upon the courts
and will not be disturbed except where the board or official has gone
beyond his statutory authority, exercised unconstitutional powers or
clearly acted arbitrarily and without regard to his duty or with grave
abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave
due course to the appellant's fishpond application 1717 and awarded to him
the possession of the area in question. In view of the finality of the
Secretary's decision in DANR Cases 353 and 353-B, and considering the
PARTNERSHIP- A2 ARTICLE 1769-1770
absence of any proof that the said official exceeded his statutory authority,
exercised unconstitutional powers, or acted with arbitrariness and in
disregard of his duty, or with grave abuse of discretion, we can do no less
than respect and maintain unfettered his official acts in the premises. It is a
salutary rule that the judicial department should not dictate to the executive
department what to do with regard to the administration and disposition of
the public domain which the law has entrusted to its care and administration.
Indeed, courts cannot superimpose their discretion on that of the land
department and compel the latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the
injunction was properly issued because present all the requisite grounds for
its issuance, its continuation, and, worse, its declaration as permanent, was
improper in the face of the knowledge later acquired by the lower court that
it was the appellant's application over the fishpond which was given due
course. After the Secretary of Agriculture and Natural Resources approved
the appellant's application, he became to all intents and purposes the legal
permittee of the area with the corresponding right to possess, occupy and
enjoy the same. Consequently, the lower court erred in issuing the
preliminary mandatory injunction. We cannot overemphasize that an
injunction should not be granted to take property out of the possession and
control of one party and place it in the hands of another whose title has not
been clearly established by law.23
However, pursuant to our holding that there was a partnership between the
parties for the exploitation of the fishpond before it was awarded to Casteel,
this case should be remanded to the lower court for the reception of evidence
relative to an accounting from November 25, 1949 to September 15, 1950, in
order for the court to determine (a) the profits realized by the partnership, (b)
the share (in the profits) of Casteel as industrial partner, (e) the share (in the
profits) of Deluao as capitalist partner, and (d) whether the amounts totalling
about P27,000 advanced by Deluao to Casteel for the development and
improvement of the fishpond have already been liquidated. Besides, since the
appellee Inocencia Deluao continued in possession and enjoyment of the
fishpond even after it was awarded to Casteel, she did so no longer in the
concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an accounting of the
proceeds of the sales of all the fishes harvested from the fishpond from
September 16, 1950 until Casteel shall have been finally given the possession
and enjoyment of the same. In the event that the appellee Deluao has
41
received more than her lawful credit of P27,000 (or whatever amounts have
been advanced to Casteel), plus 6% interest thereon per annum, then she
should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another
judgment is hereby rendered: (1) dissolving the injunction issued against the
appellant, (2) placing the latter back in possession of the fishpond in
litigation, and (3) remanding this case to the court of origin for the reception
of evidence relative to the accounting that the parties must perforce render in
the premises, at the termination of which the court shall render judgment
accordingly. The appellant's counterclaim is dismissed. No pronouncement as
to costs.
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 Jarantilla’s 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
[8] Conchita Jarantilla to provide mutual assistance to each other by way of
financial support to any commercial and agricultural activity on a joint
G.R. No. 154486 December 1, 2010 business arrangement. This business relationship proved to be successful as
they were able to establish a manufacturing and trading business, acquire real
FEDERICO JARANTILLA, JR., Petitioner, properties, and construct buildings, among other things. 9 This partnership
vs. ended in 1973 when the parties, in an "Agreement," 10 voluntarily agreed to
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, completely dissolve their "joint business relationship/arrangement." 11
PARTNERSHIP- A2 ARTICLE 1769-1770 42
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue
executed a document wherein they acknowledged that while registered only
in Buenaventura Remotigue’s 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 Jarantilla’s stated as eight thousand pesos (₱8,000.00) and
Federico Jarantilla, Jr.’s as five thousand pesos (₱5,000.00). 12
The present case stems from the amended complaint 13 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 (₱7,500.00) 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 Antonieta’s 8% share was limited to the businesses
enumerated therein. With regard to Antonieta’s 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
PARTNERSHIP- A2 ARTICLE 1769-1770
incorporation. The respondents denied using the partnership’s 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 Antonieta’s
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 plaintiff’s 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 Agreement 20and 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%;
43
 4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as
moral damages;
5. to pay, jointly and severally, the sum of ₱50,000.00 as attorney’s
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 RTC’s 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 RTC’s 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
PARTNERSHIP- A2 ARTICLE 1769-1770
(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 Resolution 24 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 Jarantilla’s 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 petitioner’s 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
44
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
Antonieta’s 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 Antonieta’s 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 partnership’s 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 petitioner’s claim was essentially the same
as Antonieta’s, the Court of Appeals also ruled that petitioner be given his
6% share in the same businesses listed in the Acknowledgement of
Participating Capital.
PARTNERSHIP- A2 ARTICLE 1769-1770
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;
45
 (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
plaintiff’s 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
PARTNERSHIP- A2 ARTICLE 1769-1770
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:
46
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)₱25,000.00
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:
PARTNERSHIP- A2 ARTICLE 1769-1770
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 petitioner’s 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.
47
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 partnership’s 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.
PARTNERSHIP- A2 ARTICLE 1769-1770
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 partnership’s 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 one’s 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
48
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 petitioner’s 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 plaintiff’s [petitioner’s] 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.

Petitioner’s 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, petitioner’s 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.

PARTNERSHIP- A2 ARTICLE 1769-1770 49