THIRD DIVISION
The "Second Party" named in the Agreement was none
[G.R. No. 135813. October 25, 2001.]
FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.
Pacifico M. Lontok and Arcangelita M. Romilla-Lontok for petitioner.
Benito P. Fabie for private respondents.
SYNOPSIS
On June 13, 1986, petitioner Fernando Santos, respondent Nieves Reyes and Meliton Zabat
launched a lending business venture. It was agreed that the petitioner as financier will receive 70%
of the profit while Nieves and Zabat as industrial partner will receive 15% each. Later, it was
discovered that Zabat engaged in the same lending business in competition with their partnership,
thus, he was expelled from the partnership. Arsenio, Nieves' husband, replaced Zabat. On June 5,
1987, petitioner filed a complaint for recovery of sum of money claiming that Spouses Arsenio and
Nieves Reyes in their capacities as employees misappropriated funds intended for Cesar Gragera.
In their answer, spouses Reyes asserted that they were partners and not mere employees of
petitioner. The complaint was filed to preempt and prevent them from claiming their rightful share to
the profits of the partnership. After trial, the court a quo ruled in favor of spouses Reyes. It further
ruled that petitioner failed to prove that he had entrusted any money to Nieves. Thus, it granted
spouses Reyes' counterclaim for their share in the partnership and for damages. On appeal, the
decision of the trial court was affirmed by the Court of Appeals (CA). Hence, this petition for review.
EHTCAa
The Court ruled that 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. 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. This stipulation clearly proved
the establishment of a partnership. However, after a close examination of respondent's exhibits, the
Court found a reason to disagree with the CA. Exhibit "10-I" showed that the partnership earned a
"total income" of P20,429,520 for the period June 13, 1986 until April 19, 1987. It did not consider
the expenses sustained by the partnership. 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." Contrary to the rulings of both the trial and the appellate courts, respondents' exhibits
did 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.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; DEFINED. — 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.
2. ID.; ID.; ID.; ESTABLISHED IN CASE AT BAR. — 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. This stipulation clearly proved the establishment of a partnership. . . . Nieves was
not merely petitioner's employee. She discharged her bookkeeping duties in accordance with
paragraphs 2 and 3 of the Agreement . . . .
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.
3. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL FINDINGS OF
THE COURT OF APPEALS AFFIRMING THOSE OF THE TRIAL COURT ARE BINDING AND
CONCLUSIVE ON THE SUPREME COURT. — 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. Although there are exceptions to this rule, petitioner has not satisfactorily shown that any of
them is applicable to this issue.
4. ID.; ID.; ID.; ID.; THE RULE MAY BE RELAXED WHEN THE ISSUE INVOLVES THE
EVALUATION OF EXHIBITS OR DOCUMENTS THAT ARE ATTACHED TO THE CASE RECORDS.
— 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.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; TOTAL INCOME;
ELUCIDATED. — Exhibit "10-I" 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.
6. ID.; ID.; ID.; SHARE OF EACH PARTNER SHOULD BE BASED ON THE NET PROFIT. —
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. 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.
7. ID.; ID.; ID.; ID.; INDUSTRIAL PARTNER'S SHARE MUST COME FROM THE NET
PROFITS; INDUSTRIAL PARTNER DOES NOT SHARE IN THE LOSSES IF LATTER EXCEEDS
THE INCOME. — 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. DEcTCa
DECISION
PANGANIBAN, J p:
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:
IEAacT
"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 . . .
Nieves and Zabat would earn 15% each.
"In July, 1986, . . . 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'). . . . Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.
"On August 6, 1986, [petitioner], . . . [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 . . . Nieves to be given to Gragera. . . . 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.
". . . 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, . . . 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 39.3.2. Six (6) percent of — As damages from August 3,
which Nieves deducted Gragera's commission. The commission would then be remitted to Gragera.
She likewise determined loan releases. P2,899,739.50 1987 until the P2,899,739.50 is

"During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] fully paid.
were employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for
39.3.3. P25,000.00 — As moral damages
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 39.3.4. P10,000.00 — As exemplary damages
Ruling of the Trial Court 39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere 39.4.1. P50,000.00 — As attorney's fees; and
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, 39.4.2 The cost of the suit." 8
respondents' counterclaim for their share in the partnership and for damages was granted. The trial
Ruling of the Court of Appeals
court disposed as follows:
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
"39. WHEREFORE, the Court hereby renders judgment as follows:
dismissed. Upon the latter's Motion for Reconsideration, however, the trial court's Decision was
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED. reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S.
REYES, the following: 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
39.2.1 P3,064,428.00 — The 15 percent share of the 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
[respondent] NIEVES S. REYES
Agreement with Gragera and petitioner and thus showed the parties' intention to consider it as a
in the profits of her joint venture 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.
with the [petitioner].
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000 which was
39.2.2. Six (6) percent of — As damages from August 3, 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-
P3,064,428.00 1987 until the P3,064,428.00 15DDDDDDDDDD") to keep track of his collections.
is fully paid. Hence, this Petition. 9
39.2.3. P50,000.00 — As moral damages Issue
39.2.4. P10,000.00 — As exemplary damages Petitioner asks this Court to rule on the following issues: 10
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO "Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to
REYES, the following: excess or lack of jurisdiction in:
39.3.1. P2,899,739.50 — The balance of the 15 percent 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;
share of the [respondent]
2. Affirming the findings of the trial court that the phrase 'Received by' on documents signed
ARSENIO REYES in the profits
by Nieves Reyes signified receipt of copies of the documents and not of the sums shown thereon;
of his joint venture with the
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;
[petitioner].
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for
delivery to Gragera;
5 Affirming the dismissal of Santos' [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents' counterclaim;
7. Denying Santos' motion for reconsideration dated September 11, 1998."
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties' relationship
was one of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of
money allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether
respondents were entitled to the partnership profits as determined by the trial court.
The Court's Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves
introduced Gragera to Santos did not make her a partner. She was only a witness to the Agreement
between the two. Separate from the partnership between petitioner and Gragera was that which
existed among petitioner, Nieves and Zabat, a partnership that was dissolved when Zabat was
expelled.
On the other hand, both the CA and the trial court rejected petitioner's contentions and ruled that the
business relationship was one of partnership. We quote from the CA Decision, as follows:
"[Respondents] were industrial partners of [petitioner]. . . . 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 . . . each be responsible in handling the collection of the loan
payments of the borrowers that they each solicited.
"3. That the bookkeeping and daily balancing of account of the business operation shall be
handled by the SECOND PARTY." 14
The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other hand,
Arsenio's duties as credit investigator are subsumed under the phrase "screening of prospective
borrowers." Because of this Agreement and the disbursement of monthly "allowances" and "profit
shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual finding of both courts that he
replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact that
it was formalized only after the Memorandum of Agreement had been signed by petitioner and
Gragera. Contrary to petitioner's contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6, 1986, or about a month
after the Memorandum had been signed by petitioner and Gragera on July 14, 1986. The Agreement
itself attests to this fact:
"WHEREAS, the parties have decided to formalize the terms of their business relationship in order
that their respective interests may be properly defined and established for their mutual benefit and
understanding." 15
Second Issue:
No Proof of Misappropriation of
Gragera's Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera's
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by
Exhibit "B" (the "Schedule of Daily Payments"), which bears her signature under the words "received
by." For the period July 1986 to March 1987, Gragera should have earned a total commission of
P4,282,429.30. However, only P3,068,133.20 was received by him. Thus, petitioner infers that she
misappropriated the difference of P1,214,296.10, which represented the unpaid commissions. Exhibit
"H" is an untitled tabulation which, according to him, shows that Gragera was also entitled to a
commission of P200,000, an amount that was never delivered by Nieves. 16
On this point, the CA ruled that Exhibits "B", "F", "E" and "H" did not show that Nieves received for
delivery to Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to
come, and that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA:
"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not clearly establish
that Nieves received amounts from Monte Maria's members. The document does not clearly state
what amounts the entries thereon represent. More importantly, Nieves made the entries for the limited
period of January 11, 1987 to February 17, 1987 only while the rest were made by Gragera's own
staff.
"Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment of the
remittance of commissions to Verona Gonzales. The document is a private one and its due execution
and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of
Court which states:
'SECTION 20. Proof of Private Document — Before any private document offered as authentic is
received in evidence, its due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
'Any other private document need only be identified as that which it is claimed to be.'
"The court a quo even ruled that the signature thereon was a forgery, as it found that:
'. . . . 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 . . . Nieves
received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the
document showed a liquidation of P240,000.00 and not P200,000.00.
"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were made by
Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the
loans, he took charge of the collections. As [petitioner's] representative, Nieves merely prepared the
daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to enable [petitioner] to keep track of
Gragera's operations. Gragera on the other hand devised the schedule of daily payment (Exhs. 'B'
and 'F') to record the projected gross daily collections.
"As aptly observed by the court a quo:
'26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA
[were] paid to him[,] that of NIEVES is more logical and practical and therefore, more believable.
SANTOS' version would have given rise to this improbable situation: GRAGERA would collect the
daily amortizations and then give them to NIEVES; NIEVES would get GRAGERA's commissions
from the amortizations and then give such commission to GRAGERA.'" 17
These findings are in harmony with the trial court's ruling, which we quote below:
"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00
for delivery to GRAGERA. Exh. H shows under its sixth column 'ADDITIONAL CASH' that the
additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by
SANTOS, then his claim is not true. This is so because it is a liquidation of the sum of P240,000.00.
"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to GRAGERA
when he received the latter's letter complaining of its delayed release. Assuming as true SANTOS'
claim that he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not
give it to GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not
even present the letter in evidence. He did not explain why he did not.
"21.2. The evidence shows that all money transactions of the money-lending business of SANTOS
were covered by petty cash vouchers. It is therefore strange why SANTOS did not present any
voucher or receipt covering the P200,000.00." 18
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions
before remitting his collections. Exhibits "B" and "F" are merely computations of what Gragera should
collect for the day; they do not show that Nieves received the amounts stated therein. Neither is there
sufficient proof that she misappropriated P200,000, because Exhibit "H" does not indicate that such
amount was received by her; in fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-
entrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial
court are binding and conclusive on the Supreme Court. 19 Although there are exceptions to this
rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents' claims on the profits of the partnership. He maintains
that "both business propositions were flops," as his investments were "consumed and eaten up by
the commissions orchestrated to be due Gragera" — a situation that "could not have been rendered
possible without complicity between Nieves and Gragera."
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she "signified to petitioner
that it was about time to get her share of the profits which had already accumulated to some P3
million." Respondents add that while the partnership has not declared dividends or liquidated its
earnings, the profits are already reflected on paper. To prove the counterclaim of Nieves, the spouses
show that from June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. "10" et seq.
and "15" et seq.). Based on that income, her 15 percent share under the joint venture amounts to
P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus the P30,000 which was already
advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").
The CA originally held that respondents' counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming
the trial court's ruling on the counterclaim, it held as follows:
"We earlier ruled that there is still need for an accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective shares of the partners. Upon a further review
of the records of this case, however, there appears to be sufficient basis to determine the amount of
shares of the parties and damages incurred by [respondents]. The fact is that the court a quo already
made such a determination [in its] decision dated August 13, 1991 on the basis of the facts on record."
20
The trial court's ruling alluded to above is quoted below:
"27. The defendants' counterclaim for the payment of their share in the profits of their joint
venture with SANTOS is supported by the evidence.
"27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs.
5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations from
June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3) and
ARSENIO, about P2,926,000.00, in the profits.
"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending business he was
engaged in netted a profit and that the originals of the daily case flow reports were furnished to him.
SANTOS however alleged that the money-lending operation of his joint venture with NIEVES and
ZABAT resulted in a loss of about half a million pesos to him. But such loss, even if true, does not
negate NIEVES' claim that overall, the joint venture among them — SANTOS, NIEVES and
ARSENIO — netted a profit. There is no reason for the Court to doubt the veracity of [the testimony
of] NIEVES.
"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A
and 6-B) should be deducted from his total share." 21
After a close examination of respondents' exhibits, we find reason to disagree with the CA. Exhibit
"10-I" 22 shows that the partnership earned a "total income" of P20,429,520 for the period June 13,
1986 until April 19, 1987. This entry is derived from the sum of the amounts under the following
column headings: "2-Day Advance Collection," "Service Fee," "Notarial Fee," "Application Fee," "Net
Interest Income" and "Interest Income on Investment." Such entries represent the collections of the
money-lending business or its gross income. SEACTH
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 16. Petitioner claims that Nieves embezzled P1,555,068.70 from the partnership (rollo, p. 12),
AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are the amount broken down as follows:
REVERSED and SET ASIDE. No costs.
P1,214,296.10 — unpaid commission due Gragera (Exh. "C-1")
SO ORDERED.
140,772.60 — unpaid commission for the two-day advance
Melo and Sandoval-Gutierrez, JJ., concur.
payment of clients (Exh. "C-11")
Vitug, J., is on official leave.
200,000.00 — cash actually delivered by petitioner to
Footnotes
Nieves (Exh. "H")
1. First Division, composed of JJ. Fidel P. Purisima, chairman; Corona Ibay-Somera, member;
and Oswaldo D. Agcaoili, member and ponente. 17. CA Decision, pp. 10-11; rollo, pp. 94-95.

2. Special Former First Division, composed of JJ. Quirino D. Abad Santos Jr., chairman (vice 18. RTC Decision, p. 12; rollo, p. 78.
J. Purisima); Ibay-Somera and Agcaoili.
19. National Steel Corp. v. Court of Appeals, 283 SCRA 45, 66, December 12, 1997; Fuentes
3. CA Decision, p. 12; rollo, p. 96. v. Court of Appeals, 268 SCRA 703, 708-709, February 26, 1997; Sps. Lagandaon v. Court of
Appeals, 290 SCRA 330, 341, May 21, 1998.
4. CA Resolution, p. 3; rollo, p. 241.
20. CA Resolution, p. 2; rollo, p. 240.
5. Rollo, p. 128.
21. RTC Decision, p. 14; rollo, p. 80.
6. Referred to by petitioner in his Memorandum (p. 4) as "Monte Maria Community
Development Group, Inc." 22. "Daily Interest Income & Other Income Control," Folder II, Records.

7. CA Decision, pp. 2-4; rollo, 86-88. 23. Folder I, Records.

8. RTC Decision, pp. 16-17; rollo, pp. 82-83. 24. Folder II, Records.

9. On November 4, 1999, the Court received the Memorandum for the Respondents, signed 25. Criado v. Gutierrez Hermanos, 37 Phil. 883, 894-895, March 23, 1918; and Moran Jr. v.
by Atty. Benito P. Fabie. Petitioner's Memorandum, signed by Atty. Arcangelita M. Romilla-Lontok, Court of Appeals, 133 SCRA 88, 96, October 31, 1984.
was received on October 20, 1999. In its October 27, 1999 Resolution, this Court required the CA to
26. Fuentes v. CA, supra at 709.
explain the discrepancy in the copies of the August 17, 1998 Resolution received by the parties and
to furnish it with an authentic copy thereof. The CA complied on November 12, 1999, the date on
which this case was deemed submitted for resolution.

10. Memorandum for the Petitioner, pp. 7-8; rollo, pp. 180-181.

11. CA Decision, pp. 7-8; rollo, pp. 91-92.

12. Art. 1767, Civil Code. The essential elements of a partnership are as follows: (1) an
agreement to contribute money, property or industry to a common fund; and (2) an intent to divide
the profits among the contracting parties. Vitug, Compendium of Civil Law & Jurisprudence, 1993
rev. ed., p. 707; Fue Leung v. Intermediate Appellate Court, 169 SCRA 746, 754, January 31, 1989;
and Evangelista v. Collector of Internal Revenue, 102 Phil. 140, 144, October 15, 1957.

13. Par. 4, Articles of Agreement, Annex "D"; rollo, p. 56.

14. Annex "D" of the Petition; rollo, p. 56.

15. Annex "D" of the Petition; rollo, p. 56.

EN BANC
[G.R. No. L-12541. August 28, 1959.]
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants, vs. YANG
CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
SYLLABUS
1. TRIAL; ABSENCE OF ONE PARTY PURSUANT TO AGREEMENT; EFFECT ON
JUDGMENT. — If the parties to a case agreed to postpone the trial of the same in view of a probable
amicable settlement, neither of them can take advantage of the other's absence in the hearing by
appearing therein and adducing evidence in his favor. The judgment rendered by the Court based
on such evidence should, in the interest of justice be set aside.
2. CONTRACTS; LEASE; CIRCUMSTANCES THAT NEGATE PARTNERSHIP. — Where
one of the parties to a contract does not contribute the capital he is supposed to contribute to a
common fund; does not furnish any help or intervention in the management of the business subject
of the contract; does not demand from the other party an accounting of the expenses and earnings
of the business; and is absolutely silent with respect to any of the acts that a partner should have
done, but, on the other hand, receives a fixed monthly sum from the other party, there can be no
other conclusion than that the contract between the parties is one of lease and not of partnership.
DECISION
LABRADOR, J p:
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 plaintiff
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 egrees of patrons of the theatre;
(4) that after December 31, 1947, all improvements placed by the partnership shall belong to Mrs.
Yulo, but that 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 in the
Court of First Instance of Manila on July 3, 1949 to declare the lease of the premises one for an
indefinite period. On August 17, 1949, the owners on their part brought an action in the Municipal
Court of Manila against Mrs. Yulo and her husband and Yang Chiao Seng to eject them from 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 to her the amount agreed upon, Mrs. Yulo instituted this action
on May 26, 1954, alleging the existence of a partnership between them, and that 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 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 P300 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 profits 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 one of partnership but one of 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 fund that the said lobby was a 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 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.
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 one 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.
Paras, C.J., Padilla, Bautista Angelo, Endencia and Barrera, JJ., concur.

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 the parties had 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 defendant-appellee to prove that the relation between him and the plaintiff
is one of 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
SECOND DIVISION
[G.R. No. 126881. October 3, 2000.]
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET LUMBER
COMPANY, represented by its President TAN ENG LAY, respondents.
Soo Gutierrez Leogardo & Lee for petitioners.
Francisco S. Reyes Law Office for private respondents.
SYNOPSIS
Petitioners, Heirs of Tan Eng Kee, filed a complaint for accounting of partnership assets, dissolution
and the equal division of the net assets of Benguet Lumber, later incorporated as "Benguet Lumber
Company" which was allegedly a partnership entered into and managed by their father, Tan Eng
Kee, and Tan Eng Lay. Tan Eng Lay, however, countered that he had his business and his brother
(Tan Eng Kee) had his, and that it was only later on that Tan Eng Kee came to work for him as an
employee.
The court a quo declared that Tan Eng Kee and Tan Eng Lay were joint adventurers and/or partners
and ruled that petitioners-heirs of the deceased Tan Eng Kee, had a right to share in the company's
assets. The CA, however, ruled that there was no partnership since Benguet Lumber was a sole
proprietorship, and that Tan Eng Kee was only an employee thereof.
While as a rule, the Supreme Court cannot entertain inquiries relative to the correctness of the
assessment of the evidence by the court a quo, the Supreme Court examined the record to determine
if the reversal was justified.
The Supreme Court concluded that Tan Eng Kee was only an employee, not a partner, because: Tan
Eng Lay directly controverted testimonies of petitioners' witnesses that Tan Eng Kee contributed
resources to a common fund to establish a partnership; despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting; payrolls show that Tan Eng Kee
was an ordinary employee of Benguet Lumber who received wages; petitioners failed to show how
much share in the profits of the company, if any, their father Tan Eng Kee, received for any particular
period.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL UNDER RULE 45; RULE WHEN
FACTUAL FINDINGS OF THE COURT OF APPEALS AND THE COURT A QUO ARE
CONFLICTING. — As can be seen, the appellate court disputed and differed from the trial court
which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint
venture. In this connection, we have held that whether a partnership exists is a factual matter;
consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative
to the correctness of the assessment of the evidence by the court a quo. Inasmuch as the Court of
Appeals and the trial court had reached conflicting conclusions, perforce we must examine the record
to determine if the reversal was justified.
2. CIVIL LAW; CIVIL CODE; SPECIAL CONTRACTS; PARTNERSHIP; PROOF REQUIRED
TO ESTABLISH A PARTNERSHIP. — In order to constitute a partnership, it must be established
that (1) two or more persons bound themselves to contribute money, property, or industry to a
common fund, and (2) they intend to divide the profits among themselves. The agreement need not
be formally reduced into writing, since statute allows the oral constitution of a partnership, save in
two instances: (1) when immovable property or real rights are contributed, and (2) when the
partnership has a capital of three thousand pesos or more. In both cases, a public instrument is
required. 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. TEcHCA
3. ID.; ID.; ID.; ID.; ID.; CIRCUMSTANCES INDICATING TAN ENG KEE WAS AN
EMPLOYEE, NOT A PARTNER IN CASE AT BAR. — 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. . . . Besides, it is indeed odd, if not unnatural, that despite the
forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting.
The essence of a partnership is that the partners share in the profits and losses. Each has the right
to demand an accounting as long as the partnership exists. . . . Exhibits "4" to "4-U" . . . shows that
Tan Eng Kee received sums as wages of an employee. . . . 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.
DECISION
DE LEON, JR., J p:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision 1 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: SICaDA
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.
The facts are: THacES
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 n/et 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. DCASEc
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.
Hence, the present petition. HTCESI
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 We note that the Court a quo over extended the issue because while the plaintiffs mentioned only
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 [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:
(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:
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. AEScHa
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. DTaSIc
Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written.
However, if it involves real property or where the capital is P3,000.00 or more, the execution of a
contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test
of the partnership. The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the testimonial
evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had adjudged
that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection,
we have held that whether a partnership exists is a factual matter; consequently, since the appeal is
brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the
assessment of the evidence by the court a quo. 13 Inasmuch as the Court of Appeals and the trial
court had reached conflicting conclusions, perforce we must examine the record to determine if the
reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide
the profits among themselves. 15 The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two instances: (1) when immovable
property or real rights are contributed, 16 and (2) when the partnership has a capital of three thousand
pesos or more. 17 In both cases, a public instrument is required. 18 An inventory to be signed by the
parties and attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to the partnership. 19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which
it said is akin to a particular partnership. 20 A particular partnership is distinguished from a joint
adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating merchants
can transact business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of years; a
partnership generally relates to a continuing business of various transactions of a certain kind. 21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners,
in which each party has an equal proprietary interest in the capital or property contributed, and where
each party exercises equal rights in the conduct of the business." 22 Nonetheless, in Aurbach, et. al.
v. Sanitary Wares Manufacturing Corporation, et. al., 23 we expressed the view that a joint venture
may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their
elements are similar — community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95
P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The
main distinction cited by most opinions in common law jurisdiction is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App.
170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266
Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine
law, a joint venture is a form of partnership and should thus be governed by the law of partnerships.
The Supreme Court has however recognized a distinction between these two business forms, and
has held that although a corporation cannot enter into a partnership contract, it may however engage
in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos, Comments, Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. The alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented
the parties from complying with the provisions of the New Civil Code when it took effect on August
30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether
a partnership existed based purely on circumstantial evidence. A review of the record persuades us
that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented
by petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could
have expounded on the precise nature of the business relationship between them. In the absence of
evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership. The testimonies to that
effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted that it is
not with the number of witnesses wherein preponderance lies; 24 the quality of their testimonies is
to be considered. None of petitioners' witnesses could suitably account for the beginnings of Benguet
Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo. 25 He stated that when he met Tan Eng Kee after the liberation, the latter asked the former
to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. 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
[italics 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: AHaDSI
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: TCacIA
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 5. Records, p. 130.
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 6. Records, pp. 632-647.
Eng Kee was a partner.
7. Rollo, pp. 148-159.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this
8. Rollo, p. 173.
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 9. Rollo, pp. 412-419.
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. 10. Brusas v. Court of Appeals, 313 SCRA 176, 188 (1999); Guerrero v. Court of Appeals, 285
SCRA 670, 678 (1998); Atillo III v. Court of Appeals, 266 SCRA 596, 605-606 (1997); Mallari v. Court
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection of Appeals, 265 SCRA 456, 461 (1996).
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 11. 1997 RULES OF CIVIL PROCEDURES, Rule 45, Sec. 1.
with respect to certain matters which, in no way indicates that they are partners as to each other. 35
12. Fuentes v. Court of Appeals, 268 SCRA 703, 708-709 (1997).
In the instant case, we find private respondent's arguments to be well-taken. Where circumstances
13. Cf . Alicbusan v. Court of Appeals, 269 SCRA 336, 340-341 (1997).
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' 14. CIVIL CODE, Art. 1767.
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 15. Yulo v. Yang Chiao Seng, 106 Phil. 110, 116 (1959).
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 16. CIVIL CODE, Art. 1771.
have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet
17. CIVIL CODE, Art. 1772.
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 18. Note, however, Article 1768 of the Civil Code which provides: "The partnership has a
duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not juridical personality separate and distinct from that of each of the partners, even in case of failure to
provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and comply with the requirements of Article 1772, first paragraph."
duties of a manager, even in a business organized and run as informally as Benguet Lumber
Company. 19. CIVIL CODE, Art. 1773.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak 20. "A particular partnership has for its object determinate things, their use or fruits, or a specific
of. Hence, the petition must fail. undertaking, or the exercise of a profession or vocation." (CIVIL CODE, Art. 1783)

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is 21. V.E. PARAS, CIVIL CODE OF THE PHILIPPINES ANNOTATED 546 (13th ed., 1995).
hereby AFFIRMED in toto. No pronouncement as to costs.
22. Sevilla v. Court of Appeals, 160 SCRA 171, 181 (1988).
SO ORDERED.
23. 180 SCRA 130, 146-147 (1989).
Bellosillo, Mendoza, Quisumbing and Buena, JJ., concur.
24. REVISED RULES ON EVIDENCE, Rule 133, Sec. 1.
Footnotes
25. TSN, June 23, 1990, p. 9.
1. Rollo, pp. 129-147.
26. TSN, January 28, 1993, p. 85.
2. Justice Bernardo LL. Salas, ponente, with Justices Pedro A. Ramirez and Ma. Alicia Austria-
Martinez, concurring. 27. TSN, July 1, 1993, p. 13; TSN, July 8, 1993, p. 4.

28. Navarro v. Court of Appeals, 222 SCRA 675, 679 (1993); CIVIL CODE, Art. 1769.
3. Records, pp. 1-4.
29. Moran v. Court of Appeals, 133 SCRA 88, 95 (1984).
4. Records, pp. 123-126.
30. Fue Lung v. Intermediate Appellate Court, 169 SCRA 746, 755 (1989).

31. Id., at 754.

32. 1997 RULES OF CIVIL PROCEDURE, Rule 131, Sec. 3, Par. (d).

33. Yulo v. Yang Chiao Seng, 106 Phil. 110, 117 (1959).

34. Estanislao, Jr. vs. Court of Appeals, 160 SCRA 830, 837 (1988).

35. Private Respondent's Memorandum, Rollo, p. 390.

36. Evangelista, et. al. v. Collector of Internal Revenue, et al., 102 Phil. 141, 146 (1957).
THIRD DIVISION
[G.R. No. 109248. July 3, 1995.]
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO,
petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA, respondents.
Bito, Lozada, Ortega & Castillo for petitioners.
Misa Law Offices and Adrian Sison for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; PARTNERSHIP AT WILL; DISSOLUTION, ELUCIDATED. — A
partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly
belabored. The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each partner's capability to give it, and the absence of
a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that
the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages. In passing, neither would the presence of a period for its specific duration or
the statement of a particular purpose for its creation prevent the dissolution of any partnership by an
act or will of a partner. Among partners, mutual agency arises and the doctrine of delectus personae
allows them to have the power, although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a possible action for damages. The
dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing
to be associated in the carrying on, as might be distinguished from the winding up of, the business.
Upon its dissolution, the partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination. The liquidation of the assets of the
partnership following its dissolution is governed by various provisions of the Civil Code, however, an
agreement of the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. And here, the term
"retirement" must have been used in the Articles of Partnership in a generic sense to mean the
dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
2. ID.; ID.; ID.; ID.; WITHDRAWAL OF PARTNER; BAD FAITH, NOT PRESENT. — Attorney
Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be right, to let any of the partners remain in
the partnership under such an atmosphere of animosity; certainly, not against their will. Indeed, for
as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness,
nor for the purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be
said to characterize the act. Bad faith, in the context here used, is no different from its normal concept
of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
DECISION
VITUG, J p:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26
February 1993, in CA-G. R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and
Exchange Commission ("SEC") in SEC AC 254. cdasia
The antecedents of the controversy, summarized by respondent Commission and quoted at length
by the appellate court in its decision, are hereunder restated.
"The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the
Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange
Commission on 4 August 1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA;
on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO MISA & LOZADA; on 11 March 1977 to
DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O.
del Castillo, Jr., and Benjamin Bacorro, as junior partners.
"On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating: cdta
'"I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this
month.
I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm.'
"On the same day, petitioner-appellant wrote respondents-appellees another letter stating: cdtai
'"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would
like to have this resolved soon because it has to do with my own plans.'
"On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory of the working conditions of our employees
including the assistant attorneys. All my efforts to ameliorate the below subsistence level of the pay
scale of our employees have been thwarted by the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in
a manner that deprived them of their self-respect. The result of such policies is the formation of the
union, including the assistant attorneys.'
"On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case
No. 3384 praying that the Commission:
'"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of)
Bito, Misa & Lozada; cdta
'2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus
the profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership;
'3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof despite
the dissolution of the partnership in the amount of at least P50,000.00;
'4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of
litigation in such amounts as may be proven during the trial and which the Commission may deem
just and equitable under the premises but in no case less than ten (10%) per cent of the value of the
shares of petitioner of P100,000.00; cdta
'5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00
and exemplary damages in the amount of P200,000.00.
'Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises.'
"On 13 July 1988, respondents-appellees filed their opposition to the petition. aisadc
"On 13 July 1988, petitioner filed his Reply to the Opposition.
"On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the liquidation of the shares of any
retiring or withdrawing partner in the partnership interest.'" 1 aisadc
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal
of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such
as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced
to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
"WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED
insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case
is hereby REMANDED to the Hearing Officer for determination of the respective rights and obligations
of the parties." 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of
the winding up of its affairs. On 04 April 1991, respondent SEC issued an order denying
reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the
case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G. R. SP No. 24638 and
CA-G. R. SP No. 24648). LibLex
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the
two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to
renew his application for receivership (in CA G. R. SP No. 24648). He expressed concern over the
need to preserve and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED
in toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision
of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation
of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was
not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or
participation in the partnership which could be computed and paid in the manner stipulated in the
partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e)
that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate
that the partnership assets were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues: cdt
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa
& Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand
for the dissolution of the partnership so that he can get a physical partition of partnership was not
made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves. cdt
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly
belabored. We quote, with approval, like did the appellate court, the findings and disquisition of
respondent SEC on this matter, viz:
"The partnership agreement (amended articles of 19 August 1948) does not provide for a specified
period or undertaking. The 'DURATION' clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon
the death or legal incapacity of one of the partners, shall be continued by the surviving partners.'
"The hearing officer however opined that the partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
cdt
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser
and representative of any individual, firm and corporation engaged in commercial, industrial or other
lawful businesses and occupations; to counsel and advise such persons and entities with respect to
their legal and other affairs; and to appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines, and elsewhere when legally
authorized to do so.'
"The 'purpose' of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will
as none would so exist. Apparently what the law contemplates, is a specific undertaking or 'project'
which has a definite or definable period of completion." 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate
a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance
of bad faith can prevent the dissolution of the partnership 4 but that it can result in a liability for
damages. 5
In passing, neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows
them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages. LLpr
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i. e., that Attorney Misa did not act in bad faith. Public
respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners remain in the partnership under
such an atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long as the reason
for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose
of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize
the act. Bad faith, in the context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs. cdt
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.
Footnotes
1. Rollo, pp. 53-56.
2. Rollo, p. 122.

The dissolution of a partnership is the change in the relation of the parties caused by any partner 3. Rollo, pp. 119-120. cdt
ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the
4. Art. 1830 (1) (b), Civil Code.
business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until
the complete winding up of its business culminating in its termination. 9 5. See Art. 19, Civil Code.
The liquidation of the assets of the partnership following its dissolution is governed by various 6. Art. 1830 (2), Civil Code; see also Rojas vs. Maglana, 192 SCRA 110.
provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent applicable over the Code's general 7. As general, as distinguished from limited partners.
provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading
thusly: 8. Art. 1828, Civil Code. cdt

". . . In the event of the death or retirement of any partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing agreements and his partnership participation shall
revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village,
Makati, Metro Manila, their true value at the time of such death of retirement shall be determined by
two (2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them whose decision shall be final.
The share of the retiring or deceased partner in the aforementioned two (2) floor office condominium
shall be determined upon the basis of the valuation above mentioned which shall be paid monthly
within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior
Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the
new Junior Partner." 11 cdt
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
9. Art. 1829, Civil Code.
10. For instance, Art. 1837 of the Civil Code provides:
"ART. 1837. When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all persons claiming through
them in respect of their interests in the partnership, unless otherwise agreed, may have the
partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net
amount owning to the respective partners. But if dissolution is caused by expulsion of a partner, bona
fide under the partnership agreement and if the expelled partner is discharged from all partnership
liabilities, either by payment or agreement under the second paragraph of Article 1835, he shall
receive in cash only the net amount due him from the partnership."
11. Rollo, pp. 69-70.
12. Rojas v. Maglana, supra.
FIRST DIVISION After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted
merely as guarantor of Geminesse Enterprise. This was categorically affirmed by respondent's own
[G.R. No. 127405. September 20, 2001.] witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was
Peter Lo who was the company's financier. Thus:
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A.
ANAY, respondents. Q You mentioned a while ago the name William Belo. Now, what is the role of William Belo
with Geminesse Enterprise?
Fortunato M. Lira for petitioners.
A William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.
Rodolfo D. Mapile for private respondent.
Q What do you mean by guarantor?
SYNOPSIS
A He guarantees the stocks that she owes somebody who is Peter Lo and he acts as
The issue here is the presence of a partnership between petitioner Belo and respondent Anay which,
guarantor for us. We can borrow money from him.
after review of the evidence, the Court was convinced that Belo acted merely as guarantor of
Geminesse Enterprise, not a partner thereof. It was petitioner Tocao and Anay who had an informal Q You mentioned a certain Peter Lo. Who is this Peter Lo?
partnership occasionally participated by Belo but never in an official capacity. Further, Belo never
participated in the profits. Hence, not being a partner in Geminesse Enterprise, Anay had no cause A Peter Lo is based in Singapore.
of action against Belo and the complaint against Belo should be dismissed. With regard to the stocks
held by respondent Anay, failure to account for the same is not considered by the Court as bad faith Q What is the role of Peter Lo in the Geminesse Enterprise?
and a bar to respondent's claim for damages to the extent of its value. It was justified as security for
A He is the one fixing our orders that open the L/C.
respondent's claims against the partnership that suddenly ousted her. The value of said stocks
should be deducted from whatever amount is finally adjudged to respondent after formal accounting Q You mean Peter Lo is the financier?
of the partnership affairs. IDSEAH
A Yes, he is the financier.
SYLLABUS
Q And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am
1. REMEDIAL LAW; CIVIL PROCEDURE; MOTION FOR RECONSIDERATION; POWER OF I correct?
THE COURT TO REVERSE ITSELF. — The inherent powers of a Court to amend and control its
processes and orders so as to make them conformable to law and justice includes the right to reverse A Yes, sir 2
itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that
The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled
to adhere to its decision will cause injustice to a party litigant.
that the business relationship created between petitioner Tocao and respondent Anay was an
2. CIVIL PROCEDURE; PARTNERSHIP; NOT PRESENT IN THE ABSENCE OF informal partnership, which was not even recorded with the Securities and Exchange Commission.
PARTICIPATION IN PROFITS. — No evidence was presented to show that petitioner Belo As such, it was understandable that Belo, who was after all petitioner Tocao's good friend and
participated in the profits of the business enterprise. With no participation in the profits, petitioner confidante, would occasionally participate in the affairs of the business, although never in a formal
Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the or official capacity. 3 Again, respondent's witness, Elizabeth Bantilan, confirmed that petitioner Belo's
profits and losses. presence in Geminesse Enterprise's meetings was merely as guarantor of the company and to help
petitioner Tocao. 4
RESOLUTION
Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the
YNARES-SANTIAGO, J p: business enterprise. Respondent herself professed lack of knowledge that petitioner Belo received
any share in the net income of the partnership. 5 On the other hand, petitioner Tocao declared that
The inherent powers of a Court to amend and control its processes and orders so as to make them
petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise. 6 With no
conformable to law and justice includes the right to reverse itself, especially when in its honest opinion
participation in the profits, petitioner Belo cannot be deemed a partner since the essence of a
it has committed an error or mistake in judgment, and that to adhere to its decision will cause injustice
partnership is that the partners share in the profits and losses. 7
to a party litigant. 1
Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for
had no cause of action against him and her complaint against him should accordingly be dismissed.
Reconsideration of our Decision dated October 4, 2000. They maintain that there was no partnership
between petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other hand; and
that the latter being merely an employee of petitioner Tocao.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith
for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and that,
accordingly, her claim for damages should be barred to that extent. We do not agree. Given the
circumstances surrounding private respondent's sudden ouster from the partnership by petitioner
Tocao, her act of withholding whatever stocks were in her possession and control was justified, if
only to serve as security for her claims against the partnership. However, while we do not agree that
the same renders private respondent in bad faith and should bar her claim for damages, we find that
the said sum of P208,250.00 should be deducted from whatever amount is finally adjudged in her
favor on the basis of the formal account of the partnership affairs to be submitted to the Regional
Trial Court.

WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY
GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the complaint,
docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The sum of
P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be held liable
to pay respondent after the formal accounting of the partnership affairs.

SO ORDERED.

Davide, Jr., C.J., Kapunan and Pardo, JJ., concur.

Puno, J., is on official leave.

Footnotes

1. Vitarich Corporation v. National Labor Relations Commission, G.R. No. 121905, 20 May
1999, citing Astraquillo v. Javier, L-20034, January 26, 1965, 13 SCRA 125.

2. T.S.N., 25 June 1990, pp. 22-23.

3. See T.S.N., 26 June 1989, p. 25; 28 June 1991, pp. 15-17 and 28 October 1991, pp. 29-31.

4. See T.S.N., 25 June 1990, pp. 23-24.

5. See T.S.N., 26 June 1989, p. 25.

6. See T.S.N., 28 October 1991, p. 31.

7. Heirs of Tan Eng Kee v. Court of Appeals, G.R. No. 126881, 3 October 2000, citing Moran
v. Court of Appeals, 133 SCRA 88, 95 (1984).