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 Decision dated March
1 

13, 1996 of the former Fifth Division of the Court of Appeals in CA-G.R. CV No. 47937, the
2 

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, docketed as Civil Case No. 1983-R in
3 

the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991,
the petitioners filed an amended complaint impleading private respondent herein BENGUET
4 

LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the
trial court in its Order dated May 3, 1991.5

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

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment on April 12, 1995, to wit:
6 

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;

1
 c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;

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

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

f) Ordering the appointment of a receiver to preserve and/or administer the assets of

Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated are
directed to submit the name of any person they want to be appointed as receiver failing in
which this Court will appoint the Branch Clerk of Court or another one who is qualified to act
as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in
filing the instant case.

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

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners' motion for
reconsideration was denied by the Court of Appeals in a Resolution dated October 11, 1996.
7  8 

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 judgment dismissing the
9 

cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

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

2
 II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-

SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING

FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:

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

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

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

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

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

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO
TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC,
ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN
BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-
17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

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

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

emphasized, does not include review of factual issues. Thus:

3
 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. [emphasis supplied]
11 

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

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

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

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

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

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

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

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

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

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

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

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

We note that the Court a quo over extended the issue because while the plaintiffs mentioned
only the existence of a partnership, the Court in turn went beyond that by justifying the
existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct of
the business, thus:

xxx             xxx             xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is
because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if
not burned by the Japanese. After the war, because of the absence of capital to start a

4
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:

5
 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. Inasmuch as the Court of Appeals and the trial
13 

court had reached conflicting conclusions, perforce we must examine the record to determine if the
reversal was justified.

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

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

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

Thus, in order to constitute a partnership, it must be established that (1) two or more persons
bound themselves to contribute money, property, or industry to a common fund, and (2) they
intend to divide the profits among themselves. The agreement need not be formally reduced
15 

into writing, since statute allows the oral constitution of a partnership, save in two instances:
(1) when immovable property or real rights are contributed, and (2) when the partnership
16 

has a capital of three thousand pesos or more. In both cases, a public instrument is
17 

required. An inventory to be signed by the parties and attached to the public instrument is
18 

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. A particular partnership is distinguished from a joint
20 

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.

6
 (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." Nonetheless, in Aurbach,
22 

et. al. v. Sanitary Wares Manufacturing Corporation, et. al., we expressed the view that a joint
23 

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; the quality of their
24 

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. He stated that when he met Tan Eng Kee after the liberation, the
25 

7
latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers. Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between
26 

Peralta and his brother. Tan Eng Lay consistently testified that he had his business and his brother
27 

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. Each has the right to demand an accounting as long as the
29 

partnership exists. We have allowed a scenario wherein "[i]f excellent relations exist among the
30 

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." But in
31 

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. As we explained in another case:
32 

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. [emphasis
33 

supplied]

A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee
34 

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;

8
 (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.

9
 Whatever privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay towards a blood
relative.

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

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties'
intent. Yet, in the case at bench, even the aforesaid circumstances when taken together are not
36 

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.

10
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

11
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 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

12
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 a misapprehension of facts;

(5) When the findings of fact are conflicting;

(6) When the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee;

(7) When the findings are contrary to those of the trial court;

(8) When the findings of fact are conclusions without citation of specific evidence on which
they are based;

(9) When the facts set forth in the petition as well as in the petitioners' main and reply briefs
are not disputed by the respondents; and

(10) When the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record.11

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

13
where two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.12

Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was never
formally organized. Nonetheless, we are asked to determine who between Jose and Elfledo was the
"partner" in the trucking business.

A careful review of the records persuades us to affirm the CA decision. The evidence presented by
petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and
not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of
Jose, having been derived from the alleged partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence
against respondent. It must be considered and weighed along with petitioners' other evidence vis-à-
vis respondent's contrary evidence. In civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence. "Preponderance of evidence" is the weight,
credit, and value of the aggregate evidence on either side and is usually considered synonymous
with the term "greater weight of the evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last analysis, means probability of the truth. It is
evidence that is more convincing to the court as worthy of belief than that which is offered in
opposition thereto.13 Rule 133, Section 1 of the Rules of Court provides the guidelines in determining
preponderance of evidence, thus:

SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden of
proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all
the facts and circumstances of the case, the witnesses' manner of testifying, their intelligence, their
means and opportunity of knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony, their interest or want of interest,
and also their personal credibility so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the preponderance is not necessarily with
the greater number.

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of 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;

14
 (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 opposition whatsoever from any of petitioners
herein;16 (3) all of the properties, particularly the nine trucks of the partnership, were registered in the
name of Elfledo; (4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the profits of the business;17 and
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from
Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,18 a demand for periodic
accounting is evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties
acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose,
having been derived from Jose's alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses. Edison even admitted
that Elfledo also sold Interwood lumber as a sideline.19 Petitioners could not offer any credible
evidence other than their bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight.20

Finally, we agree with the judicious findings of the CA, to wit:

The above testimonies prove that Elfledo was not just a hired help but one of the partners in the
trucking business, active and visible in the running of its affairs from day one until this ceased
operations upon his demise. The extent of his control, administration and management of the
partnership and its business, the fact that its properties were placed in his name, and that he was
not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a
partner and a controlling one at that. It is apparent that 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

15
It is notable too that Jose Lim died when the partnership was barely a year old, and the partnership
and its business not only continued but also flourished. If it were true that it was Jose Lim and not
Elfledo who was the partner, then upon his death the partnership should have

been dissolved and its assets liquidated. On the contrary, these were not done but instead its
operation continued under the helm of Elfledo and without any participation from the heirs of Jose
Lim.

Whatever properties appellant and her husband had acquired, this was through their own concerted
efforts and hard work. Elfledo did not limit himself to the business of their partnership but engaged in
other lines of businesses as well.

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are amply
supported by the law and by the evidence on record.

WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June
29, 2005 is AFFIRMED. Costs against petitioners.

SO ORDERED.

16
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

17
 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 eventual cessation of mine operations on February 20, 1982.6

18
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:

19
 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,13 petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex in the
management of the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature
of an investment rather than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto.
Nino Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto.
Nino Mine notwithstanding the clear absence of any intent on the part of Philex and Baguio
Gold to form a partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in completely
disregarding the Compromise Agreement and the Amended Compromise Agreement when it
construed the nature of the advances made by Philex.

IV.

20
 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

21
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 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

22
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

23
project was in the nature of compensation or "wages of an employee", under the exception provided
in Article 1769 (4) (b).24

On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who
will be paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was
the manager of the project and had put substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation to profits, petitioner also stood not to be
remunerated in case the mine had no income. It is hard to believe that petitioner would take the risk
of not being paid at all for its services, if it were truly just an ordinary employee.

Consequently, we find that petitioner’s "compensation" under paragraph 12 of the agreement

actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not be
entitled to an equal share in the income of the mine if it were just an employee of Baguio Gold.25 It is
not surprising that petitioner was to receive a 50% share in the net profits, considering that the
"Power of Attorney" also provided for an almost equal contribution of the parties to the St. Nino mine.
The "compensation" agreed upon only serves to reinforce the notion that the parties’ relations were
indeed of partners and not employer-employee.

All told, the lower courts did not err in treating petitioner’s advances as investments in a partnership
known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch
as the latter was under no unconditional obligation to return the same to the former under the "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.

24
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

25
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).

26
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself
establish a partnership, whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived". There must be an unmistakable
intention to form a partnership or joint venture.*

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

The instant case is distinguishable from the cases where the parties engaged in joint ventures for
profit. Thus, in Oña vs.

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

Co-owership distinguished from partnership.—We find that the case at bar is

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

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who

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

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

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

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

27
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are
cancelled. No costs.

SO ORDERED.

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

28
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:

29
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the other
defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff
and to defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-
ownership.181avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise
Agreement20 and 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

30
 (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

31
same; rather, it is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it is a question of fact.30

Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving
the questions of law that are now in issue, shall look into the facts only in so far as the two courts a
quo differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses
and real properties of the respondents as they had supposedly acquired these through funds from
the partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the
business enumerated in the Acknowledgement of Participating Capital, but not as to her share in the
other corporations and real properties. The Court of Appeals ruled that Antonieta’s claim of 8% is
based on the "Acknowledgement of Participating Capital," a duly notarized document which was
specific as to the subject of its coverage. Hence, there was no reason to pattern her share in the
other corporations from her share in the partnership’s businesses. The Court of Appeals also said
that her claim in the respondents’ real properties was more "precarious" as these were all covered
by certificates of title which served as the best evidence as to all the matters contained
therein.32 Since petitioner’s claim was essentially the same as Antonieta’s, the Court of Appeals also
ruled that petitioner be given his 6% share in the same businesses listed in the Acknowledgement of
Participating Capital.

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:

32
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 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.)

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)

33
intent to divide the profits among the contracting parties. The first element is undoubtedly present in
the case at bar, for, admittedly, all the parties in this case have agreed to, and did, contribute money
and property to a common fund. Hence, the issue narrows down to their intent in acting as they
did.39 It is not denied that all the parties in this case have agreed to contribute capital to a common
fund to be able to later on share its profits. They have admitted this fact, agreed to its veracity, and
even submitted one common documentary evidence to prove such partnership - the
Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it
would be instructive to examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal
age, Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City
and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and
equipments, and general merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as such:

That they are not the only owners of the capital of the three establishments and their participation in
the capital of the three establishments together with the other co-owners as of the year 1952 are
stated as follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any
interest in the above-mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April,
1957.

34
[Sgd.]
BUENAVENTURA REMOTIGUE

[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by

Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the
Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the losses. As for
the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the
absence of any such stipulations, then to his share in proportion to his contribution to the
partnership. The petitioner himself claims his share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to realize that this document specifically enumerated
the businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City
and Remotigue Trading in Cotabato City. Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then there is no reason to deviate from such
agreement and go beyond the stipulations in the document. Therefore, the Court of Appeals did not
err in limiting petitioner’s share to the assets of the businesses enumerated in the Acknowledgement
of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the
shares to be paid out to the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can
only pay out what it has in its coffers, which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership must first be compensated. After all the
creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners’ shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital.

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:

35
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

36
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.  As held by this
1avvphi1

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:

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.

37
G.R. No. 143340. August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, Petitioners, vs. LAMBERTO T. CHUA, Respondent.

DECISION

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision 1 of
the Court of Appeals dated January 31, 2000 in the case entitled Lamberto T. Chua vs.

Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga Chan and Cecilia Sunga (hereafter collectively
referred to as petitioners).

The pertinent facts of this case are as follows:

38
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga
Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife,
respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment with
the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution
of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto
allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER
(hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered
his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as
his counterpart contribution, with the intention that the profits would be equally divided between them.
The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a
sister of the wife of respondent, Erlinda Sy. As compensation, Jacinto would receive a managers fee or
remuneration of 10% of the gross profit and Josephine would receive 10% of the net profits, in addition
to her wages and other remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went
quite well and was profitable. Respondent claimed that he could attest to the success of their business
because of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell
Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories, balance
sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the amount
indicated in these documents were understated and undervalued by Jacinto and Josephine for their own
selfish reasons and for tax avoidance.

Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of
Shellite without respondents consent.

Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal, winding
up and restitution of his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth
allegedly continued the operations of Shellite, converting to her own use and advantage its properties.

39
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and reasons to
evade respondents demands, she disbursed out of the partnership funds the amount of P200,000.00
and partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latters share in the partnership, with a promise that the
former would make the complete inventory and winding up of the properties of the business
establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to
account, and continued to benefit from the assets and income of Shellite to the damage and prejudice
of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zambaonga del Norte had
jurisdiction over the action. Respondent opposed the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in form and substance denied the
motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims, contending that
they are not liable for partnership shares, unreceived income/profits, interests, damages and attorneys
fees, that respondent does not have a cause of action against them, and that the trial court has no
jurisdiction over the nature of the action, the SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought attorneys fees and expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for
winding up of partnership affairs, accounting and recovery of shares in partnership affairs, accounting
and recovery of shares in partnership assets /properties should be dismissed and prosecuted against the
estate of deceased Jacinto in a probate or intestate proceeding.

On August 16, 1993, the trial court denied the second motion to dismiss for lack of merit.

On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with
the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.

40
On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, as
petitioners failed to show that a reversible error was committed by the appellate court."
2cräläwvirtualibräry

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to
the trial court on April 26, 1995.

On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the
case on January 17, 1996. Respondent presented his evidence while petitioners were considered to have
waived their right to present evidence for their failure to attend the scheduled date for reception of
evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive portion
of the Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as
follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and
standards of the properties, assets, income and profits of the Shellite Gas Appliance Center since the
time of death of Jacinto L. Sunga, from whom they continued the business operations including all
businesses derived from the Shellite Gas Appliance Center; submit an inventory, and appraisal of all
these properties, assets, income, profits, etc. to the Court and to plaintiff for approval or disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and
profits they misapplied and converted to their own use and advantage that legally pertain to the plaintiff
and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis;

41
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the
partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of
the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership
from 1988 to may 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00
per month, with legal rate of interest until fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities
pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in the
partnership, or the value thereof in money or moneys worth, if the properties are not physically
divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them
liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and P25,00.00 as
litigation expenses.

NO special pronouncements as to COSTS.

SO ORDERED.3cräläwvirtualibräry

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the
Court of Appeals.

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision
reads:

WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects.4cräläwvirtualibräry

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.

42
Hence, this petition wherein petitioner relies upon the following grounds:

1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between
respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latters invitation and offer and that
upon his death the partnership assets and business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not
apply in the instant case.

3. The Court of Appeals erred in making the legal conclusion that there was competent and credible
evidence to warrant the finding of a partnership, and assuming arguendo that indeed there was a
partnership, the finding of highly exaggerated amounts or values in the partnership assets and
profits.5cräläwvirtualibräry

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacintos death. In the absence of
any written document to show such partnership between respondent and Jacinto, petitioners argue that
these courts were proscribed from hearing the testimonies of respondent and his witness, Josephine, to
prove the alleged partnership three years after Jacintos death. To support this argument, petitioners
invoke the Dead Mans Statute or Survivorship Rule under Section 23, Rule 130 of the Rules of Court that
provides:

SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or assignors of parties
to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other
representative of a deceased person, or against a person of unsound mind, upon a claim or demand
against the estate of such deceased person, or against such person of unsound mind, cannot testify as to
any matter of fact occurring before the death of such deceased person or before such person became of
unsound mind.

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego,
Josephine, should not have been admitted to prove certain claims against a deceased person (Jacinto),
now represented by petitioners.

We are not persuaded.

43
A partnership may be constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary. 6 Hence, based on the
intention of the parties, as gathered from the facts and ascertained from their language and conduct, a
verbal contract of partnership may arise. 7 The essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in
the profits. 8 Understandably so, in view of the absence of a written contract of partnership between
respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial
evidence to prove said partnership. The crucial issue to settle then is whether or not the Dead Mans
Statute applies to this case so as to render inadmissible respondents testimony and that of his witness,
Josephine.

The Dead Mans Statute provides that if one party to the alleged transaction is precluded from testifying
by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage
of giving his own uncontradicted and unexplained account of the transaction. 9 But before this rule can
be successfully invoked to bar the introduction of testimonial evidence, it is necessary that:

1. The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.

2. The action is against an executor or administrator or other representative of a deceased person or a

person of unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased person or
against person of unsound mind;

4. His testimony refers to any matter of fact which occurred before the death of such deceased person
or before such person became of unsound mind.10cräläwvirtualibräry

Two reasons forestall the application of the Dead Mans Statute to this case.

First, petitioners filed a compulsory counterclaim 11 against respondent in their answer before the trial
court, and with the filing of their counterclaim, petitioners themselves effectively removed this case
from the ambit of the Dead Mans Statute. 12 Well entrenched is the rule that when it is the executor or
administrator or representatives of the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim. 13
Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to matters
of fact occurring before the death of the deceased, said action not having been brought against but by
the estate or representatives of the deceased. 14cräläwvirtualibräry

44
Second, the testimony of Josephine is not covered by the Dead Mans Statute for the simple reason that
she is not a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.
Records show that respondent offered the testimony of Josephine to establish the existence of the
partnership between respondent and Jacinto. Petitioners insistence that Josephine is the alter ego of
respondent does not make her an assignor because the term assignor of a party means assignor of a
cause of action which has arisen, and not the assignor of a right assigned before any cause of action has
arisen. 15 Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff.

We are not convinced by petitioners allegation that Josephines testimony lacks probative value because
she was allegedly coerced by respondent, her brother-in-law, to testify in his favor. Josephine merely
declared in court that she was requested by respondent to testify and that if she were not requested to
do so she would not have testified. We fail to see how we can conclude from this candid admission that
Josephines testimony is involuntary when she did not in any way categorically say that she was forced to
be a witness of respondent. Also, the fact that Josephine is the sister of the wife of respondent does not
diminish the value of her testimony since relationship per se, without more, does not affect the
credibility of witnesses. 16cräläwvirtualibräry

Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot prevail over
the factual findings of the trial court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary
evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of a partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of the existence of a partnership between respondent and
Jacinto cannot be inquired into by this Court on review. 17 This Court can no longer be tasked to go over
the proofs presented by the parties and analyze, assess and weigh them to ascertain if the trial court
and the appellate court were correct in according superior credit to this or that piece of evidence of one
party or the other. 18 It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and
authenticity of the documentary evidence of respondent when petitioners failed to object to the
admissibility of the evidence at the time that such evidence was offered. 19cräläwvirtualibräry

With regard to petitioners insistence that laches and/or prescription should have extinguished
respondents claim, we agree with the trial court and the Court of Appeals that the action for accounting
filed by respondent three (3) years after Jacintos death was well within the prescribed period. The Civil
Code provides that an action to enforce an oral contract prescribes in six (6) years 20 while the right to
demand an accounting for a partners interest as against the person continuing the business accrues at
the date of dissolution, in the absence of any contrary agreement. 21 Considering that the death of a
partner results in the dissolution of the partnership 22, in this case, it was after Jacintos death that

45
respondent as the surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the partnership, the dissolution did not immediately
terminate the partnership. The Civil Code 23 expressly provides that upon dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business, culminating
in its termination. 24cräläwvirtualibräry

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto,
petitioners maintain that said partnership that had an initial capital of P200,000.00 should have been
registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil
Code. True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more
must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the
Civil Code 25 explicitly provides that the partnership retains its juridical personality even if it fails to
register. The failure to register the contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the main purpose of registration is
to give notice to third parties, and it can be assumed that the members themselves knew of the
contents of their contract. 26 In the case at bar, non-compliance with this directory provision of the law
will not invalidate the partnership considering that the totality of the evidence proves that respondent
and Jacinto indeed forged the partnership in question.

WHEREFORE , in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.

SO ORDERED.

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA

BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a
contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in accordance with their
agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision   of the Court of
1

Appeals   (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration.
2

46
The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil
Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs complaint.
The counterclaims of the defendant are likewise ordered dismissed. No
pronouncement as to costs.  3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land
in favor of respondent, who then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision.   All three of them also agreed to
4

share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and
skills." They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the
said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He
also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with
an engineering firm for the building of sixty low-cost housing units and actually even set up a model
house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were
however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion,
was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition.  6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint venture should be
distributed equally,   the CA invoked Article 1797 of the Civil Code which provides:
7

47
 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.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall
be in proportion to what he may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If besides his services
he has contributed capital, he shall also receive a share in the profits in proportion to
his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership,
ignoring outright the provision of Article 1769, and other related provisions of the Civil
Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's
finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable
for his failure to implement the project. Because the agreement entitled them to receive 60 percent
of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages
equivalent to 60 percent of the value of the property.  9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day
of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the
SECOND PARTY:

WITNESSETH:

48
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering
TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the
FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this
contract for the property entrusted by the SECOND PARTY, for sub-division projects
and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises
herein contained the respective parties hereto do hereby stipulate and agree as
follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March
5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN
& FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY,
but the SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve as an
advance payment from the FIRST PARTY for the property mentioned to be sub-
divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is terminated
and ready for sale to any interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses will
not be deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the
FIRST PARTY, and additional profits or whatever income deriving from the sales will
be divided equally according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the
work and all improvements upon the adjacent lots will be negotiated in both parties[']
favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the
property mentioned provided the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to
the FIRST PARTY, including all necessary improvements spent by the FIRST
PARTY, and-the FIRST PARTY will be given a grace period to turnover the property
mentioned above.

49
 That this AGREEMENT shall be binding and obligatory to the parties who executed
same freely and voluntarily for the uses and purposes therein stated.  10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. 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.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent would give, in addition
to his industry, the amount needed for general expenses and other costs. Furthermore, the income
from the said project would be divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 
11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title
to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused
the subject land to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or
property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was not in consonance with their expectations, they
should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and
the fact that the contractual stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow the relationship formed from
such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

50
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code,
which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory
of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent
Arturo M. Tolentino states that under the aforecited provision which is a complement of Article
1771,   "The execution of a public instrument would be useless if there is no inventory of the
12

property contributed, because without its designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty
in which the immovables may consist. Thus, the contract is declared void by the law when no such
inventory is made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
respondent should pay them 60 percent of the value of the property.   They cannot in one breath
13

deny the contract and in another recognize it, depending on what momentarily suits their purpose.
Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much
less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties' rights and obligations to each other
may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422   of the Civil
14

Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land
without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the
sale was the expectation of profits from the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take different forms, such as the prestation or promise of
a thing or service by another.  15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but
in the expectation of profits from the subdivision project, for which the land was intended to be used.
As explained by the trial court, "the land was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in
the expectation that, should the venture come into fruition, they [would] get sixty percent of the net
profits."

Liability of the Parties

51
Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the
property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of
the failure of the project.   But it also ruled that neither was respondent responsible therefor.   In
16 17

imputing the blame solely to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved
in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown,
that their Petition constitutes one of the exceptions to this doctrine.   Accordingly, we find no
18

reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs
against petitioners.

SO ORDERED

EN BANC

G.R. No. L-25532             February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September
1947 by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav
Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and
P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other activities, in the importation,

52
marketing, distribution and operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories. It had an office and held itself out as a limited
partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its
trade-name, maintaining its own books of accounts and bank accounts, and had a quota allocation
with the Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by
the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an
assessment, consolidated the income of the firm and the individual incomes of the partners-spouses
Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not
in accordance with law, but his request was denied. Unable to secure a reconsideration, he
appealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November
1965, reversing that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax
court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent
William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner,
Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and
Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the
partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of
the partnership should be disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business; consequently the income tax return of respondent Suter for
the years in question should have included his and his wife's individual incomes and that of the
limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which
provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New
Civil Code, and that since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual return the income
of the limited partnership.

53
We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only general partner, William J. Suter to the
originally limited partner, Julia Spirig one year after the partnership was organized is rested by the
appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on
Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under
the Civil Code, which applies in the absence of express provision in the Code of Commerce,
persons prohibited from making donations to each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of
the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in
1947), a universal partnership requires either that the object of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all that the partners
may acquire by their industry or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the partners were
fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th
Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the
aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal,
pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos
inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que
ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la
que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley. La
jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de
1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being
one of the causes provided for that purpose either by the Spanish Civil Code or the Code of
Commerce.

The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia
Spirig were separately owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate property under the Spanish
Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

54
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical
personality of its own, distinct and separate from that of its partners (unlike American and English
law that does not recognize such separate juridical personality), the bypassing of the existence of
the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory
mandates and basic principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True, section 24 of the Internal
Revenue Code merges registered general co-partnerships (compañias colectivas) with the
personality of the individual partners for income tax purposes. But this rule is exceptional in its
disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to
limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-
13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority
for disregarding the fiction of legal personality of the corporations involved therein are not applicable
to the present case. In the cited cases, the corporations were already subject to tax when the fiction
of their corporate personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely served as business conduits
or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for
tax purposes. This is not true in the present case. Here, the limited partnership is not a mere
business conduit of the partner-spouses; it was organized for legitimate business purposes; it
conducted its own dealings with its customers prior to appellee's marriage, and had been filing its
own income tax returns as such independent entity. The change in its membership, brought about by
the marriage of the partners and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay
income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy
the interests of the remaining partner with the premeditated scheme or design to use the partnership
as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the
law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code
taxes the latter on its income, but not the former, because it is in the case of compañias
colectivas that the members, and not the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly registered general partnership (Section 26,
N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1 .nêt

But it is argued that the income of the limited partnership is actually or constructively the income of
the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As
pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60
Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed to defray
the expenses for the administration and preservation of the paraphernal capital of the wife. Then
again, the appellant's argument erroneously confines itself to the question of the legal personality of
the limited partnership, which is not essential to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no personality of their own. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not.
What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities. Though

55
the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and
wife) may be the same for a given taxable year, their consequences would be different, as their
contributions in the business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with,
and when split from the income of the spouses, is not a justification for requiring consolidation; the
revenue code, as it presently stands, does not authorize it, and even bars it by requiring the limited
partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

G.R. No. L-35469             March 17, 1932

E. S. LYONS, plaintiff-appellant,
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.

Harvey & O'Brien for appellant.

DeWitt, Perkins & Brandy for appellee.

STREET, J.:

This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C.
W. Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of
an appeal by the executor from the allowance of the claim sued upon by the committee on claims in
said estate. The purpose of the action is to recover four hundred forty-six and two thirds shares of
the stock of J. K. Pickering & Co., Ltd., together with the sum of about P125,000, representing the
dividends which accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing

56
the cause the trial court absolved the defendant executor from the complaint, and the plaintiff
appealed.

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where
he was engaged during the years with which we are here concerned in buying, selling, and
administering real estate. In several ventures which he had made in buying and selling property of
this kind the plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal
parts. In April, 1919, Lyons, whose regular vocation was that of a missionary, or missionary agent, of
the Methodist Episcopal Church, went on leave to the United States and was gone for nearly a year
and a half, returning on September 21, 1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of
real property. Concurrently with this act Lyons execute in favor of Elser a general power of attorney
empowering him to manage and dispose of said properties at will and to represent Lyons fully and
amply, to the mutual advantage of both. During the absence of Lyons two of the pieces of property
above referred to were sold by Elser, leaving in his hands a single piece of property located at 616-
618 Carried Street, in the City of Manila, containing about 282 square meters of land, with the
improvements thereon.

In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000
square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion
and development of a suburban improvement. This property, which will be herein referred to as the
San Juan Estate, was offered by its owners for P570,000. To afford a little time for maturing his
plans, Elser purchased an option on this property for P5,000, and when this option was about to
expire without his having been able to raise the necessary funds, he paid P15,000 more for an
extension of the option, with the understanding in both cases that, in case the option should be
exercised, the amounts thus paid should be credited as part of the first payment. The amounts paid
for this option and its extension were supplied by Elser entirely from his own funds. In the end he
was able from his own means, and with the assistance which he obtained from others, to acquire
said estate. The amount required for the first payment was P150,000, and as Elser had available
only about P120,000, including the P20,000 advanced upon the option, it was necessary to raise the
remainder by obtaining a loan for P50,000. This amount was finally obtained from a Chinese
merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the
lender; and in order to get the money it was necessary for Elser not only to give a personal note
signed by himself and his two associates in the projected enterprise, but also by the Fidelity & Surety
Company. The money thus raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this
money and what he already had in bank Elser purchased the San Juan Estate on or about June 28,
1920. For the purpose of the further development of the property a limited partnership had, about
this time, been organized by Elser and three associates, under the name of J. K. Pickering &
Company; and when the transfer of the property was effected the deed was made directly to this
company. As Elser was the principal capitalist in the enterprise he received by far the greater
number of the shares issued, his portion amount in the beginning to 3,290 shares.

While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be
induced to come in with him and supply part of the means necessary to carry the enterprise through.
In this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he
had made an offer for a big subdivision and that, if it should be acquired and Lyons would come in,
the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option
expired, Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for
Lyons to resign (Exhibit M-13), meaning that he should resign his position with the mission board in
New York. On the same date he wrote Lyons a letter explaining some details of the purchase, and
added "have advised in my cable that you resign and I hope you can do so immediately and will
come and join me on the lines we have so often spoken about. . . . There is plenty of business for us
all now and I believe we have started something that will keep us going for some time." In one or

57
more communications prior to this, Elser had sought to impress Lyons with the idea that he should
raise all the money he could for the purpose of giving the necessary assistance in future deals in real
estate.

The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him
averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the
United States a grave doubt had arisen as to whether he would ever return to Manila, and it was only
in the summer of 1920 that the board of missions of his church prevailed upon him to return to
Manila and resume his position as managing treasurer and one of its trustees. Accordingly, on June
21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to take Lyons into his new
project and adding that from the standpoint of making money, he had passed up a good thing.

One source of embarrassment which had operated on Lyson to bring him to the resolution to stay
out of this venture, was that the board of mission was averse to his engaging in business activities
other than those in which the church was concerned; and some of Lyons' missionary associates had
apparently been criticizing his independent commercial activities. This fact was dwelt upon in the
letter above-mentioned. Upon receipt of this letter Elser was of course informed that it would be out
of the question to expect assistance from Lyons in carrying out the San Juan project. No further
efforts to this end were therefore made by Elser.

When Elser was concluding the transaction for the purchase of the San Juan Estate, his book
showed that he was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to
Lyons from profits and earnings derived from other properties; and when the J. K. Pickering &
Company was organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to
himself, as he then believed that Lyons would be one of his associates in the deal. It will be noted
that the par value of these 200 shares was more than P8,000 in excess of the amount which Elser in
fact owed to Lyons; and when the latter returned to the Philippine Islands, he accepted these shares
and sold them for his own benefit. It seems to be supposed in the appellant's brief that the transfer of
these shares to Lyons by Elser supplies some sort of basis for the present action, or at least
strengthens the considerations involved in a feature of the case to be presently explained. This view
is manifestly untenable, since the ratification of the transaction by Lyons and the appropriation by
him of the shares which were issued to him leaves no ground whatever for treating the transaction
as a source of further equitable rights in Lyons. We should perhaps add that after Lyons' return to
the Philippine Islands he acted for a time as one of the members of the board of directors of the J. K.
Pickering & Company, his qualification for this office being derived precisely from the ownership of
these shares.

We now turn to the incident which supplies the main basis of this action. It will be remembered that,
when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the
San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity
& Surety Co. on the note to be given for said loan. But before signing the note with Elser and his
associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it.
To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in
the property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June
30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan
Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had
determined not to come into this deal, Elser began to cast around for means to relieve the Carriedo
property of the encumbrance which he had placed upon it. For this purpose, on September 9, 1920,
he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a property
owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering &
Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the
proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new

58
mortgage on the M. H. del Pillar property and delivered the same, with 1,000 shares of J. K.
Pickering & Company, to said company. The latter thereupon in turn executed a cancellation of the
mortgage on the Carriedo property and delivered it to Elser. But notwithstanding the fact that these
documents were executed and delivered, the new mortgage and the release of the old were never
registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the mortgage
on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M.
H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he had
delivered to it.

The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had
arrived in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with
Elser told him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage
ride"). Mrs. Elser testified to the conversation in which Lyons used the words above quoted, and as
that conversation supplies the most reasonable explanation of Elser's recession from his purpose of
relieving the Carriedo property, the trial court was, in our opinion, well justified in accepting as a
proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This
concession was not only reasonable under the circumstances, in view of the abundant solvency of
Elser, but in view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K.
Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which Elser had
owed to Lyons upon statement of account. The trial court found in effect that the excess value of
these shares over Elser's actual indebtedness was conceded by Elser to Lyons in consideration of
the assistance that had been derived from the mortgage placed upon Lyon's interest in the Carriedo
property. Whether the agreement was reached exactly upon this precise line of thought is of little
moment, but the relations of the parties had been such that it was to be expected that Elser would
be generous; and he could scarcely have failed to take account of the use he had made of the joint
property of the two.

As the development of the San Juan Estate was a success from the start, Elser paid the note of
P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more than five months
later. It will thus be seen that the mortgaging of the Carriedo property never resulted in damage to
Lyons to the extent of a single cent; and although the court refused to allow the defendant to prove
the Elser was solvent at this time in an amount much greater than the entire encumbrance placed
upon the property, it is evident that the risk imposed upon Lyons was negligible. It is also plain that
no money actually deriving from this mortgage was ever applied to the purchase of the San Juan
Estate. What really happened was the Elser merely subjected the property to a contingent liability,
and no actual liability ever resulted therefrom. The financing of the purchase of the San Juan Estate,
apart from the modest financial participation of his three associates in the San Juan deal, was the
work of Elser accomplished entirely upon his own account.

The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity
of redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were,
involuntarily the owner of an undivided interest in the property acquired partly by that money; and it
is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and
two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his
complaint.

Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong
in the manner already explained had been used to held finance the purchase of the San Juan
Estate. He seems to have supposed that the Carried property had been mortgaged to aid in putting
through another deal, namely, the purchase of a property referred to in the correspondence as the
"Ronquillo property"; and in this connection a letter of Elser of the latter part of May, 1920, can be
quoted in which he uses this language:

59
 As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part
of the money for Ronquillo buy (P60,000) if the owner comes through.

Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property,
and Lyons leads us to infer that he thought that the money obtained by mortgaging the Carriedo
property had been used in the purchase of this property. It doubtedless appeared so to him in the
retrospect, but certain consideration show that he was inattentive to the contents of the quotation
from the letter above given. He had already been informed that, although Elser was angling for the
Ronquillo property, its price had gone up, thus introducing a doubt as to whether he could get it; and
the quotation above given shows that the intended use of the money obtained by mortgaging the
Carriedo property was that only part of the P50,000 thus obtained would be used in this way, if the
deal went through. Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries
would have been, if he did not know before, what was the status of the proposed trade for the
Ronquillo property.

Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something
to this effect;: "I have mortgaged the property on Carriedo Street, secured by my personal note. You
are amply protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can."
Lyons says that no such cablegram was received by him, and we consider this point of fact of little
moment, since the proof shows that Lyons knew that the Carriedo mortgage had been executed,
and after his arrival in Manila he consented for the mortgage to remain on the property until it was
paid off, as shortly occurred. It may well be that Lyons did not at first clearly understand all the
ramifications of the situation, but he knew enough, we think, to apprise him of the material factors in
the situation, and we concur in the conclusion of the trial court that Elser did not act in bad faith and
was guilty of no fraud.

In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If
Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of
the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the
money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not
ordinarily attach with respect to property acquired by a person who uses money belonging to another
(Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual
relation of partnership had existed in the money used, the case might be difference; and much
emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed.
But there was clearly no general relation of partnership, under article 1678 of the Civil Code. It is
clear that Elser, in buying the San Juan Estate, was not acting for any partnership composed of
himself and Lyons, and the law cannot be distorted into a proposition which would make Lyons a
participant in this deal contrary to his express determination.

It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and
the United States with reference to trust supply a basis for this action. The doctrines referred to
operate, however, only where money belonging to one person is used by another for the acquisition
of property which should belong to both; and it takes but little discernment to see that the situation
here involved is not one for the application of that doctrine, for no money belonging to Lyons or any
partnership composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan
Estate. Of course, if any damage had been caused to Lyons by the placing of the mortgage upon the
equity of redemption in the Carriedo property, Elser's estate would be liable for such damage. But it
is evident that Lyons was not prejudice by that act.

The appellee insist that the trial court committed error in admitting the testimony of Lyons upon
matters that passed between him and Elser while the latter was still alive. While the admission of this
testimony was of questionable propriety, any error made by the trial court on this point was error

60
without injury, and the determination of the question is not necessary to this decision. We therefore
pass the point without further discussion.

The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.

61