FERNANDO

SANTOS,
petitioner,
vs.
SPOUSES ARSENIO and NIEVES REYES, respondents.
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the
trial court are binding on the Supreme Court. However, there are several exceptions
to this principle. In the present case, we find occasion to apply both the rule and
one of the exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997
Decision,1 as well as the August 17, 1998 and the October 9, 1998 Resolutions, 2
issued by the Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision
disposed as follows:
"WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner]."3
Resolving respondent's Motion for Reconsideration, the August 17, 1998
Resolution ruled as follows:
"WHEREFORE, [respondents'] motion for reconsideration is GRANTED.
Accordingly, the court's decision dated November 28, 1997 is hereby
MODIFIED in that the decision appealed from is AFFIRMED in toto, with costs
against [petitioner]."4
The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for
Reconsideration of the August 17, 1998 Resolution. 5
The Facts
The events that led to this case are summarized by the CA as follows:
"Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent]
Nieves Reyes were introduced to each other by one Meliton Zabat regarding a
lending business venture proposed by Nieves. It was verbally agreed that
[petitioner would] act as financier while [Nieves] and Zabat [would] take
charge of solicitation of members and collection of loan payments. The
venture was launched on June 13, 1986, with the understanding that
[petitioner] would receive 70% of the profits while x x x Nieves and Zabat
would earn 15% each.
"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner].
Gragera, as chairman of the Monte Maria Development Corporation 6 (Monte

Maria, for brevity), sought short-term loans for members of the corporation.
[Petitioner] and Gragera executed an agreement providing funds for Monte
Maria's members. Under the agreement, Monte Maria, represented by
Gragera, was entitled to P1.31 commission per thousand paid daily to
[petitioner] (Exh. 'A')x x x . Nieves kept the books as representative of
[petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the
'Article of Agreement' which formalized their earlier verbal arrangement.
"[Petitioner] and [Nieves] later discovered that their partner Zabat engaged
in the same lending business in competition with their partnership[.] Zabat
was thereby expelled from the partnership. The operations with Monte Maria
continued.
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money
and damages. [Petitioner] charged [respondents], allegedly in their
capacities as employees of [petitioner], with having misappropriated funds
intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Gragera's complaint that his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragerax x
x . Nieves allegedly failed to account for the amount. [Petitioner] asserted
that after examination of the records, he found that of the total amount of
P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was remitted
to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.
"In their answer, [respondents] asserted that they were partners and not
mere employees of [petitioner]. The complaint, they alleged, was filed to
preempt and prevent them from claiming their rightful share to the profits of
the partnership.
"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of
Zabat after [petitioner] learned of Zabat's activities. Arsenio resigned from
his job at the Asian Development Bank to join the partnership.
"For her part, x x x Nieves claimed that she participated in the business as a
partner, as the lending activity with Monte Maria originated from her
initiative. Except for the limited period of July 8, 1986 through August 20,
1986, she did not handle sums intended for Gragera. Collections were turned
over to Gragera because he guaranteed 100% payment of all sums loaned by
Monte Maria. Entries she made on worksheets were based on this assumptive
100% collection of all loans. The loan releases were made less Gragera's
agreed commission. Because of this arrangement, she neither received
payments from borrowers nor remitted any amount to Gragera. Her job was
merely to make worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey to
[petitioner] how much he would earn if all the sums guaranteed by Gragera
were collected.

"[Petitioner] on the other hand insisted that [respondents] were his mere
employees and not partners with respect to the agreement with Gragera. He
claimed that after he discovered Zabat's activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and Zabat.
[Petitioner] asserted that [respondents] were hired as salaried employees
with respect to the partnership between [petitioner] and Gragera.
"[Petitioner] further asserted that in Nieves' capacity as bookkeeper, she
received all payments from which Nieves deducted Gragera's commission.
The commission would then be remitted to Gragera. She likewise determined
loan releases.
"During the pre-trial, the parties narrowed the issues to the following points:
whether [respondents] were employees or partners of [petitioner], whether
[petitioner] entrusted money to [respondents] for delivery to Gragera,
whether the P1,555,068.70 claimed under the complaint was actually
remitted to Gragera and whether [respondents] were entitled to their
counterclaim for share in the profits." 7
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents were partners,
not mere employees, of petitioner. It further ruled that Gragera was only a
commission agent of petitioner, not his partner. Petitioner moreover failed to prove
that he had entrusted any money to Nieves. Thus, respondents' counterclaim for
their share in the partnership and for damages was granted. The trial court
disposed as follows:
"39.

WHEREFORE, the Court hereby renders judgment as

follows:

39.1.

THE SECOND AMENDED COMPLAINT dated July 26, 1989

is DISMISSED.

39.2.

The [Petitioner] FERNANDO J. SANTOS is ordered to pay

the [Respondent] NIEVES S. REYES, the following:

39.2.1. P3,064,428.00 - The 15 percent share of the

[respondent] NIEVES S. REYES in the
profits of her joint venture with the
[petitioner].
39.2.2. Six(6) percent - As damages from August 3, 1987 until
of
the P3,064,428.00 is fully paid.
P3,064,428.00
39.2.3. P50,000.00

- As moral damages

39.2.4. P10,000.00

- As exemplary damages

39.3.

The [petitioner] FERNANDO J. SANTOS is ordered to pay

the [respondent] ARSENIO REYES, the following:

39.3.1. P2,899,739.50 - The balance of the 15 percent share of
the [respondent] ARSENIO REYES in the
profits of his joint venture with the
[petitioner].
39.3.2. Six(6) percent - As damages from August 3, 1987 until
of
the P2,899,739.50 is fully paid.
P2,899,739.50
39.3.3. P25,000.00

- As moral damages

39.3.4. P10,000.00

- As exemplary damages

39.4.

The [petitioner] FERNANDO J. SANTOS is

ordered to pay the [respondents]:

39.4.1. P50,000.00

- As attorney's fees; and

39.4.2. The cost of the suit."8

Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of
respondents was dismissed. Upon the latter's Motion for Reconsideration, however,
the trial court's Decision was reinstated in toto. Subsequently, petitioner's own
Motion for Reconsideration was denied in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a
partnership among the parties: (1) it was Nieves who broached to petitioner the
idea of starting a money-lending business and introduced him to Gragera; (2)
Arsenio received "dividends" or "profit-shares" covering the period July 15 to
August 7, 1986 (Exh. "6"); and (3) the partnership contract was executed after the
Agreement with Gragera and petitioner and thus showed the parties' intention to
consider it as a transaction of the partnership. In their common venture, petitioner
invested capital while respondents contributed industry or services, with the
intention of sharing in the profits of the business.
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of
P200,000 which was supposed to be delivered to Gragera to cover unpaid
commissions. It was his task to collect the amounts due, while hers was merely to
prepare the daily cash flow reports (Exhs. "15-15DDDDDDDDDD") to keep track of
his collections.
Hence, this Petition.9
Issue
Petitioner asks this Court to rule on the following issues: 10

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

discretion tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not
employees of Santos in connection with the agreement between Santos and
Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase 'Received by' on
documents signed by Nieves Reyes signified receipt of copies of the
documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of
P200,000.00 for delivery to Gragera;
5 Affirming the dismissal of Santos' [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents'
counterclaim;
7. Denying Santos' motion for reconsideration dated September 11, 1998."
Succinctly put, the following were the issues raised by petitioner: (1) whether the
parties' relationship was one of partnership or of employer employee; (2) whether
Nieves misappropriated the sums of money allegedly entrusted to her for delivery
to Gragera as his commissions; and (3) whether respondents were entitled to the
partnership profits as determined by the trial court.
The Court's Ruling
The Petition is partly meritorious.
First
Business Relationship

Issue:

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

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

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

provided the initiative in the lending activities with Monte Maria. In
consonance with the agreement between appellant, Nieves and Zabat (later
replaced by Arsenio), [respondents] contributed industry to the common fund
with the intention of sharing in the profits of the partnership. [Respondents]
provided services without which the partnership would not have [had] the
wherewithal to carry on the purpose for which it was organized and as such
[were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA
416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat
was technically dissolved by the expulsion of Zabat therefrom, the remaining
partners simply continued the business of the partnership without undergoing
the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to
dissolve the earlier partnership. The partnership between [petitioner,] Nieves
and Arsenio simply took over and continued the business of the former
partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.
xxx

xxx

xxx

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

undertaken with Monte Maria was done in pursuit of the business for which
the partnership between [petitioner], Nieves and Zabat (later Arsenio) was
organized. Gragera who represented Monte Maria was merely paid
commissions in exchange for the collection of loans. The commissions were
fixed on gross returns, regardless of the expenses incurred in the operation
of the business. The sharing of gross returns does not in itself establish a
partnership."11
We agree with both courts on this point. By the contract of partnership, two or
more persons bind themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among themselves. 12 The
"Articles of Agreement" stipulated that the signatories shall share the profits of the
business in a 70-15-15 manner, with petitioner getting the lion's share. 13 This
stipulation clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership
continued lending money to the members of the Monte Maria Community
Development Group, Inc., which later on changed its business name to Private
Association for Community Development, Inc. (PACDI). Nieves was not merely
petitioner's employee. She discharged her bookkeeping duties in accordance with
paragraphs 2 and 3 of the Agreement, which states as follows:
"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation
and screening of prospective borrowers, and shall x x x each be responsible

in handling the collection of the loan payments of the borrowers that they
each solicited.
"3. That the bookkeeping and daily balancing of account of the business
operation shall be handled by the SECOND PARTY."14
The "Second Party" named in the Agreement was none other than Nieves Reyes. On
the other hand, Arsenio's duties as credit investigator are subsumed under the
phrase "screening of prospective borrowers." Because of this Agreement and the
disbursement of monthly "allowances" and "profit shares" or "dividends" (Exh. "6")
to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in
the partnership.
Indeed, the partnership was established to engage in a money-lending business,
despite the fact that it was formalized only after the Memorandum of Agreement
had been signed by petitioner and Gragera. Contrary to petitioner's contention,
there is no evidence to show that a different business venture is referred to in this
Agreement, which was executed on August 6, 1986, or about a month after the
Memorandum had been signed by petitioner and Gragera on July 14, 1986. The
Agreement itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their business
relationship in order that their respective interests may be properly defined
and established for their mutual benefit and understanding."15
Second
No Proof of Misappropriation of Gragera's Unpaid Commission

Issue:

Petitioner faults the CA finding that Nieves did not misappropriate money intended
for Gragera's commission. According to him, Gragera remitted his daily collection to
Nieves. This is shown by Exhibit "B." (the "Schedule of Daily Payments"), which
bears her signature under the words "received by." For the period July 1986 to
March 1987, Gragera should have earned a total commission of P4,282,429.30.
However, only P3,068,133.20 was received by him. Thus, petitioner infers that she
misappropriated the difference of P1,214,296.10, which represented the unpaid
commissions. Exhibit "H." is an untitled tabulation which, according to him, shows
that Gragera was also entitled to a commission of P200,000, an amount that was
never delivered by Nieves.16
On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that
Nieves received for delivery to Gragera any amount from which the P1,214,296.10
unpaid commission was supposed to come, and that such exhibits were insufficient
proof that she had embezzled P200,000. Said the CA:
"The presentation of Exhibit "D" vaguely denominated as 'members
does not clearly establish that Nieves received amounts from Monte
members. The document does not clearly state what amounts the
thereon represent. More importantly, Nieves made the entries for the

ledger'
Maria's
entries
limited

period of January 11, 1987 to February 17, 1987 only while the rest were
made by Gragera's own staff.
"Neither can we give probative value to Exhibit 'E' which allegedly shows
acknowledgment of the remittance of commissions to Verona Gonzales. The
document is a private one and its due execution and authenticity have not
been duly proved as required in [S]ection 20, Rule 132 of the Rules of Court
which states:
'SECTION 20. Proof of Private Document Before any private
document offered as authentic is received in evidence, its due
execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
'Any other private document need only be identified as that which it is
claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery, as it
found that:
'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed
that it is a forgery. The initial stroke of Exh. E-1 starts from up and
goes downward. The initial stroke of the genuine signatures of NIEVES
(Exhs. A-3, B-1, F-1, among others) starts from below and goes
upward. This difference in the start of the initial stroke of the
signatures Exhs. E-1 and of the genuine signatures lends credence to
Nieves' claim that the signature Exh. E-1 is a forgery.'
xxx

xxx

xxx

"Nieves' testimony that the schedules of daily payment (Exhs. 'B' and 'F')
were based on the predetermined 100% collection as guaranteed by Gragera
is credible and clearly in accord with the evidence. A perusal of Exhs. "B" and
"F" as well as Exhs. '15' to 15-DDDDDDDDDD' reveal that the entries were
indeed based on the 100% assumptive collection guaranteed by Gragera.
Thus, the total amount recorded on Exh. 'B' is exactly the number of
borrowers multiplied by the projected collection of P150.00 per borrower.
This holds true for Exh. 'F.'
"Corollarily, Nieves' explanation that the documents were pro forma and that
she signed them not to signify that she collected the amounts but that she
received the documents themselves is more believable than [petitioner's]
assertion that she actually handled the amounts.

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

establish that x x x Nieves received P200,000.00 as commission for Gragera.
As correctly stated by the court a quo, the document showed a liquidation of
P240.000 00 and not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all
collections were made by Gragera believable and worthy of credence. Since
Gragera guaranteed a daily 100% payment of the loans, he took charge of
the collections. As [petitioner's] representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15
DDDDDDDDDD') to enable [petitioner] to keep track of Gragera's operations.
Gragera on the other hand devised the schedule of daily payment (Exhs. 'B'
and 'F') to record the projected gross daily collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS' version
would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES
would get GRAGERA's commissions from the amortizations and then
give such commission to GRAGERA."'17
These findings are in harmony with the trial court's ruling, which we quote
below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter
received P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth
column 'ADDITIONAL CASH' that the additional cash was P240,000.00. If
Exh. H were the liquidation of the P200,000.00 as alleged by SANTOS, then
his claim is not true. This is so because it is a liquidation of the sum of
P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give the
P200,000.00 to GRAGERA when he received the latter's letter complaining of
its delayed release. Assuming as true SANTOS' claim that he gave
P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did
not give it to GRAGERA. The only proof that NIEVES did not give it is the
letter. But SANTOS did not even present the letter in evidence. He did not
explain why he did not.
"21.2. The evidence shows that all money transactions of the money-lending
business of SANTOS were covered by petty cash vouchers. It is therefore
strange why SANTOS did not present any voucher or receipt covering the
P200,000.00."18

In sum, the lower courts found it unbelievable that Nieves had embezzled
P1,555,068.70 from the partnership. She did not remit P1,214,296.10 to Gragera,
because he had deducted his commissions before remitting his collections. Exhibits
"B" and "F" are merely computations of what Gragera should collect for the day;
they do not show that Nieves received the amounts stated therein. Neither is there
sufficient proof that she misappropriated P200,000, because Exhibit "H." does not
indicate that such amount was received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is
warranted. Well-entrenched is the basic rule that factual findings of the Court of
Appeals affirming those of the trial court are binding and conclusive on the
Supreme Court.19 Although there are exceptions to this rule, petitioner has not
satisfactorily shown that any of them is applicable to this issue.
Third
Accounting of Partnership

Issue:

Petitioner refuses any liability for respondents' claims on the profits of the
partnership. He maintains that "both business propositions were flops," as his
investments were "consumed and eaten up by the commissions orchestrated to be
due Gragera" a situation that "could not have been rendered possible without
complicity between Nieves and Gragera."
Respondent spouses, on the other hand, postulate that petitioner instituted the
action below to avoid payment of the demands of Nieves, because sometime in
March 1987, she "signified to petitioner that it was about time to get her share of
the profits which had already accumulated to some P3 million." Respondents add
that while the partnership has not declared dividends or liquidated its earnings, the
profits are already reflected on paper. To prove the counterclaim of Nieves, the
spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled
P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that income, her 15
percent share under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); and
Arsenio's, P2,026,000 minus the P30,000 which was already advanced to him (Petty
Cash Vouchers, Exhs. "6, 6-A to 6-B").
The CA originally held that respondents' counterclaim was premature, pending an
accounting of the partnership. However, in its assailed Resolution of August 17,
1998, it turned volte face. Affirming the trial court's ruling on the counterclaim, it
held as follows:
"We earlier ruled that there is still need for an accounting of the profits and
losses of the partnership before we can rule with certainty as to the
respective shares of the partners. Upon a further review of the records of this
case, however, there appears to be sufficient basis to determine the amount
of shares of the parties and damages incurred by [respondents]. The fact is
that the court a quo already made such a determination [in its] decision
dated August 13, 1991 on the basis of the facts on record." 20

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

"27. The defendants' counterclaim for the payment of their share in the
profits of their joint venture with SANTOS is supported by the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is based on
the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the working
papers (Exhs. 10 to 10-I, inclusive) which she prepared. Exhs. 10 to 10-I
(inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15D(10) were given to SANTOS. The joint venture had a net profit of
P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to
April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.
"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending
business he was engaged in netted a profit and that the originals of the daily
case flow reports were furnished to him. SANTOS however alleged that the
money-lending operation of his joint venture with NIEVES and ZABAT
resulted in a loss of about half a million pesos to him. But such loss, even if
true, does not negate NIEVES' claim that overall, the joint venture among
them SANTOS, NIEVES and ARSENIO netted a profit. There is no reason
for the Court to doubt the veracity of [the testimony of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share in the
profits (Exhs. 6, 6-A and 6-B) should be deducted from his total share." 21
After a close examination of respondents' exhibits, we find reason to disagree with
the CA. Exhibit "10-I"22 shows that the partnership earned a "total income" of
P20,429,520 for the period June 13, 1986 until April 19, 1987. This entry is derived
from the sum of the amounts under the following column headings: "2-Day
Advance Collection," "Service Fee," "Notarial Fee," "Application Fee," "Net Interest
Income" and "Interest Income on Investment." Such entries represent the
collections of the money-lending business or its gross income.
The "total income" shown on Exhibit "10-I" did not consider the expenses sustained
by the partnership. For instance, it did not factor in the "gross loan releases"
representing the money loaned to clients. Since the business is money-lending,
such releases are comparable with the inventory or supplies in other business
enterprises.
Noticeably missing from the computation of the "total income" is the deduction of
the weekly allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. 23
show that Arsenio received allowances from July 19, 1986 to March 27, 1987 in the
aggregate amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987,
in the total amount of P25,600. These allowances are different from the profit
already received by Arsenio. They represent expenses that should have been
deducted from the business profits. The point is that all expenses incurred by the

money-lending enterprise of the parties must first be deducted from the "total
income" in order to arrive at the "net profit" of the partnership. The share of each
one of them should be based on this "net profit" and not from the "gross income" or
"total income" reflected in Exhibit "10-I," which the two courts invariably referred to
as "cash flow" sheets.
Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow Reports," do not
reflect the business expenses incurred by the parties, because they show only the
daily cash collections. Contrary to the rulings of both the trial and the appellate
courts, respondents' exhibits do not reflect the complete financial condition of the
money-lending business. The lower courts obviously labored over a mistaken notion
that Exhibit " 10-I-1" represented the "net profits" earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner
(who shares in the profits but is not liable for the losses), the gross income from all
the transactions carried on by the firm must be added together, and from this sum
must be subtracted the expenses or the losses sustained in the business. Only in
the difference representing the net profits does the industrial partner share. But if,
on the contrary, the losses exceed the income, the industrial partner does not share
in the losses.25
When the judgment of the CA is premised on a misapprehension of facts or a failure
to notice certain relevant facts that would otherwise justify a different conclusion,
as in this particular issue, a review of its factual findings may be conducted, as an
exception to the general rule applied to the first two issues. 26
The trial court has the advantage of observing the witnesses while they are
testifying, an opportunity not available to appellate courts. Thus, its assessment of
the credibility of witnesses and their testimonies are accorded great weight, even
finality, when supported by substantial evidence; more so when such assessment is
affirmed by the CA. But when the issue involves the evaluation of exhibits or
documents that are attached to the case records, as in the third issue, the rule may
be relaxed. Under that situation, this Court has a similar opportunity to inspect,
examine and evaluate those records, independently of the lower courts. Hence, we
deem the award of the partnership share, as computed by the trial court and
adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997
Decision is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and
October 9, 1998 are REVERSED and SET ASIDE. No costs.

HEIRS
OF
TAN
ENG
KEE,
petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY, respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division 2 of the Court of Appeals
in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside,
and the complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena,
Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS
OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on
February 19, 1990. The complaint, 3 docketed as Civil Case No. 1983-R in the
Regional Trial Court of Baguio City was for accounting, liquidation and winding up of
the alleged partnership formed after World War II between Tan Eng Kee and Tan
Eng Lay. On March 18, 1991, the petitioners filed an amended complaint 4
impleading private respondent herein BENGUET LUMBER COMPANY, as represented
by Tan Eng Lay. The amended complaint was admitted by the trial court in its Order
dated May 3, 1991.5
The amended complaint principally alleged that after the second World War, Tan Eng
Kee and Tan Eng Lay, pooling their resources and industry together, entered into a
partnership engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng Kee's death. Petitioners herein averred that the
business prospered due to the hard work and thrift of the alleged partners.
However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng
Kee and his heirs of their rightful participation in the profits of the business.
Petitioners prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets of
Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April
12, 1995, to wit:

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

a) Declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned
over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share in
said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have descended to
the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all the
assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper
share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the
assets of Benguet Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to submit the name of any
person they want to be appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one who is qualified to act as
such.
g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration 7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a

judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee
was a mere employee of Benguet Lumber, were fake, based on the discrepancy in
the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed
Tan, for alleged falsification of commercial documents by a private individual. On
March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment 9 dismissing the cases for insufficiency of
evidence.
In their assignment of errors, petitioners claim that:
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).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE
SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET
LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY
AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED
BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL
LIVING AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING
THE EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING
THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC;
AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING
ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG
KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS
BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS
STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER
IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A
PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE
AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE
17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of
Appeals will not be disturbed on appeal if such are supported by the evidence. 10 Our
jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel
us to analyze the evidentiary basis on which the lower court rendered judgment.
Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact
is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues
of the case, and such findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are contradicted by the evidence on
record.12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn
went beyond that by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of
standing between the parties, equal proprietary interest and the exercise by
the parties equally of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of
the Benguet Lumber before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of
the pre-war Benguet Lumber were confiscated if not burned by the Japanese.
After the war, because of the absence of capital to start a lumber and
hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually established the Benguet
Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually

established. That the father of the plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs of the business during
Kee's lifetime, jointly, (2) they were the ones giving orders to the employees,
(3) they were the ones preparing orders from the suppliers, (4) their families
stayed together at the Benguet Lumber compound, and (5) all their children
were employed in the business in different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a firm

name, there was no firm account, no firm letterheads submitted as evidence,
no certificate of partnership, no agreement as to profits and losses, and no
time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's
death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a
partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay
as the only registered owner of the Benguet Lumber and Hardware. His
application for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet
Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit
"3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to
1983, Kee was similarly listed only as an employee; precisely, he was on the
payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also
as the proprietor.
xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be
constituted in any form, but when an immovable is constituted, the execution
of a public instrument becomes necessary. This is equally true if the
capitalization exceeds P3,000.00, in which case a public instrument is also
necessary, and which is to be recorded with the Securities and Exchange
Commission. In this case at bar, we can easily assume that the business
establishment, which from the language of the appellees, prospered (pars. 5
& 9, Complaint), definitely exceeded P3,000.00, in addition to the
accumulation of real properties and to the fact that it is now a compound.
The execution of a public instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was incorporated and the incorporators were
only Lay and the members of his family. There is no proof either that the
capital assets of the partnership, assuming them to be in existence, were
maliciously assigned or transferred by Lay, supposedly to the corporation and

since then have been treated as a part of the latter's capital assets, contrary
to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and
then in a room in the bunk house in Trinidad, but within the compound of the
lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee
were seated on a table and were "commanding people" as testified to by the
son, Elpidio Tan; 3) that both were supervising the laborers, as testified to by
Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee
that the proceeds of the 80 pieces of the G.I. sheets were added to the
business.
Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or where
the capital is P3,000.00 or more, the execution of a contract is necessary; 2)
the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in the benefits;
and 5) intention to divide the profits, being the true test of the partnership.
The intention to join in the business venture for the purpose of obtaining
profits thereafter to be divided, must be established. We cannot see these
elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which
had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a
joint venture. In this connection, we have held that whether a partnership exists is
a factual matter; consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the assessment of the
evidence by the court a quo. 13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to
determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
Benguet Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves.
Two or more persons may also form a partnership for the exercise of a
profession.14
Thus, in order to constitute a partnership, it must be established that (1) two
or more persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the profits among
themselves.15 The agreement need not be formally reduced into writing, since

statute allows the oral constitution of a partnership, save in two instances:

(1) when immovable property or real rights are contributed, 16 and (2) when
the partnership has a capital of three thousand pesos or more. 17 In both
cases, a public instrument is required.18 An inventory to be signed by the
parties and attached to the public instrument is also indispensable to the
validity of the partnership whenever immovable property is contributed to the
partnership.19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a
joint venture, which it said is akin to a particular partnership. 20 A particular
partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a
sort of informal partnership, with no firm name and no legal personality. In a
joint account, the participating merchants can transact business under their
own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful termination
may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind. 21
A joint venture "presupposes generally a parity of standing between the joint coventures or partners, in which each party has an equal proprietary interest in the
capital or property contributed, and where each party exercises equal rights in the
conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture
may be likened to a particular partnership, thus:
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. Bolaos,
95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and
Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself,
or the articles of partnership but there is none. The alleged partnership, though,
was never formally organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly formed sometime in
1945, although the contrary may well be argued that nothing prevented the parties
from complying with the provisions of the New Civil Code when it took effect on
August 30, 1950. But all that is in the past. The net effect, however, is that we are
asked to determine whether a partnership existed based purely on circumstantial
evidence. A review of the record persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The evidence presented by petitioners falls
short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from
Tan Eng Lay, could have expounded on the precise nature of the business
relationship between them. In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his resources to a common
fund for the purpose of establishing a partnership. The testimonies to that effect of
petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted
that it is not with the number of witnesses wherein preponderance lies; 24 the quality
of their testimonies is to be considered. None of petitioners' witnesses could
suitably account for the beginnings of Benguet Lumber Company, except perhaps
for Dionisio Peralta whose deceased wife was related to Matilde Abubo. 25 He stated
that when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26 Tan Eng Lay, however, denied knowledge of this meeting or of the
conversation between Peralta and his brother.27 Tan Eng Lay consistently testified
that he had his business and his brother had his, that it was only later on that his
said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or
co-possession (specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.28
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share in the profits and losses. 29
Each has the right to demand an accounting as long as the partnership exists. 30 We
have allowed a scenario wherein "[i]f excellent relations exist among the partners
at the start of the business and all the partners are more interested in seeing the
firm grow rather than get immediate returns, a deferment of sharing in the profits
is perfectly plausible."31 But in the situation in the case at bar, the deferment, if any,
had gone on too long to be plausible. A person is presumed to take ordinary care of
his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In
the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has even demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000.00 a month, which
cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of defendant of June 17, 1945
(Exh. "A"), which shows that both parties considered this offer as the real
contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership. 34 During his lifetime,
Tan Eng Kee appeared never to have made any such demand for accounting from
his brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of these
documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal
cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact
shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;

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

(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or
other property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was
only an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee received amounts of
money allegedly representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan Eng Kee, received, if any, as his share in
the profits of Benguet Lumber Company for any particular period. Hence, they
failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of
the business between themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence
of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee
were commanding the employees; that both were supervising the employees; that
both were the ones who determined the price at which the stocks were to be sold;
and that both placed orders to the suppliers of the Benguet Lumber Company. They
also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at
the Benguet Lumber Company compound, a privilege not extended to its ordinary
employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's position
is higher in rank, it is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is
reposed by the owner, can order materials from suppliers for and in behalf of
Benguet Lumber. Furthermore, even a partner does not necessarily have to
perform this particular task. It is, thus, not an indication that Tan Eng Kee
was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber
compound and this privilege was not accorded to other employees, the
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay.
Naturally, close personal relations existed between them. Whatever privileges
Tan Eng Lay gave his brother, and which were not given the other employees,
only proves the kindness and generosity of Tan Eng Lay towards a blood
relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng
Lay in connection with the pricing of stocks, this does not adequately prove
the existence of a partnership relation between them. Even highly
confidential employees and the owners of a company sometimes argue with
respect to certain matters which, in no way indicates that they are partners
as to each other.35
In the instant case, we find private respondent's arguments to be well-taken.
Where circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such
as to support a finding of the existence of the parties' intent. 36 Yet, in the case at
bench, even the aforesaid circumstances when taken together are not persuasive
indicia of a partnership. They only tend to show that Tan Eng Kee was involved in
the operations of Benguet Lumber, but in what capacity is unclear. We cannot
discount the likelihood that as a member of the family, he occupied a niche above
the rank-and-file employees. He would have enjoyed liberties otherwise unavailable
were he not kin, such as his residence in the Benguet Lumber Company compound.
He would have moral, if not actual, superiority over his fellow employees, thereby
entitling him to exercise powers of supervision. It may even be that among his
duties is to place orders with suppliers. Again, the circumstances proffered by
petitioners do not provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a business organized
and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or
liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court
of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.

GONZALO
vs.

MAKABENTA,

petitioner,

JUAN L. BOCAR, Judge of First Instance of Leyte, and FILOMENO R.

NEGADO, respondents.
Alberto
T.
Mateo Canonoy for respondents.

Aguja

for

petitioner.

REYES, J.B.L., J.:

On September 30, 1950, Filomeno R. Negado filed a complaint in the Justice of the
Peace Court of Carigara, Leyte, against Gonzalo Makabenta for the recovery of a
sum of money. Within the prescribed period, the defendant Gonzalo Makabenta filed
his answer with counterclaim. After issues had been joined, the case was set for
trial on September 18, 1951. At the trial, defendant failed to appear; plaintiff
moved that the former be declared in default, and accordingly, the Justice of the
Peace Court declared him in default and ordered the plaintiff to present his
evidence. Judgment was rendered for the plaintiff on November 24, 1951, copy of
which defendant Makabenta received on December 8, 1951, and it was only then
that he learned for the first time that he was declared in default and that judgment
by default had been taken against him. Whereupon, defendant Gonzalo Makabenta
appealed to the Court of First Instance of Leyte (Civil Case No. 1453), where both
parties filed their respective pleadings. When the case was ready for trial, the
plaintiff appellee Filomeno R. Negado filed on July 20, 1952 a motion for the
dismissal of the appeal on the ground that the appellant had been declared in
default in the Justice of the Peace Court and had, therefore, no standing in court.
The Court of First Instance considered the motion well-taken and dismissed the
appeal, holding that Makabenta had no right to appeal unless the order declaring
him in default is first set aside. A motion for the reconsideration of the order of
dismissal was denied, and defendant-appellant Gonzalo Makabenta came to this
court with a petition for certiorari , asking that after due hearing, the order of the
respondent Judge dismissing his appeal be annulled, and the case set for trial on
the merits.
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, 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.

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffsappellants,

vs.
YANG CHIAO SENG, defendant-appellee.
Punzalan,
Yabut,
Eusebio
&
Tiburcio
Augusto Francisco and Julian T. Ocampo for appellee.

for

appellants.

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

carried on in lobbies of theatres in operation, provided the said business may not
obstruct the free ingress and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the partnership shall belong to
Mrs. Yulo, but if the partnership agreement is terminated before the lapse of one
and a half years period under any of the causes mentioned in paragraph (2), then
Yang Chiao Seng shall have the right to remove and take away all improvements
that the partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed
a partnership agreement establishing the "Yang & Company, Limited," which was to
exist from July 1, 1945 to December 31, 1947. It states that it will conduct and
carry on the business of operating a theatre for the exhibition of motion and talking
pictures. The capital is fixed at P100,000, P80,000 of which is to be furnished by
Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be
distributed among the partners in the same proportion as their capital contribution
and the liability of Mrs. Yulo, in case of loss, shall be limited to her capital
contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending the
partnership for a period of three years beginning January 1, 1948 to December 31,
1950. The benefits are to be divided between them at the rate of 50-50 and after
December 31, 1950, the showhouse building shall belong exclusively to the second
party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo
from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the contract
of lease it was stipulated that the lease shall continue for an indefinite period of
time, but that after one year the lease may be cancelled by either party by written
notice to the other party at least 90 days before the date of cancellation. The last
contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on
April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's desire
to cancel the contract of lease on July 31, 1949. In view of the above notice, Mrs.
Yulo and her husband brought a civil action to the Court of First Instance of Manila
on July 3, 1949 to declare the lease of the premises. On February 9, 1950, the
Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo
and Mr. Yang. The judgment was appealed. In the Court of First Instance, the two
cases were afterwards heard jointly, and judgment was rendered dismissing the
complaint of Mrs. Yulo and her husband, and declaring the contract of lease of the
premises terminated as of July 31, 1949, and fixing the reasonable monthly rentals
of said premises at P100. Both parties appealed from said decision and the Court of
Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the
profits of the business. Yang answered the letter saying that upon the advice of his
counsel he had to suspend the payment (of the rentals) because of the pendency of
the ejectment suit by the owners of the land against Mrs. Yulo. In this letter Yang
alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo has not paid

to the lessors the rentals from August, 1949, he was retaining the rentals to make
good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954, alleging the existence of a partnership
between them and that the defendant Yang Chiao Seng has refused to pay her
share from December, 1949 to December, 1950; that after December 31, 1950 the
partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff
became the absolute owner of the building occupied by the Cine Astor; that the
reasonable rental that the defendant should pay therefor from January, 1951 is
P5,000; that the defendant has acted maliciously and refuses to pay the
participation of the plaintiff in the profits of the business amounting to P35,000
from November, 1949 to October, 1950, and that as a result of such bad faith and
malice on the part of the defendant, Mrs. Yulo has suffered damages in the amount
of P160,000 and exemplary damages to the extent of P5,000. The prayer includes a
demand for the payment of the above sums plus the sum of P10,000 for the
attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the
plaintiff and the defendant was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around the prohibition contained in
the contract of lease between the owners and the plaintiff against the sublease of
the said property. As to the other claims, he denies the same and alleges that the
fair rental value of the land is only P1,100. By way of counterclaim he alleges that
by reason of an attachment issued against the properties of the defendant the
latter has suffered damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the defendant
and thereafter rendered judgment ordering the defendant to pay to the plaintiff
P41,000 for her participation in the business up to December, 1950; P5,000 as
monthly rental for the use and occupation of the building from January 1, 1951
until defendant vacates the same, and P3,000 for the use and occupation of the
lobby from July 1, 1945 until defendant vacates the property. This decision,
however, was set aside on a motion for reconsideration. In said motion it is claimed
that defendant failed to appear at the hearing because of his honest belief that a
joint petition for postponement filed by both parties, in view of a possible amicable
settlement, would be granted; that in view of the decision of the Court of Appeals in
two previous cases between the owners of the land and the plaintiff Rosario Yulo,
the plaintiff has no right to claim the alleged participation in the profit of the
business, etc. The court, finding the above motion, well-founded, set aside its
decision and a new trial was held. After trial the court rendered the decision making
the following findings: that it is not true that a partnership was created between the
plaintiff and the defendant because defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any other amount; that the real
agreement between the plaintiff and the defendant is not of the partnership but one
of the lease for the reason that under the agreement the plaintiff did not share
either in the profits or in the losses of the business as required by Article 1769 of

the Civil Code; and that the fact that plaintiff was granted a "guaranteed
participation" in the profits also belies the supposed existence of a partnership
between them. It. therefore, denied plaintiff's claim for damages or supposed
participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the
supposed lobby of the theatre, the court after ocular inspection found that the said
lobby was very narrow space leading to the balcony of the theatre which could not
be used for business purposes under existing ordinances of the City of Manila
because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's
counterclaim, on the ground that the defendant failed to present sufficient evidence
to sustain the same. It is against this decision that the appeal has been prosecuted
by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting aside its
former decision and allowing a new trial. This assignment of error is without merit.
As that parties agreed to postpone the trial because of a probable amicable
settlement, the plaintiff could not take advantage of defendant's absence at the
time fixed for the hearing. The lower court, therefore, did not err in setting aside its
former judgment. The final result of the hearing shown by the decision indicates
that the setting aside of the previous decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower court
erred in not striking out the evidence offered by the defendant-appellee to prove
that the relation between him and the plaintiff is one of the sublease and not of
partnership. The action of the lower court in admitting evidence is justified by the
express allegation in the defendant's answer that the agreement set forth in the
complaint was one of lease and not of partnership, and that the partnership formed
was adopted in view of a prohibition contained in plaintiff's lease against a sublease
of the property.
The most important issue raised in the appeal is that contained in the fourth
assignment of error, to the effect that the lower court erred in holding that the
written contracts, Exhs. "A", "B", and "C, between plaintiff and defendant, are one
of lease and not of partnership. We have gone over the evidence and we fully agree
with the conclusion of the trial court that the agreement was a sublease, not a
partnership. The following are the requisites of partnership: (1) two or more
persons who bind themselves to contribute money, property, or industry to a
common fund; (2) intention on the part of the partners to divide the profits among
themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the
second place, she did not furnish any help or intervention in the management of the
theatre. In the third place, it does not appear that she has ever demanded from
defendant any accounting of the expenses and earnings of the business. Were she
really a partner, her first concern should have been to find out how the business
was progressing, whether the expenses were legitimate, whether the earnings were

correct, etc. She was absolutely silent with respect to any of the acts that a partner
should have done; all that she did was to receive her share of P3,000 a month,
which can not be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always acted
in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"),
which shows that both parties considered this offer as the real contract between
them.
Plaintiff claims the sum of P41,000 as representing her share or participation in the
business from December, 1949. But the original letter of the defendant, Exh. "A",
expressly states that the agreement between the plaintiff and the defendant was to
end upon the termination of the right of the plaintiff to the lease. Plaintiff's right
having terminated in July, 1949 as found by the Court of Appeals, the partnership
agreement or the agreement for her to receive a participation of P3,000
automatically ceased as of said date.
We find no error in the judgment of the court below and we affirm it in toto, with
costs against plaintiff-appellant.

G.R. No. L-19891

July 31, 1964

J.R.S. BUSINESS CORPORATION, J.R. DA SILVA and A.J. BELTRAN,

petitioners,
vs.
IMPERIAL INSURANCE, INC., MACARIO M. OFILADA, Sheriff of Manila and
HON. AGUSTIN MONTESA, Judge of the Court of First Instance of Manila,
respondents.
Felipe
N.
Aurea
for
petitioners.
Taada, Teehankee and Carreon for respondent Imperial Insurance, Inc.
PAREDES, J.:
Petitioner J. R. Da Silva, is the President of the J.R.S. Business Corporation, an
establishment duly franchised by the Congress of the Philippines, to conduct a
messenger and delivery express service. On July 12, 1961, the respondent Imperial
Insurance, Inc., presented with the CFI of Manila a complaint (Civ. Case No.
47520), for sum of money against the petitioner corporation. After the defendants
therein have submitted their Answer, the parties entered into a Compromise

Agreement, assisted by their respective counsels, the pertinent portions of which

recite:
1) WHEREAS, the DEFENDANTS admit and confess their joint and solidary
indebtedness to the PLAINTIFF in the full sum of PESOS SIXTY ONE
THOUSAND ONE HUNDRED SEVENTY-TWO & 32/100 (P61,172.32), Philippine
Currency, itemized as follows:
a) Principal

P50,000.00

b) Interest at 12% per annum

5,706.14

c) Liquidated damages at 7% per annum 3,330.58

d) Costs of suit

135.60

e) Attorney's fees

2,000.00

2) WHEREAS, the DEFENDANTS bind themselves, jointly and severally, and

hereby promise to pay their aforementioned obligation to the PLAINTIFF at
its business address at 301-305 Banquero St., (Ground Floor), Regina
Building, Escolta, Manila, within sixty (60) days from March 16, 1962 or on or
before May 14, 1962;
3) WHEREAS, in the event the DEFENDANTS FAIL to pay in full the total
amount of PESOS SIXTY ONE THOUSAND ONE HUNDRED SEVENTY TWO &
32/100 (P61,172.32), Philippine Currency, for any reason whatsoever, on
May 14, 1962, the PLAINTIFF shall be entitled, as a matter of right, to move
for the execution of the decision to be rendered in the above-entitled case by
this Honorable Court based on this COMPROMISE AGREEMENT.
On March 17, 1962, the lower court rendered judgment embodying the contents of
the said compromise agreement, the dispositive portion of which reads
WHEREFORE, the Court hereby approves the above-quoted compromise
agreement and renders judgment in accordance therewith, enjoining the
parties to comply faithfully and strictly with the terms and conditions thereof,
without special pronouncement as to costs.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts
be admitted and approved by this Honorable Court, without prejudice to the
parties adducing other evidence to prove their case not covered by this
stipulation of facts. 1wph1.t
On May 15, 1962, one day after the date fixed in the compromise agreement,
within which the judgment debt would be paid, but was not, respondent Imperial
Insurance Inc., filed a "Motion for the Insurance of a Writ of Execution". On May 23,
1962, a Writ of Execution was issued by respondent Sheriff of Manila and on May
26, 1962, Notices of Sale were sent out for the auction of the personal properties of

the petitioner J.R.S. Business Corporation. On June 2, 1962, a Notice of Sale of the
"whole capital stocks of the defendants JRS Business Corporation, the business
name, right of operation, the whole assets, furnitures and equipments, the total
liabilities, and Net Worth, books of accounts, etc., etc." of the petitioner corporation
was, handed down. On June 9, the petitioner, thru counsel, presented an "Urgent
Petition for Postponement of Auction Sale and for Release of Levy on the Business
Name and Right to Operate of Defendant JRS Business Corporation", stating that
petitioners were busy negotiating for a loan with which to pay the judgment debt;
that the judgment was for money only and, therefore, plaintiff (respondent
Insurance Company) was not authorized to take over and appropriate for its own
use, the business name of the defendants; that the right to operate under the
franchise, was not transferable and could not be considered a personal or
immovable, property, subject to levy and sale. On June 10, 1962, a Supplemental
Motion for Release of Execution, was filed by counsel of petitioner JRS Business
Corporation, claiming that the capital stocks thereof, could not be levied upon and
sold under execution. Under date of June 20, 1962, petitioner's counsel presented a
pleading captioned "Very Urgent Motion for Postponement of Public Auction Sale
and for Ruling on Motion for Release of Levy on the Business Name, Right to
Operate and Capital Stocks of JRS Business Corporation". The auction sale was set
for June 21, 1962. In said motion, petitioners alleged that the loan they had applied
for, was to be secured within the next ten (10) days, and they would be able to
discharge the judgment debt. Respondents opposed the said motion and on June
21, 1962, the lower court denied the motion for postponement of the auction sale.
In the sale which was conducted in the premises of the JRS Business Corporation at
1341 Perez St., Paco, Manila, all the properties of said corporation contained in the
Notices of Sale dated May 26, 1962, and June 2, 1962 (the latter notice being for
the whole capital stocks of the defendant, JRS Business Corporation, the business
name, right of operation, the whole assets, furnitures and equipments, the total
liabilities and Net Worth, books of accounts, etc., etc.), were bought by respondent
Imperial Insurance, Inc., for P10,000.00, which was the highest bid offered.
Immediately after the sale, respondent Insurance Company took possession of the
proper ties and started running the affairs and operating the business of the JRS
Business Corporation. Hence, the present appeal.
It would seem that the matters which need determination are (1) whether the
respondent Judge acted without or in excess of his jurisdiction or with grave abuse
of discretion in promulgating the Order of June 21, 1962, denying the motion for
postponement of the scheduled sale at public auction, of the properties of
petitioner; and (2) whether the business name or trade name, franchise (right to
operate) and capital stocks of the petitioner are properties or property rights which
could be the subject of levy, execution and sale.
The respondent Court's act of postponing the scheduled sale was within the
discretion of respondent Judge, the exercise of which, one way or the other, did not
constitute grave abuse of discretion and/or excess of jurisdiction. There was a
decision rendered and the corresponding writ of execution was issued. Respondent
Judge had jurisdiction over the matter and erroneous conclusions of law or fact, if

any, committed in the exercise of such jurisdiction are merely errors of judgment,
not correctible by certiorari (Villa Rey Transit v. Bello, et al., L-18957, April 23,
1963, and cases cited therein.)
The corporation law, on forced sale of franchises, provides
Any franchise granted to a corporation to collect tolls or to occupy, enjoy, or
use public property or any portion of the public domain or any right of way
over public property or the public domain, and any rights and privileges
acquired under such franchise may be levied upon and sold under execution,
together with the property necessary for the enjoyment, the exercise of the
powers, and the receipt of the proceeds of such franchise or right of way, in
the same manner and with like effect as any other property to satisfy any
judgment against the corporation: Provided, That the sale of the franchise or
right of way and the property necessary for the enjoyment, the exercise of
the powers, and the receipt of the proceeds of said franchise or right of way
is especially decreed and ordered in the judgment: And provided, further,
That the sale shall not become effective until confirmed by the court after
due notice. (Sec. 56, Corporation Law.)
In the case of Gulf Refining Co. v. Cleveland Trust Co., 108 So., 158, it was held
The first question then for decision is the meaning of the word "franchise" in
the statute.
"A franchise is a special privilege conferred by governmental authority,
and which does not belong to citizens of the country generally as a
matter of common right. ... Its meaning depends more or less upon
the connection in which the word is employed and the property and
corporation to which it is applied. It may have different significations.
"For practical purposes, franchises, so far as relating to corporations,
are divisible into (1) corporate or general franchises; and (2) special or
secondary franchises. The former is the franchise to exist as a
corporation, while the latter are certain rights and privileges conferred
upon existing corporations, such as the right to use the streets of a
municipality to lay pipes or tracks, erect poles or string wires." 2
Fletcher's Cyclopedia Corp. See. 1148; 14 C.J. p. 160; Adams v. Yazon
& M. V. R. Co., 24 So. 200, 317, 28 So. 956, 77 Miss. 253, 60 L.R.A.
33 et seq.
The primary franchise of a corporation that is, the right to exist as such, is
vested "in the individuals who compose the corporation and not in the
corporation itself" (14 C.J. pp. 160, 161; Adams v. Railroad, supra; 2
Fletcher's Cyclopedia Corp. Secs. 1153, 1158; 3 Thompson on Corporations
2d Ed.] Secs. 2863, 2864), and cannot be conveyed in the absence of a
legislative authority so to do (14A CJ. 543, 577; 1 Fletcher's Cyc. Corp. Sec.
1224; Memphis & L.R.R. Co. v. Berry 5 S. Ct. 299, 112 U.S. 609, 28 L.E.d.

837; Vicksburg Waterworks Co. v. Vicksburg, 26 S. Ct. 660, 202 U.S. 453, 50
L.E.d. 1102, 6 Ann. Cas. 253; Arthur v. Commercial & Railroad Bank, 9
Smedes & M. 394, 48 Am. Dec. 719), but the specify or secondary franchises
of a corporation are vested in the corporation and may ordinarily be
conveyed or mortgaged under a general power granted to a corporation to
dispose of its property (Adams v. Railroad, supra; 14A C.J. 542, 557; 3
Thompson on Corp. [2nd Ed.] Sec. 2909), except such special or secondary
franchises as are charged with a public use (2 Fletcher's Cyc. Corp. see.
1225; 14A C.J. 544; 3 Thompson on Corp. [2d Ed.] sec. 2908; Arthur v.
Commercial & R.R. Bank, supra; McAllister v. Plant, 54 Miss. 106).
The right to operate a messenger and express delivery service, by virtue of a
legislative enactment, is admittedly a secondary franchise (R.A. No. 3260, entitled
"An Act granting the JRS Business Corporation a franchise to conduct a messenger
and express service)" and, as such, under our corporation law, is subject to levy
and sale on execution together and including all the property necessary for the
enjoyment thereof. The law, however, indicates the procedure under which the
same (secondary franchise and the properties necessary for its enjoyment) may be
sold under execution. Said franchise can be sold under execution, when such sale is
especially decreed and ordered in the judgment and it becomes effective only when
the sale is confirmed by the Court after due notice (Sec. 56, Corp. Law). The
compromise agreement and the judgment based thereon, do not contain any
special decree or order making the franchise answerable for the judgment debt. The
same thing may be stated with respect to petitioner's trade name or business name
and its capital stock. Incidentally, the trade name or business name corresponds to
the initials of the President of the petitioner corporation and there can be no serious
dispute regarding the fact that a trade name or business name and capital stock are
necessarily included in the enjoyment of the franchise. Like that of a franchise, the
law mandates, that property necessary for the enjoyment of said franchise, can
only be sold to satisfy a judgment debt if the decision especially so provides. As We
have stated heretofore, no such directive appears in the decision. Moreover, a trade
name or business name cannot be sold separately from the franchise, and the
capital stock of the petitioner corporation or any other corporation, for the matter,
represents the interest and is the property of stockholders in the corporation, who
can only be deprived thereof in the manner provided by law (Therbee v. Baker, 35
N.E. Eq. [8 Stew.] 501, 505; In re Wells' Estate, 144 N.W. 174, 177, Wis. 294, cited
in 6 Words and Phrases, 109).
It, therefore, results that the inclusion of the franchise, the trade name and/or
business name and the capital stock of the petitioner corporation, in the sale of the
properties of the JRS Business Corporation, has no justification. The sale of the
properties of petitioner corporation is set aside, in so far as it authorizes the levy
and sale of its franchise, trade name and capital stocks. Without pronouncement as
to costs.