HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals in CA-G.R. CV
No. 47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos,
Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19, 1990. The
complaint,3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged partnership formed after
World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended complaint 4 impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until
Tan Eng Kee's death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng
Lay and his children caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse
to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12, 1995, to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

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

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture and/or particular partnership called Benguet
Lumber and as such should share in the profits and/or losses of the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular partnership have descended to the plaintiffs who are
his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber Company Inc. to render an accounting of all the assets of
Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until such time that said corporation is finally
liquidated are directed to submit the name of any person they want to be appointed as receiver failing in which this Court will appoint the Branch Clerk of Court or
another one who is qualified to act as such.
 g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision reversing the judgment of the trial court. Petitioners'
motion for reconsideration7 was denied by the Court of Appeals in a Resolution8 dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial
proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere
employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia,
Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment9 dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).

II

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

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE
COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
 IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO
TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN
BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT
CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on appeal if such are supported by the evidence.10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:

Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan,
the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise
only questions of law which must be distinctly set forth.11 [emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis on which the lower court rendered judgment. Review of
factual issues is therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to the admissions of both appellant and
appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different conclusion;

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

(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are contradicted by the evidence on record.12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of a partnership, the Court in turn went beyond that by
justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal proprietary interest and the exercise by the parties equally
of the conduct of the business, thus:

xxx xxx xxx

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

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting
corresponding to the period after the war until Kee's death in 1984. It had no business book, no written account nor any memorandum for that matter and no license
mentioning the existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only
registered owner of the Benguet Lumber and Hardware. His application for registration, effective 1954, in fact mentioned that his business started in 1945 until 1985
(thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS coverage
effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed only as an employee; precisely, he was
on the payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an immovable is constituted, the execution of a public
instrument becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public instrument is also necessary, and which is to be
recorded with the Securities and Exchange Commission. In this case at bar, we can easily assume that the business establishment, which from the language of the
appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties and to the fact that it is now a
compound. The execution of a public instrument, on the other hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There is no proof either that the capital assets of
the partnership, assuming them to be in existence, were maliciously assigned or transferred by Lay, supposedly to the corporation and since then have been treated as
a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in Trinidad, but within the compound of the lumber
establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding people" as testified to by the son, Elpidio Tan; 3) that
both were supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of
the G.I. sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if it involves real property or where the capital is
P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry contribution; 4)
community of funds and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being
 the true test of the partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter to be divided, must be established. We
cannot see these elements from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture.
In this connection, we have held that whether a partnership exists is a factual matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain
inquiries relative to the correctness of the assessment of the evidence by the court a quo.13 Inasmuch as the Court of Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where:

. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.14

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a
common fund, and (2) they intend to divide the profits among themselves.15 The agreement need not be formally reduced into writing, since statute allows the oral
constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed, 16 and (2) when the partnership has a capital of three
thousand pesos or more.17 In both cases, a public instrument is required.18 An inventory to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property is contributed to the partnership. 19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a particular partnership.20 A particular partnership is
distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm name and no legal personality. In a joint account,
the participating merchants can transact business under their own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a successful termination may continue for a
number of years; a partnership generally relates to a continuing business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary interest in the capital or
property contributed, and where each party exercises equal rights in the conduct of the business." 22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing
Corporation, et. al.,23 we expressed the view that a joint venture may be likened to a particular partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are similar — community of
interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdiction is that
the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus
of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95
Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never
formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the
contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. But all that is
in the past. The net effect, however, is that we are asked to determine whether a partnership existed based purely on circumstantial evidence. A review of the record persuades
us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a
partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between
them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing
a partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses
wherein preponderance lies;24 the quality of their testimonies is to be considered. None of petitioners' witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the latter asked
the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. 26Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.27 Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on that his said brother,
Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses.29 Each has the right to demand an accounting as long as the partnership exists.30 We have allowed a scenario
wherein "[i]f excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible."31 But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person
is presumed to take ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help or intervention in the management of the
theatre. In the third place, it does not appear that she has even demanded from defendant any accounting of the expenses and earnings of the business. Were she
really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were
correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000.00 a month,
which cannot be interpreted in any manner than a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between
them.33 [emphasis supplied]

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

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet
Lumber, as it was then called. The authenticity of these documents was questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife
and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of an
employee. In connection therewith, Article 1769 of the Civil Code provides:

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

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

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of
the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any
property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

 (c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners
would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly
representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet
Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves,
which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the employees; that both were the ones who determined the price at which the stocks were to be sold; and that both
placed orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber
Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted in favor of Tan Eng Kee, were indicative of his being a
partner in Benguet Lumber for the following reasons:

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

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from suppliers for and in behalf of Benguet
Lumber. Furthermore, even a partner does not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a partner.

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

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the pricing of stocks, this does not adequately prove the existence of
a partnership relation between them. Even highly confidential employees and the owners of a company sometimes argue with respect to certain matters which, in no
way indicates that they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the parties' intent. 36 Yet, in the case at bench, even the
aforesaid circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet
Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. He would
have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority
over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is herebyAFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

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

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

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan
Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes
and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in
the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as
alleged deficiency corporate income taxes for the years 1968 and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties way back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National
Internal Revenue Code 1 that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is
subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities
but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due course, the respondent court by a majority decision of
March 30, 1987, 2 affirmed the decision and action taken by respondent commissioner with costs against petitioners.

It ruled that on the basis of the principle enunciated in Evangelista 3

an unregistered partnership was in fact formed by petitioners which like a corporation was subject to
corporate income tax distinct from that imposed on the partners.

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

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

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.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE
REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA
CASE.
 D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH
AMNESTY. (pp. 12-13, Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

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

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:

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: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participation),
associations or insurance companies, but does not include duly registered general co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves.

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

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

2. They invested the same, not merely in one transaction, but in a series of 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.

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.

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

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such
as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the
cases cited by petitioners herein, and, hence, those cases are not in point. 5

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to
divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners
purchased certain parcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was not limited to the conservation or preservation
of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon. In 1966, they bought another three (3)
parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three
(3) parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present.

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

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the
use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in
any property from which the returns are derived;

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

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

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

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common, and to divide the profits of
disposing of it, the brother and the other not being entitled to share in plaintiffs commission, no partnership existed as between the three parties, whatever
their relation may have been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

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.)

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

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must
be a clear intent to form a partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the
whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the proposition that they thereby formed an
unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners. They
shared in the gross profits as co- owners and paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

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

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.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 135813 October 25, 2001

FERNANDO SANTOS, petitioner,
vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.

PANGANIBAN, J.:

As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding on the Supreme Court. However, there are several exceptions to this
principle. In the present case, we find occasion to apply both the rule and one of the exceptions.

The Case

Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,1 as well as the August 17, 1998 and the October 9, 1998 Resolutions,2 issued by the
Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows:

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

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

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

The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for Reconsideration of the August 17, 1998 Resolution.5

The Facts

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

"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were introduced to each other by one Meliton Zabat regarding a lending
business venture proposed by Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] take charge of solicitation of
members and collection of loan payments. The venture was launched on June 13, 1986, with the understanding that [petitioner] would receive 70% of the profits while
x x x Nieves and Zabat would earn 15% each.

"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte Maria Development Corporation6 (Monte Maria, for brevity),
sought short-term loans for members of the corporation. [Petitioner] and Gragera executed an agreement providing funds for Monte Maria's members. Under the
agreement, Monte Maria, represented by Gragera, was entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit investigator.

"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of Agreement' which formalized their earlier verbal arrangement.

"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending business in competition with their partnership[.] Zabat was thereby
expelled from the partnership. The operations with Monte Maria continued.

"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner] charged [respondents], allegedly in their capacities as
employees of [petitioner], with having misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon Gragera's complaint that his
commissions were inadequately remitted, [petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragerax x x . Nieves allegedly failed to account for the
amount. [Petitioner] asserted that after examination of the records, he found that of the total amount of P4,623,201.90 entrusted to [respondents], only P3,068,133.20
was remitted to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.
 "In their answer, [respondents] asserted that they were partners and not mere employees of [petitioner]. The complaint, they alleged, was filed to preempt and prevent
them from claiming their rightful share to the profits of the partnership.

"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner] learned of Zabat's activities. Arsenio resigned from his job at the
Asian Development Bank to join the partnership.

"For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending activity with Monte Maria originated from her initiative. Except for
the limited period of July 8, 1986 through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned over to Gragera because he
guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made on worksheets were based on this assumptive 100% collection of all loans. The loan
releases were made less Gragera's agreed commission. Because of this arrangement, she neither received payments from borrowers nor remitted any amount to
Gragera. Her job was merely to make worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.

"[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners with respect to the agreement with Gragera. He claimed that after
he discovered Zabat's activities, he ceased infusing funds, thereby causing the extinguishment of the partnership. The agreement with Gragera was a distinct
partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents] were hired as salaried employees with respect to the partnership between
[petitioner] and Gragera.

"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she received all payments from which Nieves deducted Gragera's commission. The commission
would then be remitted to Gragera. She likewise determined loan releases.

"During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were employees or partners of [petitioner], whether [petitioner]
entrusted money to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to Gragera and whether
[respondents] were entitled to their counterclaim for share in the profits."7

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere employees, of petitioner. It further ruled that Gragera was only a commission
agent of petitioner, not his partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves. Thus, respondents' counterclaim for their share in the
partnership and for damages was granted. The trial court disposed as follows:

"39. WHEREFORE, the Court hereby renders judgment as follows:

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent]
NIEVES S. REYES, the following:
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES S.
REYES in the profits of her joint venture with the
[petitioner].
39.2.2. Six(6) percent of - As damages from August 3, 1987 until the P3,064,428.00
P3,064,428.00 is fully paid.
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent]
ARSENIO REYES, the following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent]
ARSENIO REYES in the profits of his joint venture with the
[petitioner].
39.3.2. Six(6) percent of - As damages from August 3, 1987 until the P2,899,739.50
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]:
39.4.1. P50,000.00 - As attorney's fees; and
39.4.2. The cost of the suit."8

Ruling of the Court of Appeals

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

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

partnership among the parties: (1) it was Nieves who broached to petitioner
the idea of starting a money-lending business and introduced him to Gragera;
(2) Arsenio received "dividends" or "profit-shares" covering the period July 15
to August 7, 1986 (Exh. "6"); and (3) the partnership contract was executed
after the Agreement with Gragera and petitioner and thus showed the parties'
intention to consider it as a transaction of the partnership. In their common
venture, petitioner invested capital while respondents contributed industry or
services, with the intention of sharing in the profits of the business.

The CA disbelieved petitioner's claim that Nieves had misappropriated a total of

P200,000 which was supposed to be delivered to Gragera to cover unpaid
commissions. It was his task to collect the amounts due, while hers was merely
to prepare the daily cash flow reports (Exhs. "15-15DDDDDDDDDD") to keep
track of his collections.

Hence, this Petition.9

Issue

Petitioner asks this Court to rule on the following issues:10

"Whether or not Respondent Court of Appeals acted with grave abuse

of discretion tantamount to excess or lack of jurisdiction in:

1. Holding that private respondents were partners/joint venturers and

not employees of Santos in connection with the agreement between
Santos and Monte Maria/Gragera;

2. Affirming the findings of the trial court that the phrase 'Received by'
on documents signed by Nieves Reyes signified receipt of copies of the
 documents and not of the sums shown thereon;

3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a

forgery;

4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes
of P200,000.00 for delivery to Gragera;

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

6. Affirming the decision of the trial court, upholding private

respondents' counterclaim;

7. Denying Santos' motion for reconsideration dated September 11,

1998."

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

The Court's Ruling

The Petition is partly meritorious.

First Issue:
Business Relationship

Petitioner maintains that he employed the services of respondent spouses in

the money-lending venture with Gragera, with Nieves as bookkeeper and
Arsenio as credit investigator. That Nieves introduced Gragera to Santos did not
make her a partner. She was only a witness to the Agreement between the
two. Separate from the partnership between petitioner and Gragera was that
which existed among petitioner, Nieves and Zabat, a partnership that was
dissolved when Zabat was expelled.

On the other hand, both the CA and the trial court rejected petitioner's
contentions and ruled that the business relationship was one of partnership. We
quote from the CA Decision, as follows:

"[Respondents] were industrial partners of [petitioner]x x x . Nieves

herself provided the initiative in the lending activities with Monte
Maria. In consonance with the agreement between appellant, Nieves
and Zabat (later replaced by Arsenio), [respondents] contributed
industry to the common fund with the intention of sharing in the
profits of the partnership. [Respondents] provided services without
which the partnership would not have [had] the wherewithal to carry
on the purpose for which it was organized and as such [were]
 considered industrial partners (Evangelista v. Abad Santos, 51 SCRA
416 [1973]).

"While concededly, the partnership between [petitioner,] Nieves and

Zabat was technically dissolved by the expulsion of Zabat therefrom,
the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution.
Instead, they invited Arsenio to participate as a partner in their
operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio
simply took over and continued the business of the former partnership
with Zabat, one of the incidents of which was the lending operations
with Monte Maria.

xxx xxx xxx

"Gragera and [petitioner] were not partners. The money-lending

activities undertaken with Monte Maria was done in pursuit of the
business for which the partnership between [petitioner], Nieves and
Zabat (later Arsenio) was organized. Gragera who represented Monte
Maria was merely paid commissions in exchange for the collection of
loans. The commissions were fixed on gross returns, regardless of the
expenses incurred in the operation of the business. The sharing of
gross returns does not in itself establish a partnership."11

We agree with both courts on this point. By the contract of partnership, two or
more persons bind themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among
themselves.12 The "Articles of Agreement" stipulated that the signatories shall
share the profits of the business in a 70-15-15 manner, with petitioner getting
the lion's share.13 This stipulation clearly proved the establishment of a
partnership.

We find no cogent reason to disagree with the lower courts that the partnership
continued lending money to the members of the Monte Maria Community
Development Group, Inc., which later on changed its business name to Private
Association for Community Development, Inc. (PACDI). Nieves was not merely
petitioner's employee. She discharged her bookkeeping duties in accordance
with paragraphs 2 and 3 of the Agreement, which states as follows:

"2. That the SECOND PARTY and THIRD PARTY shall handle the
solicitation and screening of prospective borrowers, and shall x x x
each be responsible in handling the collection of the loan payments of
the borrowers that they each solicited.

"3. That the bookkeeping and daily balancing of account of the

business operation shall be handled by the SECOND PARTY."14

The "Second Party" named in the Agreement was none other than Nieves
Reyes. On the other hand, Arsenio's duties as credit investigator are subsumed
under the phrase "screening of prospective borrowers." Because of this
Agreement and the disbursement of monthly "allowances" and "profit shares"
or "dividends" (Exh. "6") to Arsenio, we uphold the factual finding of both
courts that he replaced Zabat in the partnership.

Indeed, the partnership was established to engage in a money-lending

business, despite the fact that it was formalized only after the Memorandum of
Agreement had been signed by petitioner and Gragera. Contrary to petitioner's
contention, there is no evidence to show that a different business venture is
referred to in this Agreement, which was executed on August 6, 1986, or about
a month after the Memorandum had been signed by petitioner and Gragera on
July 14, 1986. The Agreement itself attests to this fact:

"WHEREAS, the parties have decided to formalize the terms of their

business relationship in order that their respective interests may be
properly defined and established for their mutual benefit and
understanding."15

Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate money
intended for Gragera's commission. According to him, Gragera remitted his
daily collection to Nieves. This is shown by Exhibit "B." (the "Schedule of Daily
Payments"), which bears her signature under the words "received by." For the
period July 1986 to March 1987, Gragera should have earned a total
commission of P4,282,429.30. However, only P3,068,133.20 was received by
him. Thus, petitioner infers that she misappropriated the difference of
P1,214,296.10, which represented the unpaid commissions. Exhibit "H." is an
untitled tabulation which, according to him, shows that Gragera was also
entitled to a commission of P200,000, an amount that was never delivered by
Nieves.16

On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that
Nieves received for delivery to Gragera any amount from which the
P1,214,296.10 unpaid commission was supposed to come, and that such
exhibits were insufficient proof that she had embezzled P200,000. Said the CA:

"The presentation of Exhibit "D" vaguely denominated as 'members

ledger' does not clearly establish that Nieves received amounts from
Monte Maria's members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves
made the entries for the limited period of January 11, 1987 to
February 17, 1987 only while the rest were made by Gragera's own
staff.

"Neither can we give probative value to Exhibit 'E' which allegedly

shows acknowledgment of the remittance of commissions to Verona
Gonzales. The document is a private one and its due execution and
authenticity have not been duly proved as required in [S]ection 20,
Rule 132 of the Rules of Court which states:
 'SECTION 20. Proof of Private Document — Before any private
document offered as authentic is received in evidence, its due
execution and authenticity must be proved either:

(a) By anyone who saw the document executed or

written; or

(b) By evidence of the genuineness of the signature

or handwriting of the maker.

'Any other private document need only be identified as that

which it is claimed to be.'

"The court a quo even ruled that the signature thereon was a forgery,
as it found that:

'x x x . But NIEVES denied that Exh. E-1 is her signature; she
claimed that it is a forgery. The initial stroke of Exh. E-1
starts from up and goes downward. The initial stroke of the
genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, among
others) starts from below and goes upward. This difference in
the start of the initial stroke of the signatures Exhs. E-1 and
of the genuine signatures lends credence to Nieves' claim that
the signature Exh. E-1 is a forgery.'

xxx xxx xxx

"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and
'F') were based on the predetermined 100% collection as guaranteed
by Gragera is credible and clearly in accord with the evidence. A
perusal of Exhs. "B" and "F" as well as Exhs. '15' to 15-
DDDDDDDDDD' reveal that the entries were indeed based on the
100% assumptive collection guaranteed by Gragera. Thus, the total
amount recorded on Exh. 'B' is exactly the number of borrowers
multiplied by the projected collection of P150.00 per borrower. This
holds true for Exh. 'F.'

"Corollarily, Nieves' explanation that the documents were pro

forma and that she signed them not to signify that she collected the
amounts but that she received the documents themselves is more
believable than [petitioner's] assertion that she actually handled the
amounts.

"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally

establish that x x x Nieves received P200,000.00 as commission for
Gragera. As correctly stated by the court a quo, the document showed
a liquidation of P240.000 00 and not P200,000.00.

"Accordingly, we find Nieves' testimony that after August 20, 1986, all
collections were made by Gragera believable and worthy of credence.
 Since Gragera guaranteed a daily 100% payment of the loans, he took
charge of the collections. As [petitioner's] representative,

Nieves merely prepared the daily cash flow reports (Exh. '15' to '15
DDDDDDDDDD') to enable [petitioner] to keep track of Gragera's
operations. Gragera on the other hand devised the schedule of daily
payment (Exhs. 'B' and 'F') to record the projected gross daily
collections.

"As aptly observed by the court a quo:

'26.1. As between the versions of SANTOS and NIEVES on

how the commissions of GRAGERA [were] paid to him[,] that
of NIEVES is more logical and practical and therefore, more
believable. SANTOS' version would have given rise to this
improbable situation: GRAGERA would collect the daily
amortizations and then give them to NIEVES; NIEVES would
get GRAGERA's commissions from the amortizations and then
give such commission to GRAGERA."'17

These findings are in harmony with the trial court's ruling, which we
quote below:

"21. Exh. H does not prove that SANTOS gave to NIEVES and the
latter received P200,000.00 for delivery to GRAGERA. Exh. H shows
under its sixth column 'ADDITIONAL CASH' that the additional cash
was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not true. This is so because it is a
liquidation of the sum of P240,000.00.

"21.1. SANTOS claimed that he learned of NIEVES' failure to give the

P200,000.00 to GRAGERA when he received the latter's letter
complaining of its delayed release. Assuming as true SANTOS' claim
that he gave P200,000.00 to GRAGERA, there is no competent
evidence that NIEVES did not give it to GRAGERA. The only proof that
NIEVES did not give it is the letter. But SANTOS did not even present
the letter in evidence. He did not explain why he did not.

"21.2. The evidence shows that all money transactions of the money-
lending business of SANTOS were covered by petty cash vouchers. It
is therefore strange why SANTOS did not present any voucher or
receipt covering the P200,000.00."18

In sum, the lower courts found it unbelievable that Nieves had embezzled
P1,555,068.70 from the partnership. She did not remit P1,214,296.10 to
Gragera, because he had deducted his commissions before remitting his
collections. Exhibits "B" and "F" are merely computations of what Gragera
should collect for the day; they do not show that Nieves received the amounts
stated therein. Neither is there sufficient proof that she misappropriated
P200,000, because Exhibit "H." does not indicate that such amount was
received by her; in fact, it shows a different figure.

Petitioner has utterly failed to demonstrate why a review of these factual

findings is warranted. Well-entrenched is the basic rule that factual findings of
the Court of Appeals affirming those of the trial court are binding and
conclusive on the Supreme Court.19 Although there are exceptions to this rule,
petitioner has not satisfactorily shown that any of them is applicable to this
issue.

Third Issue:
Accounting of Partnership

Petitioner refuses any liability for respondents' claims on the profits of the
partnership. He maintains that "both business propositions were flops," as his
investments were "consumed and eaten up by the commissions orchestrated to
be due Gragera" — a situation that "could not have been rendered possible
without complicity between Nieves and Gragera."

Respondent spouses, on the other hand, postulate that petitioner instituted the
action below to avoid payment of the demands of Nieves, because sometime in
March 1987, she "signified to petitioner that it was about time to get her share
of the profits which had already accumulated to some P3 million." Respondents
add that while the partnership has not declared dividends or liquidated its
earnings, the profits are already reflected on paper. To prove the counterclaim
of Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the
profit totaled P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that
income, her 15 percent share under the joint venture amounts to P3,064,428
(Exh. "10-I-3"); and Arsenio's, P2,026,000 minus the P30,000 which was
already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").

The CA originally held that respondents' counterclaim was premature, pending

an accounting of the partnership. However, in its assailed Resolution of August
17, 1998, it turned volte face. Affirming the trial court's ruling on the
counterclaim, it held as follows:

"We earlier ruled that there is still need for an accounting of the profits
and losses of the partnership before we can rule with certainty as to
the respective shares of the partners. Upon a further review of the
records of this case, however, there appears to be sufficient basis to
determine the amount of shares of the parties and damages incurred
by [respondents]. The fact is that the court a quo already made such a
determination [in its] decision dated August 13, 1991 on the basis of
the facts on record."20

The trial court's ruling alluded to above is quoted below:

"27. The defendants' counterclaim for the payment of their share in

the profits of their joint venture with SANTOS is supported by the
evidence.

"27.1. NIEVES testified that: Her claim to a share in the profits is

 based on the agreement (Exhs. 5, 5-A and 5-B). The profits are shown
in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash
flow reports of which Exh. 3 is a sample. The originals of the daily cash
flow reports (Exhs. 3 and 15 to 15-D(10) were given to SANTOS. The
joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from
its operations from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She
had a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about
P2,926,000.00, in the profits.

"27.1.1 SANTOS never denied NIEVES' testimony that the money-

lending business he was engaged in netted a profit and that the
originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint venture
with NIEVES and ZABAT resulted in a loss of about half a million pesos
to him. But such loss, even if true, does not negate NIEVES' claim that
overall, the joint venture among them — SANTOS, NIEVES and
ARSENIO — netted a profit. There is no reason for the Court to doubt
the veracity of [the testimony of] NIEVES.

"27.2 The P26,260.50 which ARSENIO received as part of his share in

the profits (Exhs. 6, 6-A and 6-B) should be deducted from his total
share."21

After a close examination of respondents' exhibits, we find reason to disagree

with the CA. Exhibit "10-I"22 shows that the partnership earned a "total income"
of P20,429,520 for the period June 13, 1986 until April 19, 1987. This entry is
derived from the sum of the amounts under the following column headings: "2-
Day Advance Collection," "Service Fee," "Notarial Fee," "Application Fee," "Net
Interest Income" and "Interest Income on Investment." Such entries represent
the collections of the money-lending business or its gross income.

The "total income" shown on Exhibit "10-I" did not consider the expenses
sustained by the partnership. For instance, it did not factor in the "gross loan
releases" representing the money loaned to clients. Since the business is
money-lending, such releases are comparable with the inventory or supplies in
other business enterprises.

Noticeably missing from the computation of the "total income" is the deduction
of the weekly allowance disbursed to respondents. Exhibits "I" et seq. and "J"
et seq.23 show that Arsenio received allowances from July 19, 1986 to March
27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986
to March 27, 1987, in the total amount of P25,600. These allowances are
different from the profit already received by Arsenio. They represent expenses
that should have been deducted from the business profits. The point is that all
expenses incurred by the money-lending enterprise of the parties must first be
deducted from the "total income" in order to arrive at the "net profit" of the
partnership. The share of each one of them should be based on this "net profit"
and not from the "gross income" or "total income" reflected in Exhibit "10-I,"
which the two courts invariably referred to as "cash flow" sheets.

Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow Reports," do not
 reflect the business expenses incurred by the parties, because they show only
the daily cash collections. Contrary to the rulings of both the trial and the
appellate courts, respondents' exhibits do not reflect the complete financial
condition of the money-lending business. The lower courts obviously labored
over a mistaken notion that Exhibit " 10-I-1" represented the "net profits"
earned by the partnership.

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

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

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

The trial court has the advantage of observing the witnesses while they are
testifying, an opportunity not available to appellate courts. Thus, its
assessment of the credibility of witnesses and their testimonies are accorded
great weight, even finality, when supported by substantial evidence; more so
when such assessment is affirmed by the CA. But when the issue involves the
evaluation of exhibits or documents that are attached to the case records, as in
the third issue, the rule may be relaxed. Under that situation, this Court has a
similar opportunity to inspect, examine and evaluate those records,
independently of the 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.

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.

AQUINO, J.:

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

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters located at Greenhills, San Juan, Rizal. The
next day he transferred his rights to his four children, the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for P178,708.12 on
March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation and Olga Cruz Canda for the total sum of
P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax
on one-half thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required the four petitioners to pay corporate income
tax on the total profit of P134,336 in addition to individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge
and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of which ½ is taxable) and required
them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax on capital gains
already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the
Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).

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

We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit among themselves.

To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the
power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners would obliterate the distinction between a co-
ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on the lots because of the high cost of
construction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership
which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeñas says:

Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone necesariamente la convencion, mentras que
la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la
indivision es solo mantener en su integridad la cosa comun y favorecer su conservacion.

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se ofrecen a veces dificultades al tratar
de fijar la linea divisoria entre comunidad de bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica señala como nota fundamental de
diferenciacion aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad,
y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived". There must be an unmistakable intention to form a partnership or joint venture.*

Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso sweepstakes ticket
with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oña vs.

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.—We find that the case at bar is fundamentally similar to the De Leon case. Thus, like the De Leon heirs, the Longa
heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents; they did not contribute or invest additional ' capital to increase or expand the
inherited properties; they merely continued dedicating the property to the use to which it had been put by their forebears; they individually reported in their
tax returns their corresponding shares in the income and expenses of the 'hacienda', and they continued for many years the status of co-ownership in order, as
conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling
purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who own properties which produce income should not automatically be considered
partners of an unregistered partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at all, it is not subject to any kind of
income tax, whether the income tax on individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in
Arañas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-heirs used the inheritance or the incomes derived
therefrom as a common fund to produce profits for themselves, it was held that they were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a lot and building, entrusted the administration of the
building to an administrator and divided equally the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought
four pieces of real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases had formed an unregistered
partnership.

In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the petitioners and whether he paid the donor's tax (See
Art. 1448, Civil Code). We are not prejudging this matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.

SO ORDERED.