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G.R. No.

135813

October 25, 2001

FERNANDO SANTOS, petitioner, vs.


SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding
on the Supreme Court. However, there are several exceptions to this principle. In the present case, we
find occasion to apply both the rule and one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision, 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:
"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes
were introduced to each other by one Meliton Zabat regarding a lending business venture
proposed by Nieves. It was verbally agreed that [petitioner would] act as financier while
[Nieves] and Zabat [would] take charge of solicitation of members and collection of loan
payments. The venture was launched on June 13, 1986, with the understanding that
[petitioner] would receive 70% of the profits while x x x Nieves and Zabat would earn 15%
each.
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman
of the Monte Maria Development Corporation6 (Monte Maria, for brevity), sought short-term
loans for members of the corporation. [Petitioner] and Gragera executed an agreement
providing funds for Monte Maria's members. Under the agreement, Monte Maria,
represented by Gragera, was entitled to P1.31 commission per thousand paid daily to
[petitioner] (Exh. 'A')x x x . Nieves kept the books as representative of [petitioner] while
[Respondent] Arsenio, husband of Nieves, acted as credit investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of
Agreement' which formalized their earlier verbal arrangement.

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"[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
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'

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counterclaim for their share in the partnership and for damages was granted. The trial court disposed as
follows:
"39.

WHEREFORE, the Court hereby renders judgment as follows:

39.1.

THE SECOND AMENDED COMPLAINT dated July 26, 1989 is


DISMISSED.

39.2.

The [Petitioner] FERNANDO J. SANTOS is ordered to pay the


[Respondent] NIEVES S. REYES, the following:

39.2.1. P3,064,428.00 - The 15 percent share of the [respondent]


NIEVES S. REYES in the profits of her joint
venture with the [petitioner].
39.2.2. Six(6) percent - As damages from August 3, 1987 until the
of
P3,064,428.00 is fully paid.
P3,064,428.00
39.2.3. P50,000.00

- As moral damages

39.2.4. P10,000.00

- As exemplary damages

39.3.

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


[respondent] ARSENIO REYES, the following:

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


[respondent] ARSENIO REYES in the profits of
his joint venture with the [petitioner].
39.3.2. Six(6) percent - As damages from August 3, 1987 until the
of
P2,899,739.50 is fully paid.
P2,899,739.50
39.3.3. P25,000.00

- As moral damages

39.3.4. P10,000.00

- As exemplary damages

39.4.

The [petitioner] FERNANDO J. SANTOS is


ordered to pay the [respondents]:

39.4.1. P50,000.00

- As attorney's fees; and

39.4.2. The cost of the suit."8


Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was dismissed.
Upon the latter's Motion for Reconsideration, however, the trial court's Decision was reinstated in toto.
Subsequently, petitioner's own Motion for Reconsideration was denied in the CA Resolution of October 9,
1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the parties:
(1) it was Nieves who broached to petitioner the idea of starting a money-lending business and introduced
him to Gragera; (2) Arsenio received "dividends" or "profit-shares" covering the period July 15 to August
7, 1986 (Exh. "6"); and (3) the partnership contract was executed after the Agreement with Gragera and
petitioner and thus showed the parties' intention to consider it as a transaction of the partnership. In their
common venture, petitioner invested capital while respondents contributed industry or services, with the
intention of sharing in the profits of the business.
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000 which was
supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts
due, while hers was merely to prepare the daily cash flow reports (Exhs. "15-15DDDDDDDDDD") to keep
track of his collections.

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Hence, this Petition.9


Issue
Petitioner asks this Court to rule on the following issues:10
"Whether or not Respondent Court of Appeals acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not employees of
Santos in connection with the agreement between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase 'Received by' on documents
signed by Nieves Reyes signified receipt of copies of the documents and not of the sums
shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for
delivery to Gragera;
5 Affirming the dismissal of Santos' [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents' counterclaim;
7. Denying Santos' motion for reconsideration dated September 11, 1998."
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties' relationship was
one of partnership or of employer employee; (2) whether Nieves misappropriated the sums of money
allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether respondents were
entitled to the partnership profits as determined by the trial court.
The 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

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wherewithal to carry on the purpose for which it was organized and as such [were]
considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the
business of the partnership without undergoing the procedure relative to dissolution.
Instead, they invited Arsenio to participate as a partner in their operations. There was
therefore, no intent to dissolve the earlier partnership. The partnership between
[petitioner,] Nieves and Arsenio simply took over and continued the business of the former
partnership with Zabat, one of the incidents of which was the lending operations with Monte
Maria.
xxx

xxx

xxx

"Gragera and [petitioner] were not partners. The money-lending activities undertaken with
Monte Maria was done in pursuit of the business for which the partnership between
[petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who represented
Monte Maria was merely paid commissions in exchange for the collection of loans. The
commissions were fixed on gross returns, regardless of the expenses incurred in the
operation of the business. The sharing of gross returns does not in itself establish a
partnership."11
We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing the
profits among themselves.12 The "Articles of Agreement" stipulated that the signatories shall share the
profits of the business in a 70-15-15 manner, with petitioner getting the lion's share.13 This stipulation
clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued lending money
to the members of the Monte Maria Community Development Group, Inc., which later on changed its
business name to Private Association for Community Development, Inc. (PACDI). Nieves was not merely
petitioner's employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of
the Agreement, which states as follows:
"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be responsible in handling the collection of the
loan payments of the borrowers that they each solicited.
"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 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:

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"WHEREAS, the parties have decided to formalize the terms of their business relationship in
order that their respective interests may be properly defined and established for their
mutual benefit and understanding."15
Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera's
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit
"B." (the "Schedule of Daily Payments"), which bears her signature under the words "received by." For the
period July 1986 to March 1987, Gragera should have earned a total commission of P4,282,429.30.
However, only P3,068,133.20 was received by him. Thus, petitioner infers that she misappropriated the
difference of P1,214,296.10, which represented the unpaid commissions. Exhibit "H." is an untitled
tabulation which, according to him, shows that Gragera was also entitled to a commission of P200,000, an
amount that was never delivered by Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves received for
delivery to Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to come,
and that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not clearly
establish that Nieves received amounts from Monte Maria's members. The document does
not clearly state what amounts the entries thereon represent. More importantly, Nieves
made the entries for the limited period of January 11, 1987 to February 17, 1987 only while
the rest were made by Gragera's own staff.
"Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment
of the remittance of commissions to Verona Gonzales. The document is a private one and its
due execution and authenticity have not been duly proved as required in [S]ection 20, Rule
132 of the Rules of Court which states:
'SECTION 20. Proof of Private Document Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be proved
either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the
maker.
'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

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"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F') were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord
with the evidence. A perusal of Exhs. "B" and "F" as well as Exhs. '15' to 15-DDDDDDDDDD'
reveal that the entries were indeed based on the 100% assumptive collection guaranteed by
Gragera. Thus, the total amount recorded on Exh. 'B' is exactly the number of borrowers
multiplied by the projected collection of P150.00 per borrower. This holds true for Exh. 'F.'
"Corollarily, Nieves' explanation that the documents were pro forma and that she signed
them not to signify that she collected the amounts but that she received the documents
themselves is more believable than [petitioner's] assertion that she actually handled the
amounts.
"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish that x x x
Nieves received P200,000.00 as commission for Gragera. As correctly stated by the court a
quo, the document showed a liquidation of P240.000 00 and not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were
made by Gragera believable and worthy of credence. Since Gragera guaranteed a daily
100% payment of the loans, he took charge of the collections. As [petitioner's]
representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to
enable [petitioner] to keep track of Gragera's operations. Gragera on the other hand
devised the schedule of daily payment (Exhs. 'B' and 'F') to record the projected gross daily
collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the commissions of
GRAGERA [were] paid to him[,] that of NIEVES is more logical and practical and
therefore, more believable. SANTOS' version would have given rise to this
improbable situation: GRAGERA would collect the daily amortizations and then give
them to NIEVES; NIEVES would get GRAGERA's commissions from the amortizations
and then give such commission to GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received
P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column 'ADDITIONAL
CASH' that the additional cash was P240,000.00. If Exh. H were the liquidation of the
P200,000.00 as alleged by SANTOS, then his claim is not true. This is so because it is a
liquidation of the sum of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to
GRAGERA when he received the latter's letter complaining of its delayed release. Assuming
as true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is no competent
evidence that NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give it
is the letter. But SANTOS did not even present the letter in evidence. He did not explain
why he did not.
"21.2. The evidence shows that all money transactions of the money-lending business of
SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did not
present any voucher or receipt covering the P200,000.00."18

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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. Wellentrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial court
are binding and conclusive on the Supreme Court.19 Although there are exceptions to this rule, petitioner
has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the partnership. He maintains that
"both business propositions were flops," as his investments were "consumed and eaten up by the
commissions orchestrated to be due Gragera" a situation that "could not have been rendered possible
without complicity between Nieves and Gragera."
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she "signified to petitioner that it
was about time to get her share of the profits which had already accumulated to some P3 million."
Respondents add that while the partnership has not declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the counterclaim of Nieves, the spouses show that from
June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et seq.).
Based on that income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh. "10-I3"); 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.

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"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"22
shows that the partnership earned a "total income" of P20,429,520 for the period June 13, 1986 until April
19, 1987. This entry is derived from the sum of the amounts under the following column headings: "2-Day
Advance Collection," "Service Fee," "Notarial Fee," "Application Fee," "Net Interest Income" and "Interest
Income on Investment." Such entries represent the collections of the money-lending business or its gross
income.
The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the partnership.
For instance, it did not factor in the "gross loan releases" representing the money loaned to clients. Since
the business is money-lending, such releases are comparable with the inventory or supplies in other
business enterprises.
Noticeably missing from the computation of the "total income" is the deduction of the weekly allowance
disbursed to respondents. Exhibits "I" et seq. and "J" et seq.23 show that Arsenio received allowances from
July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986 to
March 27, 1987, in the total amount of P25,600. These allowances are different from the profit already
received by Arsenio. They represent expenses that should have been deducted from the business profits.
The point is that all expenses incurred by the money-lending enterprise of the parties must first be
deducted from the "total income" in order to arrive at the "net profit" of the partnership. The share of
each one of them should be based on this "net profit" and not from the "gross income" or "total income"
reflected in Exhibit "10-I," which the two courts invariably referred to as "cash flow" sheets.
Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow Reports," do not reflect the business
expenses incurred by the parties, because they show only the daily cash collections. Contrary to the
rulings of both the trial and the appellate courts, respondents' exhibits do not reflect the complete
financial condition of the money-lending business. The lower courts obviously labored over a mistaken
notion that Exhibit " 10-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

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lower courts. Hence, we deem the award of the partnership share, as computed by the trial court and
adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is AFFIRMED, but
the challenged Resolutions dated August 17, 1998 and October 9, 1998 are REVERSED and SET ASIDE. No
costs.
SO ORDERED.
Facts: In June 1986, Fernando Santos, Nieves Reyes and Melton Zabat orally agreed to form a partnership
a lending business. Santos contributed 70% (as financier) while Reyes and Zabat shared 30% (as
industrial partners). Later, Reyes introduced Cesar Gragera whom they would provide loans to Grageras
corporation particularly its employees. In return Gragera shall have a commission based on the loan
payments. The partners decided on August 1986 to have a written agreement but they found out that
Zabat engaged in a competitor venture thus expelled him. The two had Arsenio Reyes (husband of Nieves)
replaced Zabat.
However, Santos accused the Spouses of not remitting the loans payments. He argued that the couple
were only his employees and there was a special arrangement between him and Gragera. The trial court
and the Court of Appeals ruled against Santos.
Issue:Whether or not there was a partnership formed between Santos and the Spouses Reyes?
Held:YES. The original partnership with Zabat continued even after the expulsion of the latter from the
partnership because there was no intent to dissolve the (partnership) relationship.
[Respondents] were industrial partners of [petitioner]. . . . Nieves herself provided the initiative in the
lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and
Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the purpose for which it was organized and
as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by
the expulsion of Zabat therefrom, the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and continued
the business of the former partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.

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.:

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In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March 13,
1996 of the former Fifth Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion
of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of
the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively
known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG
LAY on February 19, 1990. The complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court
of Baguio City was for accounting, liquidation and winding up of the alleged partnership formed after
World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended
complaint4 impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng
Lay. The amended complaint was admitted by the trial court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng
Lay, pooling their resources and industry together, entered into a partnership engaged in the business of
selling lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber"
which they jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business
prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981,
Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan
Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for
accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the
equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co.
Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share
in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a
particular partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber
Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs
know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber
Company, Inc. until such time that said corporation is finally liquidated are directed to submit the name of

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any person they want to be appointed as receiver failing in which this Court will appoint the Branch Clerk
of Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant
case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the
assailed decision reversing the judgment of the trial court. Petitioners' motion for reconsideration7 was
denied by the Court of Appeals in a Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and
Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained
that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of payrolls indicating
that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the
signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano,
Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents
by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN
THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT;
(B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO
TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG
KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE
DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A
PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE
SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER
COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET
LUMBER;

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c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE
OLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER
WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP
(PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN
THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS
OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be
disturbed on appeal if such are supported by the evidence.10 Our jurisdiction, it must be emphasized,
does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final
order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari.
The petition shall raise only questions of law which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to analyze the
evidentiary basis on which the lower court rendered judgment. Review of factual issues is therefore
warranted:
(1) when the factual findings of the Court of Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken,
absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings
are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion;

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(8) when the findings of fact are themselves conflicting;


(9) when the findings of fact are conclusions without citation of the specific evidence on which they are
based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the
existence of a partnership, the Court in turn went beyond that by justifying the existence of a joint
venture.
When mention is made of a joint venture, it would presuppose parity of standing between the parties,
equal proprietary interest and the exercise by the parties equally of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before
the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the
entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the Japanese. After the
war, because of the absence of capital to start a lumber and hardware business, Lay and Kee pooled the
proceeds of their individual businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and hardware business. That
Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses.
Because of the pooling of resources, the 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 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

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We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but
when an immovable is constituted, the execution of a public instrument becomes necessary. This is
equally true if the capitalization exceeds P3,000.00, in which case a public instrument is also necessary,
and which is to be recorded with the Securities and Exchange Commission. In this case at bar, we can
easily assume that the business establishment, which from the language of the appellees, prospered
(pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties
and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was
never established by the appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay and the members of
his family. There is no proof either that the capital assets of the partnership, assuming them to be in
existence, were maliciously assigned or transferred by Lay, supposedly to the corporation and since then
have been treated as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of
the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house
in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc; 2) that both
Lay and Kee were seated on a table and were "commanding people" as testified to by the son, Elpidio Tan;
3) that both were supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta
was supposedly being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the
business.
Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written.
However, if it involves real property or where the capital is P3,000.00 or more, the execution of a contract
is necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry
contribution; 4) community of funds and interest, mentioning equality of the partners or one having a
proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the
partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter to
be divided, must be established. We cannot see these elements from the testimonial evidence of the
appellees.
As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN
ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection, we have held
that whether a partnership exists is a factual matter; consequently, since the appeal is brought to us
under Rule 45, we cannot entertain inquiries relative to the correctness of the assessment of the evidence
by the court a quo.13 Inasmuch as the Court of Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A
contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.14
Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.15 The agreement need not be formally reduced into writing, since statute
allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real

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rights are contributed,16 and (2) when the partnership has a capital of three thousand pesos or more.17
In both cases, a public instrument is required.18 An inventory to be signed by the parties and attached to
the public instrument is also indispensable to the validity of the partnership whenever immovable property
is contributed to the partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it
said is akin to a particular partnership.20 A particular partnership is distinguished from a joint adventure,
to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership,
with no firm name and no legal personality. In a joint account, the participating merchants can transact
business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind.21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in
which each party has an equal proprietary interest in the capital or property contributed, and where each
party exercises equal rights in the conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary
Wares Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may be likened to
a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are
similar community of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by
most opinions in common law jurisdiction is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin,
395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and
should thus be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v.
Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. The alleged partnership, though, was never formally organized. In addition,
petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly
formed sometime in 1945, although the contrary may well be argued that nothing prevented the parties
from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. But all
that is in the past. The net effect, however, is that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review of the record persuades us that the Court of
Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short
of the quantum of proof required to establish a partnership.

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Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have
expounded on the precise nature of the business relationship between them. In the absence of evidence,
we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common
fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners' witnesses
is directly controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses
wherein preponderance lies;24 the quality of their testimonies is to be considered. None of petitioners'
witnesses could suitably account for the beginnings of Benguet Lumber Company, except perhaps for
Dionisio Peralta whose deceased wife was related to Matilde Abubo.25 He stated that when he met Tan
Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets
supposedly owned by both brothers.26 Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.27 Tan Eng Lay consistently testified that he had his
business and his brother had his, that it was only later on that his said brother, Tan Eng Kee, came to
work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not
an indicium of the existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in
existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses.29 Each has the right to demand an accounting as long as the partnership
exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the partners at the
start of the business and all the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly plausible."31 But in the situation in
the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take
ordinary care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did
not furnish any help or intervention in the management of the theatre. In the third place, it does not
appear that she has even demanded from defendant any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should have been to find out how the business was
progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for
the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both
parties considered this offer as the real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls
purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called.
The authenticity of these documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed for
insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of
an employee. In connection therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as
to third persons;

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(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a
partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so
to speak, since they did not present and offer evidence that would show that Tan Eng Kee received
amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber
Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay
intended to divide the profits of the business between themselves, which is one of the essential features of
a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from
this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both
were supervising the employees; that both were the ones who determined the price at which the stocks
were to be sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also
point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber
Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges
granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the
following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates.
So long, therefore, that an employee's position is higher in rank, it is not unusual that he orders around
those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not
necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a
partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was
not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng

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Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay gave his
brother, and which were not given the other employees, only proves the kindness and generosity of Tan
Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the
pricing of stocks, this does not adequately prove the existence of a partnership relation between them.
Even highly confidential employees and the owners of a company sometimes argue with respect to certain
matters which, in no way indicates that they are partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken
singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective effect of
these circumstances may be such as to support a finding of the existence of the parties' intent.36 Yet, in
the case at bench, even the aforesaid circumstances when taken together are not persuasive indicia of a
partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber,
but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he
occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise
unavailable were he not kin, such as his residence in the Benguet Lumber Company compound. He would
have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers
of supervision. It may even be that among his duties is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are
not inconsistent with the powers and duties of a manager, even in a business organized and run as
informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of.
Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is hereby
AFFIRMED in toto. No pronouncement as to costs. SO ORDERED

FACTS : After the second World War, Tan EngKee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until
Tan EngKee's death. Petitioners herein averred that the business prospered due to the hard work and
thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused
the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan EngKee and his heirs of their rightful
participation in the profits of the business. Petitioners prayed for accounting of the partnership assets,
and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of
Benguet Lumber. The RTC ruled in favor of petitioners, declaring that Benguet Lumber is a joint venture
which is akin to a particular partnership. The Court of Appeals rendered the assailed decision reversing
the judgment of the trial court.
ISSUE: Whether the deceased Tan EngKee and Tan Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called Benguet Lumber and as such should share in the
profits and/or losses of the business venture or particular partnership
RULING:
There was no partnership whatsoever. Except for a firm name, there was no firm account, no firm
letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses,
and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting
corresponding to the period after the war until Kee's death in 1984. It had no business book, no written

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account nor any memorandum for that matter and no license mentioning the existence of a partnership.
Also, the trial court determined that Tan EngKee and Tan Eng Lay had entered into a joint venture, which
it said is akin to a particular partnership. A particular partnership is distinguished from a joint adventure,
to wit:(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating merchants
can transact business under their own name, and can be individually liable therefor. (b) Usually, but not
necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a
successful termination maycontinue for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind. A joint venture "presupposes generally a parity of
standing between the joint co-ventures or partners, in which each party has an equal proprietary interest
in the capital or property contributed, and where each party exercises equal rights in the conduct of the
business. The evidence presented by petitioners falls short of the quantum of proof required to establish a
partnership. In the absence of evidence, we cannot accept as an established fact that Tan EngKee
allegedly contributed his resources to a common fund for the purpose of establishing a partnership.
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in
existence, Tan EngKee never asked for an accounting. The essence of a partnership is that the partners
share in the profits and losses .Each has the right to demand an accounting as long as the partnership
exists. A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan EngKee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay. We
conclude that Tan EngKee was only an employee, not a partner since they did not present and offer
evidence that would show that Tan EngKee received amounts of money allegedly representing his share in
the profits of the enterprise. There being no partnership, it follows that there is no dissolution, winding up
or liquidation to speak
Case Digest: Filomeno Negado, Narciso Rocha, and Juan Guirindola vs GonzaloMakabenta
54 OG 408228 February 1958
Facts: Plaintiffs filed a suit against the defendant for the recovery of possession and management
of Liberty Theater located in Leyte and for an accounting of all money and property pertainingthereto.The
plaintiffs allege that the theater is owned and operated by a partnership known as HemaroguiCompany
composed of the plaintiffs and defendant. Conversely, the defendant alleges that he isthe sole and
exclusive owner of the theater while the plaintiffs are merely creditor.The trial court held that no
partnership exists and the oral and material evidence (books,accounts, and papers) presented by the
plaintiffs are incompetent to establish existence of the partnership.
Issue: Whether or not a partnership exists among Negado, Rocha, Guirindola and Makabenta
Decision: There exists a partnership. In determining whether or not a particular transaction
constitutes partnership, the intention as disclosed by the entire transaction, and as gathered from the
factsand from the language employed by the parties as well as their conduct. A partnership may
becreated without any definite intention to create it, the intention of the parties being inferred fromtheir
conduct and dealings with each other. For the purpose of showing the existence of a partnership, books,
papers, accounts and similar writings are admissible as evidence providedthat the party against whom
they are offered is shown to have authorized or ratified them.

G.R. No. L-12541

March 30, 1960

ROSARIO U. YULO, assisted by her husband Jose C. Yulo, plaintiffs-appellants, vs.


YANG CHIAO SENG, defendant-appellee.
LABRADOR, J.:
This concerns a "Petition to Reopen Case," dated December 14, 1959, presented by attorneys for
plaintiffs-appellants, alleging that the relationship between Rosario U. Yulo, plaintiff-appellant and Yang
Chiao Seng, defendant-appellee, as lessor and lessee, has already been definitely decided by the Court of

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Appeals in the case of Sta. Marina, et al., and Rosario U. Yulo and Yang Chiao Seng, C. A. G. R. No. 8143R. We have gone out of our way to review our conclusion that no relation of partnership existed between
said parties because we had denied the motion for reconsideration of plaintiff-appellant questioning the
conclusion of this Court without explanation.
The claim of plaintiff-appellant Rosario U. Yulo is that the relationship between her and defendant-appellee
Yang Chiao Seng as partners had already been passed upon by the Court of Appeals in the aboveindicated decision. The portion of the decision of the Court of Appeals is contained on page 8 of the motion
for reconsideration in which it held that articles of partnership of Young & Co., Ltd. show that the parties
to this case are partners in the construction of the Astor Theatre. It is to be noted, however, that the
decision of the Court of Appeals was one in which Emilia and Maria Carrion Sta. Marina are plaintiffs and
the defendants are Rosario Yulo and Yang Chiao Seng; the action was one to eject the defendants from
the land occupied by them; the issue was the reasonable value for the use and occupation of the land. The
Court of Appeals said that the plaintiffs in that case had claimed that the reasonable value was P3,000,
while the defendants claimed that it was only P1,000, and the Court of Appeals held that in view of the
partnership papers P3,000 represent the share of Rosario U. Yulo in the profits of the partnership and not
the reasonable rent of the property.
It is evident that no res judicata can be claimed for the previous judgment of the Court of Appeals. In the
first place, the parties in that case were Emilia and Maria Carrion Sta. Marina and the defendants, Rosaria
U. Yulo and Yang Chiao Seng; in the second place, the issue decided by the Court of Appeals was the
rental value of the property in question; that the cause of action was for ejectment of Rosario U. Yulo and
Yang Chiao Seng. In the case at bar, the action is between Rosario U. Yulo as plaintiff and Yang Chiao
Seng as defendant; the issue is whether or not the plaintiff is partner in the cinematograph business, as
claimed by plaintiff, or said plaintiff is merely a sublessee, as claimed by the defendant. There is,
therefore, no identity of parties nor identity of issue, nor identity of cause of action. We call attention to
the very citation contained in appellant's motion for reconsideration, which reads as follows:
Parties to a judgment are not bound by it, in a subsequent controversy between each other unless they
were adversary parties in the original action. There must have been an issue or controversy between
them. The reason for this rule obviously is the same as that which underlies the whole doctrine of res
judicata, namely, that a person should not be bound by a judgment except to the extent that he, or
someone representing him, had an adequate opportunity not only to litigate the matters adjudicated, but
to litigate them against the party (or his prodecessor in interest) who seeks to use the judgment against
him. (Sec. 422, 1 Freeman on Judgments, 5th ed., p. 918).
Without going further, we are fully satisfied of the correctness of our conclusion that the relationship
between plaintiff-appellant Rosario U. Yulo and Yang Chiao Seng is merely that of sublessor and
sublessee, and not that of partners. The motion to reopen the case is hereby denied and considering that
judgment had become final since October 29, 1959, order is hereby given to remand the record to the
court below.
Partnership or lease
Aman wrote a letter to a woman, proposing the formation of a partnership between them to run and
operate a theatre. Among the principal conditions offered were: first, that the woman would have a
guaranteed monthly participation of P3,000; and second, that the partnership shall last for a period of two
years and six months.
The woman accepted the offer and the parties executed a partnership agreement. The capital was fixed at
P100,000, P80,000 of which was to be furnished by the man and P20,000 by the woman. All gains were to

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be distributed among the partners in the same proportion as their capital contribution and the womans
liability, in case of loss, shall be limited to her capital contribution. Later, they executed a supplementary
agreement, wherein they extended the partnership for three (3) years and the benefits were now to be
divided equally between them.
They built the theatre on a piece of land, which was leased under the womans name.
Two months before the partnership was due to expire, the woman demanded from the man her share in
the profits of the business. In a letter, the man explained that he had stopped paying monthly rentals due
to the pending ejectment case brought by the landlords against the woman. Inasmuch as he was the sublessee, he was retaining the rentals to make good the rentals due from the woman in arrears.
Thus, the woman filed a suit for damages against him for maliciously refusing to give her share in the
partnership profits.
In his answer, the man claimed that the real agreement between them was not one of partnership but of
lease. The partnership was merely adopted as a subterfuge to get around the prohibition contained in the
contract of lease between them and the landowners.
The trial court rendered judgment in favor of the man. It held that the real agreement between them is
one of lease since under the agreement, the woman did not actually share either in the profits or in the
losses as required by the Civil Code for partnerships.
On appeal, the Supreme Court upheld the lower courts decision. Under Article 1767 of the Civil Code, the
following are the requisites of a partnership: 1) two or more persons who bind themselves to contribute
money, property, or industry to a common fund; and 2) the intention on the part of the partners to divide
the profits among themselves. Held the High Court
In the first place, the woman did not furnish the supposed P20,000 capital. In the second place, she did
not furnish any help or intervention in the management of the theatre. In the third place, it does not
appear that she has ever demanded from [the man] any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should have been to find out how the business was
progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000 a month, which cannot be interpreted in any manner than a payment for the
use of the premises which she had leased from the owners

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