Republic of the Philippines named their enterprise "Benguet Lumber" which they
SUPREME COURT jointly managed until Tan Eng Kee's death. Petitioners
SECOND DIVISION
G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER
COMPANY, represented by its President TAN ENG
LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray
for the reversal of the Decision1 dated March 13, 1996 of
the former Fifth Division2 of the Court of Appeals in CA-
G.R. CV No. 47937, the dispositive portion of which
states:
THE FOREGOING CONSIDERED, the appealed
decision is hereby set aside, and the complaint
dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13,
1984, Matilde Abubo, the common-law spouse of the
decedent, joined by their children Teresita, Nena, Clarita,
Carlos, Corazon and Elpidio, collectively known as herein
petitioners HEIRS OF TAN ENG KEE, filed suit against the
decedent's brother TAN ENG LAY on February 19, 1990.
The complaint,3 docketed as Civil Case No. 1983-R in the
Regional Trial Court of Baguio City was for accounting,
liquidation and winding up of the alleged partnership
formed after World War II between Tan Eng Kee and Tan
Eng Lay. On March 18, 1991, the petitioners filed an
amended complaint4 impleading private respondent
herein BENGUET LUMBER COMPANY, as represented by
Tan Eng Lay. The amended complaint was admitted by
the trial court in its Order dated May 3, 1991.5
The amended complaint principally alleged that after the
second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered
into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They
f) Ordering the appointment of a receiver to preserve
and/or administer the assets of Benguet Lumber
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;
Company, Inc. until such time that said corporation is
finally liquidated are directed to submit the name of
any person they want to be appointed as receiver
failing in which this Court will appoint the Branch
Clerk of Court or another one who is qualified to act
as such.
g) Denying the award of damages to the plaintiffs for
lack of proof except the expenses in filing the instant
case.
h) Dismissing the counter-claim of the defendant for
lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of
Appeals which, on March 13, 1996, rendered the assailed
decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by
the Court of Appeals in a Resolution8 dated October 11,
1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed
Criminal Case No. 78856 against Tan Eng Lay and
Wilborn Tan for the use of allegedly falsified documents
in a judicial proceeding. Petitioners complained that
Exhibits "4" to "4-U" offered by the defendants before the
trial court, consisting of payrolls indicating that Tan Eng
Kee was a mere employee of Benguet Lumber, were fake,
based on the discrepancy in the signatures of Tan Eng
Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary
and Willy, all surnamed Tan, for alleged falsification of
commercial documents by a private individual. On March
20, 1999, the Municipal Trial Court of Baguio City,
Branch 1, wherein the charges were filed, rendered
judgment9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:
I
1
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS
NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C)
THERE WAS NO CERTIFICATE OF PARTNERSHIP;
(D) THERE WAS NO AGREEMENT AS TO PROFITS
AND LOSSES; AND (E) THERE WAS NO TIME FIXED
FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN
RELYING SOLELY ON THE SELF-SERVING
TESTIMONY OF RESPONDENT TAN ENG LAY THAT
BENGUET LUMBER WAS A SOLE PROPRIETORSHIP
AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE FOLLOWING FACTS WHICH
WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A
PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE
COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN
ENG LAY WERE ALL LIVING AT THE BENGUET
LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE
WERE COMMANDING THE EMPLOYEES OF
BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY
WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
ONES DETERMINING THE PRICES OF STOCKS TO BE
SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG
KEE: ELPIDIO TAN AND VERONICA CHOI,
TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW
WHEN THE ESTABLISHMENT KNOWN IN BAGUIO
CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).
V
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
2
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:
3
. . . 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.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:
4
 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
5
In the instant case, we find private respondent's
arguments to be well-taken. Where circumstances taken
singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these
circumstances may be such as to support a finding of the
existence of the parties' intent.36 Yet, in the case at bench,
even the aforesaid circumstances when taken together
are not persuasive indicia of a partnership. They only
tend to show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what capacity is
unclear. We cannot discount the likelihood that as a
member of the family, he occupied a niche above the
rank-and-file employees. He would have enjoyed
liberties otherwise unavailable were he not kin, such as
his residence in the Benguet Lumber Company
compound. He would have moral, if not actual,
superiority over his fellow employees, thereby entitling
him to exercise powers of supervision. It may even be
that among his duties is to place orders with suppliers.
Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these
are not inconsistent with the powers and duties of a
manager, even in a business organized and run as
informally as Benguet Lumber Company.

There being no partnership, it follows that there is no

dissolution, winding up or liquidation to speak of. Hence,
the petition must fail.

WHEREFORE, the petition is hereby denied, and the

appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to
costs.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.

6
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 148187 April 16, 2008
PHILEX MINING CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30,
2000 Decision1 of the Court of Appeals in CA-G.R. SP No.
49385, which affirmed the Decision2 of the Court of Tax
Appeals in C.T.A. Case No. 5200. Also assailed is the April
3, 2001 Resolution3 denying the motion for
reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation
(Philex Mining), entered into an agreement4 with Baguio
Gold Mining Company ("Baguio Gold") for the former to
manage and operate the latter’s mining claim, known as
the Sto. Nino mine, located in Atok and Tublay, Benguet
Province. The parties’ agreement was denominated as
"Power of Attorney" and provided for the following
terms:
4. Within three (3) years from date thereof, the
PRINCIPAL (Baguio Gold) shall make available to the
MANAGERS (Philex Mining) up to ELEVEN MILLION
PESOS (P11,000,000.00), in such amounts as from
time to time may be required by the MANAGERS
within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said
ELEVEN MILLION PESOS (P11,000,000.00) shall be
deemed, for internal audit purposes, as the owner’s
account in the Sto. Nino PROJECT. Any part of any
income of the PRINCIPAL from the STO. NINO MINE,
which is left with the Sto. Nino PROJECT, shall be
added to such owner’s account.
5. Whenever the MANAGERS shall deem it necessary
and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may
transfer their own funds or property to the Sto. Nino
PROJECT, in accordance with the following
arrangements:
(a) The properties shall be appraised and,
together with the cash, shall be carried by the Sto.
Nino PROJECT as a special fund to be known as
the MANAGERS’ account.
(b) The total of the MANAGERS’ account shall not
exceed P11,000,000.00, except with prior
approval of the PRINCIPAL; provided, however,
that if the compensation of the MANAGERS as
herein provided cannot be paid in cash from the
Sto. Nino PROJECT, the amount not so paid in cash
shall be added to the MANAGERS’ account.
(c) The cash and property shall not thereafter be
withdrawn from the Sto. Nino PROJECT until
termination of this Agency.
(d) The MANAGERS’ account shall not accrue
interest. Since it is the desire of the PRINCIPAL to
extend to the MANAGERS the benefit of
subsequent appreciation of property, upon a
projected termination of this Agency, the ratio
which the MANAGERS’ account has to the owner’s
account will be determined, and the
corresponding proportion of the entire assets of
the STO. NINO MINE, excluding the claims, shall
be transferred to the MANAGERS, except that
such transferred assets shall not include mine
development, roads, buildings, and similar
property which will be valueless, or of slight
value, to the MANAGERS. The MANAGERS can, on
the other hand, require at their option that
property originally transferred by them to the
Sto. Nino PROJECT be re-transferred to them.
Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty
per cent (50%) of the net profit of the Sto. Nino
PROJECT before income tax. It is understood that the
MANAGERS shall pay income tax on their
compensation, while the PRINCIPAL shall pay income
tax on the net profit of the Sto. Nino PROJECT after
deduction therefrom of the MANAGERS’
compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation
in favor of the MANAGERS and, in the future, may
incur other obligations in favor of the MANAGERS.
This Power of Attorney has been executed as security
for the payment and satisfaction of all such
obligations of the PRINCIPAL in favor of the
MANAGERS and as a means to fulfill the same.
Therefore, this Agency shall be irrevocable while any
obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the
MANAGERS’ account. After all obligations of the
PRINCIPAL in favor of the MANAGERS have been paid
and satisfied in full, this Agency shall be revocable by
the PRINCIPAL upon 36-month notice to the
MANAGERS.
17. Notwithstanding any agreement or
understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice
to the PRINCIPAL. The MANAGERS shall not in any
manner be held liable to the PRINCIPAL by reason
alone of such withdrawal. Paragraph 5(d) hereof
shall be operative in case of the MANAGERS’
withdrawal.
x x x x5
In the course of managing and operating the project,
Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement.
However, the mine suffered continuing losses over the
years which resulted to petitioner’s withdrawal as
manager of the mine on January 28, 1982 and in the
7
eventual cessation of mine operations on February 20,
1982.6
Thereafter, on September 27, 1982, the parties executed
a "Compromise with Dation in Payment"7 wherein
Baguio Gold admitted an indebtedness to petitioner in
the amount of P179,394,000.00 and agreed to pay the
same in three segments by first assigning Baguio Gold’s
tangible assets to petitioner, transferring to the latter
Baguio Gold’s equitable title in its Philodrill assets and
finally settling the remaining liability through properties
that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an
"Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio
Gold’s indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of
Baguio Gold to other creditors that petitioner had
assumed as guarantor. These liabilities pertained to
long-term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of America NT
& SA and Citibank N.A. This time, Baguio Gold undertook
to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then
transferring its equitable title in its Philodrill assets for
P16,302,426.00. The parties then ascertained that
Baguio Gold had a remaining outstanding indebtedness
to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of
account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to allowances
and reserves that were set up in 1981 and P2,860,768.00
to the 1982 operations.
In its 1982 annual income tax return, petitioner
deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables
from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue
(BIR) disallowed the amount as deduction for bad debt
and assessed petitioner a deficiency income tax of
P62,811,161.39.
Petitioner protested before the BIR arguing that the
deduction must be allowed since all requisites for a bad
debt deduction were satisfied, to wit: (a) there was a
valid and existing debt; (b) the debt was ascertained to
be worthless; and (c) it was charged off within the
taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid
management contract it entered into with Baguio Gold.
The bad debt deduction represented advances made by
petitioner which, pursuant to the management contract,
formed part of Baguio Gold’s "pecuniary obligations" to
petitioner. It also included payments made by petitioner
as guarantor of Baguio Gold’s long-term loans which
legally entitled petitioner to be subrogated to the rights
of the original creditor.
Petitioner also asserted that due to Baguio Gold’s
irreversible losses, it became evident that it would not be
able to recover the advances and payments it had made
in behalf of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither
required to institute a judicial action for collection
against the debtor nor to sell or dispose of collateral
assets in satisfaction of the debt. It is enough that a
taxpayer exerted diligent efforts to enforce collection
and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s protest
for lack of legal and factual basis. It held that the alleged
debt was not ascertained to be worthless since Baguio
Gold remained existing and had not filed a petition for
bankruptcy; and that the deduction did not consist of a
valid and subsisting debt considering that, under the
management contract, petitioner was to be paid fifty
percent (50%) of the project’s net profit.10
Petitioner appealed before the Court of Tax Appeals
(CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant
Petition for Review is hereby DENIED for lack of
merit. The assessment in question, viz: FAS-1-82-88-
003067 for deficiency income tax in the amount of
P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation
is hereby ORDERED to PAY respondent
Commissioner of Internal Revenue the amount of
P62,811,161.39, plus, 20% delinquency interest due
computed from February 10, 1995, which is the date
after the 20-day grace period given by the
respondent within which petitioner has to pay the
deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioner’s assertion that the advances
it made for the Sto. Nino mine were in the nature of a
loan. It instead characterized the advances as
petitioner’s investment in a partnership with Baguio
Gold for the development and exploitation of the Sto.
Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount
partook of the nature of an investment, it could not be
deducted as a bad debt from petitioner’s gross income.
The CTA likewise held that the amount paid by petitioner
for the long-term loan obligations of Baguio Gold could
not be allowed as a bad debt deduction. At the time the
payments were made, Baguio Gold was not in default
since its loans were not yet due and demandable. What
petitioner did was to pre-pay the loans as evidenced by
the notice sent by Bank of America showing that it was
merely demanding payment of the installment and
interests due. Moreover, Citibank imposed and collected
a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the
CTA.12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under
Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the
advances made by Philex in the management of the
Sto. Nino Mine pursuant to the Power of Attorney
partook of the nature of an investment rather than a
loan.
II.
The Court of Appeals erred in ruling that the 50%-
50% sharing in the net profits of the Sto. Nino Mine
indicates that Philex is a partner of Baguio Gold in the
development of the Sto. Nino Mine notwithstanding
8
 the clear absence of any intent on the part of Philex
and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the
Power of Attorney and in completely disregarding
the Compromise Agreement and the Amended
Compromise Agreement when it construed the
nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon
the issue of the propriety of the bad debts write-off.14
Petitioner insists that in determining the nature of its
business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", but also on the
subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that the
parties executed in 1982. These documents, allegedly
evinced the parties’ intent to treat the advances and
payments as a loan and establish a creditor-debtor
relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of
Attorney" is the instrument that is material in
determining the true nature of the business relationship
between petitioner and Baguio Gold. Before resort may
be had to the two compromise agreements, the parties’
contractual intent must first be discovered from the
expressed language of the primary contract under which
the parties’ business relations were founded. It should be
noted that the compromise agreements were mere
collateral documents executed by the parties pursuant to
the termination of their business relationship created
under the "Power of Attorney". On the other hand, it is
the latter which established the juridical relation of the
parties and defined the parameters of their dealings with
one another.
The execution of the two compromise agreements can
hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties’ true
intent. The compromise agreements were executed
eleven years after the "Power of Attorney" and merely
laid out a plan or procedure by which petitioner could
recover the advances and payments it made under the
"Power of Attorney". The parties entered into the
compromise agreements as a consequence of the
dissolution of their business relationship. It did not
define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a
partnership or joint venture was indeed intended by the
parties. Under a contract of partnership, two or more
persons bind themselves to contribute money, property,
or industry to a common fund, with the intention of
dividing the profits among themselves.15 While a
corporation, like petitioner, cannot generally enter into a
contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint
venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law
origin. It has no precise legal definition, but it has
been generally understood to mean an organization
formed for some temporary purpose. x x x It is in fact
hardly distinguishable from the partnership, since
their elements are similar – community of interest in
the business, sharing of profits and losses, and a
mutual right of control. x x x The main distinction
cited by most opinions in common law jurisdictions
is that the partnership contemplates a general
business with some degree of continuity, while the
joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. x x x
This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular
partnership may have for its object a specific
undertaking. x x x It would seem therefore that under
Philippine law, a joint venture is a form of
partnership and should be governed by the law of
partnerships. The Supreme Court has however
recognized a distinction between these two business
forms, and has held that although a corporation
cannot enter into a partnership contract, it may
however engage in a joint venture with others. x x x
(Citations omitted) 16
Perusal of the agreement denominated as the "Power of
Attorney" indicates that the parties had intended to
create a partnership and establish a common fund for the
purpose. They also had a joint interest in the profits of
the business as shown by a 50-50 sharing in the income
of the mine.
Under the "Power of Attorney", petitioner and Baguio
Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Niño
mine.17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties
to the development and operation of the mine. Pursuant
to paragraphs 4 and 5 of the agreement, petitioner and
Baguio Gold were to contribute equally to the joint
venture assets under their respective accounts. Baguio
Gold would contribute P11M under its owner’s account
plus any of its income that is left in the project, in
addition to its actual mining claim. Meanwhile,
petitioner’s contribution would consist of
its expertise in the management and operation of mines,
as well as the manager’s account which is comprised
of P11M in funds and property and
petitioner’s "compensation" as manager that cannot be
paid in cash.
However, petitioner asserts that it could not have
entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or
property to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to transfer
funds or property to the Sto. Niño project "(w)henever
the MANAGERS shall deem it necessary and convenient
in connection with the MANAGEMENT of the STO. NIÑO
MINE."18
The wording of the parties’ agreement as to petitioner’s
contribution to the common fund does not detract from
the fact that petitioner transferred its funds and property
to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract,
particularly paragraph 5(c) which prohibits petitioner
from withdrawing the advances until termination of the
parties’ business relations. As can be seen, petitioner
became bound by its contributions once the transfers
were made. The contributions acquired an obligatory
nature as soon as petitioner had chosen to exercise its
option under paragraph 5.
There is no merit to petitioner’s claim that the
prohibition in paragraph 5(c) against withdrawal of
advances should not be taken as an indication that it had
entered into a partnership with Baguio Gold; that the
9
stipulation only showed that what the parties entered
into was actually a contract of agency coupled with an
interest which is not revocable at will and not a
partnership.
In an agency coupled with interest, it is the agency that
cannot be revoked or withdrawn by the principal due
to an interest of a third party that depends upon it, or the
mutual interest of both principal and agent.19 In this case,
the non-revocation or non-withdrawal under paragraph
5(c) applies to the advances made by petitioner who is
supposedly the agent and not the principal under the
contract. Thus, it cannot be inferred from the stipulation
that the parties’ relation under the agreement is one of
agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as
an indication that the relationship of the parties was one
of agency and not a partnership. Although the said
provision states that "this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS’
account," it does not necessarily follow that the parties
entered into an agency contract coupled with an interest
that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power
of Attorney" was not to confer a power in favor of
petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship
between petitioner and Baguio Gold, in which the former
was to manage and operate the latter’s mine through the
parties’ mutual contribution of material resources and
industry. The essence of an agency, even one that is
coupled with interest, is the agent’s ability to represent
his principal and bring about business relations between
the latter and third persons.20 Where representation for
and in behalf of the principal is merely incidental or
necessary for the proper discharge of one’s paramount
undertaking under a contract, the latter may not
necessarily be a contract of agency, but some other
agreement depending on the ultimate undertaking of the
parties.21
In this case, the totality of the circumstances and the
stipulations in the parties’ agreement indubitably lead to
the conclusion that a partnership was formed between
petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was
unconditionally obligated to return the advances made
by petitioner under the agreement. Paragraph 5 (d)
thereof provides that upon termination of the parties’
business relations, "the ratio which the MANAGER’S
account has to the owner’s account will be determined,
and the corresponding proportion of the entire assets of
the STO. NINO MINE, excluding the claims" shall be
transferred to petitioner.22 As pointed out by the Court
of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mine’s assets upon
dissolution of the parties’ business relations. There was
nothing in the agreement that would require Baguio Gold
to make payments of the advances to petitioner as would
be recognized as an item of obligation or "accounts
payable" for Baguio Gold.
Thus, the tax court correctly concluded that the
agreement provided for a distribution of assets of the
Sto. Niño mine upon termination, a provision that is
more consistent with a partnership than a creditor-
debtor relationship. It should be pointed out that in a
contract of loan, a person who receives a loan or money
or any fungible thing acquires ownership thereof and
is bound to pay the creditor an equal amount of the same
kind and quality.23 In this case, however, there was no
stipulation for Baguio Gold to actually repay petitioner
the cash and property that it had advanced, but only the
return of an amount pegged at a ratio which the
manager’s account had to the owner’s account.
In this connection, we find no contractual basis for the
execution of the two compromise agreements in which
Baguio Gold recognized a debt in favor of petitioner,
which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The "Power
of Attorney" clearly provides that petitioner would only
be entitled to the return of a proportionate share of the
mine assets to be computed at a ratio that the manager’s
account had to the owner’s account. Except to provide a
basis for claiming the advances as a bad debt deduction,
there is no reason for Baguio Gold to hold itself liable to
petitioner under the compromise agreements, for any
amount over and above the proportion agreed upon in
the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely
for a business corporation to lend hundreds of millions
of pesos to another corporation with neither security, or
collateral, nor a specific deed evidencing the terms and
conditions of such loans. The parties also did not provide
a specific maturity date for the advances to become due
and demandable, and the manner of payment was
unclear. All these point to the inevitable conclusion that
the advances were not loans but capital contributions to
a partnership.
The strongest indication that petitioner was a partner in
the Sto Niño mine is the fact that it would receive 50% of
the net profits as "compensation" under paragraph 12 of
the agreement. The entirety of the parties’ contractual
stipulations simply leads to no other conclusion than that
petitioner’s "compensation" is actually its share in the
income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that
the "receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in
the business." Petitioner asserts, however, that no such
inference can be drawn against it since its share in the
profits of the Sto Niño project was in the nature of
compensation or "wages of an employee", under the
exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that
petitioner was not an employee of Baguio Gold who will
be paid "wages" pursuant to an employer-employee
relationship. To begin with, petitioner was the manager
of the project and had put substantial sums into the
venture in order to ensure its viability and profitability.
By pegging its compensation to profits, petitioner also
stood not to be remunerated in case the mine had no
income. It is hard to believe that petitioner would take
the risk of not being paid at all for its services, if it were
truly just an ordinary employee.
Consequently, we find that petitioner’s "compensation"
under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership.
Indeed, petitioner would not be entitled to an equal
share in the income of the mine if it were just an
employee of Baguio Gold.25 It is not surprising that
petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided
for an almost equal contribution of the parties to the St.
Nino mine. The "compensation" agreed upon only serves
to reinforce the notion that the parties’ relations were
indeed of partners and not employer-employee.
10
All told, the lower courts did not err in treating
petitioner’s advances as investments in a partnership
known as the Sto. Nino mine. The advances were not
"debts" of Baguio Gold to petitioner inasmuch as the
latter was under no unconditional obligation to return
the same to the former under the "Power of Attorney". As
for the amounts that petitioner paid as guarantor to
Baguio Gold’s creditors, we find no reason to depart from
the tax court’s factual finding that Baguio Gold’s debts
were not yet due and demandable at the time that
petitioner paid the same. Verily, petitioner pre-paid
Baguio Gold’s outstanding loans to its bank creditors and
this conclusion is supported by the evidence on record.26

In sum, petitioner cannot claim the advances as a bad

debt deduction from its gross income. Deductions for
income tax purposes partake of the nature of tax
exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that
he is entitled to the deduction claimed.27 In this case,
petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that could
be deducted from its gross income. Consequently, it
could not claim the advances as a valid bad debt
deduction.

WHEREFORE, the petition is DENIED. The decision of

the Court of Appeals in CA-G.R. SP No. 49385 dated June
30, 2000, which affirmed the decision of the Court of Tax
Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner
Philex Mining Corporation is ORDERED to PAY the
deficiency tax on its 1982 income in the amount of
P62,811,161.31, with 20% delinquency interest
computed from February 10, 1995, which is the due date
given for the payment of the deficiency income tax, up to
the actual date of payment.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justicel

11
 Republic of the Philippines
SUPREME COURT
Manila
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.
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. in Oña vs. Commissioner of Internal Revenue, L-
19342, May 25, 1972, 45 SCRA 74, where after an
extrajudicial settlement the coheirs used the inheritance
or the incomes derived therefrom as a common fund to
12
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.
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).

WHEREFORE, the judgment of the Tax Court is reversed

and set aside. The assessments are cancelled. No costs.

SO ORDERED.

Abad Santos, Escolin, Cuevas, and Alampay, JJ., concur.

** 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).

13
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P.
DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and
COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for
petitioners.
The Solicitor General for 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
14
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.
15
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.
Cruz, Griño-Aquino and Medialdea, JJ., concur.
Narvasa, J., took no part.
16
 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
17
 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 - As damages from August 3,
of 1987 until the P3,064,428.00 is
P3,064,428.00 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 - As damages from August 3,
of 1987 until the P2,899,739.50 is
P2,899,739.50 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.
18
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
19
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
20
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
21
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.
Melo, and Sandoval-Gutierrez, JJ., concur.
Vitug, J., on official leave.
Footnotes
1First Division, composed of JJ Fidel P. Purisima,
chairman; Corona Ibay-Somera, member; and Oswaldo
D. Agcaoili, member and ponente.
2Special Former First Division, composed of JJ. 13Par. 4, Articles of Agreement, Annex "D"; rollo, p.
Quirino D. Abad Santos Jr., chairman (vice J. 56.
Purisima); Ibay-Somera and Agcaoili.
14 Annex "D" of the Petition; rollo, p. 56.
3 CA Decision, p. 12; rollo, p. 96. 15 Annex "D" of the Petition; rollo, p. 56.
4 CA Resolution, p. 3; rollo, p. 241. 16Petitioner claims that Nieves embezzled
P1,555,068.70 from the partnership (rollo, p. 12), the
amount broken down as follows:
5 Rollo, p; 128.
6 Referred to by petitioner in his Memorandum (p. 4) P1,214,296.10 - unpaid commission due
as "Monte Maria Community Development Group, Gragera (Exh. "C-l")
Inc." 140,772.60 - unpaid commission for the
two-day advance payment of
7 CA Decision, pp. 2-4; rollo, 86-88. clients (Exh. "C-l l ")
200,000.00 - cash actually delivered by
8 RTC Decision, pp. 16-17; rollo, pp. 82-83. petitioner to Nieves (Exh. "H")
9 On November 4, 1999, the Court received the 17 CA Decision, pp. 10-11; rollo, pp. 94-95.
Memorandum for the Respondents, signed by Atty.
Benito P. Fabie. Petitioner's Memorandum, signed by
Atty. Arcangelita M. Romilla-Lontok, was received on
18 RTC Decision, p. 12; rollo, p. 78.
October 20, 1999. In its October 27, 1999 Resolution,
this Court required the CA to explain the discrepancy 19National Steel Corp. v. Court of Appeals, 283 SCRA
in the copies of the August 17, 1998 Resolution 45, 66, December 12, 1997; Fuentes v. Court of
received by the parties and to furnish it with an Appeals, 268 SCRA 703, 708-709, February 26,
authentic copy thereof. The CA complied on 1997; Sps. Lagandaon v. Court of Appeals, 290 SCRA
November 12, 1999, the date on which this case was 330, 341, May 21, 1998.
deemed submitted for resolution.
20 CA Resolution, p. 2; rollo, p. 240.
10Memorandum for the Petitioner, pp. 7-8; rollo, pp.
180-181. 21 RTC Decision, p. 14; rollo, p. 80.
11 CA Decision, pp. 7-8; rollo, pp. 91-92. 22"Daily Interest Income & Other Income Control,"
Folder II, Records.
12Art. 1767, Civil Code. The essential elements of a
partnership are as follows: (1) an agreement to 23 Folder I, Records.
contribute money, property or industry to a common
fund; and (2) an intent to divide the profits among the
contracting parties. Vitug, Compendium of Civil Law
24 Folder II, Records.
& Jurisprudence, 1993 rev. ed., p. 707; Fue Leung v.
Intermediate Appellate Court, 169 SCRA 746, 754, 25Criado v. Gutierrez Hermanos, 37 Phil. 883, 894-
January 31, 1989; and Evangelista v. Collector of 895, March 23, 1918; and Moran Jr. v. Court of
Internal Revenue, 102 Phil. 140, 144, October 15, Appeals, 133 SCRA 88, 96, October 31, 1984.
1957.
26 Fuentes v. CA, supra at 709.
22
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 172690 March 3, 2010
HEIRS OF JOSE LIM, represented by ELENITO
LIM, Petitioners,
vs.
JULIET VILLA LIM, Respondent.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on
Certiorari1 under Rule 45 of the Rules of Civil Procedure,
assailing the Court of Appeals (CA) Decision2 dated June
29, 2005, which reversed and set aside the decision3 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 Complaint4 for
Partition, Accounting and Damages against respondent
Juliet Villa Lim (respondent), widow of the late Elfledo
Lim (Elfledo), who was the eldest son of Jose and
Cresencia.
Petitioners alleged that Jose was the liaison officer of
Interwood Sawmill in Cagsiay, Mauban, Quezon.
Sometime in 1980, Jose, together with his friends Jimmy
Yu (Jimmy) and Norberto Uy (Norberto), formed a
partnership to engage in the trucking business. Initially,
with a contribution of ₱50,000.00 each, they purchased a
truck to be used in the hauling and transport of lumber
of the sawmill. Jose managed the operations of this
trucking business until his death on August 15, 1981.
Thereafter, Jose's heirs, including Elfledo, and partners
agreed to continue the business under the management
of Elfledo. The shares in the partnership profits and
income that formed part of the estate of Jose were held
in trust by Elfledo, with petitioners' authority for Elfledo
to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a
fresh commerce graduate serving as his father’s driver in
the trucking business. He was never a partner or an
investor in the business and merely supervised the
purchase of additional trucks using the income from the
trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all
registered in Elfledo's name. Petitioners asseverated that
it was also through Elfledo’s management of the
partnership that he was able to purchase numerous real
properties by using the profits derived therefrom, all of
which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also
acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his
sole surviving heir. Petitioners claimed that respondent
took over the administration of the aforementioned
properties, which belonged to the estate of Jose, without
their consent and approval. Claiming that they are co-
owners of the properties, petitioners required
respondent to submit an accounting of all income, profits
and rentals received from the estate of Elfledo, and to
surrender the administration thereof. Respondent
refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and
claimed that Elfledo was himself a partner of Norberto
and Jimmy. Respondent also claimed that per testimony
of Cresencia, sometime in 1980, Jose gave Elfledo
₱50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When Elfledo and
respondent got married in 1981, the partnership only
had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business,
Elfledo, together with respondent, engaged in other
business ventures. Thus, they were able to buy real
properties and to put up their own car assembly and
repair business. When Norberto was ambushed and
killed on July 16, 1993, the trucking business started to
falter. When Elfledo died on May 18, 1995 due to a heart
attack, respondent talked to Jimmy and to the heirs of
Norberto, as she could no longer run the business. Jimmy
suggested that three out of the nine trucks be given to
him as his share, while the other three trucks be given to
the heirs of Norberto. However, Norberto's wife, Paquita
Uy, was not interested in the vehicles. Thus, she sold the
same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he
left no known assets, and the partnership with Jimmy
and Norberto ceased upon his demise. Respondent also
stressed that Jose left no properties that Elfledo could
have held in trust. Respondent maintained that all the
properties involved in this case were purchased and
acquired through her and her husband’s joint efforts and
hard work, and without any participation or contribution
from petitioners or from Jose. Respondent submitted
that these are conjugal partnership properties; and thus,
she had the right to refuse to render an accounting for
the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC
rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby
rendered:
1) Ordering the partition of the above-mentioned
properties equally between the plaintiffs and heirs
of Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting
of all incomes, profits and rentals received by her
from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's
decision, dismissing petitioners' complaint for lack of
merit. Undaunted, petitioners filed their Motion for
Reconsideration,5 which the CA, however, denied in its
Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE
EVIDENCE SUBMITTED BY THE PARTIES, CAN THE
TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN
GREATER WEIGHT THAN THAT BY A FORMER
23
PARTNER ON THE ISSUE OF THE IDENTITY OF THE
OTHER PARTNERS IN THE PARTNERSHIP?7
In essence, petitioners argue that according to the
testimony of Jimmy, the sole surviving partner, Elfledo
was not a partner; and that he and Norberto entered into
a partnership with Jose. Thus, the CA erred in not giving
that testimony greater weight than that of Cresencia,
who was merely the spouse of Jose and not a party to the
partnership.8
Respondent counters that the issue raised by petitioners
is not proper in a petition for review on certiorari under
Rule 45 of the Rules of Civil Procedure, as it would entail
the review, evaluation, calibration, and re-weighing of
the factual findings of the CA. Moreover, respondent
invokes the rationale of the CA decision that, in light of
the admissions of Cresencia and Edison and the
testimony of respondent, the testimony of Jimmy was
effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.9
We resolve first the procedural matter regarding the
propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence
necessarily involves consideration of factual issues — an
exercise that is not appropriate for a petition for review
on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are
not duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals
below.10 When supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on
the parties and are not reviewable by this Court, unless
the case falls under any of the following recognized
exceptions:
(1) When the conclusion is a finding grounded
entirely on speculation, surmises and conjectures;
(2) When the inference made is manifestly mistaken,
absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on
misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is
contrary to the admissions of both appellant and
appellee;
(7) When the findings are contrary to those of the
trial court;
(8) When the findings of fact are conclusions without
citation of specific evidence on which they are based;
(9) When the facts set forth in the petition as well as
in the petitioners' main and reply briefs are not
disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals
are premised on the supposed absence of evidence
and contradicted by the evidence on record.11
We note, however, that the findings of fact of the RTC are
contrary to those of the CA. Thus, our review of such
findings is warranted.
On the merits of the case, we find that the instant Petition
is bereft of merit.
A partnership exists when two or more persons agree to
place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that
there shall be a proportionate sharing of the profits and
losses among them. A contract of partnership is defined
by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits
among themselves.12
Undoubtedly, the best evidence would have been the
contract of partnership or the articles of partnership.
Unfortunately, there is none in this case, because the
alleged partnership was never formally organized.
Nonetheless, we are asked to determine who between
a Jose and Elfledo was the "partner" in the trucking
business.
A careful review of the records persuades us to affirm the
CA decision. The evidence presented by petitioners falls
short of the quantum of proof required to establish that:
(1) Jose was the partner and not Elfledo; and (2) all the
properties acquired by Elfledo and respondent form part
of the estate of Jose, having been derived from the alleged
partnership.
Petitioners heavily rely on Jimmy's testimony. But that
testimony is just one piece of evidence against
respondent. It must be considered and weighed along
with petitioners' other evidence vis-à-vis respondent's
contrary evidence. In civil cases, the party having the
burden of proof must establish his case by a
preponderance of evidence. "Preponderance of
evidence" is the weight, credit, and value of the aggregate
evidence on either side and is usually considered
synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last
analysis, means probability of the truth. It is evidence
that is more convincing to the court as worthy of belief
than that which is offered in opposition thereto.13 Rule
133, Section 1 of the Rules of Court provides the
guidelines in determining preponderance of evidence,
thus:
SECTION I. Preponderance of evidence, how determined.
In civil cases, the party having burden of proof must
establish his case by a preponderance of 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.
24
At this juncture, our ruling in Heirs of Tan Eng Kee v.
Court of Appeals14 is enlightening. Therein, we cited
Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by Article 1825, persons who
are not partners as to each other are not partners as
to third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of
a business is a prima facie evidence that he is a
partner in the business, but no such inference shall be
drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.
Applying the legal provision to the facts of this case, the
following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto: 1) Cresencia
testified that Jose gave Elfledo ₱50,000.00, as share in the
partnership, on a date that coincided with the payment
of the initial capital in the partnership;15 (2) Elfledo ran
the affairs of the partnership, wielding absolute control,
power and authority, without any intervention or It is notable too that Jose Lim died when the partnership
opposition whatsoever from any of petitioners was barely a year old, and the partnership and its
herein;16 (3) all of the properties, particularly the nine business not only continued but also flourished. If it were
trucks of the partnership, were registered in the name of true that it was Jose Lim and not Elfledo who was the
Elfledo; (4) Jimmy testified that Elfledo did not receive partner, then upon his death the partnership should have
wages or salaries from the partnership, indicating that
what he actually received were shares of the profits of been dissolved and its assets liquidated. On the contrary,
the business;17 and (5) none of the petitioners, as heirs of these were not done but instead its operation continued
Jose, the alleged partner, demanded periodic accounting
under the helm of Elfledo and without any participation
from Elfledo during his lifetime. As repeatedly stressed from the heirs of Jose Lim.
in Heirs of Tan Eng Kee,18 a demand for periodic
accounting is evidence of a partnership.
Whatever properties appellant and her husband had
acquired, this was through their own concerted efforts
Furthermore, petitioners failed to adduce any evidence and hard work. Elfledo did not limit himself to the
to show that the real and personal properties acquired
business of their partnership but engaged in other lines
and registered in the names of Elfledo and respondent of businesses as well.
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 In sum, we find no cogent reason to disturb the findings
Elfledo and respondent engaged in other businesses. and the ruling of the CA as they are amply supported by
Edison even admitted that Elfledo also sold Interwood the law and by the evidence on record.
lumber as a sideline.19 Petitioners could not offer any
credible evidence other than their bare assertions. Thus, WHEREFORE, the instant Petition is DENIED. The
we apply the basic rule of evidence that between assailed Court of Appeals Decision dated June 29, 2005 is
documentary and oral evidence, the former carries more AFFIRMED. Costs against petitioners.
weight.20
SO ORDERED.
Finally, we agree with the judicious findings of the CA, to
wit: ANTONIO EDUARDO B. NACHURA
Associate Justice
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.1avvphi1
25
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-
appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and
Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the
decision of May 4, 1956 and the order of May 21, 1956,
all of the Court of First Instance of Davao, in civil case
629. The basic action is for specific performance, and
damages resulting from an alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a
big tract of swampy land in the then Sitio of Malalag (now
the Municipality of Malalag), Municipality of Padada,
Davao. No action was taken thereon by the authorities
concerned. During the Japanese occupation, he filed
another fishpond application for the same area, but
because of the conditions then prevailing, it was not
acted upon either. On December 12, 1945 he filed a third
fishpond application for the same area, which, after a
survey, was found to contain 178.76 hectares. Upon
investigation conducted by a representative of the
Bureau of Forestry, it was discovered that the area
applied for was still needed for firewood production.
Hence on May 13, 1946 this third application was
disapproved.
Despite the said rejection, Casteel did not lose interest.
He filed a motion for reconsideration. While this motion
was pending resolution, he was advised by the district
forester of Davao City that no further action would be
taken on his motion, unless he filed a new application for
the area concerned. So he filed on May 27, 1947 his
fishpond application 1717.
Meanwhile, several applications were submitted by
other persons for portions of the area covered by
Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond
application 1202 covering 10 hectares of land found
inside the area applied for by Casteel; he was later
granted fishpond permit F-289-C covering 9.3 hectares
certified as available for fishpond purposes by the
Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond
application 762 over a portion of the land applied for by
Casteel. Alejandro Cacam's fishpond application 1276,
filed on December 26, 1946, was given due course on
December 9, 1947 with the issuance to him of fishpond
permit F-539-C to develop 30 hectares of land
comprising a portion of the area applied for by Casteel,
upon certification of the Bureau of Forestry that the area
was likewise available for fishpond purposes. On
November 17, 1948 Felipe Deluao filed his own fishpond
application for the area covered by Casteel's application.
Because of the threat poised upon his position by the
above applicants who entered upon and spread
themselves within the area, Casteel realized the urgent
necessity of expanding his occupation thereof by
constructing dikes and cultivating marketable fishes, in
order to prevent old and new squatters from usurping
the land. But lacking financial resources at that time, he
sought financial aid from his uncle Felipe Deluao who
then extended loans totalling more or less P27,000 with
which to finance the needed improvements on the
fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area
applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding
protests. Consequently, two administrative cases ensued
involving the area in question, to wit: DANR Case 353,
entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-appellant versus Fp. A. No. 763,
Victorio D. Carpio, applicant-appellant"; and DANR Case
353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717),
Nicanor Casteel, applicant-protestant versus Fp. Permit
No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C,
Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of
the above administrative cases that Casteel had already
introduced improvements on portions of the area
applied for by him in the form of dikes, fishpond gates,
clearings, etc., the Director of Fisheries nevertheless
rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he
had introduced on the land, and ordered that the land be
leased through public auction. Failing to secure a
favorable resolution of his motion for reconsideration of
the Director's order, Casteel appealed to the Secretary of
Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To
avoid repetition, they will be taken up in our discussion
of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe
Deluao) as party of the first part, and Nicanor Casteel as
party of the second part, executed a contract —
denominated a "contract of service" — the salient
provisions of which are as follows:
That the Party of the First Part in consideration of the
mutual covenants and agreements made herein to
the Party of the Second Part, hereby enter into a
contract of service, whereby the Party of the First
Part hires and employs the Party of the Second Part
on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has
hereby financed the sum of TWENTY SEVEN
THOUSAND PESOS (P27,000.00), Philippine
Currency, to the Party of the Second Part who renders
only his services for the construction and
improvements of a fishpond at Barrio Malalag,
Municipality of Padada, Province of Davao,
Philippines;
That the Party of the Second Part will be the Manager
and sole buyer of all the produce of the fish that will
be produced from said fishpond;
26
 That the Party of the First Part will be the
administrator of the same she having financed the
construction and improvement of said fishpond;
That this contract was the result of a verbal
agreement entered into between the Parties
sometime in the month of November, 1947, with all
the above-mentioned conditions enumerated; ...
On the same date the above contract was entered into,
Inocencia Deluao executed a special power of attorney in
favor of Jesus Donesa, extending to the latter the
authority "To represent me in the administration of the
fishpond at Malalag, Municipality of Padada, Province of
Davao, Philippines, which has been applied for fishpond
permit by Nicanor Casteel, but rejected by the Bureau of
Fisheries, and to supervise, demand, receive, and collect
the value of the fish that is being periodically realized
from it...."
On November 29, 1949 the Director of Fisheries rejected
the application filed by Felipe Deluao on November 17,
1948. Unfazed by this rejection, Deluao reiterated his
claim over the same area in the two administrative cases
(DANR Cases 353 and 353-B) and asked for
reinvestigation of the application of Nicanor Casteel over
the subject fishpond. However, by letter dated March 15,
1950 sent to the Secretary of Commerce and Agriculture
and Natural Resources (now Secretary of Agriculture and
Natural Resources), Deluao withdrew his petition for
reinvestigation.
On September 15, 1950 the Secretary of Agriculture and
Natural Resources issued a decision in DANR Case 353,
the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No.
661 (now Fp. A. No. 1717) of Nicanor Casteel should
be, as hereby it is, reinstated and given due course for
the area indicated in the sketch drawn at the back of
the last page hereof; and Fp. A. No. 762 of Victorio D.
Carpio shall remain rejected.
On the same date, the same official issued a decision in
DANR Case 353-B, the dispositive portion stating as
follows:
WHEREFORE, Fishpond Permit No. F-289-C of
Leoncio Aradillos and Fishpond Permit No. F-539-C
of Alejandro Cacam, should be, as they are hereby
cancelled and revoked; Nicanor Casteel is required to
pay the improvements introduced thereon by said
permittees in accordance with the terms and
dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade
Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A)
entered into between Inocencia Deluao and Nicanor
Casteel, Felipe Deluao and Inocencia Deluao on April 3,
1951 filed an action in the Court of First Instance of
Davao for specific performance and damages against
Nicanor Casteel and Juan Depra (who, they alleged,
instigated Casteel to violate his contract), praying inter
alia, (a) that Casteel be ordered to respect and abide by
the terms and conditions of said contract and that
Inocencia Deluao be allowed to continue administering
the said fishpond and collecting the proceeds from the
sale of the fishes caught from time to time; and (b) that
the defendants be ordered to pay jointly and severally to
plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion
for the issuance of a preliminary injunction, praying
among other things, that during the pendency of the case
and upon their filling the requisite bond as may be fixed
by the court, a preliminary injunction be issued to
restrain Casteel from doing the acts complained of, and
that after trial the said injunction be made permanent.
The lower court on April 26, 1951 granted the motion,
and, two days later, it issued a preliminary mandatory
injunction addressed to Casteel, the dispositive portion
of which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva
orden, usted, el demandado y todos usu abogados, agentes,
mandatarios y demas personas que obren en su ayuda,
desista de impedir a la demandante Inocencia R. Deluao que
continue administrando personalmente la pesqueria objeto
de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha
pesqueria, y que, asimismo, se prohibe a dicho demandado
Nicanor Casteel a desahuciar mediante fuerza al encargado
de los demandantes llamado Jesus Donesa de la pesqueria
objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the
injunction, alleging among others, that he was the owner,
lawful applicant and occupant of the fishpond in
question. This motion, opposed by the plaintiffs on June
15, 1951, was denied by the lower court in its order of
June 26, 1961.
The defendants on May 14, 1951 filed their answer with
counterclaim, amended on January 8, 1952, denying the
material averments of the plaintiffs' complaint. A reply to
the defendants' amended answer was filed by the
plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to
dismiss the complaint as to him. On June 4, 1951 the
plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to
dismiss on the ground that the plaintiffs' complaint failed
to state a claim upon which relief may be granted. The
motion, opposed by the plaintiffs on October 12, 1951,
was denied for lack of merit by the lower court in its
order of October 22, 1951. The defendants' motion for
reconsideration filed on October 31, 1951 suffered the
same fate when it was likewise denied by the lower court
in its order of November 12, 1951.
After the issues were joined, the case was set for trial.
Then came a series of postponements. The lower court
(Branch I, presided by Judge Enrique A. Fernandez)
finally issued on March 21, 1956 an order in open court,
reading as follows: .
Upon petition of plaintiffs, without any objection on
the part of defendants, the hearing of this case is
hereby transferred to May 2 and 3, 1956 at 8:30
o'clock in the morning.
This case was filed on April 3, 1951 and under any
circumstance this Court will not entertain any other
transfer of hearing of this case and if the parties will
not be ready on that day set for hearing, the court will
take the necessary steps for the final determination
of this case. (emphasis supplied)
27
On April 25, 1956 the defendants' counsel received a
notice of hearing dated April 21, 1956, issued by the
office of the Clerk of Court (thru the special deputy Clerk
of Court) of the Court of First Instance of Davao, setting
the hearing of the case for May 2 and 3, 1956 before
Judge Amador Gomez of Branch II. The defendants, thru
counsel, on April 26, 1956 filed a motion for
postponement. Acting on this motion, the lower court
(Branch II, presided by Judge Gomez) issued an order
dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of
this case set for May 2 and 3, 1956. The motion is filed
by the counsel for the defendants and has the
conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that
this case was initiated as early as April 1951 and that
the same has been under advisement of the
Honorable Enrique A. Fernandez, Presiding Judge of
Branch No. I, since September 24, 1953, and that
various incidents have already been considered and
resolved by Judge Fernandez on various occasions.
The last order issued by Judge Fernandez on this case
was issued on March 21, 1956, wherein he definitely
states that the Court will not entertain any further
postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court
believes that the consideration and termination of
any incident referring to this case should be referred
back to Branch I, so that the same may be disposed of
therein. (emphasis supplied)
A copy of the abovequoted order was served on the
defendants' counsel on May 4, 1956.
The defendant Casteel filed a petition for relief from the
On the scheduled date of hearing, that is, on May 2, 1956,
foregoing decision, alleging, inter alia, lack of knowledge
the lower court (Branch I, with Judge Fernandez
of the order of the court a quo setting the case for trial.
presiding), when informed about the defendants' motion
The petition, however, was denied by the lower court in
for postponement filed on April 26, 1956, issued an order
its order of May 21, 1956, the pertinent portion of which
reiterating its previous order handed down in open court
reads as follows:
on March 21, 1956 and directing the plaintiffs to
introduce their evidence ex parte, there being no
appearance on the part of the defendants or their
counsel. On the basis of the plaintiffs' evidence, a
decision was rendered on May 4, 1956 the dispositive
portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los
demandantes y en contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido
contra el demandado;
(b) Ordena al demandado entregue la demandante la
posesion y administracion de la mitad (½) del "fishpond" en
cuestion con todas las mejoras existentes dentro de la
misma;
(c) Condena al demandado a pagar a la demandante la suma
de P200.00 mensualmente en concepto de danos a contar de
la fecha de la expiracion de los 30 dias de la promulgacion
de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma
de P2,000.00 valor de los pescado beneficiados, mas los
intereses legales de la fecha de la incoacion de la demanda
de autos hasta el completo pago de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma
de P2,000.00, por gastos incurridos por aquella durante la
pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, en
concepto de honorarios, la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por
insuficiencia de pruebas, en tanto en cuanto se refiere al
demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los
demandados por falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The duty of Atty. Ruiz, was not to inquire from the
Clerk of Court whether the trial of this case has been
transferred or not, but to inquire from the presiding
Judge, particularly because his motion asking the
transfer of this case was not set for hearing and was
not also acted upon.
Atty. Ruiz knows the nature of the order of this Court
dated March 21, 1956, which reads as follows:
Upon petition of the plaintiff without any objection
on the part of the defendants, the hearing of this
case is hereby transferred to May 2 and 3, 1956, at
8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any
circumstance this Court will not entertain any
other transfer of the hearing of this case, and if the
parties will not be ready on the day set for hearing,
the Court will take necessary steps for the final
disposition of this case.
In view of the order above-quoted, the Court will not
accede to any transfer of this case and the duty of
Atty. Ruiz is no other than to be present in the Sala of
this Court and to call the attention of the same to the
existence of his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in
behalf of the defendant, not well taken, the same is
hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the
Court of Appeals which certified the case to us for final
determination on the ground that it involves only
questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse
of discretion when it ordered reception of the
appellees' evidence in the absence of the appellant at
the trial on May 2, 1956, thus depriving the appellant
of his day in court and of his property without due
process of law;
(2) Whether the lower court committed grave abuse
of discretion when it denied the verified petition for
relief from judgment filed by the appellant on May 11,
1956 in accordance with Rule 38, Rules of Court; and
28
 (3) Whether the lower court erred in ordering the
issuance ex parte of a writ of preliminary injunction
against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against
the appellant.
The record indisputably shows that in the order given in
open court on March 21, 1956, the lower court set the
case for hearing on May 2 and 3, 1956 at 8:30 o'clock in
the morning and empathically stated that, since the case
had been pending since April 3, 1951, it would not
entertain any further motion for transfer of the
scheduled hearing.
An order given in open court is presumed received by the
parties on the very date and time of promulgation,1 and
amounts to a legal notification for all legal
purposes.2 The order of March 21, 1956, given in open
court, was a valid notice to the parties, and the notice of
hearing dated April 21, 1956 or one month thereafter,
was a superfluity. Moreover, as between the order of
March 21, 1956, duly promulgated by the lower court,
thru Judge Fernandez, and the notice of hearing signed
by a "special deputy clerk of court" setting the hearing in
another branch of the same court, the former's order was
the one legally binding. This is because the incidents of
postponements and adjournments are controlled by the
court and not by the clerk of court, pursuant to section 4,
Rule 31 (now sec. 3, Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere
with the order of the court or to transfer the cage from
one sala to another without authority or order from the
court where the case originated and was being tried. He
had neither the duty nor prerogative to re-assign the trial
of the case to a different branch of the same court. His
duty as such clerk of court, in so far as the incident in
question was concerned, was simply to prepare the trial
calendar. And this duty devolved upon the clerk of court
and not upon the "special deputy clerk of court" who
purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had
the conformity of the appellees' counsel. The
postponement of hearings does not depend upon
agreement of the parties, but upon the court's
discretion.3
The record further discloses that Casteel was
represented by a total of 12 lawyers, none of whom had
ever withdrawn as counsel. Notice to Atty. Ruiz of the
order dated March 21, 1956 intransferably setting the
case for hearing for May 2 and 3, 1956, was sufficient
notice to all the appellant's eleven other counsel of
record. This is a well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of
record, not excluding the appellant himself, to appear
before Judge Fernandez on the scheduled dates of
hearing Parties and their lawyers have no right to
presume that their motions for postponement will be
granted.5 For indeed, the appellant and his 12 lawyers
cannot pretend ignorance of the recorded fact that since
September 24, 1953 until the trial held on May 2, 1956,
the case was under the advisement of Judge Fernandez
who presided over Branch I. There was, therefore, no
necessity to "re-assign" the same to Branch II because
Judge Fernandez had exclusive control of said case,
unless he was legally inhibited to try the case — and he
was not.
There is truth in the appellant's contention that it is the
duty of the clerk of court — not of the Court — to prepare
the trial calendar. But the assignment or reassignment of
cases already pending in one sala to another sala, and the
setting of the date of trial after the trial calendar has been
prepared, fall within the exclusive control of the
presiding judge.
The appellant does not deny the appellees' claim that on
May 2 and 3, 1956, the office of the clerk of court of the
Court of First Instance of Davao was located directly
below Branch I. If the appellant and his counsel had
exercised due diligence, there was no impediment to
their going upstairs to the second storey of the Court of
First Instance building in Davao on May 2, 1956 and
checking if the case was scheduled for hearing in the
said sala. The appellant after all admits that on May 2,
1956 his counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of
right are entitled to notice of trial, is correct. But he was
properly accorded this right. He was notified in open
court on March 21, 1956 that the case was definitely and
intransferably set for hearing on May 2 and 3, 1956
before Branch I. He cannot argue that, pursuant to the
doctrine in Siochi vs. Tirona,6 his counsel was entitled to
a timely notice of the denial of his motion for
postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in
the case at bar, there had already been a series of
postponements. Unlike the case at bar, the Siochi case
was not intransferably set for hearing. Finally, whereas
the cited case did not spend for a long time, the case at
bar was only finally and intransferably set for hearing on
March 21, 1956 — after almost five years had elapsed
from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of
record that they lacked ample time to prepare for trial is
unacceptable because between March 21, 1956 and May
2, 1956, they had one month and ten days to do so. In
effect, the appellant had waived his right to appear at the
trial and therefore he cannot be heard to complain that
he has been deprived of his property without due
process of law.7 Verily, the constitutional requirements
of due process have been fulfilled in this case: the lower
court is a competent court; it lawfully acquired
jurisdiction over the person of the defendant (appellant)
and the subject matter of the action; the defendant
(appellant) was given an opportunity to be heard; and
judgment was rendered upon lawful hearing.8
2. Finally, the appellant contends that the lower court
incurred an error in ordering the issuance ex parte of a
writ of preliminary injunction against him, and in not
dismissing the appellee's complaint. We find this
contention meritorious.
Apparently, the court a quo relied on exhibit A — the so-
called "contract of service" — and the appellees'
contention that it created a contract of co-ownership and
partnership between Inocencia Deluao and the appellant
over the fishpond in question.
Too well-settled to require any citation of authority is the
rule that everyone is conclusively presumed to know the
law. It must be assumed, conformably to such rule, that
the parties entered into the so-called "contract of
service" cognizant of the mandatory and prohibitory
laws governing the filing of applications for fishpond
permits. And since they were aware of the said laws, it
must likewise be assumed — in fairness to the parties —
29
that they did not intend to violate them. This view must
perforce negate the appellees' allegation that exhibit A
created a contract of co-ownership between the parties
over the disputed fishpond. Were we to admit the
establishment of a co-ownership violative of the
prohibitory laws which will hereafter be discussed, we
shall be compelled to declare altogether the nullity of the
contract. This would certainly not serve the cause of
equity and justice, considering that rights and
obligations have already arisen between the parties. We
shall therefore construe the contract as one of
partnership, divided into two parts — namely, a contract
of partnership to exploit the fishpond pending its award
to either Felipe Deluao or Nicanor Casteel, and a contract
of partnership to divide the fishpond between them after
such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao
and the appellant entered into the so-called "contract of
service" on November 25, 1949, there were two pending
applications over the fishpond. One was Casteel's which
was appealed by him to the Secretary of Agriculture and
Natural Resources after it was disallowed by the Director
of Fisheries on October 25, 1949. The other was Felipe
Deluao's application over the same area which was
likewise rejected by the Director of Fisheries on
November 29, 1949, refiled by Deluao and later on
withdrawn by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources. Clearly,
although the fishpond was then in the possession of
Casteel, neither he nor, Felipe Deluao was the holder of a
fishpond permit over the area. But be that as it may, they
were not however precluded from exploiting the
fishpond pending resolution of Casteel's appeal or the
approval of Deluao's application over the same area —
whichever event happened first. No law, rule or
regulation prohibited them from doing so. Thus, rather
than let the fishpond remain idle they cultivated it.
The evidence preponderates in favor of the view that the
initial intention of the parties was not to form a co-
ownership but to establish a partnership — Inocencia
Deluao as capitalist partner and Casteel as industrial
partner — the ultimate undertaking of which was to
divide into two equal parts such portion of the fishpond
as might have been developed by the amount extended
by the plaintiffs-appellees, with the further provision
that Casteel should reimburse the expenses incurred by
the appellees over one-half of the fishpond that would
pertain to him. This can be gleaned, among others, from
the letter of Casteel to Felipe Deluao on November 15,
1949, which states, inter alia:
... [W]ith respect to your allowing me to use your
money, same will redound to your benefit
because you are the ones interested in half of the work
we have done so far, besides I did not insist on our
being partners in my fishpond permit, but it was you
"Tatay" Eping the one who wanted that we be partners
and it so happened that we became partners because I
am poor, but in the midst of my poverty it never
occurred to me to be unfair to you. Therefore so that
each of us may be secured, let us have a document
prepared to the effect that we are partners in the
fishpond that we caused to be made here in Balasinon,
but it does not mean that you will treat me as one of
your "Bantay" (caretaker) on wage basis but not
earning wages at all, while the truth is that we are
partners. In the event that you are not amenable to
my proposition and consider me as "Bantay"
(caretaker) instead, do not blame me if I withdraw all
my cases and be left without even a little and you
likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant
that a document be drawn evidencing their partnership,
the appellee Inocencia Deluao and the appellant
executed exhibit A which, although denominated a
"contract of service," was actually the memorandum of
their partnership agreement. That it was not a contract
of the services of the appellant, was admitted by the
appellees themselves in their letter10 to Casteel dated
December 19, 1949 wherein they stated that they did not
employ him in his (Casteel's) claim but because he used
their money in developing and improving the fishpond,
his right must be divided between them. Of course,
although exhibit A did not specify any wage or share
appertaining to the appellant as industrial partner, he
was so entitled — this being one of the conditions he
specified for the execution of the document of
partnership.11
Further exchanges of letters between the parties reveal
the continuing intent to divide the fishpond. In a
letter,12dated March 24, 1950, the appellant suggested
that they divide the fishpond and the remaining capital,
and offered to pay the Deluaos a yearly installment of
P3,000 — presumably as reimbursement for the
expenses of the appellees for the development and
improvement of the one-half that would pertain to the
appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's
suggestion and advising the latter to ask for a
reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) application, so that if a
favorable decision was secured, then they would divide
the area.
Apparently relying on the partnership agreement, the
appellee Felipe Deluao saw no further need to maintain
his petition for the reinvestigation of Casteel's
application. Thus by letter14 dated March 15, 1950
addressed to the Secretary of Agriculture and Natural
Resources, he withdrew his petition on the alleged
ground that he was no longer interested in the area, but
stated however that he wanted his interest to be
protected and his capital to be reimbursed by the highest
bidder.
The arrangement under the so-called "contract of
service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353
and 353-B. This development, by itself, brought about
the dissolution of the partnership. Moreover, subsequent
events likewise reveal the intent of both parties to
terminate the partnership because each refused to share
the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the
causes for the dissolution of a partnership, "... any event
which makes it unlawful for the business of the
partnership to be carried on or for the members to carry
it on in partnership." The approval of the appellant's
fishpond application by the decisions in DANR Cases 353
and 353-B brought to the fore several provisions of law
which made the continuation of the partnership unlawful
and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the
holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him,
without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.15 To the
same effect is Condition No. 3 of the fishpond permit
which states that "The permittee shall not transfer or
sublet all or any area herein granted or any rights
acquired therein without the previous consent and
30
approval of this Office." Parenthetically, we must observe
that in DANR Case 353-B, the permit granted to one of
the parties therein, Leoncio Aradillos, was cancelled not
solely for the reason that his permit covered a portion of
the area included in the appellant's prior fishpond
application, but also because, upon investigation, it was
ascertained thru the admission of Aradillos himself that
due to lack of capital, he allowed one Lino Estepa to
develop with the latter's capital the area covered by his
fishpond permit F-289-C with the understanding that he
(Aradillos) would be given a share in the produce
thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as
the Public Land Act, likewise provides that
The lessee shall not assign, encumber, or sublet his
rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this
condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes
of speculation shall not be permitted in any
case: Provided, further, That nothing contained in this
section shall be understood or construed to permit
the assignment, encumbrance, or subletting of lands
leased under this Act, or under any previous Act, to
persons, corporations, or associations which under
this Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the
Secretary of Agriculture and Natural Resources issued in
August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms
and conditions as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and
improvement may be allowed. — If the permittee or
lessee had, unless otherwise specifically provided,
held the permit or lease and actually operated and
made improvements on the area for at least one year,
he/she may request permission to sub-lease or
transfer the area and improvements under certain
conditions.
(a) Transfer subject to approval. — A sub-lease or
transfer shall only be valid when first approved by
the Director under such terms and conditions as may
be prescribed, otherwise it shall be null and void. A
transfer not previously approved or reported shall be
considered sufficient cause for the cancellation of the
permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as
provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into
two equal parts of the fishpond between the appellees
and the appellant after it shall have been awarded to the
latter, and therefore it envisaged the unauthorized
transfer of one-half thereof to parties other than the
applicant Casteel, it was dissolved by the approval of his
application and the award to him of the fishpond. The
approval was an event which made it unlawful for the
business of the partnership to be carried on or for the
members to carry it on in partnership.
The appellees, however, argue that in approving the
appellant's application, the Secretary of Agriculture and
Natural Resources likewise recognized and/or
confirmed their property right to one-half of the
fishpond by virtue of the contract of service, exhibit A.
But the untenability of this argument would readily
surface if one were to consider that the Secretary of
Agriculture and Natural Resources did not do so for the
simple reason that he does not possess the authority to
violate the aforementioned prohibitory laws nor to
exempt anyone from their operation.
However, assuming in gratia argumenti that the
approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto of their partnership, succeeding
events reveal the intent of both parties to terminate the
partnership by refusing to share the fishpond with the
other.
On December 27, 1950 Casteel wrote17 the appellee
Inocencia Deluao, expressing his desire to divide the
fishpond so that he could administer his own share, such
division to be subject to the approval of the Secretary of
Agriculture and Natural Resources. By letter dated
December 29, 1950,18 the appellee Felipe Deluao
demurred to Casteel's proposition because there were
allegedly no appropriate grounds to support the same
and, moreover, the conflict over the fishpond had not
been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to
the appellee Felipe Deluao wherein the former expressed
his determination to administer the fishpond himself
because the decision of the Government was in his favor
and the only reason why administration had been
granted to the Deluaos was because he was indebted to
them. In the same letter, the appellant forbade Felipe
Deluao from sending the couple's encargado, Jesus
Donesa, to the fishpond. In reply thereto, Felipe Deluao
wrote a letter20 dated January 5, 1951 in which he
reiterated his refusal to grant the administration of the
fishpond to the appellant, stating as a ground his belief
"that only the competent agencies of the government are
in a better position to render any equitable arrangement
relative to the present case; hence, any action we may
privately take may not meet the procedure of legal
order."
Inasmuch as the erstwhile partners articulated in the
aforecited letters their respective resolutions not to
share the fishpond with each other — in direct violation
of the undertaking for which they have established their
partnership — each must be deemed to have expressly
withdrawn from the partnership, thereby causing its
dissolution pursuant to art. 1830(2) of the Civil Code
which provides, inter alia, that dissolution is caused "by
the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and
Natural Resources possesses executive and
administrative powers with regard to the survey,
classification, lease, sale or any other form of concession
or disposition and management of the lands of the public
domain, and, more specifically, with regard to the grant
or withholding of licenses, permits, leases and contracts
over portions of the public domain to be utilized as
fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-
15414, June 30, 1960), and reiterated in Ganitano vs.
Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of
Agriculture and Commerce (Natural Resources) by
law regarding the disposition of public lands such as
granting of licenses, permits, leases, and contracts,
or approving, rejecting, reinstating, or cancelling
applications, or deciding conflicting applications,
are all executive and administrative in nature. It is a
well-recognized principle that purely administrative
and discretionary functions may not be interfered
with by the courts (Coloso v. Board of Accountancy,
G.R. No. L-5750, April 20, 1953). In general, courts
31
 have no supervising power over the proceedings
and action of the administrative departments of the
government. This is generally true with respect to
acts involving the exercise of judgment or
discretion, and findings of fact. (54 Am. Jur. 558-
559) Findings of fact by an administrative board or
official, following a hearing, are binding upon the
courts and will not be disturbed except where the
board or official has gone beyond his statutory
authority, exercised unconstitutional powers or
clearly acted arbitrarily and without regard to his
duty or with grave abuse of discretion... (emphasis
supplied)
In the case at bar, the Secretary of Agriculture and
Natural Resources gave due course to the appellant's
fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality
of the Secretary's decision in DANR Cases 353 and 353-
B, and considering the absence of any proof that the said
official exceeded his statutory authority, exercised
unconstitutional powers, or acted with arbitrariness and
in disregard of his duty, or with grave abuse of discretion,
we can do no less than respect and maintain unfettered
his official acts in the premises. It is a salutary rule that
the judicial department should not dictate to the
executive department what to do with regard to the
administration and disposition of the public domain
which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their
discretion on that of the land department and compel the
latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and
even assuming that the injunction was properly issued
because present all the requisite grounds for its issuance,
its continuation, and, worse, its declaration as
permanent, was improper in the face of the knowledge
later acquired by the lower court that it was the
appellant's application over the fishpond which was
given due course. After the Secretary of Agriculture and
Natural Resources approved the appellant's application,
he became to all intents and purposes the legal permittee
of the area with the corresponding right to possess,
occupy and enjoy the same. Consequently, the lower
court erred in issuing the preliminary mandatory
injunction. We cannot overemphasize that an injunction
should not be granted to take property out of the
possession and control of one party and place it in the
hands of another whose title has not been clearly
established by law.23
However, pursuant to our holding that there was a
partnership between the parties for the exploitation of
the fishpond before it was awarded to Casteel, this case
should be remanded to the lower court for the reception
of evidence relative to an accounting from November 25,
1949 to September 15, 1950, in order for the court to
determine (a) the profits realized by the partnership, (b)
the share (in the profits) of Casteel as industrial partner,
(e) the share (in the profits) of Deluao as capitalist
partner, and (d) whether the amounts totalling about
P27,000 advanced by Deluao to Casteel for the
development and improvement of the fishpond have
already been liquidated. Besides, since the appellee
Inocencia Deluao continued in possession and
enjoyment of the fishpond even after it was awarded to
Casteel, she did so no longer in the concept of a capitalist
partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an
accounting of the proceeds of the sales of all the fishes
harvested from the fishpond from September 16, 1950
until Casteel shall have been finally given the possession
and enjoyment of the same. In the event that the appellee
Deluao has received more than her lawful credit of
P27,000 (or whatever amounts have been advanced to
Casteel), plus 6% interest thereon per annum, then she
should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set
aside. Another judgment is hereby rendered: (1)
dissolving the injunction issued against the appellant, (2)
placing the latter back in possession of the fishpond in
litigation, and (3) remanding this case to the court of
origin for the reception of evidence relative to the
accounting that the parties must perforce render in the
premises, at the termination of which the court shall
render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to
costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Sanchez, Fernando and Capistrano, JJ., concur.
32
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 154486 December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.
ANTONIETA JARANTILLA, BUENAVENTURA
REMOTIGUE, substituted by CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS
JARANTILLA, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari1 seeks to modify
the Decision2 of the Court of Appeals dated July 30, 2002
in CA-G.R. CV No. 40887, which set aside the
Decision3 dated December 18, 1992 of the Regional Trial
Court (RTC) of Quezon City, Branch 98 in Civil Case No.
Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were
survived by eight children: Federico, Delfin, Benjamin,
Conchita, Rosita, Pacita, Rafael and
Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son
Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo
and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint
before the RTC while Antonieta Jarantilla, his aunt, was
the plaintiff therein. His co-respondents before he joined
his aunt Antonieta in her complaint, were his late aunt
Conchita Jarantilla’s husband Buenaventura Remotigue,
who died during the pendency of the case, his cousin
Cynthia Remotigue, the adopted daughter of Conchita
Jarantilla and Buenaventura Remotigue, and his brothers
Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned
amongst themselves the real properties of their
deceased parents.7 With the exception of the real
property adjudicated to Pacita Jarantilla, the heirs also
agreed to allot the produce of the said real properties for
the years 1947-1949 for the studies of Rafael and
Antonieta Jarantilla.8
In the same year, the spouses Rosita Jarantilla and
Vivencio Deocampo entered into an agreement with the
spouses Buenaventura Remotigue and Conchita
Jarantilla to provide mutual assistance to each other by
way of financial support to any commercial and
agricultural activity on a joint business arrangement.
This business relationship proved to be successful as
they were able to establish a manufacturing and trading
business, acquire real properties, and construct
buildings, among other things.9 This partnership ended
in 1973 when the parties, in an
"Agreement,"10 voluntarily agreed to completely
dissolve their "joint business
relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and
Conchita Remotigue executed a document wherein they
acknowledged that while registered only in
Buenaventura Remotigue’s name, they were not the only
owners of the capital of the businesses Manila Athletic
Supply (712 Raon Street, Manila), Remotigue Trading
(Calle Real, Iloilo City) and Remotigue Trading (Cotabato
City). In this same "Acknowledgement of Participating
Capital," they stated the participating capital of their co-
owners as of the year 1952, with Antonieta Jarantilla’s
stated as eight thousand pesos (₱8,000.00) and Federico
Jarantilla, Jr.’s as five thousand pesos (₱5,000.00).12
The present case stems from the amended
complaint13 dated April 22, 1987 filed by Antonieta
Jarantilla against Buenaventura Remotigue, Cynthia
Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and
income of the co-ownership, for its partition and the
delivery of her share corresponding to eight percent
(8%), and for damages. Antonieta claimed that in 1946,
she had entered into an agreement with Conchita and
Buenaventura Remotigue, Rafael Jarantilla, and Rosita
and Vivencio Deocampo to engage in business. Antonieta
alleged that the initial contribution of property and
money came from the heirs’ inheritance, and her
subsequent annual investment of seven thousand five
hundred pesos (₱7,500.00) as additional capital came
from the proceeds of her farm. Antonieta also alleged
that from 1946-1969, she had helped in the management
of the business they co-owned without receiving any
salary. Her salary was supposedly rolled back into the
business as additional investments in her behalf.
Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of
the defendants since the only way the defendants could
have purchased these properties were through the
partnership as they had no other source of income.
The respondents, including petitioner herein, in their
Answer,15 denied having formed a partnership with
Antonieta in 1946. They claimed that she was in no
position to do so as she was still in school at that time. In
fact, the proceeds of the lands they partitioned were
devoted to her studies. They also averred that while she
may have helped in the businesses that her older sister
Conchita had formed with Buenaventura Remotigue, she
was paid her due salary. They did not deny the existence
and validity of the "Acknowledgement of Participating
Capital" and in fact used this as evidence to support their
claim that Antonieta’s 8% share was limited to the
businesses enumerated therein. With regard to
Antonieta’s claim in their other corporations and
businesses, the respondents said these should also be
limited to the number of her shares as specified in the
respective articles of incorporation. The respondents
denied using the partnership’s income to purchase the
subject real properties and said that the certificates of
title should be binding on her.16
During the course of the trial at the RTC, petitioner
Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise
agreement17 with Antonieta Jarantilla wherein he
supported Antonieta’s claims and asserted that he too
was entitled to six percent (6%) of the supposed
partnership in the same manner as Antonieta was. He
prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in
plaintiff’s prayer for an accounting from the other
defendants, and the partition of the properties of the co-
ownership and the delivery to the plaintiff and to
defendant Federico Jarantilla, Jr. of their rightful share of
the assets and properties in the co-ownership.181avvphi1
33
The RTC, in an Order19 dated March 25, 1992, approved
the Joint Motion to Approve Compromise
Agreement20and on December 18, 1992, decided in favor
of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court
renders judgment in favor of the plaintiff Antonieta
Jarantilla and against defendants Cynthia Remotigue,
Doroteo Jarantilla and Tomas Jarantilla ordering the
latter:
1. to deliver to the plaintiff her 8% share or its
equivalent amount on the real properties covered by
TCT Nos. 35655, 338398, 338399 & 335395, all of the
Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the
Registry of Deeds of Rizal; and TCT No. T-6309 of the
Registry of Deeds of Cotabato based on their present
market value;
2. to deliver to the plaintiff her 8% share or its
equivalent amount on the Remotigue Agro-Industrial
Corporation, Manila Athletic Supply, Inc., MAS
Rubber Products, Inc. and Buendia Recapping
Corporation based on the shares of stocks present
book value;
3. to account for the assets and income of the co-
ownership and deliver to plaintiff her rightful share
thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of
₱50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of ₱50,000.00
as attorney’s fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this
decision to the Court of Appeals. The petitioner claimed
that the RTC "erred in not rendering a complete
judgment and ordering the partition of the co-ownership
and giving to [him] six per centum (6%) of the
properties."22
While the Court of Appeals agreed to some of the RTC’s
factual findings, it also established that Antonieta
Jarantilla was not part of the partnership formed in 1946,
and that her 8% share was limited to the businesses
enumerated in the Acknowledgement of Participating
Capital. On July 30, 2002, the Court of Appeals rendered
the herein challenged decision setting aside the RTC’s
decision, as follows:
WHEREFORE, the decision of the trial court, dated 18
December 1992 is SET ASIDE and a new one is hereby
entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be
given her share of 8% in the assets and profits of
Manila Athletic Supply, Remotigue Trading in Iloilo
City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr.
be given his share of 6% of the assets and profits of
the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in
the following corporations to the extent stated in
their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for
Partial Reconsideration but the Court of Appeals denied
this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own
petition for review on certiorari25 dated September 16,
2002, assailing the Court of Appeals’ decision on "similar
grounds and similar assignments of errors as this
present case"26 but it was dismissed on November 20,
2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance
with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the
sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN NOT RULING THAT PETITIONER FEDERICO
JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM
(6%) SHARE OF THE OWNERSHIP OF THE REAL
PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS
USING COMMON FUNDS FROM THE BUSINESSES
WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the
Remotigue spouses, the Deocampo spouses, Rosita
Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and
Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends that
from this partnership, several other corporations and
businesses were established and several real properties
were acquired. In this petition, he is essentially asking for
his 6% share in the subject real properties. He is relying
on the Acknowledgement of Participating Capital, on his
own testimony, and Antonieta Jarantilla’s testimony to
support this contention.
The core issue is whether or not the partnership subject
of the Acknowledgement of Participating Capital funded
the subject real properties. In other words, what is the
petitioner’s right over these real properties?
It is a settled rule that in a petition for review
on certiorari under Rule 45 of the Rules of Civil
Procedure, only questions of law may be raised by the
parties and passed upon by this Court.29
A question of law arises when there is doubt as to what
the law is on a certain state of facts, while there is a
question of fact when the doubt arises as to the truth or
falsity of the alleged facts. For a question to be one of law,
the same must not involve an examination of the
probative value of the evidence presented by the litigants
or any of them. The resolution of the issue must rest
solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is
one of fact. Thus, the test of whether a question is one of
law or of fact is not the appellation given to such question
by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without
34
reviewing or evaluating the evidence, in which case, it is
a question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual
findings of the RTC, this Court, in resolving the questions
of law that are now in issue, shall look into the facts only
in so far as the two courts a quo differed in their
appreciation thereof.
The RTC found that an unregistered partnership existed
since 1946 which was affirmed in the 1957 document,
the "Acknowledgement of Participating Capital." The
RTC used this as its basis for giving Antonieta Jarantilla
an 8% share in the three businesses listed therein and in
the other businesses and real properties of the
respondents as they had supposedly acquired these
through funds from the partnership.31
The Court of Appeals, on the other hand, agreed with the
RTC as to Antonieta’s 8% share in the business
enumerated in the Acknowledgement of Participating
Capital, but not as to her share in the other corporations
and real properties. The Court of Appeals ruled that
Antonieta’s claim of 8% is based on the
"Acknowledgement of Participating Capital," a duly
notarized document which was specific as to the subject
of its coverage. Hence, there was no reason to pattern her
share in the other corporations from her share in the
partnership’s businesses. The Court of Appeals also said
that her claim in the respondents’ real properties was
more "precarious" as these were all covered by
certificates of title which served as the best evidence as
to all the matters contained therein.32 Since petitioner’s
claim was essentially the same as Antonieta’s, the Court
of Appeals also ruled that petitioner be given his 6%
share in the same businesses listed in the
Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the
Court of Appeals, are final and conclusive except in the
following cases: (1) when the inference made is
manifestly mistaken, absurd or impossible; (2) when
there is a grave abuse of discretion; (3) when the finding
is grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court of
Appeals is based on misapprehension of facts; (5) when
the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admissions of
both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties and which, if
properly considered, would justify a different
conclusion; and (10) when the findings of fact of the
Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on
record.33
In this case, we find no error in the ruling of the Court of
Appeals.
Both the petitioner and Antonieta Jarantilla characterize
their relationship with the respondents as a co-
ownership, but in the same breath, assert that a verbal
partnership was formed in 1946 and was affirmed in the
1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or
right belongs to different persons.34 It is a partnership
when two or more persons bind themselves to
contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves.35 The Court, in Pascual v. The Commissioner
of Internal Revenue,36 quoted the concurring opinion of
Mr. Justice Angelo Bautista in Evangelista v. The
Collector of Internal Revenue37 to further elucidate on
the distinctions between a co-ownership and a
partnership, to wit:
I wish however to make the following observation:
Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2
and 3, provides;
(2) Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or
co-possessors do or do not share any profits made by
the use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
From the above it appears that the fact that those who
agree to form a co- ownership share or do not share any
profits made by the use of the property held in common
does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a
partnership whether or not the persons sharing therein
have a joint or common right or interest in the property.
This only means that, aside from the circumstance of
profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a
partnership, the existence of a juridical personality
different from that of the individual partners, and the
freedom to transfer or assign any interest in the property
by one with the consent of the others.
It is evident that an isolated transaction whereby two or
more persons contribute funds to buy certain real estate
for profit in the absence of other circumstances showing a
contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution,
are not thereby rendered partners. They have no
common stock or capital, and no community of interest
as principal proprietors in the business itself which the
proceeds derived.
A joint purchase of land, by two, does not constitute a co-
partnership in respect thereto; nor does an agreement to
share the profits and losses on the sale of land create a
partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to
become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing
of it, the brother and the other not being entitled to share
in plaintiff’s commission, no partnership existed as
between the three parties, whatever their relation may
have been as to third parties.
In order to constitute a partnership inter sese there must
be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a
community of interest, as far as third persons are
35
concerned as enables each party to make contract,
manage the business, and dispose of the whole property. x
x x.
The common ownership of property does not itself
create a partnership between the owners, though they
may use it for the purpose of making gains; and they may,
without becoming partners, agree among themselves as
to the management, and use of such property and the
application of the proceeds therefrom.38 (Citations
omitted.)
Buenaventura Remotigue as the registered owner and
are being operated by them as such:
That they are not the only owners of the capital of the
three establishments and their participation in the
capital of the three establishments together with the
other co-owners as of the year 1952 are stated as
follows:
1. Buenaventura Remotigue (TWENTY-FIVE
THOUSAND)₱25,000.00
The Acknowledgement of Participating Capital is a duly
notarized document voluntarily executed by Conchita
Jarantilla-Remotigue and Buenaventura Remotigue in
1957. Petitioner does not dispute its contents and is
actually relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of
each in the losses shall be in the same proportion.

Under Article 1767 of the Civil Code, there are two
essential elements in a contract of partnership: (a) an
agreement to contribute money, property or industry to a
common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, all the parties
in this case have agreed to, and did, contribute money
and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did.39 It is not denied
that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its
profits. They have admitted this fact, agreed to its
veracity, and even submitted one common documentary
evidence to prove such partnership - the
Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the
Acknowledgement of Participating Capital, it would be
instructive to examine the pertinent portions of this
document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and
Conchita Jarantilla de Remotigue, both of legal age,
Filipinos and residents of Loyola Heights, Quezon City,
P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the
Remotigue Trading of Calle Real, Iloilo City and the
Remotigue Trading, Cotabato Branch, Cotabato, P.I., all
dealing in athletic goods and equipments, and general
merchandise are recorded in their respective books with
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE In the absence of stipulation, the share of each partner in
THOUSAND)… 25,000.00 the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall
not be liable for the losses. As for the profits, the
3. Vicencio Deocampo (FIFTEEN THOUSAND)…… industrial partner shall receive such share as may be just
15,000.00 and equitable under the circumstances. If besides his
services he has contributed capital, he shall also receive
4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... a share in the profits in proportion to his capital.
15,000.00 (Emphases supplied.)
5. Antonieta Jarantilla (EIGHT THOUSAND)……….. It is clear from the foregoing that a partner is entitled
8,000.00 only to his share as agreed upon, or in the absence of any
such stipulations, then to his share in proportion to his
contribution to the partnership. The petitioner himself
6. Rafael Jarantilla (SIX THOUSAND)…………….. ...
6,000.00 claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However,
petitioner fails to realize that this document specifically
7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. enumerated the businesses covered by the partnership:
5,000.00 Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City. Since there was
8. Quintin Vismanos (TWO THOUSAND)…………... a clear agreement that the capital the partners
2,000.00 contributed went to the three businesses, then there is
no reason to deviate from such agreement and go beyond
That aside from the persons mentioned in the next the stipulations in the document. Therefore, the Court of
preceding paragraph, no other person has any interest in Appeals did not err in limiting petitioner’s share to the
assets of the businesses enumerated in the
the above-mentioned three establishments.
Acknowledgement of Participating Capital.
IN WITNESS WHEREOF, they sign this instrument in the
City of Manila, P.I., this 29th day of April, 1957. In Villareal v. Ramirez,41 the Court held that since a
partnership is a separate juridical entity, the shares to be
paid out to the partners is necessarily limited only to its
[Sgd.] total resources, to wit:
BUENAVENTURA REMOTIGUE
Since it is the partnership, as a separate and distinct
[Sgd.] entity, that must refund the shares of the partners, the
CONCHITA JARANTILLA DE REMOTIGUE40 amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has

36
in its coffers, which consists of all its assets. However,
before the partners can be paid their shares, the
creditors of the partnership must first be compensated.
After all the creditors have been paid, whatever is left of
the partnership assets becomes available for the
payment of the partners’ shares.42
There is no evidence that the subject real properties
were assets of the partnership referred to in the
Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to
respondents’ properties based on the concept of trust. He
claims that since the subject real properties were
purchased using funds of the partnership, wherein he
has a 6% share, then "law and equity mandates that he
should be considered as a co-owner of those properties
in such proportion."43 In Pigao v. Rabanillo,44 this Court
explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor
or of the parties, while implied trusts come into being by
operation of law, either through implication of an
intention to create a trust as a matter of law or through
the imposition of the trust irrespective of, and even
contrary to, any such intention. In turn, implied trusts
are either resulting or constructive trusts. Resulting
trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the
equitable title or interest and are presumed always to
have been contemplated by the parties. They arise from
the nature or circumstances of the consideration
involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a
trust was created. Noting the need to prove the existence
of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust
is on the party asserting its existence, and such proof
must be clear and satisfactorily show the existence of the
trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be
trustworthy and received by the courts with extreme
caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy
evidence is required because oral evidence can easily be
fabricated." 46
The petitioner has failed to prove that there exists a trust
over the subject real properties. Aside from his bare
allegations, he has failed to show that the respondents
used the partnership’s money to purchase the said
properties. Even assuming arguendo that some
partnership income was used to acquire these
properties, the petitioner should have successfully
shown that these funds came from his share in the
partnership profits. After all, by his own admission, and
as stated in the Acknowledgement of Participating
Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the
subject real properties, by relying on his own self-serving
testimony and the equally biased testimony of Antonieta
Jarantilla. Petitioner has not presented evidence, other
than these unsubstantiated testimonies, to prove that the
respondents did not have the means to fund their other
businesses and real properties without the partnership’s
income. On the other hand, the respondents have not
only, by testimonial evidence, proven their case against
the petitioner, but have also presented sufficient
documentary evidence to substantiate their claims,
allegations and defenses. They presented preponderant
proof on how they acquired and funded such properties
in addition to tax receipts and tax declarations.47 It has
been held that "while tax declarations and realty tax
receipts do not conclusively prove ownership, they may
constitute strong evidence of ownership when
accompanied by possession for a period sufficient for
prescription."48 Moreover, it is a rule in this jurisdiction
that testimonial evidence cannot prevail over
documentary evidence.49 This Court had on several
occasions, expressed our disapproval on using mere self-
serving testimonies to support one’s claim. In Ocampo v.
Ocampo,50 a case on partition of a co-ownership, we held
that:
Petitioners assert that their claim of co-ownership of the
property was sufficiently proved by their witnesses --
Luisa Ocampo-Llorin and Melita Ocampo. We disagree.
Their testimonies cannot prevail over the array of
documents presented by Belen. A claim of ownership
cannot be based simply on the testimonies of witnesses;
much less on those of interested parties, self-serving as
they are.51
It is true that a certificate of title is merely an evidence of
ownership or title over the particular property described
therein. Registration in the Torrens system does not
create or vest title as registration is not a mode of
acquiring ownership; hence, this cannot deprive an
aggrieved party of a remedy in law.52 However,
petitioner asserts ownership over portions of the subject
real properties on the strength of his own admissions
and on the testimony of Antonieta Jarantilla.1avvphi1 As
held by this Court in Republic of the Philippines v.
Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of
ownership of the land referred to therein, and a strong
presumption exists that a Torrens title was regularly
issued and valid. A Torrens title is incontrovertible
against any informacion possessoria, of other title
existing prior to the issuance thereof not annotated on
the Torrens title. Moreover, persons dealing with
property covered by a Torrens certificate of title are not
required to go beyond what appears on its face.54
As we have settled that this action never really was for
partition of a co-ownership, to permit petitioner’s claim
on these properties is to allow a collateral, indirect attack
on respondents’ admitted titles. In the words of the Court
of Appeals, "such evidence cannot overpower the
conclusiveness of these certificates of title, more so since
plaintiff’s [petitioner’s] claims amount to a collateral
attack, which is prohibited under Section 48 of
Presidential Decree No. 1529, the Property Registration
Decree."55
SEC. 48. Certificate not subject to collateral attack. – A
certificate of title shall not be subject to collateral attack.
It cannot be altered, modified, or cancelled except in a
direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an
attack on a title when its objective is to nullify the title,
thereby challenging the judgment pursuant to which the
title was decreed."56 In Aguilar v. Alfaro,57 this Court
further distinguished between a direct and an indirect or
collateral attack, as follows:
37
A collateral attack transpires when, in another action to
obtain a different relief and as an incident to the present
action, an attack is made against the judgment granting
the title. This manner of attack is to be distinguished
from a direct attack against a judgment granting the title,
through an action whose main objective is to annul, set
aside, or enjoin the enforcement of such judgment if not
yet implemented, or to seek recovery if the property
titled under the judgment had been disposed of. x x x.

Petitioner’s only piece of documentary evidence is the

Acknowledgement of Participating Capital, which as
discussed above, failed to prove that the real properties
he is claiming co-ownership of were acquired out of the
proceeds of the businesses covered by such document.
Therefore, petitioner’s theory has no factual or legal leg
to stand on.

WHEREFORE, the Petition is hereby DENIED and the

Decision of the Court of Appeals in CA-G.R. CV No. 40887,
dated July 30, 2002 is AFFIRMED.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

38