Partnership, Agency and Trusts
 However, they claimed that in 1981, Tan Eng Lay and his children
2nd set of Cases – Meeting No. 2- 08/23/18
Articles 1769-1770
SECOND DIVISION
[G.R. No. 126881. October 3, 2000]
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and
BENGUET LUMBER COMPANY, represented by its President TAN
ENG LAY, respondents.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision[1] dated March 13, 1996 of the former Fifth Division [2] of the Court of
Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:
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 decedents brother
TAN ENG LAY on February 19, 1990. The complaint,[3] docketed as Civil Case
No. 1983-R in the Regional Trial Court of Baguio City was for accounting,
liquidation and winding up of the alleged partnership formed after World War II
between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed
an amended complaint[4] impleading private respondent herein BENGUET
LUMBER COMPANY, as represented by Tan Eng Lay.The amended complaint
was admitted by the trial court in its Order dated May 3, 1991.[5]
The amended complaint principally alleged that after the second World
War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling lumber
and hardware and construction supplies. They named their enterprise Benguet
Lumber which they jointly managed until Tan Eng Kees death.Petitioners herein
averred that the business prospered due to the hard work and thrift of the alleged
partners.
caused the conversion of the partnership Benguet Lumber into a corporation
called Benguet Lumber Company. The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the profits of
the business. Petitioners prayed for accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof, and the equal division of the net
assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered
judgment[6]on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint adventure which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular partnership
called Benguet Lumber and as such should share in the profits and/or losses of
the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over
to Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer
and/or as partner in a particular partnership have descended to the plaintiffs who
are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General
Manager of Benguet Lumber Company Inc. to render an accounting of all the
assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper
share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the
assets of Benguet Lumber Company, Inc. until such time that said corporation is
finally liquidated are directed to submit the name of any person they want to be
appointed as receiver failing in which this Court will appoint the Branch Clerk of
Court or another one who is qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the
expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
 Private respondent sought relief before the Court of Appeals which, on
March 13, 1996, rendered the assailed decision reversing the judgment of the
trial court. Petitioners motion for reconsideration[7] was denied by the Court of
Appeals in a Resolution[8] dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856
against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents
in a judicial proceeding.Petitioners complained that Exhibits 4 to 4-U offered by
the defendants before the trial court, consisting of payrolls indicating that Tan
Eng Kee was a mere employee of Benguet Lumber, were fake, based on the
discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases
Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and
Willy, all surnamed Tan, for alleged falsification of commercial documents by a
private individual. On March 20, 1999, the Municipal Trial Court of Baguio City,
Branch 1, wherein the charges were filed, rendered judgment[9] dismissing the
cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I 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: (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
BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE
AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL
OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN
P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT
CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO
SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES
(PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the
Court of Appeals will not be disturbed on appeal if such are supported by the
evidence.[10] Our jurisdiction, it must be emphasized, does not include review of
factual issues. Thus:
Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from
a judgment or final order or resolution of the Court of Appeals, the
Sandiganbayan, the Regional Trial Court or other courts whenever authorized by
law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly
set forth.[11] [italics supplied]
Admitted exceptions have been recognized, though, and when present,
may compel us to analyze the evidentiary basis on which the lower court
rendered judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of
the case, and such findings are contrary to the admissions of both appellant and
appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension
of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence but such findings are contradicted by the evidence on
record.[12]
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the plaintiffs
mentioned only the existence of a partnership, the Court in turn went beyond that
by justifying the existence of a joint adventure.
When mention is made of a joint adventure, 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 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 Kees lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers, (4) their
families stayed together at the Benguet Lumber compound, and (5) all their
children were employed in the business in different capacities.
xxx 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 Kees death in 1984. It
had no business book, no written account nor any memorandum for that matter
and no license mentioning the existence of a partnership [citation omitted].
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 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 latters capital assets, contrary to the
allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in
a room in the bunk house in Trinidad, but within the compound of the lumber
establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated
on a table and were commanding people as testified to by the son, Elpidio Tan;
3) that both were supervising the laborers, as testified to by Victoria Choi; and 4)
that Dionisio Peralta was supposedly being told by Kee that the proceeds of the
80 pieces of the G.I. sheets were added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract,
either oral or written. However, if it involves real property or where the capital is
P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of
the parties to execute the contract; 3) money property or industry contribution; 4)
community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business venture
for the purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial evidence of the
appellees.
As can be seen, the appellate court disputed and differed from the trial
court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly
entered into a joint adventure. In this connection, we have held that whether a
partnership exists is a factual matter; consequently, since the appeal is brought
to us under Rule 45, we cannot entertain 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:
xxx two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves.
Two or more persons may also form a partnership for the exercise of a
profession.[14]
Thus, in order to constitute a partnership, it must be established that (1) two or
more persons bound themselves to contribute money, property, or industry to a
common fund, and (2) they intend to divide the profits among themselves. [15] The
agreement need not be formally reduced into writing, since statute allows the oral
constitution of a partnership, save in two instances:(1) when immovable property
or real rights are contributed,[16] and (2) when the partnership has a capital of
three thousand pesos or more.[17] In both cases, a public instrument is required.
[18]
 An inventory to be signed by the parties and attached to the public instrument
is also indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership.[19]
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered
into a joint adventure, which it said is akin to a particular partnership. [20] A
particular partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint
accounts) is a sort of informal partnership, with no firm name and
no legal personality. In a joint account, the participating merchants
can transact business under their own name, and can be
individually liable therefor.
(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 adventure 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 adventure may be likened to a particular partnership, thus:
The legal concept of a joint adventure is of common law origin. It has no precise
legal definition, but it has been generally understood to mean an organization
formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It
is hardly distinguishable from the partnership, since their elements are similar-
community of interest in the business, sharing of profits and losses, and a mutual
right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288
P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdiction is that the partnership contemplates a general business
with some degree of continuity, while the joint adventure is formed for the
execution of a single transaction, and is thus of a temporary nature. (Tufts v.
Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71
NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is
not entirely accurate in this jurisdiction, since under the Civil Code, a partnership
may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that
under Philippine law, a joint adventure is a form of partnership and should thus
be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however
engage in a joint adventure with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
 Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The alleged
partnership, though, was never formally organized. In addition, petitioners point
out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued
that nothing prevented the parties from complying with the provisions of the New
Civil Code when it took effect on August 30, 1950. But all that is in the past. The
net effect, however, is that we are asked to determine whether a partnership
existed based purely on circumstantial evidence. A review of the record
persuades us that the Court of Appeals correctly reversed the decision of the trial
court. The evidence presented by petitioners falls short of the quantum of proof
required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he,
aside from Tan Eng Lay, could have expounded on the precise nature of the
business relationship between them.In the absence of evidence, we cannot
accept as an established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership.The
testimonies to that effect of petitioners witnesses is directly controverted by Tan
Eng Lay. It should be noted that it is not with the number of witnesses wherein
preponderance lies;[24]the quality of their testimonies is to be considered. None of
petitioners witnesses could suitably account for the beginnings of Benguet
Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was
related to Matilde Abubo.[25] He stated that when he met Tan Eng Kee after the
liberation, the latter asked the former to accompany him to get 80 pieces of G.I.
sheets supposedly owned by both brothers. [26] Tan Eng Lay, however, denied
knowledge of this meeting or of the conversation between Peralta and his
brother.[27] Tan Eng Lay consistently testified that he had his business and his
brother had his, that it was only later on that his said brother, Tan Eng Kee, came
to work for him. Be that as it may, co-ownership or co-possession (specifically
here, of the G.I. sheets) is not an indicium of the existence of a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners share in the profits
and losses.[29] Each has the right to demand an accounting as long as the
partnership exists.[30] We have allowed a scenario wherein [i]f excellent relations
exist among the partners at the start of the business and all the partners are
more interested in seeing the firm grow rather than get immediate returns, a
deferment of sharing in the profits is perfectly plausible. [31] But in the situation in
the case at bar, the deferment, if any, had gone on too long to be plausible. A
person is presumed to take ordinary care of his concerns. [32] As we explained in
another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the
second place, she did not furnish any help or intervention in the management of
the theatre. In the third place, it does not appear that she has even demanded
from defendant any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should have been to find
out how the business was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she did was to receive
her share of P3,000.00 a month, which cannot be interpreted in any manner than
a payment for the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. A), which shows that both parties considered
this offer as the real contract between them.[33] [italics supplied]
A demand for periodic accounting is evidence of a partnership.[34] During his
lifetime, Tan Eng Kee appeared never to have made any such demand for
accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of these
documents was questioned by petitioners, to the extent that they filed criminal
charges against Tan Eng Lay and his wife and children. As aforesaid, the
criminal cases were dismissed for insufficiency of evidence. Exhibits 4 to 4-U in
fact shows that Tan Eng Kee received sums as wages of an employee. In
connection therewith, Article 1769 of the Civil Code provides:
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 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;
(b) 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:
In the instant case, we find private respondents 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.

(i) even a mere supervisor in a company, factory or store gives orders and Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ.,  concur.
directions to his subordinates. So long, therefore, that an employees position is
higher in rank, it is not unusual that he orders around those lower in rank.

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

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

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

(iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan Eng Lay
in connection with the pricing of stocks, this does not adequately prove the
existence of a partnership relation between them.Even highly confidential
employees and the owners of a company sometimes argue with respect to
certain matters which, in no way indicates that they are partners as to each other.
[35]
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and
REMEDIOS P. OBILLOS, brothers and sisters, petitioners  84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co.,
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold
two parcels of land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on
two lots with areas of 1,124 and 963 square meters located at Greenhills, San
Juan, Rizal. The next day he transferred his rights to his four children, the
petitioners, to enable them to build their residences. The company sold the two
lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo).
Presumably, the Torrens titles issued to them would show that they were co-
owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz Canda for
the total sum of P313,050 (Exh. C and D). They derived from the sale a total
profit of P134,341.88 or P33,584 for each of them. They treated the profit as a
capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive
period, the Commissioner of Internal Revenue required the four petitioners to
pay corporate income tax on the total profit of P134,336 in addition to individual
income tax on their shares thereof He assessed P37,018 as corporate income
tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated
interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum
of P33,584 as a " taxable in full (not a mere capital gain of which ½ is taxable)
and required them to pay deficiency income taxes aggregating P56,707.20
including the 50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and
penalties totalling P127,781.76 on their profit of P134,336, in addition to the tax
on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a) and
102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court
sustained the same. Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership
under article 1767 of the Civil Code simply because they allegedly contributed
P178,708.12 to buy the two lots, resold the same and divided the profit among
themselves.
To regard the petitioners as having formed a taxable unregistered partnership
would result in oppressive taxation and confirm the dictum that the power to tax
involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners
pure and simple. To consider them as partners would obliterate the distinction
between a co-ownership and a partnership. The petitioners were not engaged in
any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on
they found it not feasible to build their residences on the lots because of the high
cost of construction, then they had no choice but to resell the same to dissolve
the co-ownership. The division of the profit was merely incidental to the
dissolution of the co-ownership which was in the nature of things a temporary
state. It had to be terminated sooner or later. Castan Tobeñas says:
Como establecer el deslinde entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta:
por razon del origen, en que la sociedad presupone
necesariamente la convencion, mentras que la comunidad
puede existir y existe ordinariamente sin ela; y por razon del fin
objecto, en que el objeto de la sociedad es obtener lucro,
mientras que el de la indivision es solo mantener en su
integridad la cosa comun y favorecer su conservacion.
 Reflejo de este criterio es la sentencia de 15 de Octubre de
1940, en la que se dice que si en nuestro Derecho positive se
ofrecen a veces dificultades al tratar de fijar la linea divisoria
entre comunidad de bienes y contrato de sociedad, la moderna
orientacion de la doctrina cientifica señala como nota
fundamental de diferenciacion aparte del origen de fuente de
que surgen, no siempre uniforme, la finalidad perseguida por
los interesados: lucro comun partible en la sociedad, y mera
conservacion y aprovechamiento en la comunidad. (Derecho
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does
not of itself establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the returns
are derived". There must be an unmistakable intention to form a partnership or
joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil.
666, where 15 persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide the prize The ticket
won the third prize of P50,000. The 15 persons were held liable for income tax as
an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in
joint ventures for profit. Thus, in Oña vs.
co-ownerships of inherited properties to the tax on
corporations, inasmuch as if a property does not produce an
income at all, it is not subject to any kind of income tax,
whether the income tax on individuals or the income tax on
corporation. (De Leon vs. CI R, CTA Case No. 738, September
11, 1961, cited in Arañas, 1977 Tax Code Annotated, Vol. 1,
1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where
after an extrajudicial settlement the co-heirs used the inheritance or the incomes
derived therefrom as a common fund to produce profits for themselves, it was
held that they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24
SCRA 198, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the net
income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,
where the three Evangelista sisters bought four pieces of real property which
they leased to various tenants and derived rentals therefrom. Clearly, the
petitioners in these two cases had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated was
whether the father donated the two lots to the petitioners and whether he paid the
donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It
might have already prescribed.

** This view is supported by the following rulings of respondent Commissioner: WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
Co-owership distinguished from partnership.—We find that the
case at bar is fundamentally similar to the De Leon case. Thus, SO ORDERED.
like the De Leon heirs, the Longa heirs inherited the 'hacienda'
in question pro-indiviso from their deceased parents; they did Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.
not contribute or invest additional ' capital to increase or
expand the inherited properties; they merely continued
dedicating the property to the use to which it had been put by Concepcion, Jr., is on leave.
their forebears; they individually reported in their tax returns
their corresponding shares in the income and expenses of the
'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve
its (the 'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de Bais for
milling purposes. Longa vs. Aranas, CTA Case No. 653, July
31, 1963).

All co-ownerships are not deemed unregistered pratnership.—

Co-Ownership who own properties which produce income
should not automatically be considered partners of an
unregistered partnership, or a corporation, within the purview
of the income tax law. To hold otherwise, would be to subject
the income of all 
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,  Petitioners filed a petition for review with the respondent Court of Tax Appeals
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents
GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint
venture for income tax purposes is the issue in this petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago
Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of
land from Juan Roque. The first two parcels of land were sold by petitioners in
1968 toMarenir Development Corporation, while the three parcels of land were
sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970.
Petitioners realized a net profit in the sale made in 1968 in the amount of
P165,224.70, while they realized a net profit of P60,000.00 in the sale made in
1970. The corresponding capital gains taxes were paid by petitioners in 1973 and
1974 by availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner
Efren I. Plana, petitioners were assessed and required to pay a total amount of
P107,101.70 as alleged deficiency corporate income taxes for the years 1968
and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting
that they had availed of tax amnesties way back in 1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners
that in the years 1968 and 1970, petitioners as co-owners in the real estate
transactions formed an unregistered partnership or joint venture taxable as a
corporation under Section 20(b) and its income was subject to the taxes
prescribed under Section 24, both of the National Internal Revenue Code 1 that
the unregistered partnership was subject to corporate income tax as
distinguished from profits derived from the partnership by them which is subject
to individual income tax; and that the availment of tax amnesty under P.D. No.
23, as amended, by petitioners relieved petitioners of their individual income tax
liabilities but did not relieve them from the tax liability of the unregistered
partnership. Hence, the petitioners were required to pay the deficiency income
tax assessed.
docketed as CTA Case No. 3045. In due course, the respondent court by a
majority decision of March 30, 1987, 2 affirmed the decision and action taken by
respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an
unregistered partnership was in fact formed by petitioners which like a
corporation was subject to corporate income tax distinct from that imposed on the
partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that
considering the circumstances of this case, although there might in fact be a co-
ownership between the petitioners, there was no adequate basis for the
conclusion that they thereby formed an unregistered partnership which made
"hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following
alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE
DETERMINATION OF THE RESPONDENT COMMISSIONER,
TO THE EFFECT THAT PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP SUBJECT TO
CORPORATE INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO RESTS
UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF
ISOLATED SALE TRANSACTIONS, THAT AN
UNREGISTERED PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS LAID DOWN BY LAW
THAT WOULD WARRANT THE
PRESUMPTION/CONCLUSION THAT A PARTNERSHIP
EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO
THE EVANGELISTA CASE AND THEREFORE SHOULD BE
DECIDED ALONGSIDE THE EVANGELISTA CASE.
 D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE
THE PETITIONERS FROM PAYMENT OF OTHER TAXES
FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-
13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this
Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which
together with their own personal funds they used in buying several real
properties. They appointed their brother to manage their properties with full
power to lease, collect, rent, issue receipts, etc. They had the real properties
rented or leased to various tenants for several years and they gained net profits
from the rental income. Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the
tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the National
Internal Revenue Code, as well as to the residence tax for
corporations and the real estate dealers' fixed tax. With respect
to the tax on corporations, the issue hinges on the meaning of
the terms corporation and partnership as used in sections 24
and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.—There shall be
levied, assessed, collected, and paid annually upon the total
net income received in the preceding taxable year from all
sources by every corporation organized in, or existing under
the laws of the Philippines, no matter how created or organized
but not including duly registered general co-partnerships
(companies collectives), a tax upon such income equal to the
sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no
matter how created or organized, joint-stock companies, joint
accounts (cuentas en participation), associations or insurance
companies, but does not include duly registered general co-
partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
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.
Pursuant to this article, the essential elements of a partnership
are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide
the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to
their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, we are fully
satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same
among themselves, because:
1. Said common fund was not something they found already in
existence. It was not a property inherited by them pro indiviso.
They created it purposely. What is more they jointly borrowed a
substantial portion thereof in order to establish said common
fund.
2. They invested the same, not merely in one transaction, but
in a series of transactions. On February 2, 1943, they bought a
lot for P100,000.00. On April 3, 1944, they purchased 21 lots
for P18,000.00. This was soon followed, on April 23, 1944, by
the acquisition of another real estate for P108,825.00. Five (5)
days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and
transcations undertaken, as well as the brief interregnum
between each, particularly the last three purchases, is strongly
indicative of a pattern or common design that was not limited
to the conservation and preservation of the aforementioned
common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a
character of habituality peculiar to business transactions
engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes
or to other personal uses, of petitioners herein. The properties
were leased separately to several persons, who, from 1945 to
1948 inclusive, paid the total sum of P70,068.30 by way of
rentals. Seemingly, the lots are still being so let, for petitioners
do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945,  the properties have been under the
management of one person, namely, Simeon Evangelists, with
full power to lease, to collect rents, to issue receipts, to bring
suits, to sign letters and contracts, and to indorse and deposit
 notes and checks. Thus, the affairs relative to said properties
have been handled as if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten
(10) years, or, to be exact, over fifteen (15) years, since the
first property was acquired, and over twelve (12) years, since
Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence,
either on their purpose in creating the set up already adverted
to, or on the causes for its continued existence. They did not
even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the
intent necessary to constitute a partnership, the collective
effect of these circumstances is such as to leave no room for
doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present
in the cases cited by petitioners herein, and, hence, those
cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an
agreement to contribute money, property or industry to a common fund, and that
they intended to divide the profits among themselves. Respondent commissioner
and/ or his representative just assumed these conditions to be present on the
basis of the fact that petitioners purchased certain parcels of land and became
co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased
twenty-four (24) lots showing that the purpose was not limited to the conservation
or preservation of the common fund or even the properties acquired by
them. The character of habituality peculiar to business transactions engaged in
for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did
not sell the same nor make any improvements thereon. In 1966, they bought
another three (3) parcels of land from one seller. It was only 1968 when they sold
the two (2) parcels of land after which they did not make any additional or new
purchase. The remaining three (3) parcels were sold by them in 1970. The
transactions were isolated. The character of habituality peculiar to business
transactions for the purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The
business was under the management of one of the partners. Such condition
existed for over fifteen (15) years. None of the circumstances are present in the
case at bar. The co-ownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he
said:
I wish however to make the following observation Article 1769
of the new Civil Code lays down the rule for determining when
a transaction should be deemed a partnership or a co-
ownership. Said article paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or
do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the
returns are derived;
From the above it appears that the fact that those who agree
to form a co- ownership share or do not share any profits
made by the use of the property held in common does not
convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether
or not the persons sharing therein have a joint or common right
or interest in the property. This only means that, aside from the
circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent
to form a partnership, the existence of a juridical personality
different from that of the individual partners, and the freedom
to transfer or assign any interest in the property by one with
the consent of the others (Padilla, Civil Code of the Philippines
Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more
persons contribute funds to buy certain real estate for profit in
the absence of other circumstances showing a contrary
intention cannot be considered a partnership.
Persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally
retain the title to their respective contribution, are not thereby
rendered partners. They have no common stock or capital, and
no community of interest as principal proprietors in the
business itself which the proceeds derived. (Elements of the
Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p.
74.)
A joint purchase of land, by two, does not constitute a co-
partnership in respect thereto; nor does an agreement to share
 the profits and losses on the sale of land create a partnership; these transactions, they are thereby relieved of any further tax liability arising
the parties are only tenants in common. (Clark vs. Sideway, therefrom.
142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
WHEREFROM, the petition is hereby GRANTED and the decision of the
Where plaintiff, his brother, and another agreed to become respondent Court of Tax Appeals of March 30, 1987 is hereby REVERSED and
owners of a single tract of realty, holding as tenants in SET ASIDE and another decision is hereby rendered relieving petitioners of the
common, and to divide the profits of disposing of it, the brother corporate income tax liability in this case, without pronouncement as to costs.
and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three SO ORDERED.
parties, whatever their relation may have been as to third
parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
Cruz, Griño-Aquino and Medialdea, JJ., concur.
In order to constitute a partnership inter sese there must be:
(a) An intent to form the same; (b) generally participating in Narvasa, J., took no part.
both profits and losses; (c) and such a community of interest,
as far as third persons are concerned as enables each party to  
make contract, manage the business, and dispose of the
whole property.-Municipal Paving Co. vs. Herring 150 P. 1067,
50 III 470.)

The common ownership of property does not itself create a

partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management, and
use of such property and the application of the proceeds
therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App.
14.) 6

The sharing of returns does not in itself establish a partnership whether or not the
persons sharing therein have a joint or common right or interest in the property.
There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party
to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the

petitioners. There is no adequate basis to support the proposition that they
thereby formed an unregistered partnership. The two isolated transactions
whereby they purchased properties and sold the same a few years thereafter did
not thereby make them partners. They shared in the gross profits as co- owners
and paid their capital gains taxes on their net profits and availed of the tax
amnesty thereby. Under the circumstances, they cannot be considered to have
formed an unregistered partnership which is thereby liable for corporate income
tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership
appears to have been formed, since there is no such existing unregistered
partnership with a distinct personality nor with assets that can be held liable for
said deficiency corporate income tax, then petitioners can be held individually
liable as partners for this unpaid obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in
THIRD DIVISION The events that led to this case are summarized by the CA as follows:

Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves

Reyes were introduced to each other by one Meliton Zabat regarding a lending
[G.R. No. 135813. October 25, 2001] business venture proposed by Nieves. It was verbally agreed that [petitioner
would] act as financier while [Nieves] and Zabat [would] take charge of
solicitation of members and collection of loan payments. The venture was
launched on June 13, 1986, with the understanding that [petitioner] would receive
70% of the profits while x x x Nieves and Zabat would earn 15% each.
FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES
REYES, respondents.
In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as
chairman of the Monte Maria Development Corporation[6] (Monte Maria, for
DECISION brevity), sought short-term loans for members of the corporation. [Petitioner] and
PANGANIBAN, J.: Gragera executed an agreement providing funds for Monte Marias
members. Under the agreement, Monte Maria, represented by Gragera, was
entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh. A). x x x
As a general rule, the factual findings of the Court of Appeals affirming Nieves kept the books as representative of [petitioner] while [Respondent]
those of the trial court are binding on the Supreme Court. However, there are Arsenio, husband of Nieves, acted as credit investigator.
several exceptions to this principle. In the present case, we find occasion to
apply both the rule and one of the exceptions.
On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of
Agreement which formalized their earlier verbal arrangement.

The Case
Before us is a Petition for Review on Certiorari assailing the November 28,
1997 Decision,[1] as well as the August 17, 1998 and the October 9, 1998
Resolutions,[2] issued by the Court of Appeals (CA) in CA-GR CV No. 34742. The
Assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED save as for the
counterclaim which is hereby DISMISSED. Costs against [petitioner].[3]
Resolving respondents Motion for Reconsideration, the August 17, 1998
Resolution ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is
GRANTED. Accordingly, the courts decision dated November 28, 1997 is hereby
MODIFIED in that the decision appealed from is AFFIRMED in toto, with costs
against [petitioner].[4]
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the
same lending business in competition with their partnership[.] Zabat was thereby
expelled from the partnership. The operations with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as
employees of [petitioner], with having misappropriated funds intended for
Gragera for the period July 8, 1986 up to March 31, 1987. Upon Grageras
complaint that his commissions were inadequately remitted, [petitioner]
entrusted P200,000.00 to x x x Nieves to be given to Gragera. x x x Nieves
allegedly failed to account for the amount. [Petitioner] asserted that after
examination of the records, he found that of the total amount of P4,623,201.90
entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby
leaving the balance of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere
employees of [petitioner]. The complaint, they alleged, was filed to preempt and
prevent them from claiming their rightful share to the profits of the partnership.

The October 9, 1998 Resolution denied for lack of merit petitioners Motion x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat
for Reconsideration of the August 17, 1998 Resolution.[5] after [petitioner] learned of Zabats activities. Arsenio resigned from his job at the
Asian Development Bank to join the partnership.

For her part, x x x Nieves claimed that she participated in the business as a
The Facts partner, as the lending activity with Monte Maria originated from her
initiative. Except for the limited period of July 8, 1986 through August 20, 1986,
 Percent share of the [respondent] NIEVES S. REYES in the
profits of her joint venture with the [petitioner].
she did not handle sums intended for Gragera. Collections were turned over to
Gragera because he guaranteed 100% payment of all sums loaned by Monte 39.2.2. Six (6) percent of - As damages from
Maria. Entries she made on worksheets were based on this assumptive 100%
collection of all loans. The loan releases were made less Grageras agreed P3,064,428.00 August 3, 1987 until the P3,064,428.00 is
commission. Because of this arrangement, she neither received payments from fully paid.
borrowers nor remitted any amount to Gragera. Her job was merely to make
worksheets (Exhs. 15 to 15-DDDDDDDDDD) to convey to [petitioner] how much
he would earn if all the sums guaranteed by Gragera were collected. 39.2.3. P50,000.00 - As moral damages
[Petitioner] on the other hand insisted that [respondents] were his mere
employees and not partners with respect to the agreement with Gragera. He 39.2.4. P10,000.00 - As exemplary damages
claimed that after he discovered Zabats activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and 39.3. The [petitioner] FERNANDO J. SANTOS is ordered to
Zabat. [Petitioner] asserted that [respondents] were hired as salaried employees pay the [respondent] ARSENIO REYES, the following:
with respect to the partnership between [petitioner] and Gragera.

[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received 39.3.1. P2,899,739.50 - The balance of the 15 percent
all payments from which Nieves deducted Grageras commission. The share of the [respondent] ARSENIO REYES in the profits of
commission would then be remitted to Gragera. She likewise determined loan
releases. his joint venture with the [petitioner].

During the pre-trial, the parties narrowed the issues to the following 39.3.2. Six (6) percent of – As damages from
points: whether [respondents] were employees or partners of [petitioner], whether
[petitioner] entrusted money to [respondents] for delivery to Gragera, whether
P2,899,739.50 August 3, 1987 until the P2,899,739.50 is
the P1,555,068.70 claimed under the complaint was actually remitted to Gragera fully paid
and whether [respondents] were entitled to their counterclaim for share in the
profits.[7]

Ruling of the Trial Court

.
In its August 13, 1991 Decision, the trial court held that respondents were
partners, not mere employees, of petitioner. It further ruled that Gragera was only 39.3.3. P25,000.00 - As moral damages
a commission agent of petitioner, not his partner. Petitioner moreover failed to 39.3.4. P10,000.00 - As exemplary damages
prove that he had entrusted any money to Nieves. Thus, respondents
counterclaim for their share in the partnership and for damages was granted. The 39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the
trial court disposed as follows: [respondents]:
39. WHEREFORE, the Court hereby renders judgment as follows: 39.4.1. P50,000.00 - As attorneys fees; and
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is 39.4.2 The cost of the suit.[8]
DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the
[Respondent] NIEVES S. REYES, the following: Ruling of the Court of Appeals
39.2.1. P3,064,428.00 – The 15
 On appeal, the Decision of the trial court was upheld, and the counterclaim
of respondents was dismissed. Upon the latters Motion for Reconsideration,
however, the trial courts Decision was reinstated in toto. Subsequently,
petitioners own Motion for Reconsideration was denied in the CA Resolution of
October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a
partnership among the parties: (1) it was Nieves who broached to petitioner the
idea of starting a money-lending business and introduced him to Gragera; (2)
Arsenio received dividends or profit-shares covering the period July 15 to August
7, 1986 (Exh. 6); and (3) the partnership contract was executed after the
Agreement with Gragera and petitioner and thus showed the parties intention to
consider it as a transaction of the partnership. In their common venture, petitioner
invested capital while respondents contributed industry or services, with the
intention of sharing in the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated a
total of P200,000 which was supposed to be delivered to Gragera to cover
unpaid commissions. It was his task to collect the amounts due, while hers was
merely to prepare the daily cash flow reports (Exhs. 15-15DDDDDDDDDD) to
keep track of his collections.
Hence, this Petition.[9]
Issue
Petitioner asks this Court to rule on the following issues:[10]
Whether or not Respondent Court of Appeals acted with grave abuse of
discretion tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and
not employees of Santos in connection with the agreement
between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received by
on documents signed by Nieves Reyes signified receipt of copies
of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit E was a
forgery;
4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes
of P200,000.00 for delivery to Gragera;
5. Affirming the dismissal of Santos [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private
respondents counterclaim;
7. Denying Santos motion for reconsideration dated September 11,
1998.
Succinctly put, the following were the issues raised by petitioner: (1)
whether the parties relationship was one of partnership or of employer-employee;
(2) whether Nieves misappropriated the sums of money allegedly entrusted to
her for delivery to Gragera as his commissions; and (3) whether respondents
were entitled to the partnership profits as determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses
in the money-lending venture with Gragera, with Nieves as bookkeeper and
Arsenio as credit investigator. That Nieves introduced Gragera to Santos did not
make her a partner. She was only a witness to the Agreement between the
two. Separate from the partnership between petitioner and Gragera was that
which existed among petitioner, Nieves and Zabat, a partnership that was
dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners
contentions and ruled that the business relationship was one of partnership. We
quote from the CA Decision, as follows:
[Respondents] were industrial partners of [petitioner]. x x x Nieves herself
provided the initiative in the lending activities with Monte Maria. In consonance
with the agreement between appellant, Nieves and Zabat (later replaced by
Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided
services without which the partnership would not have [had] the wherewithal to
carry on the purpose for which it was organized and as such [were] considered
industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was
technically dissolved by the expulsion of Zabat therefrom, the remaining partners
simply continued the business of the partnership without undergoing the
procedure relative to dissolution. Instead, they invited Arsenio to participate as a
partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply
took over and continued the business of the former partnership with Zabat, one
of the incidents of which was the lending operations with Monte Maria.
x x x x x x x x x
Gragera and [petitioner] were not partners. The money-lending activities
undertaken with Monte Maria was done in pursuit of the business for which the
partnership between [petitioner], Nieves and Zabat (later Arsenio) was
organized. Gragera who represented Monte Maria was merely paid commissions
in exchange for the collection of loans. The commissions were fixed on gross
returns, regardless of the expenses incurred in the operation of the
business. The sharing of gross returns does not in itself establish a partnership.
[11]
We agree with both courts on this point. By the contract of partnership, two
or more persons bind themselves to contribute money, property or industry to a
common fund, with the intention of dividing the profits among themselves. [12] The
Articles of Agreement stipulated that the signatories shall share the profits of the
business in a 70-15-15 manner, with petitioner getting the lions share.[13] This
stipulation clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte Maria
Community Development Group, Inc., which later on changed its business name
to Private Association for Community Development, Inc. (PACDI). Nieves was
not merely petitioners employee. She discharged her bookkeeping duties in
accordance with paragraphs 2 and 3 of the Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation
and screening of prospective borrowers, and shall x x x each be responsible in
handling the collection of the loan payments of the borrowers that they each
solicited.
3. That the bookkeeping and daily balancing of account of the business operation
shall be handled by the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves
Reyes. On the other hand, Arsenios duties as credit investigator are subsumed
under the phrase screening of prospective borrowers. Because of this Agreement
and the disbursement of monthly allowances and profit shares or dividends (Exh.
6) to Arsenio, we uphold the factual finding of both courts that he replaced Zabat
in the partnership.
Indeed, the partnership was established to engage in a money-lending
business, despite the fact that it was formalized only after the Memorandum of
Agreement had been signed by petitioner and Gragera. Contrary to petitioners
contention, there is no evidence to show that a different business venture is
referred to in this Agreement, which was executed on August 6, 1986, or about a
month after the Memorandum had been signed by petitioner and Gragera on July
14, 1986. The Agreement itself attests to this fact:
WHEREAS, the parties have decided to formalize the terms of their business
relationship in order that their respective interests may be properly defined and
established for their mutual benefit and understanding.[15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money
intended for Grageras commission. According to him, Gragera remitted his daily
collection to Nieves. This is shown by Exhibit B (the Schedule of Daily
Payments), which bears her signature under the words received by. For the
period July 1986 to March 1987, Gragera should have earned a total commission
of P4,282,429.30.However, only P3,068,133.20 was received by him. Thus,
petitioner infers that she misappropriated the difference of P1,214,296.10, which
represented the unpaid commissions. Exhibit H is an untitled tabulation which,
according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show that
Nieves received for delivery to Gragera any amount from which
the P1,214,296.10 unpaid commission was supposed to come, and that such
exhibits were insufficient proof that she had embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely denominated as members ledger does not
clearly establish that Nieves received amounts from Monte Marias members. The
document does not clearly state what amounts the entries thereon
represent. More importantly, Nieves made the entries for the limited period of
January 11, 1987 to February 17, 1987 only while the rest were made by
Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows
acknowledgment of the remittance of commissions to Verona Gonzales. The
document is a private one and its due execution and authenticity have not been
duly proved as required in [S]ection 20, Rule 132 of the Rules of Court which
states:
Sec. 20. Proof of Private Document  Before any private document offered as
authentic is received in evidence, its due execution and authenticity must be
proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to
be.
The court a quo even ruled that the signature thereon was a forgery, as it found
that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a
forgery. The initial stroke of Exh. E-1 starts from up and goes downward. The
initial stroke of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, among
others) starts from below and goes upward. This difference in the start of the
initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends
credence to Nieves claim that the signature Exh. E-1 is a forgery.
x x x x x x x x x
Nieves testimony that the schedules of daily payment (Exhs. B and F) were
based on the predetermined 100% collection as guaranteed by Gragera is
credible and clearly in accord with the evidence. A perusal of Exhs. B and F as
well as Exhs. 15 to 15-DDDDDDDDDD reveal that the entries were indeed based
on the 100% assumptive collection guaranteed by Gragera. Thus, the total
amount recorded on Exh. B is exactly the number of borrowers multiplied by the
projected collection of P150.00 per borrower. This holds true for Exh. F.
Corollarily, Nieves explanation that the documents were pro forma and that she
signed them not to signify that she collected the amounts but that she received
the documents themselves is more believable than [petitioners] assertion that
she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that
x x x Nieves received P200,000.00 as commission for Gragera. As correctly
stated by the court a quo, the document showed a liquidation of P240,000.00 and
not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all collections
were made by Gragera believable and worthy of credence. Since Gragera
guaranteed a daily 100% payment of the loans, he took charge of the
collections. As [petitioners] representative, Nieves merely prepared the daily
cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep
track of Grageras operations.Gragera on the other hand devised the schedule of
daily payment (Exhs. B and F) to record the projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the
commissions of GRAGERA [were] paid to him[,] that of NIEVES is more logical
and practical and therefore, more believable. SANTOS version would have given
rise to this improbable situation: GRAGERA would collect the daily amortizations
and then give them to NIEVES; NIEVES would get GRAGERAs commissions
from the amortizations and then give such commission to GRAGERA.[17]
These findings are in harmony with the trial courts ruling, which we quote
below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter
received P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth
column ADDITIONAL CASH that the additional cash was P240,000.00. If Exh. H
were the liquidation of the P200,000.00 as alleged by SANTOS, then his claim is
not true. This is so because it is a liquidation of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give
the P200,000.00 to GRAGERA when he received the latters letter complaining of
its delayed release. Assuming as true SANTOS claim that he gave P200,000.00
to GRAGERA, there is no competent evidence that NIEVES did not give it to
GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS
did not even present the letter in evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending
business of SANTOS were covered by petty cash vouchers. It is therefore
strange why SANTOS did not present any voucher or receipt covering
the P200,000.00.[18]
In sum, the lower courts found it unbelievable that Nieves had
embezzled P1,555,068.70 from the partnership. She did not remit P1,214,296.10
to Gragera, because he had deducted his commissions before remitting his
collections. Exhibits B and F are merely computations of what Gragera should
collect for the day; they do not show that Nieves received the amounts stated
therein. Neither is there sufficient proof that she misappropriated P200,000,
because Exhibit H does not indicate that such amount was received by her; in
fact, it shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual
findings is warranted. Well-entrenched is the basic rule that factual findings of the
Court of Appeals affirming those of the trial court are binding and conclusive on
the Supreme Court.[19] Although there are exceptions to this rule, petitioner has
not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of the
partnership. He maintains that both business propositions were flops, as his
investments were consumed and eaten up by the commissions orchestrated to
be due Gragera a situation that could not have been rendered possible without
complicity between Nieves and Gragera.
 Respondent spouses, on the other hand, postulate that petitioner instituted
the action below to avoid payment of the demands of Nieves, because sometime
in March 1987, she signified to petitioner that it was about time to get her share
of the profits which had already accumulated to some P3 million. Respondents
add that while the partnership has not declared dividends or liquidated its
earnings, the profits are already reflected on paper. To prove the counterclaim of
Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit
totaled P20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on that income, her
15 percent share under the joint venture amounts to P3,064,428 (Exh. 10-I-3);
and Arsenios, P2,026,000 minus the P30,000 which was already advanced to
him (Petty Cash Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature,
pending an accounting of the partnership. However, in its assailed Resolution of
August 17, 1998, it turned volte face. Affirming the trial courts ruling on the
counterclaim, it held as follows:
We earlier ruled that there is still need for an accounting of the profits and losses
of the partnership before we can rule with certainty as to the respective shares of
the partners. Upon a further review of the records of this case, however, there
appears to be sufficient basis to determine the amount of shares of the parties
and damages incurred by [respondents]. The fact is that the court a quo already
made such a determination [in its] decision dated August 13, 1991 on the basis
of the facts on record.[20]
The trial courts ruling alluded to above is quoted below:
27. The defendants counterclaim for the payment of their share in the profits of
their joint venture with SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the profits is based on the
agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the working papers
(Exhs. 10 to 10-I, inclusive) which she prepared.Exhs. 10 to 10-I (inclusive) were
based on the daily cash flow reports of which Exh. 3 is a sample. The originals of
the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from
its operations from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share
of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the
profits.
27.1.1 SANTOS never denied NIEVES testimony that the money-lending
business he was engaged in netted a profit and that the originals of the daily
case flow reports were furnished to him. SANTOS however alleged that the
money-lending operation of his joint venture with NIEVES and ZABAT resulted in
a loss of about half a million pesos to him. But such loss, even if true, does not
negate NIEVES claim that overall, the joint venture among them SANTOS,
NIEVES and ARSENIO netted a profit. There is no reason for the Court to doubt
the veracity of [the testimony of] NIEVES.
27.2 The P26,260.50 which ARSENIO received as part of his share in the profits
(Exhs. 6, 6-A and 6-B) should be deducted from his total share.[21]
After a close examination of respondents exhibits, we find reason to
disagree with the CA. Exhibit 10-I[22] shows that the partnership earned a total
income of P20,429,520 for the period June 13, 1986 until April 19, 1987. This
entry is derived from the sum of the amounts under the following column
headings: 2-Day Advance Collection, Service Fee, Notarial Fee, Application Fee,
Net Interest Income and Interest Income on Investment. Such entries represent
the collections of the money-lending business or its gross income.
The total income shown on Exhibit 10-I did not consider the expenses
sustained by the partnership. For instance, it did not factor in the gross loan
releases representing the money loaned to clients. Since the business is money-
lending, such releases are comparable with the inventory or supplies in other
business enterprises.
Noticeably missing from the computation of the total income is the
deduction of the weekly allowance disbursed to respondents. Exhibits I et seq.
and J et seq.[23] show that Arsenio received allowances from July 19, 1986 to
March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12,
1986 to March 27, 1987 in the total amount of P25,600. These allowances are
different from the profit already received by Arsenio. They represent expenses
that should have been deducted from the business profits. The point is that all
expenses incurred by the money-lending enterprise of the parties must first be
deducted from the total income in order to arrive at the net profit of the
partnership. The share of each one of them should be based on this net profit
and not from the gross income or total income reflected in Exhibit 10-I, which the
two courts invariably referred to as cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are the Daily Cashflow Reports, do
not reflect the business expenses incurred by the parties, because they show
only the daily cash collections. Contrary to the rulings of both the trial and the
appellate courts, respondents exhibits do not reflect the complete financial
condition of the money-lending business. The lower courts obviously labored
over a mistaken notion that Exhibit 10-I-1 represented the net profits earned by
the partnership.
For the purpose of determining the profit that should go to an industrial
partner (who shares in the profits but is not liable for the losses), the gross
income from all the transactions carried on by the firm must be added together,
and from this sum must be subtracted the expenses or the losses sustained in
the business. Only in the difference representing the net profits does the
industrial partner share. But if, on the contrary, the losses exceed the income, the
industrial partner does not share in the losses.[25]
When the judgment of the CA is premised on a misapprehension of facts or
a failure to notice certain relevant facts that would otherwise justify a different
conclusion, as in this particular issue, a review of its factual findings may be
conducted, as an exception to the general rule applied to the first two issues.[26]
The trial court has the advantage of observing the witnesses while they are
testifying, an opportunity not available to appellate courts. Thus, its assessment
of the credibility of witnesses and their testimonies are accorded great weight,
even finality, when supported by substantial evidence; more so when such
assessment is affirmed by the CA. But when the issue involves the evaluation of
exhibits or documents that are attached to the case records, as in the third issue,
the rule may be relaxed. Under that situation, this Court has a similar opportunity
to inspect, examine and evaluate those records, independently of the lower
courts. Hence, we deem the award of the partnership share, as computed by the
trial court and adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November
28, 1997 Decision is AFFIRMED,  but the challenged Resolutions dated August
17, 1998 and October 9, 1998 are REVERSEDand SET ASIDE. No costs.
SO ORDERED.
Melo, (Chairman), and Sandoval-Gutierrez, JJ., concur.
Vitug, J.,  on official leave.
Republic of the Philippines and Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito).
Supreme Court
They filed a Complaint[4] for Partition, Accounting and Damages  against
Manila
  respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim (Elfledo),
 
who was the eldest son of Jose and Cresencia.
THIRD DIVISION
 
 
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
 
HEIRS OF JOSE LIM, G.R. No. 172690 Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends
represented by ELENITO LIM,  
Petitioners, Present: Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to engage
    in the trucking business. Initially, with a contribution of P50,000.00 each, they
  CORONA, J.,
  Chairperson, purchased a truck to be used in the hauling and transport of lumber of the
  VELASCO, JR.,
- versus - NACHURA, sawmill. Jose managed the operations of this trucking business until his death on
  DEL CASTILLO,* and
  MENDOZA, JJ. 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
  Promulgated:
JULIET VILLA LIM,   partnership profits and income that formed part of the estate of Jose were held in
Respondent. March 3, 2010
    trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire
x------------------------------------------------------------------------------------x
  properties using said funds.
   
DECISION
  Petitioners also alleged that, at that time, Elfledo was a fresh commerce
NACHURA, J.:
  graduate serving as his fathers driver in the trucking business. He was never a
 
partner or an investor in the business and merely supervised the purchase of
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the
additional trucks using the income from the trucking business of the partners. By
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision[2] dated
the time the partnership ceased, it had nine trucks, which were all registered in
June 29, 2005, which reversed and set aside the decision [3] of the Regional Trial
Elfledo's name. Petitioners asseverated that it was also through Elfledos
Court (RTC) of Lucena City, dated April 12, 2004.
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

The facts of the case are as follows: his name and that of respondent. In addition to the nine trucks, Elfledo also

  acquired five other motor vehicles.

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow  

Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna 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 P50,000.00 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 husbands 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
Resolution[6] 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 certiorariunder 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
[10]
introduced in and considered by the tribunals below.  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--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 Appeals [14] 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 P50,000.00, 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
[19]
admitted that Elfledo also sold Interwood lumber as a sideline.  Petitioners
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.

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 Elfredos 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.
 
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.
THIRD DIVISION internal audit purposes, as the owners account in the Sto. Nino
  PROJECT. Any part of any income of the PRINCIPAL from the
  STO. NINO MINE, which is left with the Sto. Nino PROJECT,
PHILEX MINING G.R. No. 148187 shall be added to such owners account.
CORPORATION,  
Petitioner, Present: 5. Whenever the MANAGERS shall deem it necessary and
Ynares-Santiago, J. (Chairperson), convenient in connection with the MANAGEMENT of the STO.
- versus - Carpio Morales, * NINO MINE, they may transfer their own funds or property to
Chico-Nazario, the Sto. Nino PROJECT, in accordance with the following
Nachura, and, arrangements:
Reyes, JJ.  
COMMISSIONER OF (a) The properties shall be appraised and, together with the
INTERNAL REVENUE, Promulgated: cash, shall be carried by the Sto. Nino PROJECT as a special
Respondent. fund to be known as the MANAGERS account.
April 16, 2008  
x ---------------------------------------------------------------------------------------- x (b) The total of the MANAGERS account shall not exceed
  P11,000,000.00, except with prior approval of the PRINCIPAL;
DECISION provided, however, that if the compensation of the
  MANAGERS as herein provided cannot be paid in cash from
YNARES-SANTIAGO, J.: the Sto. Nino PROJECT, the amount not so paid in cash shall
  be added to the MANAGERS account.
   
(c) The cash and property shall not thereafter be withdrawn
This is a petition for review on certiorari of the June 30, 2000 Decision [1] of the from the Sto. Nino PROJECT until termination of this Agency.
 
Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision [2] of the
(d) The MANAGERS account shall not accrue interest. Since it
Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, is the desire of the PRINCIPAL to extend to the MANAGERS
the benefit of subsequent appreciation of property, upon a
2001 Resolution[3] denying the motion for reconsideration. projected termination of this Agency, the ratio which the
MANAGERS account has to the owners account will be
  determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims, shall be
The facts of the case are as follows:
transferred to the MANAGERS, except that such transferred
  assets shall not include mine development, roads, buildings,
and similar property which will be valueless, or of slight value,
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), to the MANAGERS. The MANAGERS can, on the other hand,
require at their option that property originally transferred by
entered into an agreement[4] with Baguio Gold Mining Company (Baguio Gold) for them to the Sto. Nino PROJECT be re-transferred to them.
the former to manage and operate the latters mining claim, known as the Sto. Until such assets are transferred to the MANAGERS, this
Agency shall remain subsisting.
Nino mine, located in Atok and Tublay, Benguet Province. The parties agreement  
xxxx
was denominated as Power of Attorney and provided for the following terms:  
12. The compensation of the MANAGER shall be fifty per cent
  (50%) of the net profit of the Sto. Nino PROJECT before
4. Within three (3) years from date thereof, the PRINCIPAL income tax. It is understood that the MANAGERS shall pay
(Baguio Gold) shall make available to the MANAGERS (Philex income tax on their compensation, while the PRINCIPAL shall
Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in pay income tax on the net profit of the Sto. Nino PROJECT
such amounts as from time to time may be required by the after deduction therefrom of the MANAGERS compensation.
MANAGERS within the said 3-year period, for use in the  
MANAGEMENT of the STO. NINO MINE. The said ELEVEN xxxx
MILLION PESOS (P11,000,000.00) shall be deemed, for  
 16. The PRINCIPAL has current pecuniary obligation in favor
of the MANAGERS and, in the future, may incur other indebtedness to petitioner actually amounted to P259,137,245.00, which sum
obligations in favor of the MANAGERS. This Power of Attorney
included liabilities of Baguio Gold to other creditors that petitioner had assumed
has been executed as security for the payment and satisfaction
of all such obligations of the PRINCIPAL in favor of the as guarantor. These liabilities pertained to long-term loans amounting to
MANAGERS and as a means to fulfill the same. Therefore, this
Agency shall be irrevocable while any obligation of the US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT &
PRINCIPAL in favor of the MANAGERS is outstanding,
inclusive of the MANAGERS account. After all obligations of SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
the PRINCIPAL in favor of the MANAGERS have been paid segments by first assigning its tangible assets for P127,838,051.00 and then
and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS. transferring its equitable title in its Philodrill assets for P16,302,426.00. The
 
17. Notwithstanding any agreement or understanding between parties then ascertained that Baguio Gold had a remaining outstanding
the PRINCIPAL and the MANAGERS to the contrary, the
MANAGERS may withdraw from this Agency by giving 6- indebtedness to petitioner in the amount of P114,996,768.00.
month notice to the PRINCIPAL. The MANAGERS shall not in  
any manner be held liable to the PRINCIPAL by reason alone
of such withdrawal. Paragraph 5(d) hereof shall be operative in Subsequently, petitioner wrote off in its 1982 books of account the remaining
case of the MANAGERS withdrawal.
  outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
x x x x[5]
allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982
 
operations.
In the course of managing and operating the project, Philex Mining made
 
advances of cash and property in accordance with paragraph 5 of the
In its 1982 annual income tax return, petitioner deducted from its gross income
agreement. However, the mine suffered continuing losses over the years which
the amount of P112,136,000.00 as loss on settlement of receivables from Baguio
resulted to petitioners withdrawal as manager of the mine on January 28,
Gold against reserves and allowances.[9] However, the Bureau of Internal
[6]
1982 and in the eventual cessation of mine operations on February 20, 1982.
Revenue (BIR) disallowed the amount as deduction for bad debt and assessed
 
petitioner a deficiency income tax of P62,811,161.39.
Thereafter, on September 27, 1982, the parties executed a Compromise with
 
Dation in Payment[7] wherein Baguio Gold admitted an indebtedness to petitioner
Petitioner protested before the BIR arguing that the deduction must be allowed
in the amount of P179,394,000.00 and agreed to pay the same in three
since all requisites for a bad debt deduction were satisfied, to wit: (a) there was a
segments by first assigning Baguio Golds tangible assets to petitioner,
valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it
transferring to the latter Baguio Golds equitable title in its Philodrill assets and
was charged off within the taxable year when it was determined to be worthless.
finally settling the remaining liability through properties that Baguio Gold may
 
acquire in the future.
Petitioner emphasized that the debt arose out of a valid management contract it
 
entered into with Baguio Gold. The bad debt deduction represented advances
On December 31, 1982, the parties executed an Amendment to Compromise
made by petitioner which, pursuant to the management contract, formed part of
with Dation in Payment[8] where the parties determined that Baguio Golds
Baguio Golds pecuniary obligations to petitioner. It also included payments made
by petitioner as guarantor of Baguio Golds long-term loans which legally entitled
petitioner to be subrogated to the rights of the original creditor.
 
Petitioner also asserted that due to Baguio Golds irreversible losses, it
became evident that it would not be able to recover the advances and payments
it had made in behalf of Baguio Gold. For a debt to be considered worthless,
petitioner claimed that it was neither required to institute a judicial action for
collection against the debtor nor to sell or dispose of collateral assets in
satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable means to collect.
 
On October 28, 1994, the BIR denied petitioners protest for lack of legal
and factual basis. It held that the alleged debt was not ascertained to be
worthless since Baguio Gold remained existing and had not filed a petition for
bankruptcy; and that the deduction did not consist of a valid and subsisting debt
considering that, under the management contract, petitioner was to be paid fifty
percent (50%) of the projects net profit.[10]
Petitioner appealed before the Court of Tax Appeals (CTA) which
rendered judgment, as follows:
 
WHEREFORE, in view of the foregoing, the instant
Petition for Review is hereby DENIED for lack of merit. The
assessment in question, viz: FAS-1-82-88-003067 for
deficiency income tax in the amount of P62,811,161.39 is
hereby AFFIRMED.
 
ACCORDINGLY, petitioner Philex Mining Corporation
is hereby ORDERED to PAY respondent Commissioner of
Internal Revenue the amount of P62,811,161.39, plus, 20%
delinquency interest due computed from February 10, 1995,
which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency
amount x x x up to actual date of payment.
 
SO ORDERED.[11]
 
The CTA rejected petitioners assertion that the advances it made for the
Sto. Nino mine were in the nature of a loan. It instead characterized the
advances as petitioners investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the
Power of Attorney executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the nature of an
investment, it could not be deducted as a bad debt from petitioners gross
income.
 
The CTA likewise held that the amount paid by petitioner for the long-
term loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in default
since its loans were not yet due and demandable. What petitioner did was to pre-
pay the loans as evidenced by the notice sent by Bank of America showing that it
was merely demanding payment of the installment and interests due. Moreover,
Citibank imposed and collected a pre-termination penalty for the pre-payment.
The Court of Appeals affirmed the decision of the CTA. [12] Hence, upon
denial of its motion for reconsideration,[13] petitioner took this recourse under Rule
45 of the Rules of Court, alleging that:
 
I.
The Court of Appeals erred in construing that the advances
made by Philex in the management of the Sto. Nino Mine
pursuant to the Power of Attorney partook of the nature of an
investment rather than a loan.
 
II.
The Court of Appeals erred in ruling that the 50%-50% sharing
in the net profits of the Sto. Nino Mine indicates that Philex is a
partner of Baguio Gold in the development of the Sto. Nino
 Mine notwithstanding the clear absence of any intent on the
part of Philex and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of
Attorney and in completely disregarding the Compromise
Agreement and the Amended Compromise Agreement when it
construed the nature of the advances made by Philex.
 
IV.
The Court of Appeals erred in refusing to delve upon the issue
of the propriety of the bad debts write-off.[14]
 
Petitioner insists that in determining the nature of its business
relationship with Baguio Gold, we should not only rely on the Power of Attorney,
but also on the subsequent Compromise with Dation in Payment and Amended
Compromise with Dation in Payment that the parties executed in 1982. These
documents, allegedly evinced the parties intent to treat the advances and
payments as a loan and establish a creditor-debtor relationship between them.
The petition lacks merit.
 
The lower courts correctly held that the Power of Attorney is the
instrument that is material in determining the true nature of the business
relationship between petitioner and Baguio Gold. Before resort may be had to the
two compromise agreements, the parties contractual intent must first be
discovered from the expressed language of the primary contract under which the
parties business relations were founded. It should be noted that the compromise
agreements were mere collateral documents executed by the parties pursuant to
the termination of their business relationship created under the Power of
Attorney. On the other hand, it is the latter which established the juridical relation
of the parties and defined the parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or contemporaneous act that is reflective of the
parties true intent. The compromise agreements were executed eleven years
after the Power of Attorney and merely laid out a plan or procedure by which
petitioner could recover the advances and payments it made under the Power of
Attorney. The parties entered into the compromise agreements as a
consequence of the dissolution of their business relationship. It did not define
that relationship or indicate its real character.
 
An examination of the Power of Attorney reveals that a partnership or
joint venture was indeed intended by the parties. Under a contract of partnership,
two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.
[15]
 While a corporation, like petitioner, cannot generally enter into a contract of
partnership unless authorized by law or its charter, it has been held that it may
enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law
origin. It has no precise legal definition, but it has been
generally understood to mean an organization formed for some
temporary purpose. x x x It is in fact hardly distinguishable from
the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a
mutual right of control. x x x The main distinction cited by most
opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of
a single transaction, and is thus of a temporary nature. x x x
This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a
specific undertaking. x x x It would seem therefore that under
Philippine law, a joint venture is a form of partnership and
should be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two
business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however
engage in a joint venture with others. x x x (Citations
omitted) [16]
 Perusal of the agreement denominated as the Power of Attorney business relations. As can be seen, petitioner became bound by its contributions

indicates that the parties had intended to create a partnership and establish a once the transfers were made. The contributions acquired an obligatory nature

common fund for the purpose. They also had a joint interest in the profits of the as soon as petitioner had chosen to exercise its option under paragraph 5.

business as shown by a 50-50 sharing in the income of the mine.  

  There is no merit to petitioners claim that the prohibition in paragraph

Under the Power of Attorney, petitioner and Baguio Gold undertook to 5(c) against withdrawal of advances should not be taken as an indication that it

contribute money, property and industry to the common fund known as the Sto. had entered into a partnership with Baguio Gold; that the stipulation only showed
[17]
Nio mine.  In this regard, we note that there is a substantive equivalence in the that what the parties entered into was actually a contract of agency coupled with

respective contributions of the parties to the development and operation of the an interest which is not revocable at will and not a partnership.

mine. Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio  

Gold were to contribute equally to the joint venture assets under their respective In an agency coupled with interest, it is the agency that cannot be

accounts. Baguio Gold would contribute P11Munder its owners account plus any revoked or withdrawn by the principal due to an interest of a third party that

of its income that is left in the project, in addition to its actual mining depends upon it, or the mutual interest of both principal and agent.[19] In this case,

claim. Meanwhile, petitioners contribution would consist of its expertise in the the non-revocation or non-withdrawal under paragraph 5(c) applies to

management and operation of mines, as well as the managers account which is the advances made by petitioner who is supposedly the agent and not the

comprised of P11M in funds and property and petitioners compensation as principal under the contract. Thus, it cannot be inferred from the stipulation that

manager that cannot be paid in cash. the parties relation under the agreement is one of agency coupled with an

  interest and not a partnership.

However, petitioner asserts that it could not have entered into a  

partnership agreement with Baguio Gold because it did not bind itself to Neither can paragraph 16 of the agreement be taken as an indication

contribute money or property to the project; that under paragraph 5 of the that the relationship of the parties was one of agency and not a partnership.

agreement, it was only optional for petitioner to transfer funds or property to the Although the said provision states that this Agency shall be irrevocable while any

Sto. Nio project (w)henever the MANAGERS shall deem it necessary and obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive
[18]
convenient in connection with the MANAGEMENT of the STO. NIO MINE. of the MANAGERS account, it does not necessarily follow that the parties

  entered into an agency contract coupled with an interest that cannot be

The wording of the parties agreement as to petitioners contribution to withdrawn by Baguio Gold.

the common fund does not detract from the fact that petitioner transferred its  

funds and property to the project as specified in paragraph 5, thus rendering It should be stressed that the main object of the Power of Attorney was

effective the other stipulations of the contract, particularly paragraph 5(c) which not to confer a power in favor of petitioner to contract with third persons on behalf

prohibits petitioner from withdrawing the advances until termination of the parties of Baguio Gold but to create a business relationship between petitioner and
Baguio Gold, in which the former was to manage and operate the latters mine or any fungible thing acquires ownership thereof and is bound to pay the creditor

through the parties mutual contribution of material resources and industry. The an equal amount of the same kind and quality.[23] In this case, however, there was

essence of an agency, even one that is coupled with interest, is the agents ability no stipulation for Baguio Gold to actually repay petitioner the cash and property

to represent his principal and bring about business relations between the latter that it had advanced, but only the return of an amount pegged at a ratio which

and third persons.[20] Where representation for and in behalf of the principal is the managers account had to the owners account.

merely incidental or necessary for the proper discharge of ones paramount  

undertaking under a contract, the latter may not necessarily be a contract of In this connection, we find no contractual basis for the execution of the

agency, but some other agreement depending on the ultimate undertaking of the two compromise agreements in which Baguio Gold recognized a debt in favor of

parties.[21] petitioner, which supposedly arose from the termination of their business

  relations over the Sto. Nino mine. The Power of Attorney clearly provides that

In this case, the totality of the circumstances and the stipulations in the petitioner would only be entitled to the return of a proportionate share of the mine

parties agreement indubitably lead to the conclusion that a partnership was assets to be computed at a ratio that the managers account had to the owners

formed between petitioner and Baguio Gold. account. Except to provide a basis for claiming the advances as a bad debt

  deduction, there is no reason for Baguio Gold to hold itself liable to petitioner

First, it does not appear that Baguio Gold was unconditionally obligated under the compromise agreements, for any amount over and above the

to return the advances made by petitioner under the agreement. Paragraph 5 (d) proportion agreed upon in the Power of Attorney.

thereof provides that upon termination of the parties business relations, the ratio  

which the MANAGERS account has to the owners account will be determined, Next, the tax court correctly observed that it was unlikely for a business

and the corresponding proportion of the entire assets of the STO. NINO MINE, corporation to lend hundreds of millions of pesos to another corporation with
[22]
excluding the claims shall be transferred to petitioner.  As pointed out by the neither security, or collateral, nor a specific deed evidencing the terms and

Court of Tax Appeals, petitioner was merely entitled to a proportionate return of conditions of such loans. The parties also did not provide a specific maturity date

the mines assets upon dissolution of the parties business relations. There was for the advances to become due and demandable, and the manner of payment

nothing in the agreement that would require Baguio Gold to make payments of was unclear. All these point to the inevitable conclusion that the advances were

the advances to petitioner as would be recognized as an item of obligation or not loans but capital contributions to a partnership.

accounts payable for Baguio Gold.  

  The strongest indication that petitioner was a partner in the Sto Nio

Thus, the tax court correctly concluded that the agreement provided for mine is the fact that it would receive 50% of the net profits as compensation

a distribution of assets of the Sto. Nio mine upon termination, a provision that is under paragraph 12 of the agreement. The entirety of the parties contractual

more consistent with a partnership than a creditor-debtor relationship. It should stipulations simply leads to no other conclusion than that petitioners

be pointed out that in a contract of loan, a person who receives a loan or money compensation is actually its share in the income of the joint venture.
   unconditional obligation to return the same to the former under the Power of

Article 1769 (4) of the Civil Code explicitly provides that the receipt by a Attorney. As for the amounts that petitioner paid as guarantor to Baguio Golds

person of a share in the profits of a business is prima facie evidence that he is a creditors, we find no reason to depart from the tax courts factual finding that

partner in the business. Petitioner asserts, however, that no such inference can Baguio Golds debts were not yet due and demandable at the time that petitioner

be drawn against it since its share in the profits of the Sto Nio project was in the paid the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its

nature of compensation or wages of an employee, under the exception provided bank creditors and this conclusion is supported by the evidence on record.[26]

in Article 1769 (4) (b).[24]  

  In sum, petitioner cannot claim the advances as a bad debt deduction

On this score, the tax court correctly noted that petitioner was not an from its gross income. Deductions for income tax purposes partake of the nature

employee of Baguio Gold who will be paid wages pursuant to an employer- of tax exemptions and are strictly construed against the taxpayer, who must

employee relationship. To begin with, petitioner was the manager of the project prove by convincing evidence that he is entitled to the deduction claimed. [27] In

and had put substantial sums into the venture in order to ensure its viability and this case, petitioner failed to substantiate its assertion that the advances were

profitability. By pegging its compensation to profits, petitioner also stood not to be subsisting debts of Baguio Gold that could be deducted from its gross

remunerated in case the mine had no income. It is hard to believe that petitioner income. Consequently, it could not claim the advances as a valid bad debt

would take the risk of not being paid at all for its services, if it were truly just an deduction.

ordinary employee.  

  WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in

Consequently, we find that petitioners compensation under paragraph CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of the

12 of the agreement actually constitutes its share in the net profits of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex

partnership. Indeed, petitioner would not be entitled to an equal share in the Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income

income of the mine if it were just an employee of Baguio Gold. [25] It is not in the amount of P62,811,161.31, with 20% delinquency interest computed

surprising that petitioner was to receive a 50% share in the net profits, from February 10, 1995, which is the due date given for the payment of the

considering that the Power of Attorney also provided for an almost equal deficiency income tax, up to the actual date of payment.

contribution of the parties to the St. Nino mine. The compensation agreed upon  

only serves to reinforce the notion that the parties relations were indeed of SO ORDERED.

partners and not employer-employee.

All told, the lower courts did not err in treating petitioners advances as

investments in a partnership known as the Sto. Nino mine. The advances were

not debts of Baguio Gold to petitioner inasmuch as the latter was under no
Republic of the Philippines Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a
SUPREME COURT portion of the land applied for by Casteel. Alejandro Cacam's fishpond
Manila application 1276, filed on December 26, 1946, was given due course on
December 9, 1947 with the issuance to him of fishpond permit F-539-C to
EN BANC develop 30 hectares of land comprising a portion of the area applied for by
Casteel, upon certification of the Bureau of Forestry that the area was likewise
available for fishpond purposes. On November 17, 1948 Felipe Deluao filed his
G.R. No. L-21906      December 24, 1968 own fishpond application for the area covered by Casteel's application.

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,  Because of the threat poised upon his position by the above applicants who
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,  necessity of expanding his occupation thereof by constructing dikes and
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and
the order of May 21, 1956, all of the Court of First Instance of Davao, in civil case
629. The basic action is for specific performance, and damages resulting from an
alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy
land in the then Sitio of Malalag (now the Municipality of Malalag), Municipality of
Padada, Davao. No action was taken thereon by the authorities concerned.
During the Japanese occupation, he filed another fishpond application for the
same area, but because of the conditions then prevailing, it was not acted upon
either. On December 12, 1945 he filed a third fishpond application for the same
area, which, after a survey, was found to contain 178.76 hectares. Upon
investigation conducted by a representative of the Bureau of Forestry, it was
discovered that the area applied for was still needed for firewood production.
Hence on May 13, 1946 this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the
district forester of Davao City that no further action would be taken on his motion,
unless he filed a new application for the area concerned. So he filed on May 27,
1947 his fishpond application 1717.
entered upon and spread themselves within the area, Casteel realized the urgent
cultivating marketable fishes, in order to prevent old and new squatters from
usurping the land. But lacking financial resources at that time, he sought financial
aid from his uncle Felipe Deluao who then extended loans totalling more or less
P27,000 with which to finance the needed improvements on the fishpond. Hence,
a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding
protests. Consequently, two administrative cases ensued involving the area in
question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No.
1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D.
Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661
(now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant versus Fp. Permit
No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam,
Permittees-Respondents."
However, despite the finding made in the investigation of the above
administrative cases that Casteel had already introduced improvements on
portions of the area applied for by him in the form of dikes, fishpond gates,
clearings, etc., the Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all the improvements
which he had introduced on the land, and ordered that the land be leased
through public auction. Failing to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the Secretary of
Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will
be taken up in our discussion of the appellant's third assignment of error.

Meanwhile, several applications were submitted by other persons for portions of
the area covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering
10 hectares of land found inside the area applied for by Casteel; he was later
granted fishpond permit F-289-C covering 9.3 hectares certified as available for
fishpond purposes by the Bureau of Forestry.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the
first part, and Nicanor Casteel as party of the second part, executed a contract —
denominated a "contract of service" — the salient provisions of which are as
follows:
That the Party of the First Part in consideration of the mutual covenants
and agreements made herein to the Party of the Second Part, hereby
 enter into a contract of service, whereby the Party of the First Part hires
and employs the Party of the Second Part on the following terms and
conditions, to wit:
That the Party of the First Part will finance as she has hereby financed
the sum of TWENTY SEVEN THOUSAND PESOS (P27,000.00),
Philippine Currency, to the Party of the Second Part who renders only
his services for the construction and improvements of a fishpond at
Barrio Malalag, Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of
all the produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she
having financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into
between the Parties sometime in the month of November, 1947, with all
the above-mentioned conditions enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao
executed a special power of attorney in favor of Jesus Donesa, extending to the
latter the authority "To represent me in the administration of the fishpond at
Malalag, Municipality of Padada, Province of Davao, Philippines, which has been
applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of
Fisheries, and to supervise, demand, receive, and collect the value of the fish
that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by
Felipe Deluao on November 17, 1948. Unfazed by this rejection, Deluao
reiterated his claim over the same area in the two administrative cases (DANR
Cases 353 and 353-B) and asked for reinvestigation of the application of Nicanor
Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent
to the Secretary of Commerce and Agriculture and Natural Resources (now
Secretary of Agriculture and Natural Resources), Deluao withdrew his petition for
reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources
issued a decision in DANR Case 353, the dispositive portion of which reads as
follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A.
No. 1717) of Nicanor Casteel should be, as hereby it is, reinstated and
given due course for the area indicated in the sketch drawn at the back
of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio shall
remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and
Fishpond Permit No. F-539-C of Alejandro Cacam, should be, as they
are hereby cancelled and revoked; Nicanor Casteel is required to pay
the improvements introduced thereon by said permittees in accordance
with the terms and dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from
further administering the fishpond, and ejected the latter's representative
(encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between
Inocencia Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on
April 3, 1951 filed an action in the Court of First Instance of Davao for specific
performance and damages against Nicanor Casteel and Juan Depra (who, they
alleged, instigated Casteel to violate his contract), praying inter alia, (a) that
Casteel be ordered to respect and abide by the terms and conditions of said
contract and that Inocencia Deluao be allowed to continue administering the said
fishpond and collecting the proceeds from the sale of the fishes caught from time
to time; and (b) that the defendants be ordered to pay jointly and severally to
plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a
preliminary injunction, praying among other things, that during the pendency of
the case and upon their filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing the acts
complained of, and that after trial the said injunction be made permanent. The
lower court on April 26, 1951 granted the motion, and, two days later, it issued a
preliminary mandatory injunction addressed to Casteel, the dispositive portion of
which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden,
usted, el demandado y todos usu abogados, agentes, mandatarios y
demas personas que obren en su ayuda, desista de impedir a la
demandante Inocencia R. Deluao que continue administrando
personalmente la pesqueria objeto de esta causa y que la misma
continue recibiendo los productos de la venta de los pescados
provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho
demandado Nicanor Casteel a desahuciar mediante fuerza al
encargado de los demandantes llamado Jesus Donesa de la pesqueria
objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging
among others, that he was the owner, lawful applicant and occupant of the
fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951,
was denied by the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended
on January 8, 1952, denying the material averments of the plaintiffs' complaint. A
reply to the defendants' amended answer was filed by the plaintiffs on January
31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as
to him. On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground
that the plaintiffs' complaint failed to state a claim upon which relief may be
granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied
for lack of merit by the lower court in its order of October 22, 1951. The
defendants' motion for reconsideration filed on October 31, 1951 suffered the
same fate when it was likewise denied by the lower court in its order of
November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A.
Fernandez) finally issued on March 21, 1956 an order in open court, reading as
follows: .
Upon petition of plaintiffs, without any objection on the part of
defendants, the hearing of this case is hereby transferred to May 2 and
3, 1956 at 8:30 o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this
Court will not entertain any other transfer of hearing of this case and if
the parties will not be ready on that day set for hearing, the court will
take the necessary steps for the final determination of this case.
(emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated
April 21, 1956, issued by the office of the Clerk of Court (thru the special deputy
Clerk of Court) of the Court of First Instance of Davao, setting the hearing of the
case for May 2 and 3, 1956 before Judge Amador Gomez of Branch II. The
defendants, thru counsel, on April 26, 1956 filed a motion for postponement.
Acting on this motion, the lower court (Branch II, presided by Judge Gomez)
issued an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for
May 2 and 3, 1956. The motion is filed by the counsel for the
defendants and has the conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was
initiated as early as April 1951 and that the same has been under
advisement of the Honorable Enrique A. Fernandez, Presiding Judge of
Branch No. I, since September 24, 1953, and that various incidents
have already been considered and resolved by Judge Fernandez on
various occasions. The last order issued by Judge Fernandez on this
case was issued on March 21, 1956, wherein he definitely states that
the Court will not entertain any further postponement of the hearing of
this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the
consideration and termination of any incident referring to this case
should be referred back to Branch I, so that the same may be disposed
of therein. (emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May
4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court
(Branch I, with Judge Fernandez presiding), when informed about the
defendants' motion for postponement filed on April 26, 1956, issued an order
reiterating its previous order handed down in open court on March 21, 1956 and
directing the plaintiffs to introduce their evidence ex parte, there being no
appearance on the part of the defendants or their counsel. On the basis of the
plaintiffs' evidence, a decision was rendered on May 4, 1956 the dispositive
portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los
demandantes y en contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el
demandado;
(b) Ordena al demandado entregue la demandante la posesion y
administracion de la mitad (½) del "fishpond" en cuestion con todas las
mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de
P200.00 mensualmente en concepto de danos a contar de la fecha de
la expiracion de los 30 dias de la promulgacion de esta decision hasta
que entregue la posesion y administracion de la porcion del "fishpond"
en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de
P2,000.00 valor de los pescado beneficiados, mas los intereses legales
de la fecha de la incoacion de la demanda de autos hasta el completo
pago de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de
P2,000.00, por gastos incurridos por aquella durante la pendencia de
esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de
honorarios, la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de
pruebas, en tanto en cuanto se refiere al demandado Juan Depra;
 (h) Ordena el sobreseimiento de la reconvencion de los demandados
por falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision,
alleging, inter alia, lack of knowledge of the order of the court a quo setting the
case for trial. The petition, however, was denied by the lower court in its order of
May 21, 1956, the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court
whether the trial of this case has been transferred or not, but to inquire
from the presiding Judge, particularly because his motion asking the
transfer of this case was not set for hearing and was not also acted
upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21,
1956, which reads as follows:
Upon petition of the plaintiff without any objection on the part of
the defendants, the hearing of this case is hereby transferred
to May 2 and 3, 1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any
circumstance this Court will not entertain any other transfer of
the hearing of this case, and if the parties will not be ready on
the day set for hearing, the Court will take necessary steps for
the final disposition of this case.
In view of the order above-quoted, the Court will not accede to any
transfer of this case and the duty of Atty. Ruiz is no other than to be
present in the Sala of this Court and to call the attention of the same to
the existence of his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the
defendant, not well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which
certified the case to us for final determination on the ground that it involves only
questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it
ordered reception of the appellees' evidence in the absence of the
appellant at the trial on May 2, 1956, thus depriving the appellant of his
day in court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it
denied the verified petition for relief from judgment filed by the appellant
on May 11, 1956 in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a
writ of preliminary injunction against defendant-appellant, and in not
dismissing appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21,
1956, the lower court set the case for hearing on May 2 and 3, 1956 at 8:30
o'clock in the morning and empathically stated that, since the case had been
pending since April 3, 1951, it would not entertain any further motion for transfer
of the scheduled hearing.
An order given in open court is presumed received by the parties on the very
date and time of promulgation, 1 and amounts to a legal notification for all legal
purposes.2 The order of March 21, 1956, given in open court, was a valid notice
to the parties, and the notice of hearing dated April 21, 1956 or one month
thereafter, was a superfluity. Moreover, as between the order of March 21, 1956,
duly promulgated by the lower court, thru Judge Fernandez, and the notice of
hearing signed by a "special deputy clerk of court" setting the hearing in another
branch of the same court, the former's order was the one legally binding. This is
because the incidents of postponements and adjournments are controlled by the
court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3,
Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the
court or to transfer the cage from one sala to another without authority or order
from the court where the case originated and was being tried. He had neither the
duty nor prerogative to re-assign the trial of the case to a different branch of the
same court. His duty as such clerk of court, in so far as the incident in question
was concerned, was simply to prepare the trial calendar. And this duty devolved
upon the clerk of court and not upon the "special deputy clerk of court" who
purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the
appellees' counsel. The postponement of hearings does not depend upon
agreement of the parties, but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12
lawyers, none of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of
the order dated March 21, 1956 intransferably setting the case for hearing for
May 2 and 3, 1956, was sufficient notice to all the appellant's eleven other
counsel of record. This is a well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the
appellant himself, to appear before Judge Fernandez on the scheduled dates of
hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers
cannot pretend ignorance of the recorded fact that since September 24, 1953
until the trial held on May 2, 1956, the case was under the advisement of Judge
Fernandez who presided over Branch I. There was, therefore, no necessity to
"re-assign" the same to Branch II because Judge Fernandez had exclusive
control of said case, unless he was legally inhibited to try the case — and he was
not.
There is truth in the appellant's contention that it is the duty of the clerk of court
— not of the Court — to prepare the trial calendar. But the assignment or
reassignment of cases already pending in one sala to another sala, and the
setting of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the
office of the clerk of court of the Court of First Instance of Davao was located
directly below Branch I. If the appellant and his counsel had exercised due
diligence, there was no impediment to their going upstairs to the second storey of
the Court of First Instance building in Davao on May 2, 1956 and checking if the
case was scheduled for hearing in the said sala. The appellant after all admits
that on May 2, 1956 his counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of
trial, is correct. But he was properly accorded this right. He was notified in open
court on March 21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot argue that, pursuant to
the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of the
denial of his motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the case at bar, there
had already been a series of postponements. Unlike the case at bar,
the Siochi case was not intransferably set for hearing. Finally, whereas the cited
case did not spend for a long time, the case at bar was only finally and
intransferably set for hearing on March 21, 1956 — after almost five years had
elapsed from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked
ample time to prepare for trial is unacceptable because between March 21, 1956
and May 2, 1956, they had one month and ten days to do so. In effect, the
appellant had waived his right to appear at the trial and therefore he cannot be
heard to complain that he has been deprived of his property without due process
of law.7 Verily, the constitutional requirements of due process have been fulfilled
in this case: the lower court is a competent court; it lawfully acquired jurisdiction
over the person of the defendant (appellant) and the subject matter of the action;
the defendant (appellant) was given an opportunity to be heard; and judgment
was rendered upon lawful hearing.8
2. Finally, the appellant contends that the lower court incurred an error in
ordering the issuance ex parte of a writ of preliminary injunction against him, and
in not dismissing the appellee's complaint. We find this contention meritorious.
Apparently, the court a quo  relied on exhibit A — the so-called "contract of
service" — and the appellees' contention that it created a contract of co-
ownership and partnership between Inocencia Deluao and the appellant over the
fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is
conclusively presumed to know the law. It must be assumed, conformably to
such rule, that the parties entered into the so-called "contract of service"
cognizant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said laws, it
must likewise be assumed — in fairness to the parties — that they did not intend
to violate them. This view must perforce negate the appellees' allegation that
exhibit A created a contract of co-ownership between the parties over the
disputed fishpond. Were we to admit the establishment of a co-ownership
violative of the prohibitory laws which will hereafter be discussed, we shall be
compelled to declare altogether the nullity of the contract. This would certainly
not serve the cause of equity and justice, considering that rights and obligations
have already arisen between the parties. We shall therefore construe the
contract as one of partnership, divided into two parts — namely, a contract of
partnership to exploit the fishpond pending its award to either Felipe Deluao or
Nicanor Casteel, and a contract of partnership to divide the fishpond between
them after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant
entered into the so-called "contract of service" on November 25, 1949, there
were two pending applications over the fishpond. One was Casteel's which was
appealed by him to the Secretary of Agriculture and Natural Resources after it
was disallowed by the Director of Fisheries on October 25, 1949. The other was
Felipe Deluao's application over the same area which was likewise rejected by
the Director of Fisheries on November 29, 1949, refiled by Deluao and later on
withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture
and Natural Resources. Clearly, although the fishpond was then in the
possession of Casteel, neither he nor, Felipe Deluao was the holder of a
fishpond permit over the area. But be that as it may, they were not however
precluded from exploiting the fishpond pending resolution of Casteel's appeal or
the approval of Deluao's application over the same area — whichever event
happened first. No law, rule or regulation prohibited them from doing so. Thus,
rather than let the fishpond remain idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the
parties was not to form a co-ownership but to establish a partnership —
Inocencia Deluao as capitalist partner and Casteel as industrial partner — the
ultimate undertaking of which was to divide into two equal parts such portion of
the fishpond as might have been developed by the amount extended by the
plaintiffs-appellees, with the further provision that Casteel should reimburse the
expenses incurred by the appellees over one-half of the fishpond that would
pertain to him. This can be gleaned, among others, from the letter of Casteel to
Felipe Deluao on November 15, 1949, which states, inter alia:
 ... [W]ith respect to your allowing me to use your money, same will
redound to your benefit because you are the ones interested in half of
the work we have done so far, besides I did not insist on our being
partners in my fishpond permit, but it was you "Tatay" Eping the one
who wanted that we be partners and it so happened that we became
partners because I am poor, but in the midst of my poverty it never
occurred to me to be unfair to you. Therefore so that each of us may be
secured, let us have a document prepared to the effect that we are
partners in the fishpond that we caused to be made here in Balasinon,
but it does not mean that you will treat me as one of your "Bantay"
(caretaker) on wage basis but not earning wages at all, while the truth is
that we are partners. In the event that you are not amenable to my
proposition and consider me as "Bantay" (caretaker) instead, do not
blame me if I withdraw all my cases and be left without even a little and
you likewise.  caused its ipso facto dissolution.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee Inocencia Deluao and the appellant
executed exhibit A which, although denominated a "contract of service," was
actually the memorandum of their partnership agreement. That it was not a
contract of the services of the appellant, was admitted by the appellees
themselves in their letter10 to Casteel dated December 19, 1949 wherein they
stated that they did not employ him in his (Casteel's) claim but because he used
their money in developing and improving the fishpond, his right must be divided
between them. Of course, although exhibit A did not specify any wage or share
appertaining to the appellant as industrial partner, he was so entitled — this
being one of the conditions he specified for the execution of the document of
partnership.11
Further exchanges of letters between the parties reveal the continuing intent to
divide the fishpond. In a letter,12dated March 24, 1950, the appellant suggested
that they divide the fishpond and the remaining capital, and offered to pay the
Deluaos a yearly installment of P3,000 — presumably as reimbursement for the
expenses of the appellees for the development and improvement of the one-half
that would pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising
the latter to ask for a reconsideration of the order of the Director of Fisheries
disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw
no further need to maintain his petition for the reinvestigation of Casteel's
application. Thus by letter14 dated March 15, 1950 addressed to the Secretary of
Agriculture and Natural Resources, he withdrew his petition on the alleged
ground that he was no longer interested in the area, but stated however that he
wanted his interest to be protected and his capital to be reimbursed by the
highest bidder.
The arrangement under the so-called "contract of service" continued until the
decisions both dated September 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This
development, by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the
other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the
dissolution of a partnership, "... any event which makes it unlawful for the
business of the partnership to be carried on or for the members to carry it on in
partnership." The approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore several provisions
of law which made the continuation of the partnership unlawful and therefore
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit
(the permittee) from transferring or subletting the fishpond granted to him, without
the previous consent or approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the fishpond permit which
states that "The permittee shall not transfer or sublet all or any area herein
granted or any rights acquired therein without the previous consent and approval
of this Office." Parenthetically, we must observe that in DANR Case 353-B, the
permit granted to one of the parties therein, Leoncio Aradillos, was cancelled not
solely for the reason that his permit covered a portion of the area included in the
appellant's prior fishpond application, but also because, upon investigation, it
was ascertained thru the admission of Aradillos himself that due to lack of capital,
he allowed one Lino Estepa to develop with the latter's capital the area covered
by his fishpond permit F-289-C with the understanding that he (Aradillos) would
be given a share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act,
likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the
consent of the Secretary of Agriculture and Commerce, and the violation
of this condition shall avoid the contract;  Provided, That assignment,
encumbrance, or subletting for purposes of speculation shall not be
permitted in any case: Provided, further, That nothing contained in this
section shall be understood or construed to permit the assignment,
encumbrance, or subletting of lands leased under this Act, or under any
previous Act, to persons, corporations, or associations which under this
Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture
and Natural Resources issued in August 1937, prohibits a transfer or sublease
unless first approved by the Director of Lands and under such terms and
conditions as he may prescribe. Thus, it states:
 When a transfer or sub-lease of area and improvement may be allowed.
— If the permittee or lessee had, unless otherwise specifically provided,
held the permit or lease and actually operated and made improvements
on the area for at least one year, he/she may request permission to sub-
lease or transfer the area and improvements under certain conditions.
(a) Transfer subject to approval. — A sub-lease or transfer shall only be
valid when first approved by the Director under such terms and
conditions as may be prescribed, otherwise it shall be null and void. A
transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and forfeiture
of the bond and for granting the area to a qualified applicant or bidder,
as provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have been
awarded to the latter, and therefore it envisaged the unauthorized transfer of
one-half thereof to parties other than the applicant Casteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The
approval was an event which made it unlawful for the business of the partnership
to be carried on or for the members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or
confirmed their property right to one-half of the fishpond by virtue of the contract
of service, exhibit A. But the untenability of this argument would readily surface if
one were to consider that the Secretary of Agriculture and Natural Resources did
not do so for the simple reason that he does not possess the authority to violate
the aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the
dissolution ipso facto of their partnership, succeeding events reveal the intent of
both parties to terminate the partnership by refusing to share the fishpond with
the other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao,
expressing his desire to divide the fishpond so that he could administer his own
share, such division to be subject to the approval of the Secretary of Agriculture
and Natural Resources. By letter dated December 29, 1950, 18 the appellee Felipe
Deluao demurred to Casteel's proposition because there were allegedly no
appropriate grounds to support the same and, moreover, the conflict over the
fishpond had not been finally resolved.
19
The appellant wrote on January 4, 1951 a last letter  to the appellee Felipe
Deluao wherein the former expressed his determination to administer the
fishpond himself because the decision of the Government was in his favor and
the only reason why administration had been granted to the Deluaos was
because he was indebted to them. In the same letter, the appellant forbade
Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the
fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January 5, 1951 in
which he reiterated his refusal to grant the administration of the fishpond to the
appellant, stating as a ground his belief "that only the competent agencies of the
government are in a better position to render any equitable arrangement relative
to the present case; hence, any action we may privately take may not meet the
procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their
respective resolutions not to share the fishpond with each other — in direct
violation of the undertaking for which they have established their partnership —
each must be deemed to have expressly withdrawn from the partnership, thereby
causing its dissolution pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by the express will of any partner
at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification,
lease, sale or any other form of concession or disposition and management of
the lands of the public domain, and, more specifically, with regard to the grant or
withholding of licenses, permits, leases and contracts over portions of the public
domain to be utilized as fishponds. 21, Thus, we held in Pajo, et al. vs. Ago, et al.
(L-15414, June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture
and Natural Resources, et al. 
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce
(Natural Resources) by law regarding the disposition of public lands
such as granting of licenses, permits, leases, and contracts, or
approving, rejecting, reinstating, or cancelling applications, or deciding
conflicting applications, are all executive and administrative in nature. It
is a well-recognized principle that purely administrative and
discretionary functions may not be interfered with by the courts (Coloso
v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general,
courts have no supervising power over the proceedings and action of
the administrative departments of the government. This is generally true
with respect to acts involving the exercise of judgment or discretion, and
findings of fact. (54 Am. Jur. 558-559) Findings of fact by an
administrative board or official, following a hearing, are binding upon the
courts and will not be disturbed except where the board or official has
gone beyond his statutory authority, exercised unconstitutional powers
or clearly acted arbitrarily and without regard to his duty or with grave
abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due
course to the appellant's fishpond application 1717 and awarded to him the
possession of the area in question. In view of the finality of the Secretary's
decision in DANR Cases 353 and 353-B, and considering the absence of any
proof that the said official exceeded his statutory authority, exercised
unconstitutional powers, or acted with arbitrariness and in disregard of his duty,
or with grave abuse of discretion, we can do no less than respect and maintain
unfettered his official acts in the premises. It is a salutary rule that the judicial
department should not dictate to the executive department what to do with regard
to the administration and disposition of the public domain which the law has
entrusted to its care and administration. Indeed, courts cannot superimpose their
discretion on that of the land department and compel the latter to do an act which
involves the exercise of judgment and discretion.22

Therefore, with the view that we take of this case, and even assuming that the
injunction was properly issued because present all the requisite grounds for its
issuance, its continuation, and, worse, its declaration as permanent, was
improper in the face of the knowledge later acquired by the lower court that it was
the appellant's application over the fishpond which was given due course. After
the Secretary of Agriculture and Natural Resources approved the appellant's
application, he became to all intents and purposes the legal permittee of the area
with the corresponding right to possess, occupy and enjoy the same.
Consequently, the lower court erred in issuing the preliminary mandatory
injunction. We cannot overemphasize that an injunction should not be granted to
take property out of the possession and control of one party and place it in the
hands of another whose title has not been clearly established by law.23

However, pursuant to our holding that there was a partnership between the
parties for the exploitation of the fishpond before it was awarded to Casteel, this
case should be remanded to the lower court for the reception of evidence relative
to an accounting from November 25, 1949 to September 15, 1950, in order for
the court to determine (a) the profits realized by the partnership, (b) the share (in
the profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao
as capitalist partner, and (d) whether the amounts totalling about P27,000
advanced by Deluao to Casteel for the development and improvement of the
fishpond have already been liquidated. Besides, since the appellee Inocencia
Deluao continued in possession and enjoyment of the fishpond even after it was
awarded to Casteel, she did so no longer in the concept of a capitalist partner but
merely as creditor of the appellant, and therefore, she must likewise submit in the
lower court an accounting of the proceeds of the sales of all the fishes harvested
from the fishpond from September 16, 1950 until Casteel shall have been finally
given the possession and enjoyment of the same. In the event that the appellee
Deluao has received more than her lawful credit of P27,000 (or whatever
amounts have been advanced to Casteel), plus 6% interest thereon per annum,
then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment
is hereby rendered: (1) dissolving the injunction issued against the appellant, (2)
placing the latter back in possession of the fishpond in litigation, and (3)
remanding this case to the court of origin for the reception of evidence relative to
the accounting that the parties must perforce render in the premises, at the
termination of which the court shall render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando

and Capistrano, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,  of the private respondent to heed the demands extrajudicially
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.
REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision 1 of the
respondent Court 2 should have written finis  to this case without further recourse
to Us. The assignment of errors and arguments raised in the respondent Court
by herein private respondent, as the petitioner therein, having been correctly and
justifiedly sustained by said court without any reversible error in its conclusions,
the present petition must fail.
The assailed decision details the facts and proceedings which spawned the
present controversy as follows:
Petitioner brought an action in the City Court of Dipolog for
collection of a sum of P5,217.25 based on promissory notes
executed by the herein private respondent Nobio Sardane in
favor of the herein petitioner. Petitioner bases his right to
collect on Exhibits B, C, D, E, F, and G executed on different
dates and signed by private respondent Nobio Sardane.
Exhibit B is a printed promissory note involving Pl,117.25 and
dated May 13, 1972. Exhibit C is likewise a printed promissory
note and denotes on its face that the sum loaned was
Pl,400.00. Exhibit D is also a printed promissory note dated
May 31, 1977 involving an amount of P100.00. Exhibit E is
what is commonly known to the layman as 'vale' which reads:
'Good for: two hundred pesos (Sgd) Nobio Sardane'. Exhibit F
is stated in the following tenor: 'Received from Mr. Romeo
Acojedo the sum Pesos: Two Thousand Two Hundred
(P2,200.00) ONLY, to be paid on or before December 25,
1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales'
involving the same amount of one hundred pesos, and dated
August 25, 1972 and September 12, 1972 respectively.
It has been established in the trial court that on many
occasions, the petitioner demanded the payment of the total
amount of P5,217.25. The failure of the private respondent to
pay the said amount prompted the petitioner to seek the
services of lawyer who made a letter (Exhibit 1) formally
demanding the return of the sum loaned. Because of the failure
made by the petitioner, the latter was constrained to bring an
action for collection of sum of money.
During the scheduled day for trial, private respondent failed to
appear and to file an answer. On motion by the petitioner, the
City Court of Dipolog issued an order dated May 18, 1976
declaring the private respondent in default and allowed the
petitioner to present his evidence ex-parte. Based on
petitioner's evidence, the City Court of Dipolog rendered
judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default
which was granted by the City Court in an order dated May 24,
1976, taking into consideration that the answer was filed within
two hours after the hearing of the evidence presented ex-
parte by the petitioner.
After the trial on the merits, the City Court of Dipolog rendered
its decision on September 14, 1976, the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered
in favor of the plaintiff and against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of
Five Thousand Two Hundred Seventeen Pesos and Twenty-
five centavos (P5,217.25) plus legal interest to commence from
April 23, 1976 when this case was filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of
P200.00 as attorney's fee and to pay the cost of this
proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of
Zamboanga del Norte which reversed the decision of the lower court by
dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said
defendant-appellant P500.00 each for actual damages, moral damages,
exemplary damages and attorney's fees, as well as the costs of suit. Plaintiff-
appellee then sought the review of said decision by petition to the respondent
Court.
The assignment of errors in said petition for review can be capsulized into two
decisive issues, firstly, whether the oral testimony for the therein private
respondent Sardane that a partnership existed between him and therein
petitioner Acojedo are admissible to vary the meaning of the abovementioned
promissory notes; and, secondly, whether because of the failure of therein
petitioner to cross-examine therein private respondent on his sur-rebuttal
testimony, there was a waiver of the presumption accorded in favor of said
petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the
parties herein put in issue the imperfection or ambiguity of the documents in
question", hence "the appellant can avail of the parol evidence rule to prove his
side of the case, that is, the said amount taken by him from appellee is or was
not his personal debt to appellee, but expenses of the partnership between him
and appellee."
Consequently, said trial court concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and, therefore, upheld
the claim that there was ambiguity in the promissory notes, hence parol evidence
was allowable to vary or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.—When the terms of
an agreement have been reduced to writing, it is to be
considered as containing all such terms, and, therefore, there
can be, between the parties and their successors in interest,
no evidence of the terms of the agreement other than the
contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure
to express the the true intent and agreement of the parties, or
the validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not
apply in this case as there is no ambiguity in the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory
notes containing a promise to pay a sum certain in money,
payable on demand and the promise to bear the costs of
litigation in the event of the private respondent's failure to pay
the amount loaned when demanded extrajudicially. Likewise,
the vales denote that the private respondent is obliged to
return the sum loaned to him by the petitioner. On their face,
nothing appears to be vague or ambigous, for the terms of the
promissory notes clearly show that it was incumbent upon the
private respondent to pay the amount involved in the
promissory notes if and when the petitioner demands the
same. It was clearly the intent of the parties to enter into a
contract of loan for how could an educated man like the private
respondent be deceived to sign a promissory note yet
intending to make such a writing to be mere receipts of the
petitioner's supposed contribution to the alleged partnership
existing between the parties?
It has been established in the trial court that, the private
respondent has been engaged in business for quite a long
period of time--as owner of the Sardane Trucking Service,
entering into contracts with the government for the construction
of wharfs and seawall; and a member of the City Council of
Dapitan (TSN, July 20, 1976, pp. 57-58).<äre||anº•1àw>  It
indeed puzzles us how the private respondent could have been
misled into signing a document containing terms which he did
not mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination
made by petitioner's counsel that he was the one who was
responsible for the printing of Exhibits B, C, and D (TSN, July
28, 1976, p. 64). How could he purportedly rely on such a
flimsy pretext that the promissory notes were receipts of the
petitioner's contribution? 4
The Court of Appeals held, and We agree, that even if evidence aliunde other
than the promissory notes may be admitted to alter the meaning conveyed
thereby, still the evidence is insufficient to prove that a partnership existed
between the private parties hereto.
As manager of the  basnig  Sarcado naturally some degree of control over the
operations and maintenance thereof had to be exercised by herein petitioner.
The fact that he had received 50% of the net profits does not conclusively
establish that he was a partner of the private respondent herein. Article 1769(4)
of the Civil Code is explicit that while the receipt by a person of a share of the
profits of a business is prima facie evidence that he is a partner in the business,
no such inference shall be drawn if such profits were received in payment as
wages of an employee. Furthermore, herein petitioner had no voice in the
management of the affairs of the basnig. Under similar facts, this Court in the
early case of Fortis vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff
therein that he was a partner in the business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of
employment. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the
 compensation received by him was to be determined with
reference to the profits made by the defendant in their
business did not in any sense make him a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which
involved the same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein
petitioner's pretension that he was a partner and not a mere employee indebted
to the present private respondent. Thus, in an action for damages filed by herein
private respondent against the North Zamboanga Timber Co., Inc. arising from
the operations of the business, herein petitioner did not ask to be joined as a
party plaintiff. Also, although he contends that herein private respondent is the
treasurer of the alleged partnership, yet it is the latter who is demanding an
accounting. The advertence of the Court of First Instance to the fact that the
casco bears the name of herein petitioner disregards the finding of the
respondent Court that it was just a concession since it was he who obtained the
engine used in the Sardaco from the Department of Local Government and
Community Development. Further, the use by the parties of the pronoun "our" in
referring to "our basnig, our catch", "our deposit", or "our boseros" was merely
indicative of the camaraderie and not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid
promissory notes do not express the true intent and agreement of the parties, are
binding on Us since there is no showing that they fall within the exceptions to the
rule limiting the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for
ready reference, reads:
Sec. 8. How to contest genuineness of such documents.—
When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading
as provided in the preceding section, the genuineness and due
execution of the instrument shall be deemed admitted unless
the adverse party, under oath, specifically denies them, and
sets forth what he claims to be the facts; but this provision
does not apply when the adverse party does not appear to be
a party to the instrument or when compliance with an order for
the inspection of the original instrument is refused.
The record shows that herein petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly
pleaded and attached to the complaint, thereby admitting their genuineness and
due execution. Even in the trial court, he did not at all question the fact that he
signed said promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes by alleging
that they were mere receipts of his contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol
evidence as distinguished from the rule on actionable documents. As the
respondent Court correctly explained to herein petitioner, what he presented in
the trial Court was testimonial evidence that the promissory notes were receipts
of his supposed contributions to the alleged partnership which testimony, in the
light of Section 7, Rule 130, could not be admitted to vary or alter the explicit
meaning conveyed by said promissory notes. On the other hand, the presumed
genuineness and due execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all
questioned but, on the contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which
was reiterated in Central Surety & Insurance Co. vs. C. N. Hodges, et al. 8 does
not sustain his thesis that the herein private respondent had "waived the mantle
of protection given him by Rule 8, Sec. 8". It is true that such implied admission
of genuineness and due execution may be waived by a party but only if he acts in
a manner indicative of either an express or tacit waiver thereof. Petitioner,
however, either overlooked or ignored the fact that, as held in Yu Chuck, and the
same is true in other cases of Identical factual settings, such a finding of waiver
is proper where a case has been tried in complete disregard of the rule and the
plaintiff having pleaded a document by copy, presents oral evidence to prove the
due execution of the document and no objections are made to the defendant's
evidence in refutation. This situation does not obtain in the present case hence
said doctrine is obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein
petitioner on the latter's sur-rebuttal testimony constitute a waiver of the aforesaid
implied admission. As found by the respondent Court, said sur-rebuttal testimony
consisted solely of the denial of the testimony of herein private respondent and
no new or additional matter was introduced in that sur-rebuttal testimony to
exonerate herein petitioner from his obligations under the aforesaid promissory
notes.
On the foregoing premises and considerations, the respondent Court correctly
reversed and set aside the appealed decision of the Court of First Instance of
Zamboanga del Norte and affirmed in full the decision of the City Court of
Dipolog City in Civil Case No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent
Court, herein petitioner, as the private respondent therein, raised a third
unresolved issue that the petition for review therein should have been dismissed
for lack of jurisdiction since the lower Court's decision did not affirm in full the
judgment of the City Court of Dipolog, and which he claimed was a sine qua
non for such a petition under the law then in force. He raises the same point in
his present appeal and We will waive the procedural technicalities in order to put
this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative
relief from the respondent Court praying that it sustain the decision of the trial
Court, thereby invoking and submitting to its jurisdiction which he would now
assail. Furthermore, the objection that he raises is actually not one of jurisdiction
but of procedure. 9

At any rate, it will be noted that petitioner anchors his said objection on the
provisions of Section 29, Republic Act 296 as amended by Republic Act 5433
effective September 9, 1968. Subsequently, the procedure for appeal to the
Court of Appeals from decisions of the then courts of first instance in the exercise
of their appellate jurisdiction over cases originating from the municipal courts was
provided for by Republic Act 6031, amending Section 45 of the Judiciary Act
effective August 4, 1969. The requirement for affirmance in full of the inferior
court's decision was not adopted or reproduced in Republic Act 6031. Also, since
Republic Act 6031 failed to provide for the procedure or mode of appeal in the
cases therein contemplated, the Court of Appeals  en banc provided thereof in its
Resolution of August 12, 1971, by requiring a petition for review but which also
did not require for its availability that the judgment of the court of first instance
had affirmed in full that of the lower court. Said mode of appeal and the
procedural requirements thereof governed the appeal taken in this case from the
aforesaid Court of First Instance to the Court of Appeals in 1977. 10 Herein
petitioner's plaint on this issue is, therefore, devoid of merit.

WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED,

with costs against herein petitioner.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.