G.R. No.

L-45425 April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

Guillermo B. Reyes for appellants.

Office of the Solicitor-General Tuason for appellee.

IMPERIAL, J.:

The plaintiff brought this action to recover from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal interest thereon, which they paid under
protest by way of income tax. They appealed from the decision rendered in the
case on October 23, 1936 by the Court of First Instance of the City of Manila, which
dismissed the action with the costs against them.

The case was submitted for decision upon the following stipulation of facts:

Come now the parties to the above-mentioned case, through their respective
undersigned attorneys, and hereby agree to respectfully submit to this
Honorable Court the case upon the following statement of facts:

1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and
that defendant is the Collector of Internal Revenue of the Philippines;

2. That prior to December 15, 1934 plaintiffs, in order to enable them to

purchase one sweepstakes ticket valued at two pesos (P2), subscribed and
paid therefor the amounts as follows:

1. Jose Gatchalian
P0.18
....................................................................................................
2. Gregoria Cristobal
.18
...............................................................................................
3. Saturnina Silva
.08
....................................................................................................
4. Guillermo Tapia
.13
...................................................................................................
5. Jesus Legaspi
.15
......................................................................................................
6. Jose Silva
.07
.............................................................................................................
7. Tomasa Mercado
.08
................................................................................................
8. Julio Gatchalian
.13
...................................................................................................
9. Emiliana Santiago
.13
................................................................................................
10. Maria C. Legaspi .16
...............................................................................................
11. Francisco Cabral
.13
...............................................................................................
12. Gonzalo Javier
.14
....................................................................................................
13. Maria Santiago
.17
...................................................................................................
14. Buenaventura Guzman
.13
......................................................................................
15. Mariano Santos
.14
.................................................................................................
Total
........................................................................................................ 2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs

purchased, in the ordinary course of business, from one of the duly
authorized agents of the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and that the said ticket
was registered in the name of Jose Gatchalian and Company;

4. That as a result of the drawing of the sweepstakes on December 15, 1934,

the above-mentioned ticket bearing No. 178637 won one of the third prizes in
the amount of P50,000 and that the corresponding check covering the above-
mentioned prize of P50,000 was drawn by the National Charity Sweepstakes
Office in favor of Jose Gatchalian & Company against the Philippine National
Bank, which check was cashed during the latter part of December, 1934 by
Jose Gatchalian & Company;

5. That on December 29, 1934, Jose Gatchalian was required by income tax
examiner Alfredo David to file the corresponding income tax return covering
the prize won by Jose Gatchalian & Company and that on December 29,
1934, the said return was signed by Jose Gatchalian, a copy of which return
is enclosed as Exhibit A and made a part hereof;

6. That on January 8, 1935, the defendant made an assessment against

Jose Gatchalian & Company requesting the payment of the sum of
P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to
said Jose Gatchalian & Company until January 20, 1935 within which to pay
the said amount of P1,499.94, a copy of which letter marked Exhibit B is
enclosed and made a part hereof;

7. That on January 20, 1935, the plaintiffs, through their attorney, sent to
defendant a reply, a copy of which marked Exhibit C is attached and made a
part hereof, requesting exemption from payment of the income tax to which
reply there were enclosed fifteen (15) separate individual income tax returns
filed separately by each one of the plaintiffs, copies of which returns are
attached and marked Exhibit D-1 to D-15, respectively, in order of their
names listed in the caption of this case and made parts hereof; a statement
of sale signed by Jose Gatchalian showing the amount put up by each of the
plaintiffs to cover up the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose Gatchalian dated
December 29, 1934 is attached and marked Exhibit F and made part thereof;

8. That the defendant in his letter dated January 28, 1935, a copy of which
marked Exhibit G is enclosed, denied plaintiffs' request of January 20, 1935,
for exemption from the payment of tax and reiterated his demand for the
payment of the sum of P1,499.94 as income tax and gave plaintiffs until
February 10, 1935 within which to pay the said tax;

9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand made by
defendant upon the plaintiffs through their attorney on March 23, 1935, a
copy of which marked Exhibit H is enclosed, defendant on May 13, 1935
issued a warrant of distraint and levy against the property of the plaintiffs, a
copy of which warrant marked Exhibit I is enclosed and made a part hereof;

10. That to avoid embarrassment arising from the embargo of the property of
the plaintiffs, the said plaintiffs on June 15, 1935, through Gregoria Cristobal,
Maria C. Legaspi and Jesus Legaspi, paid under protest the sum of P601.51
as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan,
as evidenced by official receipt No. 7454879 which is attached and marked
Exhibit J and made a part hereof, and requested defendant that plaintiffs be
allowed to pay under protest the balance of the tax and penalties by monthly
installments;

11. That plaintiff's request to pay the balance of the tax and penalties was
granted by defendant subject to the condition that plaintiffs file the usual bond
secured by two solvent persons to guarantee prompt payment of each
installments as it becomes due;

12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked
Exhibit K is enclosed and made a part hereof, to guarantee the payment of
the balance of the alleged tax liability by monthly installments at the rate of
P118.70 a month, the first payment under protest to be effected on or before
July 31, 1935;

13. That on July 16, 1935 the said plaintiffs formally protested against the
payment of the sum of P602.51, a copy of which protest is attached and
marked Exhibit L, but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund of the plaintiffs;

14. That, in view of the failure of the plaintiffs to pay the monthly installments
in accordance with the terms and conditions of bond filed by them, the
defendant in his letter dated July 23, 1935, copy of which is attached and
marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to
execute within five days the warrant of distraint and levy issued against the
plaintiffs on May 13, 1935;

15. That in order to avoid annoyance and embarrassment arising from the
levy of their property, the plaintiffs on August 28, 1936, through Jose
Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid
under protest to the municipal treasurer of Pulilan, Bulacan the sum of
P1,260.93 representing the unpaid balance of the income tax and penalties
demanded by defendant as evidenced by income tax receipt No. 35811
which is attached and marked Exhibit N and made a part hereof; and that on
 September 3, 1936, the plaintiffs formally protested to the defendant against
the payment of said amount and requested the refund thereof, copy of which
is attached and marked Exhibit O and made part hereof; but that on
September 4, 1936, the defendant overruled the protest and denied the
refund thereof; copy of which is attached and marked Exhibit P and made a
part hereof; and

16. That plaintiffs demanded upon defendant the refund of the total sum of
one thousand eight hundred and sixty three pesos and forty-four centavos
(P1,863.44) paid under protest by them but that defendant refused and still
refuses to refund the said amount notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to present other and additional
evidence if necessary.

Exhibit E referred to in the stipulation is of the following tenor:

To whom it may concern:

I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby

certify, that on the 11th day of August, 1934, I sold parts of my shares on
ticket No. 178637 to the persons and for the amount indicated below and the
part of may share remaining is also shown to wit:

Purchaser Amount Address

1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.
2. Buenaventura Guzman ............................... .13 - Do -
3. Maria Santiago ............................................ .17 - Do -
4. Gonzalo Javier .............................................. .14 - Do -
5. Francisco Cabral .......................................... .13 - Do -
6. Maria C. Legaspi .......................................... .16 - Do -
7. Emiliana Santiago ......................................... .13 - Do -
8. Julio Gatchalian ............................................ .13 - Do -
9. Jose Silva ...................................................... .07 - Do -
10. Tomasa Mercado ....................................... .08 - Do -
11. Jesus Legaspi ............................................. .15 - Do -
12. Guillermo Tapia ........................................... .13 - Do -
13. Saturnina Silva ............................................ .08 - Do -
14. Gregoria Cristobal ....................................... .18 - Do -
15. Jose Gatchalian ............................................ .18 - Do -

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts
of whatever prize that might be won by said ticket.
 Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as

follows:

RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR

1934 ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR
OF INTERNAL REVENUE.

Exhibit Purchase
Price Expense Net
Name
Won s prize
No. Price
1. Jose Gatchalian P4,42 3,94
D-1 P0.18 P 480
.......................................... 5 5
2. Gregoria Cristobal 2,57
D-2 .18 4,575 2,000
...................................... 5
3. Saturnina Silva 1,51
D-3 .08 1,875 360
............................................. 5
4. Guillermo Tapia 2,96
D-4 .13 3,325 360
.......................................... 5
5. Jesus Legaspi by Maria 3,10
D-5 .15 3,825 720
Cristobal ......... 5
6. Jose Silva
1,51
................................................. D-6 .08 1,875 360
5
...
7. Tomasa Mercado 1,51
D-7 .07 1,875 360
....................................... 5
8. Julio Gatchalian by Beatriz 2,91
D-8 .13 3,150 240
Guzman ....... 0
9. Emiliana Santiago 2,96
D-9 .13 3,325 360
...................................... 5
10. Maria C. Legaspi 3,14
D-10 .16 4,100 960
...................................... 0
11. Francisco Cabral 2,96
D-11 .13 3,325 360
...................................... 5
12. Gonzalo Javier 2,96
D-12 .14 3,325 360
.......................................... 5
13. Maria Santiago 3,99
D-13 .17 4,350 360
.......................................... 0
14. Buenaventura Guzman 2,96
D-14 .13 3,325 360
........................... 5
15. Mariano Santos 2,96
D-15 .14 3,325 360
........................................ 5
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The legal questions raised in plaintiffs-appellants' five assigned errors may properly
be reduced to the two following: (1) Whether the plaintiffs formed a partnership, or
merely a community of property without a personality of its own; in the first case it
is admitted that the partnership thus formed is liable for the payment of income tax,
whereas if there was merely a community of property, they are exempt from such
payment; and (2) whether they should pay the tax collectively or whether the latter
should be prorated among them and paid individually.

The Collector of Internal Revenue collected the tax under section 10 of Act No.
2833, as last amended by section 2 of Act No. 3761, reading as follows:

SEC. 10. (a) There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all
sources by every corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association or insurance company, organized in
the Philippine Islands, no matter how created or organized, but not including
duly registered general copartnership (compañias colectivas), a tax of three
per centum upon such income; and a like tax shall be levied, assessed,
collected, and paid annually upon the total net income received in the
preceding calendar year from all sources within the Philippine Islands by
every corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company organized, authorized, or
existing under the laws of any foreign country, including interest on bonds,
notes, or other interest-bearing obligations of residents, corporate or
otherwise: Provided, however, That nothing in this section shall be construed
as permitting the taxation of the income derived from dividends or net profits
on which the normal tax has been paid.

The gain derived or loss sustained from the sale or other disposition by a
corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association, or insurance company, or property, real, personal,
or mixed, shall be ascertained in accordance with subsections (c) and (d) of
section two of Act Numbered Two thousand eight hundred and thirty-three,
as amended by Act Numbered Twenty-nine hundred and twenty-six.

The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account (cuenta
en participacion), association, or insurance company in the calendar year
nineteen hundred and twenty and in each year thereafter.

There is no doubt that if the plaintiffs merely formed a community of property the
latter is exempt from the payment of income tax under the law. But according to the
stipulation facts the plaintiffs organized a partnership of a civil nature because each
of them put up money to buy a sweepstakes ticket for the sole purpose of dividing
equally the prize which they may win, as they did in fact in the amount of P50,000
(article 1665, Civil Code). The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as
co-partner, as such collection the prize, the office issued the check for P50,000 in
favor of Jose Gatchalian and company, and the said partner, in the same capacity,
collected the said check. All these circumstances repel the idea that the plaintiffs
organized and formed a community of property only.

Having organized and constituted a partnership of a civil nature, the said entity is
the one bound to pay the income tax which the defendant collected under the
aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761.
There is no merit in plaintiff's contention that the tax should be prorated among
them and paid individually, resulting in their exemption from the tax.

In view of the foregoing, the appealed decision is affirmed, with the costs of this
instance to the plaintiffs appellants. So ordered.

Avanceña, C.J., Villa-Real, Diaz, Laurel, Concepcion and Moran, JJ., concur.
G.R. No. 144214 July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO

JOSE, petitioners,
vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and
CARMELITA C. RAMIREZ,respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's
dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000
Decision1 and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-
GR CV No. 41026. The assailed Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21,

1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby
SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered
ordering the [petitioners] jointly and severally to pay and reimburse to
[respondents] the amount of P253,114.00. No pronouncement as to costs."4

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering
business under the name "Aquarius Food House and Catering Services."5 Villareal
was appointed general manager and Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on

September 5, 1984. His capital contribution of P250,000 was paid by his parents,
Respondents Cesar and Carmelita Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital
contribution of P250,000 was refunded to him in cash by agreement of the
partners.7

In the same month, without prior knowledge of respondents, petitioners closed

down the restaurant, allegedly because of increased rental. The restaurant furniture
and equipment were deposited in the respondents' house for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening the restaurant, and
that they were accepting the latter's offer to return their capital contribution.9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners
of the deterioration of the restaurant furniture and equipment stored in their house.
She also reiterated the request for the return of their one-third share in the equity of
the partnership. The repeated oral and written requests were, however, left
unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint11 dated November 10, 1987, for the collection of a
sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to

withdraw from the partnership and had called for its dissolution under Articles 1830
and 1831 of the Civil Code; that respondents had been paid, upon the turnover to
them of furniture and equipment worth over P400,000; and that the latter had no
right to demand a return of their equity because their share, together with the rest
of the capital of the partnership, had been spent as a result of irreversible business
losses.12

In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation were true,
then the loans incurred by petitioners should be regarded as purely personal and,
as such, not chargeable to the partnership. The former further averred that they
had not received any regular report or accounting from the latter, who had solely
managed the business. Respondents also alleged that they expected the
equipment and the furniture stored in their house to be removed by petitioners as
soon as the latter found a better location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of

Restaurant Furniture and Equipment14 on July 8, 1988. The furniture and the
equipment stored in their house were inventoried and appraised at P29,000.15 The
display freezer was sold for P5,000 and the proceeds were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time. Petitioners clearly intended to
dissolve it when they stopped operating the restaurant. Hence, the trial court, in its
July 21, 1992 Decision, held there liable as follows:18

"WHEREFORE, judgment is hereby rendered in favor of [respondents] and

against the [petitioners] ordering the [petitioners] to pay jointly and severally
the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their
capital contribution, the partnership was nonetheless dissolved when petitioners
lost interest in continuing the restaurant business with them. Because petitioners
never gave a proper accounting of the partnership accounts for liquidation
purposes, and because no sufficient evidence was presented to show financial
losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the outstanding obligation
of the partnership in the amount of P240,658.00, although contracted by the
partnership before [respondents'] have joined the partnership but in
accordance with Article 1826 of the New Civil Code, they are liable which
must have to be deducted from the remaining capitalization of the said
 partnership which is in the amount of P1,000,000.00 resulting in the amount
of P759,342.00, and in order to get the share of [respondents], this amount of
P759,342.00 must be divided into three (3) shares or in the amount of
P253,114.00 for each share and which is the only amount which [petitioner]
will return to [respondents'] representing the contribution to the partnership
minus the outstanding debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our

consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the

distribution of the capital contribution, instead of the net capital after the
dissolution and liquidation of a partnership, thereby treating the capital
contribution like a loan, is in accordance with law and jurisprudence;

"9.2. Whether the Honorable Court of Appeals' decision ordering the

petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs."22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latter's share in the partnership; (2) whether the CA's
computation of P253,114 as respondents' share is correct; and (3) whether the CA
was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed,
and that it was dissolved on March 1, 1987. They found that the dissolution took
place when respondents informed petitioners of the intention to discontinue it
because of the former's dissatisfaction with, and loss of trust in, the latter's
management of the partnership affairs. These findings were amply supported by
the evidence on record. Respondents consequently demanded from petitioners the
return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of
their equity share. Except as managers of the partnership, petitioners did not
personally hold its equity or assets. "The partnership has a juridical personality
separate and distinct from that of each of the partners."23 Since the capital was
contributed to the partnership, not to petitioners, it is the partnership that must
refund the equity of the retiring partners.24

Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the
shares of the partners, the amount to be refunded is necessarily limited to its total
resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated.25 After all the creditors have
been paid, whatever is left of the partnership assets becomes available for the
payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to

respondents' one-third share in the partnership cannot be determined until all the
partnership assets will have been liquidated — in other words, sold and converted
to cash — and all partnership creditors, if any, paid. The CA's computation of the
amount to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total
capital contribution was equivalent to the gross assets to be distributed to the
partners at the time of the dissolution of the partnership. We cannot sustain the
underlying idea that the capital contribution at the beginning of the partnership
remains intact, unimpaired and available for distribution or return to the partners.
Such idea is speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by

profits earned or decreased by losses sustained. It does not remain static and
unaffected by the changing fortunes of the business. In the present case, the
financial statements presented before the trial court showed that the business had
made meager profits.26However, notable therefrom is the omission of any provision
for the depreciation27 of the furniture and the equipment. The amortization of the
goodwill28 (initially valued at P500,000) is not reflected either. Properly taking these
non-cash items into account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the partnership.
Both the trial and the appellate courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed to recognize the consequent
corresponding decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the
amount of P240,658 was not supported by evidence. We sustain the contrary
finding of the RTC, which had rejected the contention that the obligation belonged
to the partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. '4') does not reveal the
total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation of
P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. '8') shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the former being the
nominal party defendant in the instant case, who obtained a loan of
P355,000.00 on Oct. 1983, when the original partnership was not yet
formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the
amount paid by the partnership to Jesus Jose when he withdrew from the
partnership.

Because of the above-mentioned transactions, the partnership capital was actually

reduced. When petitioners and respondents ventured into business together, they
should have prepared for the fact that their investment would either grow or shrink.
In the present case, the investment of respondents substantially dwindled. The
original amount of P250,000 which they had invested could no longer be returned
to them, because one third of the partnership properties at the time of dissolution
did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects
of unwise, foolish or disastrous contracts they have entered into with all the
required formalities and with full awareness of what they were doing. Courts have
no power to relieve them from obligations they have voluntarily assumed, simply
because their contracts turn out to be disastrous deals or unwise investments.29

Petitioners further argue that respondents acted negligently by permitting the

partnership assets in their custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have liquidated these sole tangible assets
of the partnership and considered the proceeds as payment of their net capital.
Hence, petitioners argue that the turnover of the remaining partnership assets to
respondents was precisely the manner of liquidating the partnership and fully
settling the latter's share in the partnership.

We disagree. The delivery of the store furniture and equipment to private

respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former cannot
be faulted for not disposing of the stored items to recover their capital investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise

provided in these rules, costs shall be allowed to the prevailing party as a
matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same be
divided, as may be equitable. No costs shall be allowed against the Republic
of the Philippines unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have
discretion, "for special reasons," to decree otherwise. When a lower court is
reversed, the higher court normally does not award costs, because the losing party
relied on the lower court's judgment which is presumed to have been issued in
good faith, even if found later on to be erroneous. Unless shown to be patently
capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and

Resolution SET ASIDE. This disposition is without prejudice to proper proceedings
for the accounting, the liquidation and the distribution of the remaining partnership
assets, if any. No pronouncement as to costs.

SO ORDERED.

Puno, Corona and Carpio-Morales, JJ ., concur.

Sandoval-Gutierrez, J ., on official leave.
G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its
President TAN ENG LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the
Decision1 dated March 13, 1996 of the former Fifth Division2 of the Court of Appeals
in CA-G.R. CV No. 47937, the dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set

aside, and the complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by their children Teresita, Nena,
Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners
HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY
on February 19, 1990. The complaint,3 docketed as Civil Case No. 1983-R in the
Regional Trial Court of Baguio City was for accounting, liquidation and winding up
of the alleged partnership formed after World War II between Tan Eng Kee and Tan
Eng Lay. On March 18, 1991, the petitioners filed an amended
complaint4 impleading private respondent herein BENGUET LUMBER COMPANY,
as represented by Tan Eng Lay. The amended complaint was admitted by the trial
court in its Order dated May 3, 1991.5

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

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April
12, 1995, to wit:

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

a) Declaring that Benguet Lumber is a joint venture which is akin to a

particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
 partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership;

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

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

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

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

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

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

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

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13,
1996, rendered the assailed decision reversing the judgment of the trial court.
Petitioners' motion for reconsideration7 was denied by the Court of Appeals in a
Resolution8 dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against
Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a
judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee
was a mere employee of Benguet Lumber, were fake, based on the discrepancy in
the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed
Tan, for alleged falsification of commercial documents by a private individual. On
March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment9 dismissing the cases for insufficiency of
evidence.

In their assignment of errors, petitioners claim that:

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).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT

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

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

Filing of petition with Supreme Court. — A party desiring to appeal by

certiorari from a judgment or final order or resolution of the Court of Appeals,
the Sandiganbayan, the Regional Trial Court or other courts whenever
authorized by law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of law which must
be distinctly set forth.11 [emphasis supplied]

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

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

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

conjectures;

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

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

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

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

misapprehension of facts;

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

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

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

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

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

We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn went
beyond that by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of
standing between the parties, equal proprietary interest and the exercise by
the parties equally of the conduct of the business, thus:

xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of
the Benguet Lumber before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of
the pre-war Benguet Lumber were confiscated if not burned by the Japanese.
After the war, because of the absence of capital to start a lumber and
hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and
hardware business. That Lay and Kee actually established the Benguet
Lumber in Baguio City, was even testified to by witnesses. Because of the
pooling of resources, the post-war Benguet Lumber was eventually
established. That the father of the plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs of the business during Kee's
lifetime, jointly, (2) they were the ones giving orders to the employees, (3)
they were the ones preparing orders from the suppliers, (4) their families
stayed together at the Benguet Lumber compound, and (5) all their children
were employed in the business in different capacities.

xxx xxx xxx

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

name, there was no firm account, no firm letterheads submitted as evidence,
no certificate of partnership, no agreement as to profits and losses, and no
time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kee's
death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a
partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The

certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as
the only registered owner of the Benguet Lumber and Hardware. His
application for registration, effective 1954, in fact mentioned that his business
started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee,
on the other hand, was merely an employee of the Benguet Lumber
Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the
Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was
similarly listed only as an employee; precisely, he was on the payroll listing.
In the Termination Notice, Exhibit "5", Lay was mentioned also as the
proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be
constituted in any form, but when an immovable is constituted, the execution
of a public instrument becomes necessary. This is equally true if the
capitalization exceeds P3,000.00, in which case a public instrument is also
necessary, and which is to be recorded with the Securities and Exchange
Commission. In this case at bar, we can easily assume that the business
 establishment, which from the language of the appellees, prospered (pars. 5
& 9, Complaint), definitely exceeded P3,000.00, in addition to the
accumulation of real properties and to the fact that it is now a compound. The
execution of a public instrument, on the other hand, was never established by
the appellees.

And then in 1981, the business was incorporated and the incorporators were
only Lay and the members of his family. There is no proof either that the
capital assets of the partnership, assuming them to be in existence, were
maliciously assigned or transferred by Lay, supposedly to the corporation
and since then have been treated as a part of the latter's capital assets,
contrary to the allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then
in a room in the bunk house in Trinidad, but within the compound of the
lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee
were seated on a table and were "commanding people" as testified to by the
son, Elpidio Tan; 3) that both were supervising the laborers, as testified to by
Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee
that the proceeds of the 80 pieces of the G.I. sheets were added to the
business.

Partnership presupposes the following elements [citation omitted]: 1) a

contract, either oral or written. However, if it involves real property or where
the capital is P3,000.00 or more, the execution of a contract is necessary; 2)
the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning equality
of the partners or one having a proportionate share in the benefits; and 5)
intention to divide the profits, being the true test of the partnership. The
intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements
from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which
had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a
joint venture. In this connection, we have held that whether a partnership exists is a
factual matter; consequently, since the appeal is brought to us under Rule 45, we
cannot entertain inquiries relative to the correctness of the assessment of the
evidence by the court a quo.13 Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to
determine if the reversal was justified.

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

. . . two or more persons bind themselves to contribute money, property, or industry

to a common fund, with the intention of dividing the profits among themselves.

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

Thus, in order to constitute a partnership, it must be established that (1) two

or more persons bound themselves to contribute money, property, or industry
 to a common fund, and (2) they intend to divide the profits among
themselves.15 The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two instances: (1)
when immovable property or real rights are contributed,16 and (2) when the
partnership has a capital of three thousand pesos or more.17 In both cases, a
public instrument is required.18 An inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a
joint venture, which it said is akin to a particular partnership.20 A particular
partnership is distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a
sort of informal partnership, with no firm name and no legal personality. In a
joint account, the participating merchants can transact business under their
own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE

TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership generally
relates to a continuing business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint 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 [emphasis supplied]

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

Tan Eng Kee appeared never to have made any such demand for accounting from
his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of these
documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal
cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact
shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership,

whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima

facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;

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

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the
profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other

property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was
only an employee, not a partner. Even if the payrolls as evidence were discarded,
petitioners would still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee received amounts of
money allegedly representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan Eng Kee, received, if any, as his share in
the profits of Benguet Lumber Company for any particular period. Hence, they
failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of
the business between themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged
existence of a partnership from this set of circumstances: that Tan Eng Lay and
Tan Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks
were to be sold; and that both placed orders to the suppliers of the Benguet
Lumber Company. They also point out that the families of the brothers Tan Eng
Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a
privilege not extended to its ordinary employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above
enumerated powers and privileges granted in favor of Tan Eng Kee, were
indicative of his being a partner in Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's position
is higher in rank, it is not unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is

reposed by the owner, can order materials from suppliers for and in behalf of
Benguet Lumber. Furthermore, even a partner does not necessarily have to
perform this particular task. It is, thus, not an indication that Tan Eng Kee
was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber
compound and this privilege was not accorded to other employees, the
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay.
Naturally, close personal relations existed between them. Whatever
privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay towards
a blood relative.

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

In the instant case, we find private respondent's arguments to be well-taken. Where

circumstances taken singly may be inadequate to prove the intent to form a
partnership, nevertheless, the collective effect of these circumstances may be such
as to support a finding of the existence of the parties' intent.36 Yet, in the case at
bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was
involved in the operations of Benguet Lumber, but in what capacity is unclear. We
cannot discount the likelihood that as a member of the family, he occupied a niche
above the rank-and-file employees. He would have enjoyed liberties otherwise
unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be
that among his duties is to place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or

liquidation to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the
Court of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

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

G.R. No. 172690 March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,

vs.
JULIET VILLA LIM, Respondent.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules
of Civil Procedure, assailing the Court of Appeals (CA) Decision2 dated June 29,
2005, which reversed and set aside the decision3 of the Regional Trial Court (RTC)
of Lucena City, dated April 12, 2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna
and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito).
They filed a Complaint4 for Partition, Accounting and Damages against respondent
Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo), who was the
eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends
Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage in
the trucking business. Initially, with a contribution of ₱50,000.00 each, they
purchased a truck to be used in the hauling and transport of lumber of the sawmill.
Jose managed the operations of this trucking business until his death on August
15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to
continue the business under the management of Elfledo. The shares in the
partnership profits and income that formed part of the estate of Jose were held in
trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire
properties using said funds.

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate
serving as his father’s driver in the trucking business. He was never a partner or an
investor in the business and merely supervised the purchase of additional trucks
using the income from the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledo’s management of the
partnership that he was able to purchase numerous real properties by using the
profits derived therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also acquired five other motor
vehicles.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the
aforementioned properties, which belonged to the estate of Jose, without their
consent and approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all income, profits and
rentals received from the estate of Elfledo, and to surrender the administration
thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself
a partner of Norberto and Jimmy. Respondent also claimed that per testimony of
Cresencia, sometime in 1980, Jose gave Elfledo ₱50,000.00 as the latter's capital
in an informal partnership with Jimmy and Norberto. When Elfledo and respondent
got married in 1981, the partnership only had one truck; but through the efforts of
Elfledo, the business flourished. Other than this trucking business, Elfledo, together
with respondent, engaged in other business ventures. Thus, they were able to buy
real properties and to put up their own car assembly and repair business. When
Norberto was ambushed and killed on July 16, 1993, the trucking business started
to falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no longer run the
business. Jimmy suggested that three out of the nine trucks be given to him as his
share, while the other three trucks be given to the heirs of Norberto. However,
Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the
same to respondent, who paid for them in installments.

Respondent also alleged that when Jose died in 1981, he left no known assets,
and the partnership with Jimmy and Norberto ceased upon his demise.
Respondent also stressed that Jose left no properties that Elfledo could have held
in trust. Respondent maintained that all the properties involved in this case were
purchased and acquired through her and her husband’s joint efforts and hard work,
and without any participation or contribution from petitioners or from Jose.
Respondent submitted that these are conjugal partnership properties; and thus,
she had the right to refuse to render an accounting for the income or profits of their
own business.

Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in
favor of petitioners, thus:

WHEREFORE, premises considered, judgment is hereby rendered:

1) Ordering the partition of the above-mentioned properties equally between

the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and

2) Ordering the defendant to submit an accounting of all incomes, profits and

rentals received by her from said properties.

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,5 which the CA, however, denied in its Resolution6 dated May 8,
2006.

Hence, this Petition, raising the sole question, viz.:

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY

THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE
GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE
ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of Jimmy, the sole
surviving partner, Elfledo was not a partner; and that he and Norberto entered into
a partnership with Jose. Thus, the CA erred in not giving that testimony greater
weight than that of Cresencia, who was merely the spouse of Jose and not a party
to the partnership.8

Respondent counters that the issue raised by petitioners is not proper in a petition
for review on certiorari under Rule 45 of the Rules of Civil Procedure, as it would
entail the review, evaluation, calibration, and re-weighing of the factual findings of
the CA. Moreover, respondent invokes the rationale of the CA decision that, in light
of the admissions of Cresencia and Edison and the testimony of respondent, the
testimony of Jimmy was effectively refuted; accordingly, the CA's reversal of the
RTC's findings was fully justified.9

We resolve first the procedural matter regarding the propriety of the instant Petition.

Verily, the evaluation and calibration of the evidence necessarily involves

consideration of factual issues — an exercise that is not appropriate for a petition
for review on certiorari under Rule 45. This rule provides that the parties may raise
only questions of law, because the Supreme Court is not a trier of facts. Generally,
we are not duty-bound to analyze again and weigh the evidence introduced in and
considered by the tribunals below.10 When supported by substantial evidence, the
findings of fact of the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the following
recognized exceptions:

(1) When the conclusion is a finding grounded entirely on speculation,

surmises and conjectures;

(2) When the inference made is manifestly mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a misapprehension of facts;

(5) When the findings of fact are conflicting;

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

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

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

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

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

We note, however, that the findings of fact of the RTC are contrary to those of the
CA. Thus, our review of such findings is warranted.

On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses among them. A contract of
partnership is defined by the Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.12

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

A careful review of the records persuades us to affirm the CA decision. The

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

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

SECTION I. Preponderance of evidence, how determined. In civil cases, the party

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

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals14 is
enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:

Art. 1769. In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership,

whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
 (3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a prima

facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;

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

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the
profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other

property by installments or otherwise.

Applying the legal provision to the facts of this case, the following circumstances
tend to prove that Elfledo was himself the partner of Jimmy and Norberto: 1)
Cresencia testified that Jose gave Elfledo ₱50,000.00, as share in the partnership,
on a date that coincided with the payment of the initial capital in the
partnership;15 (2) Elfledo ran the affairs of the partnership, wielding absolute
control, power and authority, without any intervention or opposition whatsoever
from any of petitioners herein;16 (3) all of the properties, particularly the nine trucks
of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the partnership, indicating that what
he actually received were shares of the profits of the business;17 and (5) none of
the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting
from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee,18 a
demand for periodic accounting is evidence of a partnership.

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

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

The above testimonies prove that Elfledo was not just a hired help but one of the
partners in the trucking business, active and visible in the running of its affairs from
day one until this ceased operations upon his demise. The extent of his control,
administration and management of the partnership and its business, the fact that its
properties were placed in his name, and that he was not paid salary or other
compensation by the partners, are indicative of the fact that Elfledo was a partner
and a controlling one at that. It is apparent that the other partners only contributed
in the initial capital but had no say thereafter on how the business was ran.
Evidently it was through Elfredo’s efforts and hard work that the partnership was
able to acquire more trucks and otherwise prosper. Even the appellant participated
in the affairs of the partnership by acting as the bookkeeper sans salary.
1av vphi1

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

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

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

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

WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals

Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice
G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money
to pursue a business and to divide the profits or losses that may arise therefrom,
even if it is shown that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partner, they are all liable for debts incurred
by or on behalf of the partnership. The liability for a contract entered into on behalf
of an unincorporated association or ostensible corporation may lie in a person who
may not have directly transacted on its behalf, but reaped benefits from that
contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the
November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed

decision, the same is hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which
was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued

by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following

amounts, subject to the modifications as hereinafter made by reason of
the special and unique facts and circumstances and the proceedings
that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of

the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by
said Agreement;

b. 12% interest per annum counted from date of plaintiff's

invoices and computed on their respective amounts as
follows:

i. Accrued interest of P73,221.00 on Invoice

No. 14407 for P385,377.80 dated February 9,
1990;
 ii. Accrued interest for P27,904.02 on Invoice
No. 14413 for P146,868.00 dated February 13,
1990;

iii. Accrued interest of P12,920.00 on Invoice

No. 14426 for P68,000.00 dated February 19,
1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00

representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for

storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of
auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal

obligation or for the unpaid price of nets and floats in the amount
of P532,045.00 and P68,000.00, respectively, or for the total
amount P600,045.00, this Court noted that these items were
attached to guarantee any judgment that may be rendered in
favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this
case, it was ordered sold at public auction for not less than
P900,000.00 for which the plaintiff was the sole and winning
bidder. The proceeds of the sale paid for by plaintiff was
deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that plaintiff
may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the
sheriff to plaintiff as the highest bidder in the public auction sale.
It has also been noted that ownership of the nets [was] retained
by the plaintiff until full payment [was] made as stipulated in the
invoices; hence, in effect, the plaintiff attached its own properties.
It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash bidded
and paid for by plaintiff to serve as its bond in favor of
defendants.

From the foregoing, it would appear therefore that whatever

judgment the plaintiff may be entitled to in this case will have to
be satisfied from the amount of P900,000.00 as this amount
replaced the attached nets and floats. Considering, however, that
the total judgment obligation as computed above would amount
to only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to
damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are
hereby relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for plaintiff
to retain possession and ownership of the nets and floats and for
 the reimbursement of the P900,000.00 deposited by it with the
Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990, for the purchase of fishing nets of
various sizes from the Philippine Fishing Gear Industries, Inc. (herein respondent).
They claimed that they were engaged in a business venture with Petitioner Lim
Tong Lim, who however was not a signatory to the agreement. The total price of
the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim
with a prayer for a writ of preliminary attachment. The suit was brought against the
three in their capacities as general partners, on the allegation that "Ocean Quest
Fishing Corporation" was a nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission. 5 On September 20, 1990, the
lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes which was then docked at the
Fisheries Port, Navotas, Metro Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his

liability and requesting a reasonable time within which to pay. He also turned over
to respondent some of the nets which were in his possession. Peter Yao filed an
Answer, after which he was deemed to have waived his right to cross-examine
witnesses and to present evidence on his behalf, because of his failure to appear in
subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. 6 The trial court maintained the Writ, and upon motion of private
respondent, ordered the sale of the fishing nets at a public auction. Philippine
Fishing Gear Industries won the bidding and deposited with the said court the sales
proceeds of P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao
and Lim, as general partners, were jointly liable to pay respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1)
on the testimonies of the witnesses presented and (2) on a Compromise
Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction and (e) damages. 10 The Compromise
Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have
the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL
Holdings Corporation and/or Lim Tong Lim;
 b) If the four (4) vessel[s] and the fishing net will be sold at
a higher price than P5,750,000.00 whatever will be the
excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio
Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than

P5,750,000.00 whatever the deficiency shall be shouldered
and paid to JL Holding Corporation by 1/3 Lim Tong Lim;
1/3 Antonio Chua; 1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of
their obligations, but that joint liability could be presumed from the equal distribution
of the profit and loss. 21

Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the
RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and
Yao in a fishing business and may thus be held liable as a such for the fishing nets
and floats purchased by and for the use of the partnership. The appellate court
ruled:

The evidence establishes that all the defendants including herein

appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is . . . . By a
contract of partnership, two or more persons bind themselves to
contribute money, property or industry to a common fund with the
intention of dividing the profits among themselves (Article 1767, New
Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A

COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER
LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS

ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND

ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats
from respondent, the Court must resolve this key issue: whether by their acts, Lim,
Chua and Yao could be deemed to have entered into a partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone. Furthermore, he disclaims any direct
participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a
lessor, not a partner, of Chua and Yao, for the "Contract of Lease " dated February
1, 1990, showed that he had merely leased to the two the main asset of the
purported partnership — the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the
boat.

We are not persuaded by the arguments of petitioner. The facts as found by the
two lower courts clearly showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind

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

Specifically, both lower courts ruled that a partnership among the three existed
based on the following factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was
engaged in commercial fishing to join him, while Antonio Chua was
already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally
agreed to acquire two fishing boats, the FB Lourdes and the FB
Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
 (5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping,
repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again

extended a loan to the partnership in the amount of P1 million secured
by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chua's FB Lady Anne Mel and Yao's
FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and

Antonio Chua bought nets from Respondent Philippine Fishing Gear, in
behalf of "Ocean Quest Fishing Corporation," their purported business
name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim
Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats;
(4) injunction; and (e) damages.

(9) That the case was amicably settled through a Compromise

Agreement executed between the parties-litigants the terms of which
are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats
worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they subsequently revealed
their intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term "common
fund" under Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties agreed that
any loss or profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the
boat, but also to that of the nets and the floats. The fishing nets and the floats, both
essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the
boat but not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and
Yao, a partnership engaged in the fishing business. They purchased the boats,
which constituted the main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be divided among them.

We stress that under Rule 45, a petition for review like the present case should
involve only questions of law. Thus, the foregoing factual findings of the RTC and
the CA are binding on this Court, absent any cogent proof that the present action is
embraced by one of the exceptions to the rule. 16 In assailing the factual findings of
the two lower courts, petitioner effectively goes beyond the bounds of a petition for
review under Rule 45.
 Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of
a partnership was the Compromise Agreement. He also claims that the settlement
was entered into only to end the dispute among them, but not to adjudicate their
preexisting rights and obligations. His arguments are baseless. The Agreement
was but an embodiment of the relationship extant among the parties prior to its
execution.

A proper adjudication of claimants' rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have
found, correctly, a preexisting partnership among the parties. In implying that the
lower courts have decided on the basis of one piece of document alone, petitioner
fails to appreciate that the CA and the RTC delved into the history of the document
and explored all the possible consequential combinations in harmony with law,
logic and fairness. Verily, the two lower courts' factual findings mentioned above
nullified petitioner's argument that the existence of a partnership was based only on
the Compromise Agreement.

Petitioner Was a Partner,

Not a Lessor

We are not convinced by petitioner's argument that he was merely the lessor of the
boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly
finds support in the Contract of Lease and the registration papers showing that he
was the owner of the boats, including F/B Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the
excess of the proceeds to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved that there was a
preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement
with Chua and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among the three of the
balance remaining after the payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own property but an asset of
the partnership. It is not uncommon to register the properties acquired from a loan
in the name of the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his

property to pay a debt he did not incur, if the relationship among the three of them
was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be
imputed only to Chua and Yao, and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

 Sec. 21. Corporation by estoppel. — All persons who assume to act as
a corporation knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities and damages incurred or
arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such,

cannot resist performance thereof on the ground that there was in fact
no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a

party may be estopped from denying its corporate existence. "The reason behind
this doctrine is obvious — an unincorporated association has no personality and
would be incompetent to act and appropriate for itself the power and attributes of a
corporation as provided by law; it cannot create agents or confer authority on
another to act in its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority
or without a principal is himself regarded as the principal, possessed of all the right
and subject to all the liabilities of a principal, a person acting or purporting to act on
behalf of a corporation which has no valid existence assumes such privileges and
obligations and becomes personally liable for contracts entered into or for other
acts performed as such agent. 17

The doctrine of corporation by estoppel may apply to the alleged corporation and to
a third party. In the first instance, an unincorporated association, which represented
itself to be a corporation, will be estopped from denying its corporate capacity in a
suit against it by a third person who relied in good faith on such representation. It
cannot allege lack of personality to be sued to evade its responsibility for a contract
it entered into and by virtue of which it received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated,

nonetheless treated it as a corporation and received benefits from it, may be barred
from denying its corporate existence in a suit brought against the alleged
corporation. In such case, all those who benefited from the transaction made by the
ostensible corporation, despite knowledge of its legal defects, may be held liable
for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is

entitled to be paid for the nets it sold. The only question here is whether petitioner
should be held jointly 18 liable with Chua and Yao. Petitioner contests such liability,
insisting that only those who dealt in the name of the ostensible corporation should
be held liable. Since his name does not appear on any of the contracts and since
he never directly transacted with the respondent corporation, ergo, he cannot be
held liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership.
He in fact questions the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided
to form a corporation. Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid existence, are
held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation.
However, having reaped the benefits of the contract entered into by persons with
whom he previously had an existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine of corporation by estoppel.
We reiterate the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply

schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue
and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice
be done upon the merits. Lawsuits, unlike duels, are not to be won by a
rapier's thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in
technicalities.

Third Issue:

Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against
the nets. We agree with the Court of Appeals that this issue is now moot and
academic. As previously discussed, F/B Lourdes was an asset of the partnership
and that it was placed in the name of petitioner, only to assure payment of the debt
he and his partners owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were bought and used in the
fishing venture they agreed upon. Hence, the issuance of the Writ to assure the
payment of the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine Fishing
Gear, until full payment thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.

Costs against petitioner.

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., pls. see concurring opinion.

Separate Opinions

VITUG, J., concurring opinion;

I share the views expressed in the ponencia of an esteemed colleague, Mr. Justice
Artemio V. Panganiban, particularly the finding that Antonio Chua, Peter Yao and
petitioner Lim Tong Lim have incurred the liabilities of general partners. I merely
would wish to elucidate a bit, albeit briefly, the liability of partners in a general
partnership.
When a person by his act or deed represents himself as a partner in an existing
partnership or with one or more persons not actual partners, he is deemed an
agent of such persons consenting to such representation and in the same manner,
if he were a partner, with respect to persons who rely upon the
representation. 1 The association formed by Chua, Yao and Lim, should be, as it
has been deemed, a de facto partnership with all the consequent obligations for the
purpose of enforcing the rights of third persons. The liability of general partners (in
a general partnership as so opposed to a limited partnership) is laid down in Article
1816 2 which posits that all partners shall be liable pro rata beyond the partnership
assets for all the contracts which may have been entered into in its name, under its
signature, and by a person authorized to act for the partnership. This rule is to be
construed along with other provisions of the Civil Code which postulate that the
partners can be held solidarily liable with the partnership specifically in these
instances — (1) where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or with the authority of his co-
partners, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act; (2) where one partner acting
within the scope of his apparent authority receives money or property of a third
person and misapplies it; and (3) where the partnership in the course of its
business receives money or property of a third person and the money or property
so received is misapplied by any partner while it is in the custody of the
partnership 3 — consistently with the rules on the nature of civil liability in delicts
and quasi-delicts.