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The events that led to this case are summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes
were introduced to each other by one Meliton Zabat regarding a lending business venture
proposed by Nieves. It was verbally agreed that [petitioner would] act as financier while
[Nieves] and Zabat [would] take charge of solicitation of members and collection of loan
payments. The venture was launched on June 13, 1986, with the understanding that
[petitioner] would receive 70% of the profits while x x x Nieves and Zabat would earn 15%
each.
As a general rule, the factual findings of the Court of Appeals affirming those of the
trial court are binding on the Supreme Court. However, there are several exceptions to this
principle. In the present case, we find occasion to apply both the rule and one of the
exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997
Decision,[1] as well as the August 17, 1998 and the October 9, 1998 Resolutions, [2] issued
by the Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as
follows:
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same
lending business in competition with their partnership[.] Zabat was thereby expelled from
the partnership. The operations with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as employees of
[petitioner], with having misappropriated funds intended for Gragera for the period July 8,
1986 up to March 31, 1987. Upon Grageras complaint that his commissions were
inadequately remitted, [petitioner] entrusted P200,000.00 to x x x Nieves to be given to
Gragera. x x x Nieves allegedly failed to account for the amount. [Petitioner] asserted that
after examination of the records, he found that of the total amount of P4,623,201.90
entrusted to [respondents], onlyP3,068,133.20 was remitted to Gragera, thereby leaving the
balance of P1,555,065.70 unaccounted for.
WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim
which is hereby DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution
ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the
courts decision dated November 28, 1997 is hereby MODIFIED in that the decision
appealed from is AFFIRMED in toto, with costs against [petitioner].[4]
In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from
claiming their rightful share to the profits of the partnership.
The October 9, 1998 Resolution denied for lack of merit petitioners Motion for
Reconsideration of the August 17, 1998 Resolution.[5]
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after
[petitioner] learned of Zabats activities. Arsenio resigned from his job at the Asian
Development Bank to join the partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the
lending activity with Monte Maria originated from her initiative. Except for the limited
period of July 8, 1986 through August 20, 1986, she did not handle sums intended for
Gragera. Collections were turned over to Gragera because he guaranteed 100% payment of
all sums loaned by Monte Maria. Entries she made on worksheets were based on this
assumptive 100% collection of all loans. The loan releases were made less Grageras agreed
commission. Because of this arrangement, she neither received payments from borrowers
nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to
15-DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums
guaranteed by Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere employees and not
partners with respect to the agreement with Gragera. He claimed that after he discovered
Zabats activities, he ceased infusing funds, thereby causing the extinguishment of the
partnership. The agreement with Gragera was a distinct partnership [from] that of
[respondent] and Zabat. [Petitioner] asserted that [respondents] were hired as salaried
employees with respect to the partnership between [petitioner] and Gragera.
15
percent
share of the
[responden
t] NIEVES
S. REYES
in
the
profits of
her joint
venture
with
the
[petitioner]
.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all
payments from which Nieves deducted Grageras commission. The commission would then
be remitted to Gragera. She likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following points: whether
[respondents] were employees or partners of [petitioner], whether [petitioner] entrusted
money to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed under
the complaint was actually remitted to Gragera and whether [respondents] were entitled to
their counterclaim for share in the profits.[7]
Whether or not Respondent Court of Appeals acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not
employees of Santos in connection with the agreement between Santos and
Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received by on
documents signed by Nieves Reyes signified receipt of copies of the
documents and not of the sums shown thereon;
[8]
On appeal, the Decision of the trial court was upheld, and the counterclaim of
respondents was dismissed. Upon the latters Motion for Reconsideration, however, the trial
courts Decision was reinstated in toto.Subsequently, petitioners own Motion for
Reconsideration was denied in the CA Resolution of October 9, 1998.
First Issue:
with petitioner getting the lions share. [13] This stipulation clearly proved the establishment
of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership
continued lending money to the members of the Monte Maria Community Development
Group, Inc., which later on changed its business name to Private Association for
Community Development, Inc. (PACDI). Nieves was not merely petitioners employee. She
discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:
On the other hand, both the CA and the trial court rejected petitioners contentions and
ruled that the business relationship was one of partnership. We quote from the CA
Decision, as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and
screening of prospective borrowers, and shall x x x each be responsible in handling the
collection of the loan payments of the borrowers that they each solicited.
3. That the bookkeeping and daily balancing of account of the business operation shall be
handled by the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves Reyes. On the
other hand, Arsenios duties as credit investigator are subsumed under the phrase screening
of prospective borrowers. Because of this Agreement and the disbursement of monthly
allowances and profit shares or dividends (Exh. 6) to Arsenio, we uphold the factual
finding of both courts that he replaced Zabat in the partnership.
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the
business of the partnership without undergoing the procedure relative to
dissolution. Instead, they invited Arsenio to participate as a partner in their
operations. There was therefore, no intent to dissolve the earlier partnership. The
partnership between [petitioner,] Nieves and Arsenio simply took over and continued the
business of the former partnership with Zabat, one of the incidents of which was the
lending operations with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The money-lending activities undertaken with
Monte Maria was done in pursuit of the business for which the partnership between
[petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who represented
Monte Maria was merely paid commissions in exchange for the collection of loans. The
commissions were fixed on gross returns, regardless of the expenses incurred in the
operation of the business. The sharing of gross returns does not in itself establish a
partnership.[11]
WHEREAS, the parties have decided to formalize the terms of their business relationship
in order that their respective interests may be properly defined and established for their
mutual benefit and understanding.[15]
We agree with both courts on this point. By the contract of partnership, two or more
persons bind themselves to contribute money, property or industry to a common fund, with
the intention of dividing the profits among themselves. [12] The Articles of Agreement
stipulated that the signatories shall share the profits of the business in a 70-15-15 manner,
Second Issue:
Petitioner faults the CA finding that Nieves did not misappropriate money intended
for Grageras commission. According to him, Gragera remitted his daily collection to
Nieves. This is shown by Exhibit B (the Schedule of Daily Payments), which bears her
signature under the words received by. For the period July 1986 to March 1987, Gragera
should have earned a total commission of P4,282,429.30. However, onlyP3,068,133.20 was
received by him. Thus, petitioner infers that she misappropriated the difference
of P1,214,296.10, which represented the unpaid commissions. Exhibit H is an untitled
tabulation which, according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves.[16]
Exhs. E-1 and of the genuine signatures lends credence to Nieves claim that the signature
Exh. E-1 is a forgery.
xxxxxxxxx
Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord
with the evidence. A perusal of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD
reveal that the entries were indeed based on the 100% assumptive collection guaranteed by
Gragera. Thus, the total amount recorded on Exh. B is exactly the number of borrowers
multiplied by the projected collection of P150.00 per borrower. This holds true for Exh. F.
On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves
received for delivery to Gragera any amount from which the P1,214,296.10 unpaid
commission was supposed to come, and that such exhibits were insufficient proof that she
had embezzled P200,000. Said the CA:
Corollarily, Nieves explanation that the documents were pro forma and that she signed
them not to signify that she collected the amounts but that she received the documents
themselves is more believable than [petitioners] assertion that she actually handled the
amounts.
The presentation of Exhibit D vaguely denominated as members ledger does not clearly
establish that Nieves received amounts from Monte Marias members. The document does
not clearly state what amounts the entries thereon represent. More importantly, Nieves
made the entries for the limited period of January 11, 1987 to February 17, 1987 only while
the rest were made by Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows acknowledgment
of the remittance of commissions to Verona Gonzales. The document is a private one and
its due execution and authenticity have not been duly proved as required in [S]ection 20,
Rule 132 of the Rules of Court which states:
Accordingly, we find Nieves testimony that after August 20, 1986, all collections were
made by Gragera believable and worthy of credence. Since Gragera guaranteed a daily
100% payment of the loans, he took charge of the collections. As [petitioners]
representative, Nieves merely prepared the daily cash flow reports (Exh. 15 to 15
DDDDDDDDDD) to enable [petitioner] to keep track of Grageras operations. Gragera on
the other hand devised the schedule of daily payment (Exhs. B and F) to record the
projected gross daily collections.
Sec. 20. Proof of Private Document Before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
26.1. As between the versions of SANTOS and NIEVES on how the commissions of
GRAGERA [were] paid to him[,] that of NIEVES is more logical and practical and
therefore, more believable. SANTOS version would have given rise to this improbable
situation: GRAGERA would collect the daily amortizations and then give them to
NIEVES; NIEVES would get GRAGERAs commissions from the amortizations and then
give such commission to GRAGERA.[17]
Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a
forgery. The initial stroke of Exh. E-1 starts from up and goes downward. The initial stroke
of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, among others) starts from
below and goes upward. This difference in the start of the initial stroke of the signatures
These findings are in harmony with the trial courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter
received P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column
ADDITIONAL CASH that the additional cash wasP240,000.00. If Exh. H were the
liquidation of the P200,000.00 as alleged by SANTOS, then his claim is not true. This is so
because it is a liquidation of the sum of P240,000.00.
that could not have been rendered possible without complicity between Nieves and
Gragera.
21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to
GRAGERA when he received the latters letter complaining of its delayed
release. Assuming as true SANTOS claim that he gaveP200,000.00 to GRAGERA, there is
no competent evidence that NIEVES did not give it to GRAGERA. The only proof that
NIEVES did not give it is the letter. But SANTOS did not even present the letter in
evidence.He did not explain why he did not.
Respondent spouses, on the other hand, postulate that petitioner instituted the action
below to avoid payment of the demands of Nieves, because sometime in March 1987, she
signified to petitioner that it was about time to get her share of the profits which had
already accumulated to some P3 million. Respondents add that while the partnership has
not declared dividends or liquidated its earnings, the profits are already reflected on
paper. To prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up
to April 19, 1987, the profit totaled P20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on
that income, her 15 percent share under the joint venture amounts to P3,064,428 (Exh. 10I-3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him
(Petty Cash Vouchers, Exhs. 6, 6-A to 6-B).
21.2. The evidence shows that all money transactions of the money-lending business of
SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did
not present any voucher or receipt covering the P200,000.00.[18]
We earlier ruled that there is still need for an accounting of the profits and losses of the
partnership before we can rule with certainty as to the respective shares of the
partners. Upon a further review of the records of this case, however, there appears to be
sufficient basis to determine the amount of shares of the parties and damages incurred by
[respondents]. The fact is that the court a quo already made such a determination [in its]
decision dated August 13, 1991 on the basis of the facts on record.[20]
The trial courts ruling alluded to above is quoted below:
Petitioner has utterly failed to demonstrate why a review of these factual findings is
warranted. Well-entrenched is the basic rule that factual findings of the Court of Appeals
affirming those of the trial court are binding and conclusive on the Supreme Court.
[19]
Although there are exceptions to this rule, petitioner has not satisfactorily shown that
any of them is applicable to this issue.
27. The defendants counterclaim for the payment of their share in the profits of their joint
venture with SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement
(Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I,
inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash
flow reports of which Exh. 3 is a sample. The originals of the daily cash flow reports
(Exhs. 3 and 15 to 15-D (10) were given to SANTOS. The joint venture had a net profit
of P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to April 19, 1987
(Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about
P2,926,000.00, in the profits.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of the
partnership. He maintains that both business propositions were flops, as his investments
were consumed and eaten up by the commissions orchestrated to be due Gragera a situation
27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was
engaged in netted a profit and that the originals of the daily case flow reports were
furnished to him. SANTOS however alleged that the money-lending operation of his joint
venture with NIEVES and ZABAT resulted in a loss of about half a million pesos to
him. But such loss, even if true, does not negate NIEVES claim that overall, the joint
venture among them SANTOS, NIEVES and ARSENIO netted a profit. There is no reason
for the Court to doubt the veracity of [the testimony of] NIEVES.
representing the net profits does the industrial partner share. But if, on the contrary, the
losses exceed the income, the industrial partner does not share in the losses.[25]
When the judgment of the CA is premised on a misapprehension of facts or a failure
to notice certain relevant facts that would otherwise justify a different conclusion, as in this
particular issue, a review of its factual findings may be conducted, as an exception to the
general rule applied to the first two issues.[26]
27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6,
6-A and 6-B) should be deducted from his total share.[21]
The trial court has the advantage of observing the witnesses while they are testifying,
an opportunity not available to appellate courts. Thus, its assessment of the credibility of
witnesses and their testimonies are accorded great weight, even finality, when supported by
substantial evidence; more so when such assessment is affirmed by the CA. But when the
issue involves the evaluation of exhibits or documents that are attached to the case records,
as in the third issue, the rule may be relaxed. Under that situation, this Court has a similar
opportunity to inspect, examine and evaluate those records, independently of the lower
courts. Hence, we deem the award of the partnership share, as computed by the trial court
and adopted by the CA, to be incomplete and not binding on this Court.
After a close examination of respondents exhibits, we find reason to disagree with the
CA. Exhibit 10-I[22] shows that the partnership earned a total income of P20,429,520 for the
period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the
amounts under the following column headings: 2-Day Advance Collection, Service Fee,
Notarial Fee, Application Fee, Net Interest Income and Interest Income on Investment.
Such entries represent the collections of the money-lending business or its gross income.
The total income shown on Exhibit 10-I did not consider the expenses sustained by
the partnership. For instance, it did not factor in the gross loan releases representing the
money loaned to clients. Since the business is money-lending, such releases are
comparable with the inventory or supplies in other business enterprises.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997
Decision is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and
October 9, 1998 are REVERSED and SET ASIDE. No costs.
Noticeably missing from the computation of the total income is the deduction of the
weekly allowance disbursed to respondents. Exhibits I et seq. and J et seq.[23] show that
Arsenio received allowances from July 19, 1986 to March 27, 1987 in the aggregate
amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987 in the total amount
of P25,600. These allowances are different from the profit already received by
Arsenio. They represent expenses that should have been deducted from the business
profits. The point is that all expenses incurred by the money-lending enterprise of the
parties must first be deducted from the total income in order to arrive at the net profit of the
partnership. The share of each one of them should be based on this net profit and not from
the gross income or total income reflected in Exhibit 10-I, which the two courts invariably
referred to as cash flow sheets.
SO ORDERED.
Melo, (Chairman), and Sandoval-Gutierrez, JJ., concur.
Vitug, J., on official leave.
Similarly, Exhibits 15 et seq., [24] which are the Daily Cashflow Reports, do not reflect
the business expenses incurred by the parties, because they show only the daily cash
collections. Contrary to the rulings of both the trial and the appellate courts, respondents
exhibits do not reflect the complete financial condition of the money-lending business. The
lower courts obviously labored over a mistaken notion that Exhibit 10-I-1 represented the
net profits earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner (who
shares in the profits but is not liable for the losses), the gross income from all the
transactions carried on by the firm must be added together, and from this sum must be
subtracted the expenses or the losses sustained in the business. Only in the difference
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 [6]on
April 12, 1995, to wit:
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET
LUMBER COMPANY, represented by its President TAN ENG
LAY, respondents.
DECISION
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business venture or particular
partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the
complaint dismissed.
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.
The amended complaint principally alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and construction
supplies. They named their enterprise Benguet Lumber which they jointly managed until
Tan Eng Kees death. Petitioners herein averred that the business prospered due to the hard
work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay
and his children caused the conversion of the partnership Benguet Lumber into a
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[7] was denied by the Court of Appeals in a Resolution[8] dated
October 11, 1996.
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;
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial
proceeding. Petitioners complained that Exhibits 4 to 4-U offered by the defendants before
the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of
Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng
Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano,
Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of
commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered
judgment[9] dismissing the cases for insufficiency of evidence.
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
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT;
(B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C)
THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO
AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME
FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF
BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH
THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP
SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
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.
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence. [10] Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF
Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.[11] [italics supplied]
Admitted exceptions have been recognized, though, and when present, may compel
us to analyze the evidentiary basis on which the lower court rendered judgment. Review of
factual issues is therefore warranted:
We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this
is because during the war, the entire stocks of the pre-war Benguet Lumber were
confiscated if not burned by the Japanese. After the war, because of the absence of capital
to start a lumber and hardware business, Lay and Kee pooled the proceeds of their
individual businesses earned from buying and selling military supplies, so that the common
fund would be enough to form a partnership, both in the lumber and hardware
business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was
even testified to by witnesses. Because of the pooling of resources, the post-war Benguet
Lumber was eventually established. That the father of the plaintiffs and Lay were partners,
is obvious from the fact that: (1) they conducted the affairs of the business during Kees
lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the
ones preparing orders from the suppliers, (4) their families stayed together at the Benguet
Lumber compound, and (5) all their children were employed in the business in different
capacities.
(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;
It is obvious that there was no partnership whatsoever. Except for a firm name, there was
no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the
partnership. There was even no attempt to submit an accounting corresponding to the
period after the war until Kees death in 1984. It had no business book, no written account
nor any memorandum for that matter and no license mentioning the existence of a
partnership [citation omitted].
(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
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.
(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 adventure.
10
inquiries relative to the correctness of the assessment of the evidence by the court a quo.
[13]
Inasmuch as the Court of Appeals and the trial court had reached conflicting
conclusions, perforce we must examine the record to determine if the reversal was justified.
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.
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:
xxx two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. [14]
Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common fund,
and (2) they intend to divide the profits among themselves. [15] The agreement need not be
formally reduced into writing, since statute allows the oral constitution of a partnership,
save in two instances: (1) when immovable property or real rights are contributed, [16] and
(2) when the partnership has a capital of three thousand pesos or more. [17] In both cases, a
public instrument is required.[18] An inventory to be signed by the parties and attached to
the public instrument is also indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.[19]
And then in 1981, the business was incorporated and the incorporators were only Lay and
the members of his family. There is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or transferred by Lay,
supposedly to the corporation and since then have been treated as a part of the latters
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a room in
the bunk house in Trinidad, but within the compound of the lumber establishment, as
testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were
commanding people as testified to by the son, Elpidio Tan; 3) that both were supervising
the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly
being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the
business.
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
adventure, which it said is akin to a particular partnership. [20] A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a
sort of informal partnership, with no firm name and no legal personality. In a
joint account, the participating merchants can transact business under their
own name, and can be individually liable therefor.
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
adventure. 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
11
The legal concept of a joint adventure 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 adventure 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 adventure 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
adventure with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).
former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.[26] Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.[27] Tan Eng Lay consistently testified that he
had his business and his brother had his, that it was only later on that his said brother, Tan
Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not anindicium of the existence of a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership
was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses. [29] Each has the right to
demand an accounting as long as the partnership exists. [30] We have allowed a scenario
wherein [i]f excellent relations exist among the partners at the start of the business and all
the partners are more interested in seeing the firm grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly plausible. [31] But in the situation in the case
at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to
take ordinary care of his concerns.[32] As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In the
third place, it does not appear that she has even demanded from defendant any accounting
of the expenses and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether the expenses were
legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she did was to receive her share of
P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use
of the premises which she had leased from the owners. Clearly, plaintiff had always acted
in accordance with the original letter of defendant of June 17, 1945 (Exh. A), which shows
that both parties considered this offer as the real contract between them.[33] [italics supplied]
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.
A demand for periodic accounting is evidence of a partnership. [34] During his lifetime, Tan
Eng Kee appeared never to have made any such demand for accounting from his brother,
Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet
Lumber, as it was then called. The authenticity of these documents was questioned by
petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife
and children. As aforesaid, the criminal cases were dismissed for insufficiency of
evidence. Exhibits 4 to 4-U in fact shows that Tan Eng Kee received sums as wages of an
employee. In connection therewith, Article 1769 of the Civil Code provides:
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan
Eng Lay, could have expounded on the precise nature of the business relationship between
them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee
allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners witnesses is directly controverted
by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein
preponderance lies;[24] the quality of their testimonies is to be considered. None of
petitioners witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.[25] He stated that when he met Tan Eng Kee after the liberation, the latter asked the
12
(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;
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:
(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;
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:
(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;
(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employees position is higher in rank, it is not
unusual that he orders around those lower in rank.
(4) The receipt by a person of a share of the profits of a business is 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:
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the
owner, can order materials from suppliers for and in behalf of Benguet
Lumber. Furthermore, even a partner does not necessarily have to perform this particular
task. It is, thus, not an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this
privilege was not accorded to other employees, the undisputed fact remains that Tan Eng
Kee is the brother of Tan Eng Lay.Naturally, close personal relations existed between
them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the
other employees, only proves the kindness and generosity of Tan Eng Lay towards a blood
relative.
(iv) and even if it is assumed that Tan Eng Kee was quarrelling 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 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
13
among his duties is to place orders with suppliers. Again, the circumstances proffered by
petitioners do not provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a business organized and run
as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court
of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.
14
petitioner put in his appearance and submitted to its jurisdiction; hence, he was not, and
should not have been declared, in default. While it was discretionary for the court to
proceed with the trial of the case in the absence of petitioner or his counsel, and render
judgment on the basis of the evidence presented by the plaintiff, such judgment was not by
default, and petitioner could, under the law, appeal, as he in fact did appeal, to the Court of
First Instance (Carballo vs. Hon. Demetrio B. Encarnacion, supra). Consequently, in
dismissing petitioner's appeal on the ground that he had no standing in court unless the
order of default is first set aside, the respondent Court committed a grave abuse of
discretion amounting to lack of jurisdiction.
This petition for certiorari to annul the order of dismissal of the appeal is in the nature of a
petition for mandamus to order the Court of First Instance to proceed with the hearing of
the case, and it is not barred by the fact that the order complained of was appealable
(Quizan vs. Arellano, Supra).
Wherefore, the petition for certiorari is granted, the order of the court a quo dismissing
petitioner's appeal is annulled, and the respondent judge is hereby directed to reinstate said
appeal and proceed with the trial of the case on the merits. Costs to be taxed against the
respondent Filomeno R. Negado.
Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Bautista Angela,
Labrador and Concepcion, JJ., concur.
The petition must be granted. The order of default taken against the petitioner Gonzalo
Makabenta in the Justice of the Peace Court of Carigara, Leyte is clearly illegal and
without effect; for although petitioner failed to appear during the trial of the case therein,
he filed his answer to the complaint, and as we have consistently held, the sole ground for
default in the inferior courts is failure to appeal (Veluz vs. Justice of the Peace of Sariaya,
42 Phil., 557; Quizan vs. Arellano, 90 Phil., 644, Carballo vs. Hon. Demetrio B.
Encarnacion, et al., 92 Phil., 974). By filing his answer in the Justice of the Peace Court,
15
at bar, the action is between Rosario U. Yulo as plaintiff and Yang Chiao Seng as
defendant; the issue is whether or not the plaintiff is partner in the cinematograph business,
as claimed by plaintiff, or said plaintiff is merely a sublessee, as claimed by the defendant.
There is, therefore, no identity of parties nor identity of issue, nor identity of cause of
action. We call attention to the very citation contained in appellant's motion for
reconsideration, which reads as follows:
Without going further, we are fully satisfied of the correctness of our conclusion that the
relationship between plaintiff-appellant Rosario U. Yulo and Yang Chiao Seng is merely
that of sublessor and sublessee, and not that of partners. The motion to reopen the case is
hereby denied and considering that judgment had become final since October 29, 1959,
order is hereby given to remand the record to the court below.
The claim of plaintiff-appellant Rosario U. Yulo is that the relationship between her and
defendant-appellee Yang Chiao Seng as partners had already been passed upon by the
Court of Appeals in the above-indicated decision. The portion of the decision of the Court
of Appeals is contained on page 8 of the motion for reconsideration in which it held that
articles of partnership of Young & Co., Ltd. show that the parties to this case are partners in
the construction of the Astor Theatre. It is to be noted, however, that the decision of the
Court of Appeals was one in which Emilia and Maria Carrion Sta. Marina are plaintiffs and
the defendants are Rosario Yulo and Yang Chiao Seng; the action was one to eject the
defendants from the land occupied by them; the issue was the reasonable value for the use
and occupation of the land. The Court of Appeals said that the plaintiffs in that case had
claimed that the reasonable value was P3,000, while the defendants claimed that it was
only P1,000, and the Court of Appeals held that in view of the partnership papers P3,000
represent the share of Rosario U. Yulo in the profits of the partnership and not the
reasonable rent of the property.
Paras, C. J., Bautista Angelo, Reyes, J. B. L., Barrera and Gutierrez David, JJ., concur.
It is evident that no res judicata can be claimed for the previous judgment of the Court of
Appeals. In the first place, the parties in that case were Emilia and Maria Carrion Sta.
Marina and the defendants, Rosaria U. Yulo and Yang Chiao Seng; in the second place, the
issue decided by the Court of Appeals was the rental value of the property in question; that
the cause of action was for ejectment of Rosario U. Yulo and Yang Chiao Seng. In the case
16
17