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FIRST

[G.R.

DIVISION
No.

L-49982.

April

27,

1988.]

ELIGIO ESTANISLAO, JR., Petitioner, v. THE HONORABLE COURT OF


APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO, Respondents.
Agustin

O.

Benitez

for Petitioner.

Benjamin C. Yatco for Private Respondents.


SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; FORMED
WHERE MEMBERS OF THE SAME FAMILY BOUND THEMSELVES TO
CONTRIBUTE MONEY TO A COMMON FUND WITH THE INTENTION OF
DIVIDING THE PROFITS AMONG THEMSELVES. The Joint Affidavit of
April 11, 1966 (Exhibit A), clearly stipulated by the members of the same family that
the P15,000.00 advance rental due to them from SHELL shall augment their "capital
investment" in the operation of the gasoline station. Moreover other evidence in the
record shows that there was in fact such partnership agreement between the parties.
This is attested by the testimonies of private respondent Remedios Estanislao and
Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the
business. Petitioner gave a written authority to private respondent Remedios
Estanislao, his sister, to examine and audit the books of their "common business"
(aming negosyo). Respondent Remedios assisted in the running of the business.
There is no doubt that the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the intention of dividing the
profits
among
themselves.
2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF
APPEALS, GENERALLY CONCLUSIVE ON APPEAL. The findings of facts of
the respondent court are conclusive in this proceeding, and its conclusion based on
the said facts are in accordance with the applicable law.
DECISION
GANCAYCO, J.:

By this petition for certiorari the Court is asked to determine if a partnership exists
between members of the same family arising from their joint ownership of certain
properties.
Petitioner and private respondents are brothers and sisters who are co-owners of
certain lots at the corner of Annapolis and Aurora Blvd., Quezon City which were
then being leased to the Shell Company of the Philippines Limited (SHELL). They
agreed to open and operate a gas station thereat to be known as Estanislao Shell
Service Station with an initial investment of P15,000.00 to be taken from the
advance rentals due to them from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on April 11, 1966 which
was prepared by Atty. Democrito Angeles. 1 They agreed to help their brother,
petitioner herein, by allowing him to operate and manage the gasoline service station
of the family. They negotiated with SHELL. For practical purposes and in order not
to run counter to the companys policy of appointing only one dealer, it was agreed
that petitioner would apply for the dealership. Respondent Remedios helped in comanaging the business with petitioner from May 3, 1968 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P15,000.00 advance rental
shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with
a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11
April
1966
executed
by
the
co-owners."
2
For sometime, the petitioner submitted financial statements regarding the operation
of the business to private respondents, but thereafter petitioner failed to render
subsequent accounting. Hence through Atty. Angeles, a demand was made on
petitioner
to
render
an
accounting
of
the
profits.
The financial report of December 31, 1968 shows that the business was able to make
a profit of P87,293.79 and that by the year ending 1969, a profit of P150,000.00 was
realized.
3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First
Instance of Rizal against petitioner saying among others that the latter be
ordered:jgc:chanrobles.com.ph
"1. to execute a public document embodying all the provisions of the partnership
agreement entered into between plaintiffs and defendants provided in Article 1771 of
the
New
Civil
Code;
"2. to render a formal accounting of the business operation covering the period from
May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the
order is issued and that the same be subject to proper audit;
"3. to pay the plaintiffs their lawful shares and participation in the net profits of the

1 |Agency Partnership and Trust

business in an amount of no less than P150,000.00 with interest at the rate of 1% per
month from date of demand until full payment thereof for the entire duration of the
business;
and
"4. to pay the plaintiffs the amount of P10,000.00 as attorneys fees and costs of the
suit."
(pp.
13-14
Record
on
Appeal.)"
After trial on the merits, on October 15, 1975, Hon. Lino Anover, who was then the
temporary presiding judge of Branch IV of the trial court, rendered judgment
dismissing the complaint and counterclaim and ordering private respondents to pay
petitioner P3,000.00 attorneys fee and costs. Private respondent filed a motion for
reconsideration of the decision. On December 1, 1975, Hon. Ricardo Tensuan who
was the newly appointed presiding judge of the same branch, set aside the aforesaid
decision
and
rendered
another
decision
in
favor
of
said
respondents.chanroblesvirtualawlibrary
The dispositive part thereof reads as follows:chanrob1es virtual 1aw library
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and as
against
the
defendant:chanrob1es
virtual
1aw
library
(1) Ordering the defendant to execute a public instrument embodying all the
provisions of the partnership agreement entered into between plaintiffs and defendant
as provided for in Article 1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business operation
from April 1969 up to the time this order is issued, the same to be subject to
examination
and
audit
by
the
plaintiff;
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in
the net profits of the business in the amount of P150,000.00, with interest thereon at
the rate of One (1%) Per Cent per month from date of demand until full payment
thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P5,000.00 by way of
attorneys fees of plaintiffs counsel; as well as the costs of suit." (pp. 161-162.
Record
on
Appeal)."cralaw
virtua1aw
library
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7)
errors allegedly committed by the trial court. In due course, a decision was rendered
by the Court of Appeals on November 28, 1978 affirming in toto the decision of the
lower
court
with
costs
against
petitioner.
**
A motion for reconsideration of said decision filed by petitioner was denied on
January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by

2 |Agency Partnership and Trust

way of this petition for certiorari alleging


erred:jgc:chanrobles.com.ph

that

the

respondent

court

"1. In interpreting the legal import of the Joint Affidavit (Exh. "A") vis-a-vis the
Additional Cash Pledge Agreement (Exhs. "B-2," "6," and "L"); and
2. In declaring that a partnership was established by and among the petitioner and the
private respondents as regards the ownership and/or operation of the gasoline service
station
business."cralaw
virtua1aw
library
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6)
which
are
herein
reproduced
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:jgc:chanrobles.com.ph
"(1) That we are the Lessors of two parcels of land fully described in Transfer
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City,
in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED, a
corporation
duly
licensed
to
do
business
in
the
Philippines;
"(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINES
LIMITED, advanced rentals in the total amount of FIFTEEN THOUSAND PESOS
(P15,000.00) Philippine Currency, so that we can use the said amount to augment our
capital investment in the operation of that gasoline station constructed by the said
company on our two lots aforesaid by virtue of an outstanding Lease Agreement we
have
entered
into
with
the
said
company.
"(3) That the said SHELL COMPANY OF THE PHILIPPINES LIMITED out of its
benevolence and desire to help us in augmenting our capital investment in the
operation of the said gasoline station, has agreed to give us the said amount of
P15,000.00, which amount will partake the nature of ADVANCED RENTALS;
"(4) That we have freely and voluntarily agreed that upon receipt of the said amount
of FIFTEEN THOUSAND PESOS (P15,000,00) from the SHELL COMPANY OF
THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be
applied as monthly rentals for the said two lots under our Lease Agreement starting
on the 25th of May, 1966 until such time that the said amount of P15,000.00 be
applicable, which time to our estimate will cover at four and one-half months from
May 25, 1966 or until the 10th of October, 1966 more or less;
"(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF
THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our
conformity that the said amount that it will generously grant us as requested be
applied
as
ADVANCED
RENTALS;
and

"(6)

FURTHER

AFFIANTS

SAYETH

NOT.

(b) The Additional Cash Pledge Agreement of May 20, 1966, Exhibit 6, is as
follows:jgc:chanrobles.com.ph
"WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as
doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & 111, Series of 1963 in the
Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-OWNERS and another
Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by
CO-OWNERS Remedios and MARIA ESTANISLAO for the lessee of adjoining
portions of two parcels of land at Aurora Blvd., Annapolis, Quezon City, the COOWNERS RECEIVE a total monthly rental of PESOS THREE THOUSAND
THREE HUNDRED EIGHTY TWO AND 29/100 (P3,382.29), Philippine Currency;
"WHEREAS, CO-OWNER Eligio Estanislao, Jr. is the Dealer of the Shell Station
constructed on the leased land, and as Dealer under the Cash Pledge Agreement
dated 11th May 1966, he deposited to SHELL in cash the amount of PESOS TEN
THOUSAND (P10,000), Philippine Currency, to secure his purchases on credit of
Shell
petroleum
products;
.
.
.chanroblesvirtualawlibrary
"WHEREAS, said DEALER, in his desire to be granted an increased credit limit up
to P25,000, has secured the conformity of his CO-OWNERS to waive and assign to
SHELL the total monthly rentals due to all of them to accumulate the equivalent
amount of P15,000, commencing 24th May 1966, this P15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the
aforementioned
Cash
Pledge
Agreement
dated
11th
May
1966.
NOW, THEREFORE, for and in consideration of the foregoing premises, and the
mutual covenants among the CO-OWNERS herein and SHELL, said parties have
agreed
and
hereby
agree
as
follows:jgc:chanrobles.com.ph
"1. The CO-OWNERS do hereby waive in favour of DEALER the monthly rentals
due to all CO-OWNERS, collectively, under the above described two Lease
Agreements, one dated 13th November 1963 and the other dated 19th March 1964 to
enable DEALER to increase his existing cash deposit to SHELL, from P10,000 to
P25,000, for such purpose, the SHELL CO-OWNERS and DEALER hereby
irrevocably assign to SHELL the monthly rental of P3,382.29 payable to them
respectively as they fall due, monthly, commencing 24th May 1966, until such time
that the monthly rentals accumulated, shall be equal to P15,000.
"2. The above stated monthly rentals accumulated shall be treated as additional cash
deposit by DEALER to SHELL, thereby increasing his credit limit from P10,000 to
P25,000. This agreement, therefore, cancels and supersedes the Joint Affidavit dated
11
April
1966
executed
by
the
CO-OWNERS.

3 |Agency Partnership and Trust

"3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER
to purchase from SHELL petroleum products, on credit, up to the amount of
P25,000.
"4. This increase in the credit limit shall also be subject to the same terms and
conditions of the above-mentioned Cash Pledge Agreement dated 11th May 1966."
(Exhs.
"B-2,"
"L,"
and
"6"
; Italics
supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated
by the parties that the P15,000.00 advance rental due to them from SHELL shall
augment their "capital investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966 up to four and onehalf months or until 10 October 1966, more or less covering said P15,000.00.
In the subsequent document entitled `Additional Cash Pledge Agreement" above
reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL
the monthly rentals due them commencing the 24th of May 1966 until such time that
the monthly rentals accumulated equal P15,000.00 which private respondents agree
to be a cash deposit of petitioner in favor of SHELL to increase his credit limit as
dealer. As above-stated it provided therein that "This agreement, therefore, cancels
and supersedes the Joint Affidavit dated 11 April 1966 executed by the COOWNERS."cralaw
virtua1aw
library
Petitioner contends that because of the said stipulation cancelling and superseding
that previous Joint Affidavit, whatever partnership agreement there was in said
previous agreement had thereby been abrogated. We find no merit in this argument.
Said cancelling provision was necessary for the Joint Affidavit speaks of P15,000.00
advance rentals starting May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966. There is, therefore, a
duplication of reference to the P15,000.00 hence the need to provide in the
subsequent document that it "cancels and supersedes" the previous one. True it is that
in the latter document, it is silent as to the statement in the Joint Affidavit that the
P15,000.00 represents the "capital investment" of the parties in the gasoline station
business and it speaks of petitioner as the sole dealer, but this is as it should be for in
the latter document SHELL was a signatory and it would be against its policy if in
the agreement it should be stated that the business is a partnership with private
respondents and not a sole proprietorship of petitioner.chanrobles.com:cralaw:red
Moreover other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private
respondent Remedios Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business. 4 Petitioner gave a written authority
to private respondent Remedios Estanislao, his sister, to examine and audit the books
of their "common business" (aming negosyo). 5 Respondent Remedios assisted in
the running of the business. There is no doubt that the parties hereto formed a
partnership when they bound themselves to contribute money to a common fund

with the intention of dividing the profits among themselves. 6 The sole dealership by
the petitioner and the issuance of all government permits and licenses in the name of
petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordance with the
applicable
law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs
against petitioner. This decision is immediately executory and no motion for
extension of time to file a motion for reconsideration shall be entertained.
SO

ORDERED.

Cellulose Marketing International, a corporation duly organized under the laws of


Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office
known as Pacific Forest Resources (Phils.), Inc."5 with petitioner Arsenio T.
Mendiola (ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already
approved by the Securities and Exchange Commission [SEC] on the said date." 6 The
Side Agreement outlines the business relationship of the parties with regard to the
Philippine operations of Pacfor. Private respondent will establish a Pacfor
representative office in the Philippines, to be known as Pacfor Phils, and petitioner
ATM will be its President. Petitioner's base salary and the overhead expenditures of
the company shall be borne by the representative office and funded by Pacfor/ATM,
since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa.

Narvasa, Cruz and Grio-Aquino, JJ., concur.


SECOND DIVISION
[G.R. NO. 159333 : July 31, 2006]
ARSENIO T. MENDIOLA, Petitioner, v. COURT OF APPEALS, NATIONAL
LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES,
PHILS., INC. and/or CELLMARK AB, Respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January
30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the
ruling3 of the National Labor Relations Commission (NLRC), which in turn set aside
the July 30, 2001 Decision4 of the labor arbiter. The labor arbiter declared illegal the
dismissal of petitioner from employment and awarded separation pay, moral and
exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation
organized and existing under the laws of California, USA. It is a subsidiary of

4 |Agency Partnership and Trust

On July 14, 1995, the SEC granted the application of private respondent Pacfor for a
license to transact business in the Philippines under the name of Pacfor or Pacfor
Phils.7 In its application, private respondent Pacfor proposed to establish its
representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner as
its resident agent in the Philippines, authorized to accept summons and processes in
all legal proceedings, and all notices affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised Operating and
Profit Sharing Agreement for the Representative Office Known as Pacific Forest
Resources (Philippines),"9 where the salary of petitioner was increased to $78,000
per annum. Both agreements show that the operational expenses will be borne by the
representative office and funded by all parties "as equal partners," while the profits
and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor,
seeking confirmation of his 50% equity of Pacfor Phils. 10 Private respondent Pacfor,
through William Gleason, its President, replied that petitioner is not a part-owner of
Pacfor Phils. because the latter is merely Pacfor-USA's representative office and not
an entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company'
with the purpose of dividing the income 50-50." 11 Petitioner presumably knew of this
arrangement from the start, having been the one to propose to private respondent
Pacfor the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12

Petitioner claimed that he was all along made to believe that he was in a joint venture
with them. He alleged he would have been better off remaining as an independent
agent or representative of Pacfor-USA as ATM Marketing Corp.13 Had he known that
no joint venture existed, he would not have allowed Pacfor to take the profitable
business of his own company, ATM Marketing Corp. 14 Petitioner raised other issues,
such as the rentals of office furniture, salary of the employees, company car, as well
as commissions allegedly due him. The issues were not resolved, hence, in October
2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and
office furniture and equipment rentals, amounting to more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered
petitioner to turn over to it all papers, documents, files, records, and other materials
in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor
Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner to
remit more than three hundred thousand-peso Christmas giveaway fund for clients of
Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement
and ordered petitioner to transfer title and turn over to it possession of the service
car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines,
advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper
Industries, Inc., dated November 21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific
Forest Resources (Philippines) to:
Pacific
200
Tamal
Corte
Madera,
(415)
927
(415) 381 4358 fax

Forest
Plaza,
CA,

Suite
USA
1700

Resources
200
94925
phone

Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the
offices of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi
Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated
December 2000, private respondent directed said client "to please communicate
directly with us on any further questions associated with these payments or any
future business. Do not communicate with [Pacfor] and/or [ATM]."20

5 |Agency Partnership and Trust

Petitioner construed these directives as a severance of the "unregistered partnership"


between him and Pacfor, and the termination of his employment as resident manager
of Pacfor Phils.21 In a memorandum to the employees of Pacfor Phils., dated January
29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all
records to them effective December 19, 2000. The company records were turned
over only on January 26, 2001. This means our jobs with Pacific Forest were
terminated effective December 19, 2000. I am concerned about your welfare. I would
like to help you by offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally
own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis,
Pacfor Phils.' office furniture and equipment and the service car. He also reiterated
his demand for unpaid commissions, and proposed to offset these with the remaining
Christmas giveaway fund in his possession.23 Furthermore, he did not renew the lease
contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils.,
wherein he was the signatory to the lease agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner on preventive
suspension and ordered him to show cause why no disciplinary action should be
taken against him. Private respondent Pacfor charged petitioner with willful
disobedience and serious misconduct for his refusal to turn over the service car and
the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioner's
relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile
numbers of Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPI's principal, International Forest Products, a competitor of
private respondent.25
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
President William Gleason's letters as a "cessation of his position and of the
existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM
Marketing Corp. now occupies Pacfor Phils.' office premises, 26 and demanded
payment of his separation pay.27 On February 15, 2001, petitioner filed his complaint
for illegal dismissal, recovery of separation pay, and payment of attorney's fees with
the NLRC.28

In the meantime, private respondent Pacfor lodged fresh charges against petitioner.
In a memorandum dated March 5, 2001, private respondent directed petitioner to
explain why he should not be disciplined for serious misconduct and conflict of
interest. Private respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the release of an
additional peso salary for himself, besides the dollar salary agreed upon by the
parties. Private respondent also accused petitioner of disloyalty and representation of
conflicting interests for having continued using the Pacfor Phils.' office for
operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from
a competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office records and materials,
regardless of whether he may have retained copies, private respondent Pacfor
virtually deprived petitioner of his job by the gradual diminution of his authority as
resident manager. Petitioner's position as resident manager whose duty, among
others, was to maintain the security of its business transactions and communications
was rendered meaningless. The dispositive portion of the decision of the Labor
Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering herein
respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to
compensate complainant Arsenio T. Mendiola separation pay equivalent to at least
one month for every year of service, whichever is higher (sic), as reinstatement is no
longer feasible by reason of the strained relations of the parties equivalent to five (5)
months in the amount of $32,000.00 plus the sum of P250,000.00; pay complainant
the sum of P500,000.00 as moral and exemplary damages and ten percent (10%) of
the amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On
December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor
arbiter, for lack of jurisdiction and lack of merit. 31 It held there was no employeremployee relationship between the parties. Based on the two agreements between the
parties, it concluded that petitioner is not an employee of private respondent Pacfor,
but a full co-owner (50/50 equity).

6 |Agency Partnership and Trust

The NLRC denied petitioner's Motion for Reconsideration.32


Petitioner was not successful on his appeal to the Court of Appeals. The appellate
court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was
denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and abused its
discretion in rendering judgment against petitioner since jurisdiction has been
acquired over the subject matter of the case as there exists employer-employee
relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and abused its
discretion in ruling that jurisdiction over the subject matter cannot be waived and
may be alleged even for the first time on appeal or considered by the court motu
prop[r]io.35
The first issue is whether an employer-employee relationship exists between
petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with
private respondent Pacfor, and also an employee of the partnership. Petitioner insists
that an industrial partner may at the same time be an employee of the partnership,
provided there is such an agreement, which, in this case, is the "Side Agreement" and
the "Revised Operating and Profit Sharing Agreement." The Court of Appeals denied
the appeal of petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent contractorship."
Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no
partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm
capital and of all property that may be acquired thereby and through the efforts of the
members.36 The property or stock of the partnership forms a community of goods, a

common fund, in which each party has a proprietary interest. 37 In fact, the New Civil
Code regards a partner as a co-owner of specific partnership property.38 Each partner
possesses a joint interest in the whole of partnership property. If the relation does not
have this feature, it is not one of partnership.39 This essential element, the community
of interest, or co-ownership of, or joint interest in partnership property is absent in
the relations between petitioner and private respondent Pacfor. Petitioner is not a
part-owner of Pacfor Phils. William Gleason, private respondent Pacfor's President
established this fact when he said that Pacfor Phils. is simply a "theoretical
company" for the purpose of dividing the income 50-50. He stressed that petitioner
knew of this arrangement from the very start, having been the one to propose to
private respondent Pacfor the setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes. Thus, the parties in this case, merely
shared profits. This alone does not make a partnership.40
Besides, a corporation cannot become a member of a partnership in the absence of
express authorization by statute or charter.41 This doctrine is based on the following
considerations: (1) that the mutual agency between the partners, whereby the
corporation would be bound by the acts of persons who are not its duly appointed
and authorized agents and officers, would be inconsistent with the policy of the law
that the corporation shall manage its own affairs separately and exclusively; and, (2)
that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested
in the corporation.42 No such authorization has been proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee
relationship is present in the case at bar. The elements to determine the existence of
an employment relationship are: (a) the selection and engagement of the employee;
(b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee's conduct. The most important element is the employer's
control of the employee's conduct, not only as to the result of the work to be done,
but also as to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was private
respondent Pacfor which selected and engaged the services of petitioner as its
resident agent in the Philippines. Second, as stipulated in their Side Agreement,
private respondent Pacfor pays petitioner his salary amounting to $65,000 per annum
which was later increased to $78,000. Third, private respondent Pacfor holds the
power of dismissal, as may be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive suspension while charging him
with various offenses, including willful disobedience, serious misconduct, and gross

7 |Agency Partnership and Trust

neglect of duty, and ordering him to show cause why no disciplinary action should be
taken against him.
Lastly and most important, private respondent Pacfor has the power of control over
the means and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the
actual exercise thereof. The principal consideration is whether the employer has the
right to control the manner of doing the work, and it is not the actual exercise of the
right by interfering with the work, but the right to control, which constitutes the test
of the existence of an employer-employee relationship. 44 In the case at bar, private
respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as
private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an
agent of the corporation, a representative of Pacfor, who transacts business, and
accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period of
November to December 2000, when it directed petitioner to turn over to it all records
of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund
intended for clients of Pacfor Phils.; and, when it withdrew all its offers of settlement
and ordered petitioner to transfer title and turn over to it the possession of the service
car. It was also during this period when private respondent Pacfor sent letters to its
clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and
DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter
to DAVCOR, private respondent Pacfor replied to the client's request for an invoice
payment extension, and formulated a revised payment program for DAVCOR. This
is one unmistakable proof that private respondent Pacfor exercises control over the
petitioner.
Next, we shall determine if petitioner was constructively dismissed from
employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils.,
and would not quit however, private respondent Pacfor began to systematically
deprive petitioner of his duties and benefits to make him feel that his presence in the
company was no longer wanted. First, private respondent Pacfor directed petitioner
to turn over to it all records of Pacfor Phils. This would certainly make the work of
petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered
petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.
Then it ordered petitioner to transfer title and turn over to it the possession of the

service car. It also advised its clients in the Philippines, particularly Intercontinental
Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils.
Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner, constructive dismissal is
still present because continued employment of petitioner is rendered, at the very
least, unreasonable.46 There is an act of clear discrimination, insensibility or disdain
by the employer that continued employment may become so unbearable on the part
of the employee so as to foreclose any choice on his part except to resign from such
employment.47
The harassing acts of the private respondent are unjustified. They were undertaken
when petitioner sought clarification from the private respondent about his supposed
50% equity on Pacfor Phils. Private respondent Pacfor invokes its rights as an owner.
Allegedly, its issuance of the foregoing directives against petitioner was a valid
exercise of management prerogative. We remind private respondent Pacfor that the
exercise of management prerogative is not absolute. "By its very nature,
encompassing as it could be, management prerogative must be exercised in good
faith and with due regard to the rights of labor - verily, with the principles of fair
play at heart and justice in mind." The exercise of management prerogative cannot be
utilized as an implement to circumvent our laws and oppress employees. 48
As resident agent of private respondent corporation, petitioner occupied a position
involving trust and confidence. In the light of the strained relations between the
parties, the full restoration of an employment relationship based on trust and
confidence is no longer possible. He should be awarded separation pay, in lieu of
reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January
30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming
the December 20, 2001 Decision of the National Labor Relations Commission,
are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter
is REINSTATED with theMODIFICATION that the amount of P250,000.00
representing an alleged increase in petitioner's salary shall be deducted from the
grant of separation pay for lack of evidence.
SO ORDERED.
SECOND

DIVISION

[G.R.

No.

127347.

November

25,

1999.]

ALFREDO N. AGUILA, JR., Petitioner, v. HONORABLE COURT OF


APPEALS and FELICIDAD S. VDA. DE ABROGAR, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals,.
dated November 29, 1990, which reversed the decision of the Regional Trial Court,
Branch 273, Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed
the petition for declaration of nullity of a deed of sale filed by private respondent
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.chanrobles
virtual
lawlibrary
The

facts

are

as

follows:chanrob1es

virtual

1aw

library

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Private respondent and her late husband, Ruben M. Abrogar, were
the registered owners of a house and lot, covered by Transfer Certificate of Title No.
195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the
consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner,
entered into a Memorandum of Agreement, which provided:chanrob1es virtual 1aw
library
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the abovedescribed property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and
pursuant to this agreement, a Deed of Absolute Sale shall be executed by the FIRST
PARTY conveying the property to the SECOND PARTY for and in consideration of
the sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to
repurchase the said property within a period of ninety (90) days from the execution
of this memorandum of agreement effective April 18, 1991, for the amount of TWO
HUNDRED
THIRTY
THOUSAND
PESOS
(P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the
said property within a period of ninety (90) days, the FIRST PARTY is obliged to
deliver peacefully the possession of the property to the SECOND PARTY within
fifteen (15) days after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis

8 |Agency Partnership and Trust

pendens or whatever claims on the property nor shall be cause the annotation of say
claim
at
the
back
of
the
title
to
the
said
property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY
against any party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the
account
of
the
FIRST
PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to
the SECOND PARTY after the expiration of the 15-day grace period given in
paragraph 3 above, the FIRST PARTY shall pay an amount equivalent to Five
Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property
within ninety (90) days period above-mentioned, this memorandum of agreement
shall be deemed cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the parties and the
SECOND PARTY shall proceed to transfer ownership of the property above
described to its name free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale, 3 dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000.00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in
the
Memorandum
of
Agreement.
4
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power of
attorney mentioned above, petitioner caused the cancellation of TCT No. 195101 and
the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto
C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the
premises within 15 days after receipt of the letter and surrender its possession
peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate
action
in
court.
6
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan

9 |Agency Partnership and Trust

Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private
respondent did not redeem the subject property before the expiration of the 90-day
period provided in the Memorandum of Agreement. Private respondent appealed first
to the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of
Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale
with the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4,
1993. She alleged that the signature of her husband on the deed of sale was a forgery
because he was already dead when the deed was supposed to have been executed on
June
11,
1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City
which was dismissed in a resolution, dated February 14, 1994.chanrobles.com :
virtual
law
library
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:chanrob1es
virtual
1aw
library
Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they
could not personally appear before Notary Public Lamberto C. Nanquil on June 11,
1991 because her husband, Ruben Abrogar, died on May 8, 1991 or one month and 2
days before the execution of the Deed of Absolute Sale, while the plaintiff was still
in the Quezon City Medical Center recuperating from wounds which she suffered at
the same vehicular accident on May 8, 1991, cannot be sustained. The Court is
convinced that the three required documents, to wit: the Memorandum of Agreement,
the Special Power of Attorney, and the Deed of Absolute Sale were all signed by the
parties on the same date on April 18, 1991. It is a common and accepted business
practice of those engaged in money lending to prepare an undated absolute deed of
sale in loans of money secured by real estate for various reasons, foremost of which
is the evasion of taxes and surcharges. The plaintiff never questioned receiving the
sum of P200,000.00 representing her loan from the defendant. Common sense
dictates that an established lending and realty firm like the Aguila & Sons, Co. would
not part with P200,000.00 to the Abrogar spouses, who are virtual strangers to it,
without the simultaneous accomplishment and signing of all the required documents,
more particularly the Deed of Absolute Sale, to protect its interest.
x

WHEREFORE, foregoing premises considered, the case in caption is hereby


ORDERED
DISMISSED,
with
costs
against
the
plaintiff.
On appeal, the Court of Appeals reversed. It held:chanrob1es virtual 1aw library

The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New
Civil Code finds strong application in the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the
residential house of plaintiff-appellant stands. The property is inside a
subdivision/village. The property is situated in Marikina which is already part of
Metro Manila. The alleged sale took place in 1991 when the value of the land had
considerably
increased.
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per
square
meter
for
both
the
land
and
for
the
house.
Second: The disputed Memorandum of Agreement specifically provides that
plaintiff-appellant is obliged to deliver peacefully the possession of the property to
the SECOND PARTY within fifteen (15) days after the expiration of the said ninety
(90) day grace period. Otherwise stated, plaintiff-appellant is to retain physical
possession
of
the
thing
allegedly
sold.
In fact, plaintiff-appellant retained possession of the property "sold" as if they were
still the absolute owners. There was no provision for maintenance or expenses, much
less
for
payment
of
rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the
property "sold." It is well-known that payment of taxes accompanied by actual
possession of the land covered by the tax declaration, constitute evidence of great
weight that a person under whose name the real taxes were declared has a claim of
right
over
the
land.
It is well-settled that the presence of even one of the circumstances in Article 1602 of
the New Civil Code is sufficient to declare a contract of sale with right to repurchase
an
equitable
mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is unusually
inadequate, has retained possession of the subject property and has continued paying
the realty taxes over the subject property, (circumstances mentioned in par. (1) (2)
and (5) of Article 1602 of the New Civil Code), it must be conclusively presumed
that the transaction the parties actually entered into is an equitable mortgage, not a
sale with right to repurchase. The factors cited are in support to the finding that the
Deed of Sale/Memorandum of Agreement with right to repurchase is in actuality an
equitable
mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was

10 |Agency Partnership and Trust

executed by reason of the loan extended by defendant-appellee to plaintiff-appellant.


The amount of loan being the same with the amount of the purchase price.
x

Since the real intention of the party is to secure the payment of debt, now deemed to
be repurchase price: the transaction shall then be considered to be an equitable
mortgage.
Being a mortgage, the transaction entered into by the parties is in the nature of a
pactum commissorium which is clearly prohibited by Article 2088 of the New Civil
Code. Article 2088 of the New Civil Code reads:chanrob1es virtual 1aw library
ARTICLE 2088. The creditor cannot appropriate the things given by way of pledge
or mortgage, or dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to
exist: (1) that there should be a pledge or mortgage wherein a property is pledged or
mortgaged by way of security for the payment of principal obligation; and (2) that
there should be a stipulation for an automatic appropriation by the creditor of the
thing pledged and mortgaged in the event of non-payment of the principal obligation
within
the
stipulated
period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiffappellant secured by a mortgage on the property of plaintiff-appellant. The loan was
payable within ninety (90) days, the period within which plaintiff-appellant can
repurchase the property. Plaintiff-appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of
plaintiff-appellee to pay the P230,000.00 within the ninety (90) days period, the
property shall automatically belong to defendant-appellee by virtue of the deed of
sale
executed.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so
declare to be invalid, for being violative of law.chanroblesvirtual|awlibrary
x

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED


and SET ASIDE. The questioned Deed of Sale and the cancellation of the TCT No.
195101 issued in favor of plaintiff-appellant and the issuance of TCT No. 267073
issued in favor of defendant-appellee pursuant to the questioned Deed of Sale is
hereby declared VOID and is hereby ANNULLED. Transfer Certificate of Title No.
195101 of the Registry of Marikina is hereby ordered REINSTATED. The loan in the

amount of P230,000.00 shall be paid within ninety (90) days from the finality of this
decision. In case of failure to pay the amount of P230,000.00 from the period therein
stated, the property shall be sold at public auction to satisfy the mortgage debt and
costs and if there is an excess, the same is to be given to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila &
Co., against which this case should have been brought; (2) the judgment in the
ejectment case is a bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and
private respondent is a pacto de retro sale and not an equitable mortgage as held by
the
appellate
court.chanroblesvirtualawlibrary
The

petition

is

meritorious.

Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that "every action must be prosecuted and defended in the name of
the real party in interest." A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit. 7 This ruling is
now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case
cannot be executed. 8 Hence, a complaint filed against such a person should be
dismissed
for
failure
to
state
a
cause
of
action.
9
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate
and distinct from that of each of the partners." The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal purposes.
10 In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a
separate juridical entity, is being used for fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co.
and the Memorandum of Agreement was executed between private respondent, with
the consent of her late husband, and A. C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its name. A violation of
this rule will result in the dismissal of the complaint. 11 We cannot understand why
both the Regional Trial Court and the Court of Appeals sidestepped this issue when it
was
squarely
raised
before
them
by
petitioner.
Our conclusion that petitioner is not the real party in interest against whom this
action should be prosecuted makes it unnecessary to discuss the other issues raised
by
him
in
this
appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint
against
petitioner
is
DISMISSED.chanroblesvirtualawlibrary
SO ORDERED.

11 |Agency Partnership and Trust

SECOND
[G.R.

DIVISION
No.

126881.

October

3,

2000.]

HEIRS OF TAN ENG KEE, Petitioners, v. COURT OF APPEALS and


BENGUET LUMBER COMPANY, represented by its President TAN ENG
LAY, Respondents.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision 1 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:chanrob1es
virtua1
1aw
1ibrary
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and
the
complaint
dismissed.
The

facts

are:chanrob1es

virtua1

1aw

1ibrary

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita,
Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF
TAN ENG KEE, filed suit against the decedents brother TAN ENG LAY on
February 19, 1990. The complaint, 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 Kees death. Petitioners herein averred that the business
prospered due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the conversion of the
partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his
heirs of their rightful participation in the profits of the business. Petitioners prayed

for accounting of the partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets of Benguet Lumber.

Resolution
Hence,

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on
April
12,
1995,
to
wit:chanrob1es
virtual
1aw
library
WHEREFORE, in
rendered:chanrob1es

view

of

all the
virtual

foregoing,

judgment
1aw

is

hereby
library

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;

8
the

present

dated

October

petition.chanrob1es

11,
virtua1

1aw

1996.
1ibrary

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 judgment 9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:chanrob1es virtual 1aw library

c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer
and/or as partner in a particular partnership have descended to the plaintiffs who are
his
legal
heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager
of Benguet Lumber Company Inc. to render an accounting of all the assets of
Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the
business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of
Benguet Lumber Company, Inc. until such time that said corporation is finally
liquidated are directed to submit the name of any person they want to be appointed as
receiver failing in which this Court will appoint the Branch Clerk of Court or another
one
who
is
qualified
to
act
as
such.
g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses
in
filing
the
instant
case.
h)
SO

Dismissing the

counter-claim

ORDERED.chanrob1es

of

the

defendant

virtua1

for

lack

1aw

of

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

merit.
1ibrary

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 reconsideration 7 was denied by the Court of Appeals in a

12 |Agency Partnership and Trust

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:chanrob1es
virtual
1aw
library

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL
LIVING
AT
THE
BENGUET
LUMBER
COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING
THE
EMPLOYEES
OF
BENGUET
LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES
THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC;
AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).

law, may file with the Supreme Court a verified petition for review oncertiorari. 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:chanrob1es virtual 1aw library
(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;

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:chanrob1es
virtual
1aw
library
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

13 |Agency Partnership and Trust

(5) when the appellate court, in making its findings, goes beyond the issues of the
case, and such findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of
facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly
considered,
will
justify
a
different
conclusion;
(8)

when

the

findings

of

fact

are

themselves

conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence
on
which
they
are
based;
and
(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record. 12
In reversing the trial court, the Court of Appeals ruled, to wit:chanrob1es virtual 1aw
library
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:chanrob1es virtual 1aw library

We have the admission that the father of the plaintiffs was not a partner of the
Benguet Lumber before the war. The appellees however argued that (Rollo, p. 104;
Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet
Lumber were confiscated if not burned by the Japanese. After the war, because of the
absence of capital to start a lumber and hardware business, Lay and Kee pooled the
proceeds of their individual businesses earned from buying and selling military
supplies, so that the common fund would be enough to form a partnership, both in
the lumber and hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually established. That
the father of the plaintiffs and Lay were partners, is obvious from the fact that: (1)
they conducted the affairs of the business during Kees lifetime, jointly, (2) they were
the ones giving orders to the employees, (3) they were the ones preparing orders
from the suppliers, (4) their families stayed together at the Benguet Lumber
compound, and (5) all their children were employed in the business in different
capacities.
x

It is obvious that there was no partnership whatsoever. Except for a firm name, there
was no firm account, no firm letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and no time fixed for the duration
of the partnership. There was even no attempt to submit an accounting corresponding
to the period after the war until Kees death in 1984. It had no business book, no
written account nor any memorandum for that matter and no license mentioning the
existence
of
a
partnership
[Citation
omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the
only registered owner of the Benguet Lumber and Hardware. His application for
registration, effective 1954, in fact mentioned that his business started in 1945 until
1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was
merely an employee of the Benguet Lumber Company, on the basis of his SSS
coverage effective 1958, Exhibit "3." In the Payrolls, Exhibits "4" to "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.
x

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be

14 |Agency Partnership and Trust

constituted in any form, but when an immovable is constituted, the execution of a


public instrument becomes necessary. This is equally true if the capitalization
exceeds P3,000.00, in which case a public instrument is also necessary, and which is
to be recorded with the Securities and Exchange Commission. In this case at bar, we
can easily assume that the business establishment, which from the language of the
appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
addition to the accumulation of real properties and to the fact that it is now a
compound. The execution of a public instrument, on the other hand, was never
established
by
the
appellees.
And then in 1981, the business was incorporated and the incorporators were only
Lay and the members of his family. There is no proof either that the capital assets of
the partnership, assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then have been treated as
a part of the latters capital assets, contrary to the allegations in pars. 6, 7 and 8 of the
complaint.chanrob1es
virtua1
1aw
1ibrary
These are not evidences supporting the existence of a partnership:chanrob1es virtual
1aw
library
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.chanrob1es virtua1 1aw 1ibrary
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:chanrob1es
virtual
1aw
library
. . . two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.
14
Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common
fund, and (2) they intend to divide the profits among themselves. 15 The agreement
need not be formally reduced into writing, since statute allows the oral constitution
of a partnership, save in two instances: (1) when immovable property or real rights
are contributed, 16 and (2) when the partnership has a capital of three thousand pesos
or more. 17 In both cases, a public instrument is required. 18 An inventory to be
signed by the parties and attached to the public instrument is also indispensable to
the validity of the partnership whenever immovable property is contributed to the
partnership.
19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a
joint venture, which it said is akin to a particular partnership. 20 A particular
partnership is distinguished from a joint adventure, to wit:chanrob1es virtual 1aw
library
(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 coventures or partners, in which each party has an equal proprietary interest in the
capital or property contributed, and where each party exercises equal rights in the
conduct of the business." 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:chanrob1es virtual 1aw library
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

15 |Agency Partnership and Trust

some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
distinguishable from the partnership, since their elements are similar community
of interest in the business, sharing of profits and losses, and a mutual right of control.
(Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdiction is
that the partnership contemplates a general business with some degree of continuity,
while the joint venture is formed for the execution of a single transaction, and is thus
of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed.
811 [1920]). This observation is not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It
would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil.
906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation
Code
1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or
the articles of partnership but there is none. The alleged partnership, though, was
never formally organized. In addition, petitioners point out that the New Civil Code
was not yet in effect when the partnership was allegedly formed sometime in 1945,
although the contrary may well be argued that nothing prevented the parties from
complying with the provisions of the New Civil Code when it took effect on August
30, 1950. But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial evidence. A
review of the record persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners falls short of the
quantum
of
proof
required
to
establish
a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the precise nature of the business relationship
between them. In the absence of evidence, we cannot accept as an established fact
that Tan Eng Kee allegedly contributed his resources to a common fund for the
purpose of establishing a partnership. The testimonies to that effect of petitioners
witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not
with the number of witnesses wherein preponderance lies; 24 the quality of their
testimonies is to be considered. None of petitioners witnesses could suitably account
for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta
whose deceased wife was related to Matilde Abubo. 25 He stated that when he met
Tan Eng Kee after the liberation, the latter asked the former to accompany him to get
80 pieces of G.I. sheets supposedly owned by both brothers. 26 Tan Eng Lay,
however, denied knowledge of this meeting or of the conversation between Peralta

and his brother. 27 Tan Eng Lay consistently testified that he had his business and his
brother had his, that it was only later on that his said brother, Tan Eng Kee, came to
work for him. Be that as it may, co-ownership or co-possession (specifically here, of
the G.I. sheets) is not an indicium of the existence of a partnership. 28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence
of a partnership is that the partners share in the profits and losses. 29 Each has the
right to demand an accounting as long as the partnership exists. 30 We have allowed
a scenario wherein" [i]f excellent relations exist among the partners at the start of the
business and all the partners are more interested in seeing the firm grow rather than
get immediate returns, a deferment of sharing in the profits is perfectly plausible." 31
But in the situation in the case at bar, the deferment, if any, had gone on too long to
be plausible. A person is presumed to take ordinary care of his concerns. 32 As we
explained
in
another
case:chanrob1es
virtual
1aw
library

(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:chanrob1es virtual 1aw library
(a)

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:chanrob1es virtua1 1aw 1ibrary
In determining whether a partnership exists, these rules shall apply:chanrob1es
virtual
1aw
library

16 |Agency Partnership and Trust

(b)

As
As

a
wages

debt
of

an

by
employee

installment
or

rent

or
to

otherwise;
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:chanrob1es virtua1 1aw 1ibrary


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:chanrob1es virtual 1aw
library

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.

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

G.R. No. 78133 October 18, 1988

(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.

MARIANO P. PASCUAL and RENATO P. DRAGON, Petitioners, vs. THE


COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS,Respondents.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound
and this privilege was not accorded to other employees, the undisputed fact remains
that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations
existed between them. Whatever privileges Tan Eng Lay gave his brother, and which
were not given the other employees, only proves the kindness and generosity of Tan
Eng
Lay
towards
a
blood
relative.

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


virtual law library

(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 respondents arguments to be well-taken. Where
circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such as
to support a finding of the existence of the parties intent. 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.

17 |Agency Partnership and Trust

The Solicitor General for respondents


chanrobles virtual law library
GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint
venture
for
income
tax
purposes
is
the
issue
in
this
petition.chanroblesvirtualawlibrarychanrobles 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
toMarenir Development Corporation, while the three parcels of land were sold by
petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles virtual law library
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that
they
had
availed
of
tax
amnesties
way
back
in
1974.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
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, 2affirmed the decision and action taken by respondent
commissioner with costs against petitioners.chanroblesvirtualawlibrary chanrobles
virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a coownership between the petitioners, there was no adequate basis for the conclusion
that they thereby formed an unregistered partnership which made "hem liable for
corporate income tax under the Tax Code.chanroblesvirtualawlibrary chanrobles
virtual law library
Hence, this petition wherein petitioners invoke as basis thereof the following alleged
errors of the respondent court:

18 |Agency Partnership and Trust

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF


THE RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS
FORMED AN UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE
INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION
THERETO
RESTS
UPON
THE
PETITIONERS.chanroblesvirtualawlibrary chanrobles virtual law library
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD
WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP
EXISTS.chanroblesvirtualawlibrary chanrobles virtual law library
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE
EVANGELISTA CASE AND THEREFORE SHOULD BE DECIDED
ALONGSIDE THE EVANGELISTA CASE.chanroblesvirtualawlibrarychanrobles
virtual law library
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE
PETITIONERS FROM PAYMENT OF OTHER TAXES FOR THE PERIOD
COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.chanroblesvirtualawlibrary chanrobles virtual law library
The basis of the subject decision of the respondent court is the ruling of this Court
inEvangelista. 4chanrobles virtual law library
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real properties.
They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to
various tenants for several years and they gained net profits from the rental income.
Thus, the Collector of Internal Revenue demanded the payment of income tax on a
corporation, among others, from them.chanroblesvirtualawlibrary chanrobles virtual
law library
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known as the

National Internal Revenue Code, as well as to the residence tax for corporations and
the real estate dealers' fixed tax. With respect to the tax on corporations, the issue
hinges on the meaning of the terms corporation and partnership as used in sections
24 and 84 of said Code, the pertinent parts of which read: chanrobles virtual law
library
Sec. 24. Rate of the tax on corporations.-There shall be levied, assessed, collected,
and paid annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companies collectives), a tax upon such income equal to the
sum of the following: ...chanroblesvirtualawlibrarychanrobles virtual law library
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participation),
associations or insurance companies, but does not include duly registered general copartnerships (companies colectivas).chanroblesvirtualawlibrary chanrobles virtual
law library
Article 1767 of the Civil Code of the Philippines provides: chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles virtual law library

2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23,
1944, by the acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transcations undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality
peculiar to business transactions engaged in for purposes of gain.
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.chanroblesvirtualawlibrarychanrobles virtual law library
4. Since August, 1945, the properties have been under the management of one
person, namely, Simeon Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit
notes and checks. Thus, the affairs relative to said properties have been handled as if
the same belonged to a corporation or business enterprise operated for
profit. chanrobles virtual law library

Pursuant to this article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and
did, contribute money and property to a common fund.Hence, the issue narrows
down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and then divide the same
among themselves, because: chanrobles virtual law library

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact,
over fifteen (15) years, since the first property was acquired, and over twelve (12)
years,
since
Simeon
Evangelists
became
the
manager.chanroblesvirtualawlibrary chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library

Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only

19 |Agency Partnership and Trust

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.chanroblesvirtualawlibrary chanrobles virtual law library

one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to
contribute money, property or industry to a common fund, and that they intended to
divide the profits among themselves. Respondent commissioner and/ or his
representative just assumed these conditions to be present on the basis of the fact that
petitioners purchased certain parcels of land and became co-owners
thereof.chanroblesvirtualawlibrary chanrobles virtual law library
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation or
preservation of the common fund or even the properties acquired by them. The
character of habituality peculiar to business transactions engaged in for the purpose
of gain was present.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he
said:
I wish however to make the following observation Article 1769 of the new Civil
Code lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides; chanrobles
virtual law library

(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; chanrobles virtual law library
(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 (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.) chanrobles
virtual law library
A joint purchase of land, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142
U.S. 682,12 Ct. 327, 35 L. Ed., 1157.) chanrobles virtual law library
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

20 |Agency Partnership and Trust

partnership existed as between the three parties, whatever their relation may have
been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the
same; (b) generally participating in both profits and losses; (c) and such a
community of interest, as far as third persons are concerned as enables each party to
make contract, manage the business, and dispose of the whole property.-Municipal
Paving Co. vs. Herring 150 P. 1067, 50 III 470.)

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.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.
EN BANC

The common ownership of property does not itself create a partnership between the
owners, though they may use it for the purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management, and use
of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson,
142 S.W. 363,160 No. App. 14.) 6chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual
law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered partnership
with a distinct personality nor with assets that can be held liable for said deficiency
corporate income tax, then petitioners can be held individually liable as partners for
this unpaid obligation of the partnership p. 7However, 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.chanroblesvirtualawlibrary chanrobles virtual law library

21 |Agency Partnership and Trust

G.R. No. L-12541 August 28, 1959


ROSARIO U. YULO, assisted by her husband JOSE C. YULO, PlaintiffsAppellants, vs.YANG CHIAO SENG, Defendant-Appellee.
Punzalan,
Yabut,
Eusebio
&
Tiburcio
Augusto Francisco and Julian T. Ocampo for appellee.

for

appellants.

LABRADOR, J.: chanrobles virtual law library


Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido
A. Tan, presiding, dismissing plaintiff's complaint as well as defendant's
counterclaim.
The
appeal
is
prosecuted
by
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter
to the palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership
between them to run and operate a theatre on the premises occupied by former Cine
Oro at Plaza Sta. Cruz, Manila. The principal conditions of the offer are (1) that Yang
Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000 payable
quarterly in advance within the first 15 days of each quarter, (2) that the partnership
shall be for a period of two years and six months, starting from July 1, 1945 to
December 31, 1947, with the condition that if the land is expropriated or rendered
impracticable for the business, or if the owner constructs a permanent building
thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership
shall be terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct
such business in the lobby of the building as is ordinarily carried on in lobbies of
theatres in operation, provided the said business may not obstruct the free ingress
and agrees of patrons of the theatre; (4) that after December 31, 1947, all

improvements placed by the partnership shall belong to Mrs. Yulo, but if the
partnership agreement is terminated before the lapse of one and a half years period
under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall
have the right to remove and take away all improvements that the partnership may
place in the premises.chanroblesvirtualawlibrary chanrobles virtual law library
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a
partnership agreement establishing the "Yang & Company, Limited," which was to
exist from July 1, 1945 to December 31, 1947. It states that it will conduct and carry
on the business of operating a theatre for the exhibition of motion and talking
pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by
Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be
distributed among the partners in the same proportion as their capital contribution
and the liability of Mrs. Yulo, in case of loss, shall be limited to her capital
contribution (Exh. "B").chanroblesvirtualawlibrary chanrobles virtual law library
In June , 1946, they executed a supplementary agreement, extending the partnership
for a period of three years beginning January 1, 1948 to December 31, 1950. The
benefits are to be divided between them at the rate of 50-50 and after December 31,
1950, the showhouse building shall belong exclusively to the second party, Mrs.
Yulo.chanroblesvirtualawlibrary chanrobles virtual law library
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo
from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract
of lease it was stipulated that the lease shall continue for an indefinite period of time,
but that after one year the lease may be cancelled by either party by written notice to
the other party at least 90 days before the date of cancellation. The last contract was
executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949,
the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the
contract of lease on July 31, 1949. In view of the above notice, Mrs. Yulo and her
husband brought a civil action to the Court of First Instance of Manila on July 3,
1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court
of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The
judgment was appealed. In the Court of First Instance, the two cases were afterwards
heard jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and
her husband, and declaring the contract of lease of the premises terminated as of July
31, 1949, and fixing the reasonable monthly rentals of said premises at P100. Both
parties appealed from said decision and the Court of Appeals, on April 30, 1955,
affirmed the judgment.chanroblesvirtualawlibrary chanrobles virtual law library

22 |Agency Partnership and Trust

On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the
profits of the business. Yang answered the letter saying that upon the advice of his
counsel he had to suspend the payment (of the rentals) because of the pendency of
the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang
alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid to
the lessors the rentals from August, 1949, he was retaining the rentals to make good
to the landowners the rentals due from Mrs. Yulo in arrears (Exh.
"E").chanroblesvirtualawlibrary chanrobles virtual law library
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954, alleging the existence of a partnership
between them and that the defendant Yang Chiao Seng has refused to pay her share
from December, 1949 to December, 1950; that after December 31, 1950 the
partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff
became the absolute owner of the building occupied by the Cine Astor; that the
reasonable rental that the defendant should pay therefor from January, 1951 is
P5,000; that the defendant has acted maliciously and refuses to pay the participation
of the plaintiff in the profits of the business amounting to P35,000 from November,
1949 to October, 1950, and that as a result of such bad faith and malice on the part of
the defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and
exemplary damages to the extent of P5,000. The prayer includes a demand for the
payment of the above sums plus the sum of P10,000 for the attorney's
fees.chanroblesvirtualawlibrary chanrobles virtual law library
In answer to the complaint, defendant alleges that the real agreement between the
plaintiff and the defendant was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around the prohibition contained in
the contract of lease between the owners and the plaintiff against the sublease of the
said property. As to the other claims, he denies the same and alleges that the fair
rental value of the land is only P1,100. By way of counterclaim he alleges that by
reason of an attachment issued against the properties of the defendant the latter has
suffered damages amounting to P100,000.chanroblesvirtualawlibrary chanrobles
virtual law library
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the defendant
and thereafter rendered judgment ordering the defendant to pay to the plaintiff
P41,000 for her participation in the business up to December, 1950; P5,000 as
monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation of the lobby from

July 1, 1945 until defendant vacates the property. This decision, however, was set
aside on a motion for reconsideration. In said motion it is claimed that defendant
failed to appear at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable settlement, would
be granted; that in view of the decision of the Court of Appeals in two previous cases
between the owners of the land and the plaintiff Rosario Yulo, the plaintiff has no
right to claim the alleged participation in the profit of the business, etc. The court,
finding the above motion, well-founded, set aside its decision and a new trial was
held. After trial the court rendered the decision making the following findings: that it
is not true that a partnership was created between the plaintiff and the defendant
because defendant has not actually contributed the sum mentioned in the Articles of
Partnership, or any other amount; that the real agreement between the plaintiff and
the defendant is not of the partnership but one of the lease for the reason that under
the agreement the plaintiff did not share either in the profits or in the losses of the
business as required by Article 1769 of the Civil Code; and that the fact that plaintiff
was granted a "guaranteed participation" in the profits also belies the supposed
existence of a partnership between them. It. therefore, denied plaintiff's claim for
damages
or
supposed
participation
in
the
profits.chanroblesvirtualawlibrary chanrobles virtual law library
As to her claim for damages for the refusal of the defendant to allow the use of the
supposed lobby of the theatre, the court after ocular inspection found that the said
lobby was very narrow space leading to the balcony of the theatre which could not be
used for business purposes under existing ordinances of the City of Manila because it
would constitute a hazard and danger to the patrons of the theatre. The court,
therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on
the ground that the defendant failed to present sufficient evidence to sustain the
same. It is against this decision that the appeal has been prosecuted by plaintiff to
this Court.chanroblesvirtualawlibrary chanrobles virtual law library
The first assignment of error imputed to the trial court is its order setting aside its
former decision and allowing a new trial. This assignment of error is without merit.
As that parties agreed to postpone the trial because of a probable amicable
settlement, the plaintiff could not take advantage of defendant's absence at the time
fixed for the hearing. The lower court, therefore, did not err in setting aside its
former judgment. The final result of the hearing shown by the decision indicates that
the setting aside of the previous decision was in the interest of
justice.chanroblesvirtualawlibrary chanrobles virtual law library

23 |Agency Partnership and Trust

In the second assignment of error plaintiff-appellant claims that the lower court erred
in not striking out the evidence offered by the defendant-appellee to prove that the
relation between him and the plaintiff is one of the sublease and not of partnership.
The action of the lower court in admitting evidence is justified by the express
allegation in the defendant's answer that the agreement set forth in the complaint was
one of lease and not of partnership, and that the partnership formed was adopted in
view of a prohibition contained in plaintiff's lease against a sublease of the
property.chanroblesvirtualawlibrary chanrobles virtual law library
The most important issue raised in the appeal is that contained in the fourth
assignment of error, to the effect that the lower court erred in holding that the written
contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease
and not of partnership. We have gone over the evidence and we fully agree with the
conclusion of the trial court that the agreement was a sublease, not a partnership. The
following are the requisites of partnership: (1) two or more persons who bind
themselves to contribute money, property, or industry to a common fund; (2)
intention on the part of the partners to divide the profits among themselves. (Art.
1767, Civil Code.).chanroblesvirtualawlibrary chanrobles virtual law library
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre.
In the third place, it does not appear that she has ever demanded from defendant any
accounting of the expenses and earnings of the business. Were she really a partner,
her first concern should have been to find out how the business was progressing,
whether the expenses were legitimate, whether the earnings were correct, etc. She
was absolutely silent with respect to any of the acts that a partner should have done;
all that she did was to receive her share of P3,000 a month, which can not be
interpreted in any manner than a payment for the use of the premises which she had
leased from the owners. Clearly, plaintiff had always acted in accordance with the
original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both
parties
considered
this
offer
as
the
real
contract
between
them.chanroblesvirtualawlibrary chanrobles virtual law library
Plaintiff claims the sum of P41,000 as representing her share or participation in the
business from December, 1949. But the original letter of the defendant, Exh. "A",
expressly states that the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the lease. Plaintiff's right
having terminated in July, 1949 as found by the Court of Appeals, the partnership
agreement or the agreement for her to receive a participation of P3,000 automatically
ceased as of said date.chanroblesvirtualawlibrary chanrobles virtual law library

We find no error in the judgment of the court below and we affirm it in toto, with
costs against plaintiff-appellant.chanroblesvirtualawlibrary chanrobles virtual law
library
Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.
THIRD
[G.R.

DIVISION
No.

172690

March

03,

2010]

HEIRS OF JOSE LIM, REPRESENTED BY ELENITO LIM, PETITIONERS,


VS.
JULIET
VILLA
LIM,
RESPONDENT.

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
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.

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) Decision [2] 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 P50,000.00 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

24 |Agency Partnership and Trust

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 P50,000.00 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:

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 Resolution [6] 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]

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)
(4)
(5)

Where
When

the

When

there
judgment
the

is

a
is

grave

based

findings

on

abuse
a

of

of

misapprehension
fact

are

discretion;
of

facts;

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;

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]

(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

Respondent counters that the issue raised by petitioners is not proper in a petition for
review oncertiorari 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 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.

We resolve first the procedural matter regarding the propriety of the instant Petition.
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

(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]

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

25 |Agency Partnership and Trust

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.

Art. 1769. In determining whether a partnership exists, these rules shall apply:

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- -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:

(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;

SECTION I. Preponderance of evidence, how determined. In civil cases, the party


having burden of proof must establish his case by a preponderance of 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:

(1) Except as provided by Article 1825, persons who are not partners as to each other
are
not
partners
as
to
third
persons;

(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;
(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 P50,000.00, 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]

26 |Agency Partnership and Trust

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 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.
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.

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:jgc:chanrobles.com.ph
"WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner]." 3
Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution
ruled
as
follows:chanrob1es
virtua1
1aw
1ibrary
"WHEREFORE, [respondents] motion for reconsideration is GRANTED.
Accordingly, the courts decision dated November 28, 1997 is hereby MODIFIED in
that the decision appealed from is AFFIRMED in toto, with costs against
[petitioner]."
4
The October 9, 1998 Resolution denied "for lack of merit" petitioners Motion for
Reconsideration of the August 17, 1998 Resolution. 5
The Facts

SO ORDERED.
THIRD
[G.R.

DIVISION
No.

135813.

October

25,

2001.]

FERNANDO SANTOS, Petitioner, v. Spouses ARSENIO and NIEVES


REYES, Respondents.
DECISION

27 |Agency Partnership and Trust

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


follows:jgc:chanrobles.com.ph
"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
. . . Nieves and Zabat would earn 15% each.

"In July, 1986, . . . Nieves introduced Cesar Gragera to [petitioner]. Gragera, as


chairman of the Monte Maria Development Corporation 6 (Monte Maria, for
brevity), sought short-term loans for members of the corporation. [Petitioner] and
Gragera executed an agreement providing funds for Monte Marias members. Under
the agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh.A). . . . Nieves kept the
books as representative of [petitioner] while [Respondent] Arsenio, husband of
Nieves, acted as credit investigator.
"On August 6, 1986, [petitioner], . . . [Nieves] and Zabat executed the Article of
Agreement which formalized their earlier verbal arrangement.
" [Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the
same lending business in competition with their partnership[.] Zabat was thereby
expelled from the partnership. The operations with Monte Maria continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as
employees of [petitioner], with having misappropriated funds intended for Gragera
for the period July 8, 1986 up to March 31, 1987. Upon Grageras complaint that his
commissions were inadequately remitted, [petitioner] entrusted P200,000.00 to . . .
Nieves to be given to Gragera. . . . 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.
". . . Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat
after [petitioner] learned of Zabats activities. Arsenio resigned from his job at the
Asian Development Bank to join the partnership.
"For her part, . . . Nieves claimed that she participated in the business as a partner, as
the lending activity with Monte Maria originated from her initiative. Except for the
limited period of July 8, 1986 through August 20, 1986, she did not handle sums
intended for Gragera. Collections were turned over to Gragera because he guaranteed
100% payment of all sums loaned by Monte Maria. Entries she made on worksheets
were based on this assumptive 100% collection of all loans. The loan releases were
made less Grageras agreed commission. Because of this arrangement, she neither
received payments from borrowers nor remitted any amount to Gragera. Her job was
merely to make worksheets (Exhs.15 to 15-DDDDDDDDDD) to convey to
[petitioner] how much he would earn if all the sums guaranteed by Gragera were
collected.

28 |Agency Partnership and Trust

" [Petitioner] on the other hand insisted that [respondents] were his mere employees
and not partners with respect to the agreement with Gragera. He claimed that after he
discovered Zabats activities, he ceased infusing funds, thereby causing the
extinguishment of the partnership. The agreement with Gragera was a distinct
partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with respect to the partnership
between [petitioner] and Gragera.
" [Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all
payments from which Nieves deducted Grageras commission. The commission
would then be remitted to Gragera. She likewise determined loan releases.
"During the pre-trial, the parties narrowed the issues to the following points: whether
[respondents] were employees or partners of [petitioner], whether [petitioner]
entrusted money to [respondents] for delivery to Gragera, whether the P1,555,068.70
claimed under the complaint was actually remitted to Gragera and whether
[respondents] were entitled to their counterclaim for share in the profits." 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:jgc:chanrobles.com.ph
"39. WHEREFORE, the Court hereby renders judgment as follows:chanrob1es
virtual 1aw library
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:chanrob1es virtual 1aw library
39.2.1. P3,064,428.00 - The 15 percent share of the
[respondent] NIEVES S. REYES
in the profits of her joint venture
with the [petitioner].
39.2.2. Six(6) percent of - As damages from August 3,

P3,064,428.00 1987 until the P3,064,428.00


is fully paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent]
ARSENIO REYES, the following:chanrob1es virtual 1aw library
39.3.1. P2,899,739.50 - The balance of the 15 percent
share of the [respondent]

The CA ruled that the following circumstances indicated the existence of a


partnership among the parties: (1) it was Nieves who broached to petitioner the idea
of starting a money-lending business and introduced him to Gragera; (2) Arsenio
received "dividends" or "profit-shares" covering the period July 15 to August 7, 1986
(Exh. "6"); and (3) the partnership contract was executed after the Agreement with
Gragera and petitioner and thus showed the parties intention to consider it as a
transaction of the partnership. In their common venture, petitioner invested capital
while respondents contributed industry or services, with the intention of sharing in
the
profits
of
the
business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of
P200,000 which was supposed to be delivered to Gragera to cover unpaid
commissions. It was his task to collect the amounts due, while hers was merely to
prepare the daily cash flow reports (Exhs. "15-15DDDDDDDDDD") to keep track of
his
collections.

ARSENIO REYES in the profits


Hence,

this

Petition.

of his joint venture with the


Issue
[petitioner].
Petitioner

asks

this

Court

to

rule

on

the

following

issues:

10

39.3.2. Six(6) percent of - As damages from August 3,


P2,899,739.50 1987 until the P2,899,739.50 is
fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the
[respondents]:chanrob1es virtual 1aw library

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:chanrob1es virtual 1aw library
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;

39.4.1. P50,000.00 - As attorneys fees; and


39.4.2. The cost of the suit." 8

4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes of


P200,000.00
for
delivery
to
Gragera;

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of
respondents was dismissed. Upon the latters Motion for Reconsideration, however,
the trial courts Decision was reinstated in toto. Subsequently, petitioners own
Motion for Reconsideration was denied in the CA Resolution of October 9, 1998.

29 |Agency Partnership and Trust

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."cralaw
virtua1aw
library

Succinctly put, the following were the issues raised by petitioner: (1) whether the
parties relationship was one of partnership or of employer employee; (2) whether
Nieves misappropriated the sums of money allegedly entrusted to her for delivery to
Gragera as his commissions; and (3) whether respondents were entitled to the
partnership profits as determined by the trial court.
The Courts Ruling
The

Petition

First

Issue:chanrob1es

is

partly
virtual

Business

meritorious.
1aw

library
Relationship

Petitioner maintains that he employed the services of respondent spouses in the


money-lending venture with Gragera, with Nieves as bookkeeper and Arsenio as
credit investigator. That Nieves introduced Gragera to Santos did not make her a
partner. She was only a witness to the Agreement between the two. Separate from the
partnership between petitioner and Gragera was that which existed among petitioner,
Nieves and Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions
and ruled that the business relationship was one of partnership. We quote from the
CA
Decision,
as
follows:jgc:chanrobles.com.ph
" [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.
x

30 |Agency Partnership and Trust

"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 lions 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
petitioners employee. She discharged her bookkeeping duties in accordance with
paragraphs 2 and 3 of the Agreement, which states as follows:jgc:chanrobles.com.ph
"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and
screening of prospective borrowers, and shall . . . 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, Arsenios duties as credit investigator are subsumed under the phrase
"screening of prospective borrowers." Because of this Agreement and the
disbursement of monthly "allowances" and "profit shares" or "dividends" (Exh. "6")
to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the
partnership.
Indeed, the partnership was established to engage in a money-lending business,
despite the fact that it was formalized only after the Memorandum of Agreement had
been signed by petitioner and Gragera. Contrary to petitioners contention, there is
no evidence to show that a different business venture is referred to in this Agreement,
which was executed on August 6, 1986, or about a month after the Memorandum had
been signed by petitioner and Gragera on July 14, 1986. The Agreement itself attests
to
this
fact:jgc:chanrobles.com.ph

"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
No

Issue:chanrob1es
Proof

virtual
of

Grageras

1aw

library

Misappropriation

Unpaid

of
Commission

Petitioner faults the CA finding that Nieves did not misappropriate money intended
for Grageras commission. According to him, Gragera remitted his daily collection to
Nieves. This is shown by Exhibit "B." (the "Schedule of Daily Payments"), which
bears her signature under the words "received by." For the period July 1986 to March
1987, Gragera should have earned a total commission of P4,282,429.30. However,
only P3,068,133.20 was received by him. Thus, petitioner infers that she
misappropriated the difference of P1,214,296.10, which represented the unpaid
commissions. Exhibit "H." is an untitled tabulation which, according to him, shows
that Gragera was also entitled to a commission of P200,000, an amount that was
never
delivered
by
Nieves.
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:jgc:chanrobles.com.ph
"The presentation of Exhibit "D" vaguely denominated as members ledger does not
clearly establish that Nieves received amounts from Monte Marias members. The
document does not clearly state what amounts the entries thereon represent. More
importantly, Nieves made the entries for the limited period of January 11, 1987 to
February 17, 1987 only while the rest were made by Grageras own staff.
"Neither can we give probative value to Exhibit E which allegedly shows
acknowledgment of the remittance of commissions to Verona Gonzales. The
document is a private one and its due execution and authenticity have not been duly
proved as required in [S]ection 20, Rule 132 of the Rules of Court which
states:chanrob1es
virtual
1aw
library
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:chanrob1es
virtual
1aw
library

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:chanrob1es
virtual
1aw
library
. . . . 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.
x

"Nieves testimony that the schedules of daily payment (Exhs.B and F) were
based on the predetermined 100% collection as guaranteed by Gragera is credible
and clearly in accord with the evidence. A perusal of Exhs. "B" and "F" as well as
Exhs.15 to 15-DDDDDDDDDD reveal that the entries were indeed based on the
100% assumptive collection guaranteed by Gragera. Thus, the total amount recorded
on Exh.B is exactly the number of borrowers multiplied by the projected collection
of
P150.00
per
borrower.
This
holds
true
for
Exh.F.
"Corollarily, Nieves explanation that the documents were pro forma and that she
signed them not to signify that she collected the amounts but that she received the
documents themselves is more believable than [petitioners] assertion that she
actually
handled
the
amounts.
"Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish
that . . . Nieves received P200,000.00 as commission for Gragera. As correctly stated
by the court a quo, the document showed a liquidation of P240.000 00 and not
P200,000.00.
"Accordingly, we find Nieves testimony that after August 20, 1986, all collections
were made by Gragera believable and worthy of credence. Since Gragera guaranteed
a daily 100% payment of the loans, he took charge of the collections. As
[petitioners]
representative,

or

Nieves merely prepared the daily cash flow reports (Exh.15 to 15


DDDDDDDDDD) to enable [petitioner] to keep track of Grageras operations.
Gragera on the other hand devised the schedule of daily payment (Exhs.B and F)
to
record
the
projected
gross
daily
collections.

(b) By evidence of the genuineness of the signature or handwriting of the maker.

"As aptly observed by the court a quo:chanrob1es virtual 1aw library

(a)

By

anyone

who

saw

the

document

31 |Agency Partnership and Trust

executed

or

written;

26.1. As between the versions of SANTOS and NIEVES on how the commissions
of GRAGERA [were] paid to him[,] that of NIEVES is more logical and practical
and therefore, more believable. SANTOS version would have given rise to this
improbable situation: GRAGERA would collect the daily amortizations and then
give them to NIEVES; NIEVES would get GRAGERAs commissions from the
amortizations and then give such commission to GRAGERA." 17
These findings are in harmony with the trial courts ruling, which we quote
below:jgc:chanrobles.com.ph
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received
P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column
ADDITIONAL CASH that the additional cash was P240,000.00. If Exh. H were
the liquidation of the P200,000.00 as alleged by SANTOS, then his claim is not true.
This is so because it is a liquidation of the sum of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00
to GRAGERA when he received the latters letter complaining of its delayed release.
Assuming as true SANTOS claim that he gave P200,000.00 to GRAGERA, there is
no competent evidence that NIEVES did not give it to GRAGERA. The only proof
that NIEVES did not give it is the letter. But SANTOS did not even present the letter
in
evidence.
He
did
not
explain
why
he
did
not.
"21.2. The evidence shows that all money transactions of the money-lending
business of SANTOS were covered by petty cash vouchers. It is therefore strange
why SANTOS did not present any voucher or receipt covering the P200,000.00." 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
Accounting

Issue:chanrob1es

virtual
of

1aw

library

Respondent spouses, on the other hand, postulate that petitioner instituted the action
below to avoid payment of the demands of Nieves, because sometime in March
1987, she "signified to petitioner that it was about time to get her share of the profits
which had already accumulated to some P3 million." Respondents add that while the
partnership has not declared dividends or liquidated its earnings, the profits are
already reflected on paper. To prove the counterclaim of Nieves, the spouses show
that from June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs.
"10" et seq. and "15" et seq.). Based on that income, her 15 percent share under the
joint venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenios, P2,026,000
minus the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs.
"6,
6-A
to
6-B").
The CA originally held that respondents counterclaim was premature, pending an
accounting of the partnership. However, in its assailed Resolution of August 17,
1998, it turned volte face. Affirming the trial courts ruling on the counterclaim, it
held
as
follows:jgc:chanrobles.com.ph
"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 courts ruling alluded to above is quoted below:jgc:chanrobles.com.ph
"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

Petitioner refuses any liability for respondents claims on the profits of the

32 |Agency Partnership and Trust

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."cralaw
virtua1aw
library

"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.chanrob1es virtua1 1aw 1ibrary
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

33 |Agency Partnership and Trust

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.25cralaw:red
When the judgment of the CA is premised on a misapprehension of facts or a failure
to notice certain relevant facts that would otherwise justify a different conclusion, as
in this particular issue, a review of its factual findings may be conducted, as an
exception to the general rule applied to the first two issues. 26
The trial court has the advantage of observing the witnesses while they are testifying,
an opportunity not available to appellate courts. Thus, its assessment of the
credibility of witnesses and their testimonies are accorded great weight, even finality,
when supported by substantial evidence; more so when such assessment is affirmed
by the CA. But when the issue involves the evaluation of exhibits or documents that
are attached to the case records, as in the third issue, the rule may be relaxed. Under
that situation, this Court has a similar opportunity to inspect, examine and evaluate
those records, independently of the lower courts. Hence, we deem the award of the
partnership share, as computed by the trial court and adopted by the CA, to be
incomplete
and
not
binding
on
this
Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997
Decision is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and
October 9, 1998 are REVERSED and SET ASIDE. No costs.
SO ORDERED.
SECOND DIVISION
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
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS,Respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:

This case is about the income tax liability of four brothers and sisters who sold two
parcels
of
land
which
they
had
acquired
from
their
father.chanroblesvirtualawlibrarychanrobles virtual law library

The petitioners contested the assessments. Two Judges of the Tax Court sustained the
same.
Judge
Roaquin
dissented.
Hence,
the
instant
appeal.chanroblesvirtualawlibrary chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library

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.chanroblesvirtualawlibrary chanrobles virtual law library

In 1974, or after having held the two lots for more than a year, the petitioners resold
them to the Walled City Securities Corporation and Olga Cruz Canda for the total
sum of P313,050 (Exh. C and D). They derived from the sale a total profit of
P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain
and
paid
an
income
tax
on
one-half
thereof
or
of
P16,792.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
Not only that. He considered the share of the profits of each petitioner in the sum of
P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and
required them to pay deficiency income taxes aggregating P56,707.20 including the
50%
fraud
surcharge
and
the
accumulated
interest.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102
Phil. 822).chanroblesvirtualawlibrarychanrobles virtual law library

34 |Agency Partnership and Trust

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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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 coownership. 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 Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la
sociedad? chanrobles virtual law library
El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen,
en que la sociedad presupone necesariamente la convencion, mentras que la
comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto,
en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es
solo mantener en su integridad la cosa comun y favorecer su
conservacion.chanroblesvirtualawlibrarychanrobles virtual law library
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice
que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la
linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna

orientacion de la doctrina cientifica seala como nota fundamental de diferenciacion


aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun partible en la sociedad, y mera
conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2,
Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not
of itself establish a partnership, whether or not the persons sharing them have a joint
or common right or interest in any property from which the returns are derived".
There must be an unmistakable intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil.
666, where 15 persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide the prize The ticket
won the third prize of P50,000. The 15 persons were held liable for income tax as an
unregistered partnership.chanroblesvirtualawlibrarychanrobles virtual law library
The instant case is distinguishable from the cases where the parties engaged in joint
ventures for profit. Thus, in Oa vs.chanroblesvirtualawlibrary chanrobles virtual
law library
** This view is supported by the following rulings of respondent Commissioner:
Co-owership distinguished from partnership.-We find that the case at bar is
fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa
heirs inherited the 'hacienda' in question pro-indiviso from their deceased parents;
they did not contribute or invest additional ' capital to increase or expand the
inherited properties; they merely continued dedicating the property to the use to
which it had been put by their forebears; they individually reported in their tax
returns their corresponding shares in the income and expenses of the 'hacienda', and
they continued for many years the status of co-ownership in order, as conceded by
respondent, 'to preserve its (the 'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de Bais for milling purposes. Longa
vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered pratnership.-Co-Ownership who own
properties which produce income should not automatically be considered partners of

35 |Agency Partnership and Trust

an unregistered partnership, or a corporation, within the purview of the income tax


law. To hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a
property does not produce an income at all, it is not subject to any kind of income
tax, whether the income tax on individuals or the income tax on corporation. (De
Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Araas, 1977 Tax
Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where
after an extrajudicial settlement the co-heirs used the inheritance or the incomes
derived therefrom as a common fund to produce profits for themselves, it was held
that
they
were
taxable
as
an
unregistered
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA
198, where father and son purchased a lot and building, entrusted the administration
of the building to an administrator and divided equally the net income, and from
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three
Evangelista sisters bought four pieces of real property which they leased to various
tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had
formed an unregistered partnership.chanroblesvirtualawlibrary chanrobles virtual law
library
In the instant case, what the Commissioner should have investigated was whether the
father donated the two lots to the petitioners and whether he paid the donor's tax (See
Art. 1448, Civil Code). We are not prejudging this matter. It might have already
prescribed.chanroblesvirtualawlibrary chanrobles virtual law library
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.chanroblesvirtualawlibrary chanrobles virtual
law library
SO ORDERED.