368 SCRA 261

THIRD DIVISION

G.R. No. 135813. October 25, 2001.

FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.

Remedial Law; Appeals; Factual findings of the Court of Appeals affirming those of the trial court are
binding and conclusive on the Supreme Court.Petitioner has utterly failed to demonstrate why a
review of these factual findings is warranted. Well-entrenched is the basic rule that factual findings of
the Court of Appeals affirming those of the trial court are binding and conclusive on the Supreme Court.
Although there are exceptions to this rule, petitioner has not satisfactorily shown that any of them is
applicable to this issue.

Same; Same; When the judgment of the Court of Appeals is premised on a misapprehension of facts or a
failure to notice certain relevant facts that would otherwise justify a different conclusion, a review of its
factual findings may be conducted.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.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Pacifico M. Lontok and Arcangelita M. Romilla-Lontok for petitioner.

Benito P. Fabie for private respondents.

PANGANIBAN, J.:

As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are
binding on the Supreme Court. However, there are several exceptions to this principle. In the present
case, we find occasion to apply both the rule and one of the exceptions.

The Case

Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision,1 as well as the
August 17, 1998 and the October 9, 1998 Resolutions,2 issued by the Court of Appeals (CA) in CA-GR CV
No. 34742. The Assailed Decision disposed as follows:

WHEREFORE, the decision appealed from is AFFIRMED save as For the counterclaim which is hereby
DISMISSED. Costs against [petitioner].3

Resolving 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

The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of the
August 17, 1998 Resolution.5

The Facts

The events that led to this case are summarized by the CA as follows:

Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were introduced
to each other by one MelitonZabat regarding a lending business venture proposed by Nieves. It was
verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat [would] take charge of
solicitation of members and collection of loan payments. The venture was launched on June 13, 1986,
with the understanding that [petitioner] would receive 70% of the profits while x xx Nieves and Zabat
would earn 15% each,

In July, 1986, x xx Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte
Maria Development Corporation6 (Monte Maria, for brevity), sought short-term loans for members of
the corporation. [Petitioner] and 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 xx Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.

On August 6, 1986, [petitioner], xxx [Nieves] and Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.

[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending
business in competition with their partnership[.] Zabat was thereby expelled from the partnership. The
operations with Monte Maria continued.

On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner]
charged [respondents], allegedly in their capacities as employees of [petitioner], with having
misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31, 1987. Upon
Gragera s complaint that his commissions were inadequately remitted, [petitioner] entrusted
P200,000.00 to x xx Nieves to be given to Gragera. x xx Nieves allegedly failed to account for the
amount. [Petitioner] asserted that after examination of the records, he found that of the total amount
of P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was remitted to Gragera, thereby
leaving the balance of P1,555,065.70 unaccounted for.

In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming their
rightful share to the profits of the partnership.
x xx Arsenic alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner]
learned ofZabats activities. Arsenio resigned from his job at the Asian Development Bank to join the
partnership.

For her part, x xx Nieves claimed that she participated in the business as a partner, as the lending
activity with Monte Maria originated from her initiative. Except for the limited period of July 8, 1986
through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned over to
Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made on
worksheets were based on this assumptive 100% collection of all loans. The loan releases were made
less Grageras agreed commission. Because of this arrangement, she neither received payments from
borrowers nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to
15-DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums guaranteed by
Gragera were collected.

[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners
with respect to the agreement with Gragera. He claimed that after he discovered Zabats activities, he
ceased infusing funds, thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with respect to the partnership between [petitioner]
and Gragera.

[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from
which Nieves deducted Grageras commission. The commission would then be remitted to Gragera. She
likewise determined loan releases.

During the pre-trial, the parties narrowed the issues to the following points: whether [respondents]
were employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for
delivery to Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to
Gragera and whether [respondents] were entitled to their counterclaim for share in the profits.7

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere
employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner, not
his partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves. Thus,
respondents counterclaim for their share in the partnership and for damages was granted. The trial
court disposed as follows:

39. WHEREFORE, the Court hereby renders judgment as follows:

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.

39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the
following:
39.2.1. P3,064,428.00 The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her
joint venture with the [petitioner].

39.2.2. Six (6) percent of P3,064,428.00 As damages from August 3, 1987 until the P3,064,428.00 is fully
paid.

39.2.3. ------ P50,000.00 As moral damages

39.2.4. P10,000.00 As exemplary damages

39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the
following:

39.3.1. P2,899,739.50 The balance of the 15 percent share of the [respondent] ARSENIO REYES in the
profits of his joint venture with the [petitioner].

39.3.2. ------ Six (6) percent of P2,899,739.50 As damages from August 3, 1987 until the P2,899,739.50 is
fully paid.

39.3.3. P25,000.00 As moral damages

39.3.4. ------ P10,000.00 ------ As exemplary damages

39.4. ------ The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:

39.4.1. ------ P50,000.00 As attorneys fees; and

39.4.2. ------ The cost of the suit.8

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the 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. 1515DDDDDDDDDD) 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]. xxx Nieves herself provided the initiative in the
lending activities with Monte Maria. In consonance with the agreement between appellant, Nieves and
Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund with the
intention of sharing in the profits of the partnership. [Respondents] provided services without which the
partnership would not have [had] the wherewithal to carry on the purpose for which it was organized
and as such [were] considered industrial partners (Evangelista v. Abad Santos, 51 SCRA 416 [1973]).

While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by
the expulsion of Zabat therefrom, the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and continued
the business of the former partnership with Zabat, one of the incidents of which was the lending
operations with Monte Maria.

xxx xxx xxx

Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte
Maria was done in pursuit of the business for which the partnership between [petitioner], Nieves and
Zabat (later Arsenio) was organized. Gragera who represented Monte Maria was merely paid
commissions in exchange for the collection of loans. The commissions were fixed on gross returns,
regardless of the expenses incurred in the operation of the business. The sharing of gross returns does
not in itself establish a partnership.11

We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing
the profits among themselves.12 The Articles of Agreement stipulated that the signatories shall share
the profits of the business in a 701515 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 xx 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.6

Indeed, the partnership was established to engage in a moneylending 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 DocumentBefore 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 that the signature thereon was a forgery, as it found that:

x xx. 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 xx xxx xxx

Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord with the
evidence. A perusal of Exhs.B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the entries
were indeed based on the 100% assumptive collection guaranteed by Gragera. Thus, the total amount
recorded on Exh. B is exactly the number of borrowers multiplied by the projected collection of
P150.00 per borrower. This holds true for Exh. F.

Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to
signify that she collected the amounts but that she received the documents themselves is more
believable than [petitioners] assertion that she actually handled the amounts.

Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x xx Nieves
received P200,000.00 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 Grageraa 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.
101 3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him (Petty
Cash Vouchers, Exhs. 6, 6-A to 6B).

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 101, inclusive) which she
prepared.Exhs. 10 to 101 (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. 114). 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 moneylending 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 themSANTOS, NIEVES and ARSENIOnetted 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-
I22 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 101, 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 1011 represented the net profits earned by the partnership.

For the purpose of determining the profit that should go to an industrial partner (who shares in the
profits but is not liable for the losses), the gross income from all the transactions carried on by the firm
must be added together, and from this sum must be subtracted the expenses or the losses sustained in
the business. Only in the difference representing the net profits does the industrial partner share. But if,
on the contrary, the losses exceed the income, the industrial partner does not share in the losses.25

When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain
relevant facts that would otherwise justify a different conclusion, as in this particular issue, a review of
its factual findings may be conducted, as an exception to the general rule applied to the first two
issues.26

The trial court has the advantage of observing the witnesses while they are testifying, an opportunity
not available to appellate courts. Thus, its assessment of the credibility of witnesses and their
testimonies are accorded great weight, even finality, when supported by substantial evidence; more so
when such assessment is affirmed by the CA. But when the issue involves the evaluation of exhibits or
documents that are attached to the case records, as in the third issue, the rule may be relaxed. Under
that situation, this Court has a similar opportunity to inspect, examine and evaluate those records,
independently of the lower courts. Hence, we deem the award of the partnership share, as computed by
the trial court and adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is AFFIRMED,
but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are REVERSED and SET
ASIDE. No costs.

SO ORDERED.

Melo (Chairman) and Sandoval-Gutierrez, JJ., concur.

Vitug, J., On official leave.

Petition partly granted, judgment affirmed. Resolutions of August 17, 1998 and October 9, 1998
reversed and set aside.

Note.Factual findings of the Court of Appeals are conclusive on the parties and carry even more
weight when the said court affirms the factual findings of the trial court. (Boneng vs. People, 304 SCRA
252 [1999])
341 SCRA 740

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.

Appeals; Evidence; Findings of facts of the Court of Appeals will not be disturbed on appeal if such are
supported by the evidence.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. Our
jurisdiction, it must be emphasized, does not include review of factual issues.

Same; Same; Exceptions.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.

Partnerships; Words and Phrases; 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 intended to divide the profits among themselves.The primordial issue here is whether
Tan EngKee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by
law as one where: x xx 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. 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. The agreement
need not be formally reduced into writing, since statute allows the oral constitution of a partnership,
save in two instances: (1) when immovable property or real rights are contributed, and (2) when the
partnership has a capital of three thousand pesos or more. In both cases, a public instrument is
required. An inventory to be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable property is contributed to the
partnership.
Same; Same; Joint Ventures; Partnership and Joint Venture, Distinguished.The trial court
determined that Tan EngKee and Tan Eng Lay had entered into a joint venture, which it said is akin to a
particular partnership. 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.

Same; Same; Same; Same; A joint venture may be likened to a particular partnership; The legal concept
of a joint venture is of common law origin and has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose.A joint venture
presupposes generally a parity of standing between the joint co-ventures or partners, in which each
party has an equal proprietary interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business. Nonetheless, in Aurbach, et al. v. Sanitary Wares
Manufacturing Corporation, et al., we expressed the view that a joint venture may be likened to a
particular partnership, thus: The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the
partnership, since their elements are similarcommunity of interest in the business, sharing of profits
and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498 [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdiction is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed for
the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann, 116 Cal. App.
170, 2 P.2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel, 266
Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code,
a partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint
venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme
Court has however recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however engage in a joint
venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981).

Same; Co-Ownership; A co-ownership or co-possession is not an indicium of the existence of a

partnership.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. He stated that when he met Tan EngKee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. Tan Eng Lay,
however, denied knowledge of this meeting or of the conversation between Peralta and his brother. 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 EngKee, came to work for him. Be that as it may, co-ownership or
copossession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.

Same; The essence of a partnership is that the partners share in the profits and losses; A demand for
periodic accounting is evidence of a partnership.Besides, it is indeed odd, if not unnatural, that
despite the forty years the partnership was allegedly in existence, Tan EngKee never asked for an
accounting. The essence of a partnership is that the partners share in the profits and losses. Each has
the right to demand an accounting as long as the partnership exists. 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. 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, x xxA
demand for periodic accounting is evidence of a partnership. During his lifetime, Tan EngKee appeared
never to have made any such demand for accounting from his brother, Tang Eng Lay.

Same; 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.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. 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 EngKee 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.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Lauro D. Gacayan for petitioner.

Soo, Gutierrez, Leogardo& Lee collaborating counsel for petitioner.

Francisco S. Reyes Law Office for private respondents. Heirs of Tan EngKee vs. Court of Appeals, 341
SCRA 740, G.R. No. 126881 October 3, 2000

DE LEON, JR., J.:

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

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the
complaint dismissed.

The facts are:

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

The amended complaint principally alleged that after the second World War, Tan EngKee 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 EngKee's death. Petitioners herein averred
that the business prospered due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership
"Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan EngKee and his heirs of their rightful participation in the profits of
the business. Petitioners prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

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

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

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

b) Declaring that the deceased Tan EngKee 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 EngKee
have a legal right to share in said assets;

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

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of
Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber
Company, Inc. so the plaintiffs know their proper share in the business;
 f) Ordering the appointment of a receiver to preserve and/or administer the assets of
Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated are
directed to submit the name of any person they want to be appointed as receiver failing in
which this Court will appoint the Branch Clerk of Court or another one who is qualified to act
as such.

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

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

SO ORDERED.

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

Hence, the present petition.

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

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND
(E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-

SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.

III
 THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING
FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING
AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING
THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS
TO THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO
TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC,
ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN
BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-
17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

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

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

Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered judgment. Review of factual issues is
therefore warranted:

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

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

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

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

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

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

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

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

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

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

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

We note that the Court a quo over extended the issue because while the plaintiffs mentioned
only the existence of a partnership, the Court in turn went beyond that by justifying the
existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct of
the business, thus:

xxx xxx xxx

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

xxx xxx xxx

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

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

xxx xxx xxx

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

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

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in
the bunk house in Trinidad, but within the compound of the lumber establishment, as testified
to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan; 3) that both were supervising the laborers, as
testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee
that the proceeds of the 80 pieces of the G.I. sheets were added to the business.
 Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in the benefits; and 5) intention
to divide the profits, being the true test of the partnership. The intention to join in the
business venture for the purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial evidence of the appellees.

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

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

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

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

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

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

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

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of
years; a partnership generally relates to a continuing business of various transactions of a
certain kind.21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners,
in which each party has an equal proprietary interest in the capital or property contributed, and
where each party exercises equal rights in the conduct of the business."22 Nonetheless, in Aurbach,
et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we expressed the view that a joint
venture may be likened to a particular partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition,
but it has been generally understood to mean an organization formed for some temporary
purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the
partnership, since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal.
2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in
common law jurisdiction is that the partnership contemplates a general business with some
degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed.
811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a particular partnership may have for
its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be governed by the
law of partnerships. The Supreme Court has however recognized a distinction between
these two business forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon
v. 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 EngKee 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 EngKee 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 EngKee 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 EngKee, 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 EngKee never asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses.29 Each has the right to demand an accounting as long as the
partnership exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible."31 But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person
is presumed to take ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In the
third place, it does not appear that she has even demanded from defendant any accounting
of the expenses and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether the expenses were
legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she did was to receive her share of
P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use
of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows
that both parties considered this offer as the real contract between them.33 [emphasis
supplied]

A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan EngKee
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 EngKee 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
EngKee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil
Code provides:

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

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

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;

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

(4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:

(a) As a debt by installment or otherwise;

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

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

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

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan EngKee 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
EngKee received amounts of money allegedly representing his share in the profits of the enterprise.
Petitioners failed to show how much their father, Tan EngKee, received, if any, as his share in the
profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan
EngKee 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 EngKee 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 EngKee 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 EngKee, were indicative of his being a partner in
Benguet Lumber for the following reasons:

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

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the
owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore,
even a partner does not necessarily have to perform this particular task. It is, thus, not an
indication that Tan EngKee was a partner.

(iii) although Tan EngKee, together with his family, lived in the lumber compound and this
privilege was not accorded to other employees, the undisputed fact remains that Tan
EngKee 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 EngKee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential employees and the owners of a
company sometimes argue with respect to certain matters which, in no way indicates that
they are partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties'
intent.36 Yet, in the case at bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan EngKee was involved in the
operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood
that as a member of the family, he occupied a niche above the rank-and-file employees. He would
have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet
Lumber Company compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be that among his
duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and
duties of a manager, even in a business organized and run as informally as Benguet Lumber
Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak
of. Hence, the petition must fail.

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

SO ORDERED.

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

106 Phil 110

[No.L-12541. August 28, 1959]

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs and appellants, vs. YANG CHIAO
SENG, defendant and appellee.

1.TRIAL; ABSENCE OF ONE PARTY PURSUANT TO AGREEMENT; EFFECT ON JUDGMENT.If the parties to
a case agreed to postpone the trial of the same in view of a probable amicable settlement, neither of
them can take advantage of the other's absence in the hearing by appearing. therein and adducing
evidence in his favor. The judgment rendered by the Court based on such evidence should, in the
interest of justice, be set aside.

2.CONTRACTS; LEASE; CIRCUMSTANCES THAT NEGATE PARTNERSHIP.Where one of the parties to a

contract does not contribute the capital he is supposed to contribute to a common fund; does not
furnish any help or intervention in the management of the business subject of the contract; does not
demand from the other party an accounting of the expenses and earnings of the business; and is
absolutely silent with respect to any of the acts that a partner should have done, but, on the other hand,
receives a fixed monthly sum from the other party, there can be no other conclusion than that the
contract between the parties is one of lease and not of partnership.

APPEAL from a judgment of the Court of First Instance of Manila. Tan, J.

The facts are stated in the opinion of the Court.

Punzaln, Yabut, Eusebio &Tiburcio for appellants.

Augusto Francisco and Julin T. Ocampo for appellee.

LABRADOR, J.:

Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding,
dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by
plaintiff.

The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the plaintiff
Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a
theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal conditions
of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of P3,000,
payable quarterly in advance within the first 15 days of each quarter, (2) that the partnership shall be for
a period of two years.and six months, starting from July 1, 1945 to December 31, 1947, with the
condition that if the land is expropriated or rendered impracticable for the business, or if the owner
constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then
the partnership shall be terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in
the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and egrees of patrons of the theatre; (4) that after December
31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but that if the
partnership agreement is terminated before the lapse of one and a half years period under any of the
causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away
all improvements that the partnership may place in the premises.

Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to
December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the
exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed
among the partners in the same proportion as their capital contribution, and the liability of Mrs. Yulo, in
case of loss, shall be limited to her capital contribution (Exh. "B'").

In June, 1946, they executed a supplementary agreement, extending the partnership for a period of
three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between
them at the rate of 50-50 and after December 31, 1950, the showhouse building shall belong exclusively
to the second party, Mrs. Yulo.

The land on which the theatre was constructed was leased by plaintiff Mrs, Yulo from Emilia Carrion
Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease
shall continue for an indefinite period of time, but that after one year the lease may be cancelled by
either party by written notice to the other party at least 90 days before the date of cancellation. The last
contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the
the attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on
July 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil action in the Court
of First Instance of Manila on July 3, 1949 to declare the lease of the premises one for an indefinite
period. On August 17, 1949, the owners on their part brought an action in the Municipal Court of Manila
against Mrs. Yulo and her husband and Yang Chiao Seng to eject them from the premises. On February
9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr.
Yang. The judgment was appealed. In the Court of First Instance, the two cases were afterwards heard
jointly, and judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and
declaring the contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable
monthly rentals of said premises at P100. Both parties appealed from said decision and the Court of
Appeals, on April 30, 1955, affirmed the judgment.

On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the
payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs.
Yulo has not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make
good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the ref usal of Yang to pay to her the amount agreed upon, Mrs. Yulo instituted this action on
May 26, 1954, alleging the existence of a partnership between them, and that defendant Yang Chiao
Seng has refused to pay her share from December, 1949 to December, 1950; that after December 31,
1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the
absolute owner of the building occupied by the Cine Astor; that the reasonable rental that the
defendant should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously
and refuses to pay the participation of the plaintiff in the profits of the business amounting to P35,000
from November, 1949 to October, 1950, and that as a result of such bad faith and malice, on the part of
the defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and exemplary damages to
the extent of P5,000. The prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for attorney's fees.

In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to
get around the prohibition contained in the contract of lease between the owners and the plaintiff
against the sublease of the said property. As to the other claims, he denies the same and alleges that the
fair rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an
attachment issued against the properties of the defendant the latter has suffered damages amounting
to P100,000.

The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard
evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the
defendant to pay to the plaintiff P41,000 for her .participation in the business up to December, 1950;
P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P300 for the use and occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision, however, was set aside on a motion for reconsideration.
In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief
that a joint petition for postponement filed by both parties, in view of a possible amicable settlement,
would be granted; that in view of the decision of the Court of Appeals in two previous cases between
the owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged
participation in the profits of the business, etc. The court, finding the above motion well-founded, set
aside its decision and a new trial was held. After trial the court rendered the decision making the
following findings: that it is not true that a partnership was created between the plaintiff and the
defendant because defendant has not actually contributed the sum mentioned in the Articles of
Partnership, or any other amount; that the real agreement between the plaintiff and the defendant is
not one of partnership but one of lease for the reason that under the agreement the plaintiff did not
share either in the profits or in the losses of the business as required by Article 1769 of the Civil Code;
and that the fact that plaintiff was granted a "guaranteed participation" in the profits also belies the
supposed existence of a partnership between them. It, therefore, denied plaintiff's claim for damages or
supposed participation in the profits.

As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of
the theatre, the court after ocular inspection found that the said lobby was a very narrow space leading
to the balcony of the theatre which could not be used for business purposes under existing ordinances
of the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground
that defendant failed to present sufficient evidence to sustain the same. It is against this decision that
the appeal has been prosecuted by plaintiff to this Court.

The first assignment of error imputed to the trial court is its order setting aside its former decision and
allowing a new trial. This assignment of error is without merit. As the parties had agreed to postpone
the trial because of a probable amicable settlement, the plaintiff could not take advantage of
defendant's absence at the time fixed for the hearing. The lower court, therefore, did not err in setting
aside its former judgment. The final result of the hearing shown by the decision indicates that the
setting aside of the previous decision was in the interest of justice.

In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out
the evidence offered by defendant-appellee to prove that the relation between him and the plaintiff is
one of sublease and not of partnership. The action of the lower court in admitting evidence is justified
by the express allegation in the defendant's answer that the agreement set forth in the complaint was
one of lease and not of partnership, and that the partnership formed was adopted in view of a
prohibition contained in plaintiff's lease against a sublease of the property.

The most important issue raised in the appeal is that contained in the fourth assignment of error, to the
effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C', between
plaintiff and defendant, are one of lease and not one of partnership. We have gone over the evidence
and we fully agree with the conclusion of the trial court that the agreement was a sublease, not a
partnership. The following are the requisites of partnership: (1) two or more persons who bind
themselves to contribute money, property, or industry to a common fund; (2) intention on the part of
the partners to divide the profits among themselves. (Art. 1767, Civil Code.)

In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not
furnish any help or intervention in the management of the theatre. In the third place, it does not appear
that she has ever demanded from defendant any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should have been to find out how the business was
progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that she did was to
receive her share of P3,000 a month, which can not be interpreted in any manner than a payment for
the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both
parties considered this offer as the real contract between them.

Plaintiff claims the sum of P41,000 as representing her share or participation in the business from
December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement
between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to
the lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the
partnership agreement or the agreement for her to receive a participation of P3,000 automatically
ceased as of said date.

We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-
appellant.

Pars, C. J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.

Judgment affirmed.
245 SCRA 529

THIRD DIVISION

G.R. No. 109248. July 3, 1995.

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners, vs. HON.
COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

Commercial Law; Partnership; A partnership that does not fix its term is a partnership at will.A
partnership that does not fix its term is a partnership at will. That the law firm Bito, Misa &Lozada, and
now Bito, Lozada, Ortega and Castillo, is indeed such a partnership need not be unduly belabored. We
quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this
matter.

Same; Same; The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners.The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent on the
constancy of that mutual resolve, along with each partners capability to give it, and the absence of a
cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability
for damages.

Same; Same; Neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner.In passing, neither would the presence of a period for its specific duration or the statement of
a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner. Among partners, mutual agency arises and the doctrine of delectus personae allows them to
have the power, although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.

Same; Same; Upon its dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination.The dissolution of a partnership is
the change in the relation of the parties caused by any partner ceasing to be associated in the carrying
on, as might be distinguished from the winding up of, the business. Upon its dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business culminating
in its termination.

Same; Same; The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code.The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code; however, an agreement of the partners,
like any other contract, is binding among them and normally takes precedence to the extent applicable
over the Codes general provisions.

Same; Same; It would not be right to let any of the partners remain in the partnership under such an
atmosphere of animosity.On the third and final issue, we accord due respect to the appellate court
and respondent Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
faith. Public respondents viewed his withdrawal to have been spurred by interpersonal conflict among
the partners. It would not be right, we agree, to let any of the partners remain in the partnership under
such an atmosphere of animosity; certainly, not against their will. Indeed, for as long as the reason for
withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act.
Bad faith, in the context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Bito, Lozada, Ortega & Castillo for petitioners.

Misa Law Offices for private respondent.

Adrian Sison collaborating counsel for private respondent.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission (SEC) in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by
the appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 Au-gust
1948. The SEC records show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6
July 1965 x xx to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respon-dents-appellees a letter stating:

 I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this
month.

I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm.

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would
like to have this resolved because it has to do with my own plans.

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other partners. Not only have they refused
to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result of such policies is the formation of
the union, including the assistant attorneys.

On 30 June 1988, petitioner filed with this Commissions Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership

, docketed as SEC Case No. 3384 praying that the Commission:

1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa
&Lozada;

2. Order the respondents to deliver or pay for petitioners share in the partnership assets plus the
profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership;

3. Enjoin respondents from using the firm name of Bito, Misa &Lozada in any of their correspondence,
checks and pleadings and to pay petitioners damages for the use thereof despite the dissolution of the
partnership in the amount of at least P50,000.00;

4. Order respondents jointly and severally to pay petitioner attorneys fees and expense of litigation in
such amounts as maybe proven during the trial and which the Commission may deem just and equitable
under the premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or
P100,000.00;

5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.

Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises.
On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

[P]etitioners withdrawal from the law firm Bito, Misa &Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions
of the Agreement relative to the matter governing the liquidation of the shares of any retiring or
withdrawing partner in the partnership interest. 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of
Attorney Joaquin L. Misa had dissolved the partnership of Bito, Misa &Lozada. The Commission ruled
that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by
his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as
it concludes that the partnership of Bito, Misa &Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the
parties.2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 04 April 1991, respondent SEC issued an order denying reconsideration, as
well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R.
SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA-G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misas withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of Attorney Misas interest or participation in the
partnership which could be computed and paid in the manner stipulated in the partnership agreement;
(d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of
the value of Attorney Misas share in the partnership assets; and (e) that the appointment of a receiver
was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in
any such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa &Lozada
(now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondents demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad
faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm Bito, Misa &Lozada,
and now Bito, Lozada, Ortega and Castillo, is indeed such a partnership need not be unduly belabored.
We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on
this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified
period or undertaking. The DURATION clause simply states:

5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners.

The hearing officer however opined that the partnership is one for a specific undertaking and hence
not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and entities with respect to their legal
and other affairs; and to appear for and represent their principals and client in all courts of justice and
government departments and offices in the Philippines, and elsewhere when legally authorized to do
so.

The purpose of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a
definite undertaking. There would therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates, is a specific undertaking or project which
has a definite or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners.
The right to choose with whom a person wishes to associate himself is the very foundation and essence
of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partners capability to give it, and the absence of a cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership4 but that it can result in a liability for damages.5

In passing, neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner.6 Among partners,7 mutual agency arises and the doctrine of delectus personae allows them to
have the power, although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the
business.8 Upon its dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various
provisions of the Civil Code;10 however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent applicable over the Codes general
provisions. We here take note of paragraph 8 of the Amendment to Articles of Partnership reading
thusly:

x xx In the event of the death or retirement of any partner, his interest in the partnership shall be
liquidated and paid in accordance with the existing agreements and his partnership participation shall
revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office condominium which the partnership is now acquiring,
consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati,
Metro Manila, their true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner
or the heirs of a deceased partner, as the case may be. In the event of any disagreement between the
said appraisers a third appraiser will be appointed by them whose decision shall be final. The share of
the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid monthly within the
first ten (10) days of every month in installments of not less than P20,000.00 for the Senior Partners,
P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner.11

The term retirement must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission
on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by interpersonal conflict among the partners. It would
not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of
animosity; certainly, not against their will.12 Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm
and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the
context here used, is no different from its normal concept of a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano (Chairman), Romero, Melo and Francisco, JJ., concur.

342 SCRA 20

FIRST DIVISION

G.R. No. 127405. October 4, 2000.*

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY,
respondents.

Partnerships; Appeals; The issue of whether or not a partnership exists is a factual matter which are
within the exclusive domain of both the trial court and the Court of Appeals.The issue of whether or
not a partnership exists is a factual matter which are within the exclusive domain of both the trial and
appellate courts. This Court cannot set aside factual findings of such courts absent any showing that
there is no evidence to support the conclusion drawn by the court a quo. In this case, both the trial court
and the Court of Appeals are one in ruling that petitioners and private respondent established a
business partnership. This Court finds no reason to rule otherwise.

Same; Requisites for a Partnership to Have Juridical Personality; Since a contract of partnership is
consensual, an oral contract of partnership is as good as a written one; Where no immovable property
or real rights are involved, what matters is that the parties have complied with the requisites of a
partnership.To be considered a juridical personality, a partnership must fulfill these requisites: (1) two
or more persons bind themselves to contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among themselves. It may be constituted in
any form; a public instrument is necessary only where immovable property or real rights are contributed
thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is
as good as a written one. Where no immovable property or real rights are involved, what matters is that
the parties have complied with the requisites of a partnership. The fact that there appears to be no
record in the Securities and Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership.
The pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical
personality separate and distinct from that of each of the partners, even in case of failure to comply
with the requirements of article 1772, first paragraph.

Same; Guaranty; While Article 2055 of the Civil Code simply provides that guaranty must be express,
Article 1403, the Statute of Frauds, requires that a special promise to answer for the debt, default or
miscarriage of another be in writing.Petitioner Belos denial that he financed the partnership rings
hollow in the face of the established fact that he presided over meetings regarding matters affecting the
operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a
stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive
thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than that
he had a proprietary interest in the business. His claim that he was merely a guarantor is belied by that
personal act of proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of
petitioner Tocao under Article 2053 of the Civil Code, he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that guaranty must be express, Article
1403, the Statute of Frauds, requires that a special promise to answer for the debt, default or
miscarriage of another be in writing.

Same; Employer-Employee Relationship; While it is true that the receipt of a percentage of net profits
constitutes only prima facie evidence that the recipient is a partner in the business, the evidence in the
instant case at bar controverts an employer-employee relationship between the parties.The business
venture operated under Geminesse Enterprise did not result in an employer-employee relationship
between petitioners and private respondent. While it is true that the receipt of a percentage of net
profits constitutes only prima facie evidence that the recipient is a partner in the business, the evidence
in the case at bar controverts an employer-employee relationship between the parties. In the first place,
private respondent had a voice in the management of the affairs of the cookware distributorship,
including selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She
admitted that, like her who owned Geminesse Enterprise, private respondent received only
commissions and transportation and representation allowances and not a fixed salary.

Same; Same; If indeed a person is employed by another, it is difficult to believe that the former and the
latter shall receive the same income in the business.If indeed petitioner Tocao was private
respondents employer, it is difficult to believe that they shall receive the same income in the business.
In a partnership, each partner must share in the profits and losses of the venture, except that the
industrial partner shall not be liable for the losses. As an industrial partner, private respondent had the
right to demand for a formal accounting of the business and to receive her share in the net profit.

Same; The best evidence of the existence of the partnership, which is not yet terminated (though in the
winding up stage), are the unsold goods and uncollected receivables.Petitioners underscore the fact
that the Court of Appeals did not return the unaccounted and unremitted stocks of Geminesse
Enterprise amounting to P208,250.00. Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a partnership between them.
In Idos v. Court of Appeals, this Court said: The best evidence of the existence of the partnership, which
was not yet terminated (though in the winding up stage), were the unsold goods and uncollected
receivables, which were presented to the trial court. Since the partnership has not been terminated, the
petitioner and private complainant remained as co-partners. x xx.

Same; Dissolution of Partnerships; A mere falling out or misunderstanding between partners does not
convert the partnership into a sham organizationthe partnership exists until dissolved under the
law.Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to
reap for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business operation,
she started to assert herself to the extent that she would even shout at private respondent in front of
other people. Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation, and resulted in a falling out between the
two. However, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization. The partnership exists until dissolved under the law.

Same; Same; Any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will, though he must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages; An unjustified dissolution
by a partner can subject him to action for damages.Since the partnership created by petitioners and
private respondent has no fixed term and is therefore a partnership at will predicated on their mutual
desire and consent, it may be dissolved by the will of a partner. Thus: x xx. The right to choose with
whom a person wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each
partners capability to give it, and the absence of cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages. An unjustified dissolution by a partner can
subject him to action for damages because by the mutual agency that arises in a partnership, the
doctrine of delectus personae allows the partners to have the power, although not necessarily the right
to dissolve the partnership.

Same; Same; Even if one partner had effected her own withdrawal from the partnership and considered
herself as having ceased to be associated with the partnership in the carrying on of the business, the
partnership was not terminated therebyit continues until the winding up of the business.Petitioner
Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the
Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-
president for sales of Geminesse Enterprise. By that memo, petitioner Tocaoeffected her own
withdrawal from the partnership and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.

PETITION for review on certiorari of a decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Fortunato M. Lira Law Office for petitioners.

Rodolfo D. Mapile for private respondent.

YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616,1 affirming
the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.2

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita
A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water
Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao,
who conveyed her desire to enter into a joint venture with her for the importation and local distribution
of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of
marketing the product considering her experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of the marketing department and
later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired
and fired employees, determined commissions and/or salaries of the employees, and assigned them to
different branches. The parties agreed that Belos name should not appear in any documents relating to
their transactions with West Bend Company. Instead, they agreed to use Anays name in securing
distributorship of cookware from that company. The parties agreed further that Anay would be entitled
to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to writing on the
strength of Belos assurances that he was sincere, dependable and honest when it came to financial
commitments.

Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off successfully. They
operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos
name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay
accepted the invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13,
1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years
now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation. (Italics supplied.)3

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31,
1987, she received a plaque of appreciation from the administrative and sales people through Marjorie
Tocao4 for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a
memo5 entitling her to a thirty-seven percent (37%) commission for her personal sales up Dec 31/87.
Belo explained to her that said commission was apart from her ten percent (10%) share in the profits.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter6 addressed to the Cubao sales
office to the effect that she was no longer the vice-president of Geminesse Enterprise. The following
day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had
barred her from holding office and conducting demonstrations in both Makati and Cubao offices.7 Anay
attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of
January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net
profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a
letter. Still, that letter was not answered.

Anay still received her five percent (5%) overriding commission up to December 1987. The following
year, 1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch
140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1) P32,000.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2)
P100,000.00 as moral damages; and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for
an audit of the finances of Geminesse Enterprise from the inception of its business operation until she
was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed
that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.

In their answer,9 Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was
neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo
was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a
partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an
agreed remuneration, and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will and
resentment because Marjorie Tocao did not allow her to lord it over in the Geminesse Enterprise.
Anay had acted like she owned the enterprise because of her experience and expertise. Hence,
petitioners were the ones who suffered actual damages including unreturned and unaccounted stocks
of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and
various damages not less than P500,000.00. They also alleged that, to vindicate their names, they
had to hire counsel for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee
or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages.10

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He,
however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%)
share in the gross sales of the cookware. He denied contributing capital to the business or receiving a
share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in the business.
He attended and/or presided over business meetings of the venture in his capacity as a guarantor but he
never participated in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-
seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao,
because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on
gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in
her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with
interest. Because she treated Anay as her co-equal, Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks valued at P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:

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

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the
years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the
period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P 100,000.00 as exemplary damages;
and

5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED.

The trial court held that there was indeed an oral partnership agreement between the plaintiff and the
defendants, based on the following: (a) there was an intention to create a partnership; (b) a common
fund was established through contributions consisting of money and industry; and (c) there was a joint
interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer
of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc.,
buttressed the fact that a partnership existed between the parties. The letter of Roger Muencheberg of
West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the combination of
the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was
merely a guarantor has no basis since there was no written evidence thereof as required by Article
2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse
Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On
the contrary, it demonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise
was registered in Marjorie Tocaos name is not determinative of whether or not the business was
managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well
as damages or share in the profits realized from the appropriation of the partnership business and
goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was
incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully
expelled.

Petitioners appeal to the Court of Appeals11 was dismissed, but the amount of damages awarded by
the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages.
Their Motion for Reconsideration was denied by the Court of Appends for lack of merit.12 Petitioners
Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that
there was no business partnership between them and herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership
existed between them and private respondent Anay because Geminesse Enterprise came into being
exactly a year before the alleged partnership was formed, and that it was very unlikely that petitioner
Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any
memorandum whatsoever regarding the alleged partnership.13

The issue of whether or not a partnership exists is a factual matter which are within the exclusive
domain of both the trial and appellate courts. This Court cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the conclusion drawn by the court a quo,14 In
this case, both the trial court and the Court of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2) intention
on the part of the partners to divide the profits among themselves.15 It may be constituted in any form;
a public instrument is necessary only where immovable property or real rights are contributed
thereto.16 This implies that since a contract of partnership is consensual, an oral contract of partnership
is as good as a written one. Where no immovable property or real rights are involved, what matters is
that the parties have complied with the requisites of a partnership. The fact that there appears to be no
record in the Securities and Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code17 did not cause the nullification of the partnership.
The pertinent provision of the Civil Code on the matter states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of distributorship
of cookware. Private respondent contributed such expertise to the partnership and hence, under the
law, she was the industrial or managing partner. It was through her reputation with the West Bend
Company that the partnership was able to open the business of distributorship of that companys
cookware products; it was through the same efforts that the business was propelled to financial success.
Petitioner Tocao herself admitted private respondents indispensable role in putting up the business
when, upon being asked if private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:

A:

No, sir at the start she was the marketing manager because there were no one to sell yet, its only me
there then her and then two (2) people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing
managers of which definitely Nita as superior to them would be the Vice President.18

By the set-up of the business, third persons were made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does
not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory
Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They
will continue to gather other key people and build up the organization. All they need is the finance and
the products to sell.19

On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of
the established fact that he presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner
Tocao under Article 2053 of the Civil Code,20 he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403, the
Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage of
another be in writing.21

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She claimed that she
herself financed the business. Her and petitioner Belos roles as both capitalists to the partnership with
private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her
boyfriend and that the partnership was not their only business venture together. They also established a
firm that they called Wiji, the combination of petitioner Belos first name, William, and her nickname,
Jiji.23 The special relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to utilize their banking and trading facilities in
Singapore in the matter of importation and payment of the cookware products.24 The inevitable
conclusion, therefore, was that petitioners merged their respective capital and infused the amount into
the partnership of distributing cookware with private respondent as the managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,25 the evidence in the case at bar controverts an employer-employee relationship between the
parties. In the first place, private respondent had a voice in the management of the affairs of the
cookware distributorship,26 including selection of people who would constitute the administrative staff
and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise,27 private respondent
received only commissions and transportation and representation allowances28 and not a fixed
salary.29 Petitioner Tocao testified:

Q:

Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go
over this. Exh. Y is denominated Cubao overrides 8-21-87 with ending August 21, 1987, will you please
go over this and tell the Honorable Court whether you ever came across this document and know of
your own knowledge the amount

A:

Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage
for promotions, advertising, incentive.

Q:

I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount?

A:
Oh yes, sir.

Q:

I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?

A:

Yes, sir.

Q:

I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?

A:

Thats her overriding commission.

Q:

Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?

A:

No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer her
the same thing.

Q:

So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?

A:

As an equal.

Q:

As an equal, I see. You were treating her as an equal?

A:

Yes, sir.

Q:
Iam calling again your attention to Exh. Y Overrides Makati the other one is

A:

That is the same thing, sir.

Q:

With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there
you will acknowledge you have received that?

A:

Yes, sir.

Q:

Again in concept of commission, representation, promotion, etc.?

A:

Yes, sir.

Q:

Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received
the same amount?

A:

Yes, sir.

Q:

And, as in your previous statement it is not by coincidence that these two (2) are the same?

A:

No, sir.

Q:

It is again in concept of you treating Miss Anay as your equal?

A:

Yes, sir. (Italics supplied.)30

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall
receive the same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses.31 As an
industrial partner, private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.32

The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August
19, 1987 was merely the name of that enterprise.33 While it is true that in her undated application for
renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail
of kitchenwares, cookwares, utensils, skillet,34 she also admitted that the enterprise was only 60% to
70% for the cookware business, while 20% to 30% of its business activity was devoted to the sale of
water sterilizer or purifier.35 Indubitably then, the business name Geminesse Enterprise was used only
for practical reasonsit was utilized as the common name for petitioner Tocaos various business
activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and
unremitted stocks of Geminesse Enterprise amounting to P208,250.00.36 Obviously a ploy to offset the
damages awarded to private respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial
court. Since the partnership has not been terminated, the petitioner and private complainant remained
as co-partners, x x x.37

It is not surprising then that, even after private respondent had been unceremoniously booted out of
the partnership in October 1987, she still received her overriding commission until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for
herself and/or for petitioner Belo financial gains resulting from private respondents efforts to make the
business venture a success. Thus, as petitioner Tocao became adept in the business operation, she
started to assert herself to the extent that she would even shout at private respondent in front of other
people.38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to
hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation,39 and resulted in a falling out between
the two. However, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization.40 The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has no fixed term and is therefore a
partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a
partner. Thus:

x xx. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolutionof the partnership at will. He must, however, act in good faith, not that the attendance of bad
faith can prevent the dissolution of the partnership but that it can result in a liability for damages.41

An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the partnership.42

In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown
by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no
longer the vice-president for sales of Geminesse Enterprise.43 By that memo, petitioner Tocaoeffected
her own withdrawal from the partnership and considered herself as having ceased to be associated with
the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.44

The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in
petitioners claim for stocks that had been entrusted to private respondent in the pursuit of the
partnership business.

The determination of the amount of damages commensurate with the factual findings upon which it is
based is primarily the task of the trial court.45 The Court of Appeals may modify that amount only when
its factual findings are diametrically opposed to that of the lower court,46 or the award is palpably or
scandalously and unreasonably excessive.47 However, exemplary damages that are awarded by way of
example or correction for the public good,48 should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be
granted on account of the award of exemplary damages and petitioners evident bad faith in refusing to
satisfy private respondents plainly valid, just and demandable claims,49 appear to have been
excessively granted by the trial court and should therefore be reduced to P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners
and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and
liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is
remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed
decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as
follows

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine
private respondents ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the
total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount
of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of
P25,000.00.

SO ORDERED.

Davide, Jr. (C.J., Chairman), Puno, Kapunan and Pardo, JJ., concur.

Petition denied, judgments of the trial court and the Court of Appeals affirmed with modifications.

Notes.The issue as to whether there is still a partnership between the parties is a factual matter.
(Alicbusan vs. Court of Appeals, 269 SCRA 336 [1997])

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business
and to divide the profits or losses that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a common fund, as their contribution to such fund could be an
intangible like credit or industry. (Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., 317 SCRA 728
[1999])
412 SCRA 10

SPECIAL FIRST DIVISION

G.R. No. 124293. September 24, 2003.

JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its
Chairman and Members; ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.

Administrative Law; Public Utilities; Definition; To constitute a public utility, the facility must be
necessary for the maintenance of life and occupation of the residents.A public utility is a business
or service engaged in regularly supplying the public with some commodity or service of public
consequence such as electricity, gas, water, transportation, telephone or telegraph service. To
constitute a public utility, the facility must be necessary for the maintenance of life and occupation of
the residents. However, the fact that a business offers services or goods that promote public good and
serve the interest of the public does not automatically make it a public utility. Public use is not
synonymous with public interest. As its name indicates, the term public utility implies public use and
service to the public. The principal determinative characteristic of a public utility is that of service to, or
readiness to serve, an indefinite public or portion of the public as such which has a legal right to demand
and receive its services or commodities. Stated otherwise, the owner or person in control of a public
utility must have devoted it to such use that the public generally or that part of the public which has
been served and has accepted the service, has the right to demand that use or service so long as it is
continued, with reasonable efficiency and under proper charges. Unlike a private enterprise which
independently determines whom it will serve, a public utility holds out generally and may refuse
legitimate demand for service.

Same; Same; Public Use; Definition; The true criterion by which to judge the character of the use is
whether the public may enjoy it by right or only by permission.Public use means the same as use
by the public. The essential feature of the public use is that it is not confined to privileged individuals,
but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look not only to the character of the business
to be done, but also to the proposed mode of doing it. If the use is merely optional with the owners, or
the public benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the
public utility commission. There must be, in general, a right which the law compels the owner to give to
the general public. It is not enough that the general prosperity of the public is promoted. Public use is
not synonymous with public interest. The true criterion by which to judge the character of the use is
whether the public may enjoy it by right or only by permission. (emphasis supplied)

Same; Same; Bidding; Definition; Principles.The word bidding in its comprehensive sense means
making an offer or an invitation to prospective contractors whereby the government manifests its
intention to make proposals for the purpose of supplies, materials and equipment for official business or
public use, or for public works or repair. The three principles of public bidding are: (1) the offer to the
public; (2) an opportunity for competition; and (3) a basis for comparison of bids. As long as these three
principles are complied with, the public bidding can be considered valid and legal. It is not necessary
that the highest bid be automatically accepted. The bidding rules may specify other conditions or the
bidding process be subjected to certain reservation or qualification such as when the owner reserves to
himself openly at the time of the sale the right to bid upon the property, or openly announces a price
below which the property will not be sold. Hence, where the seller reserves the right to refuse to accept
any bid made, a binding sale is not consummated between the seller and the bidder until the seller
accepts the bid. Furthermore, where a right is reserved in the seller to reject any and all bids received,
the owner may exercise the right even after the auctioneer has accepted a bid, and this applies to the
auction of public as well as private property.

Same; Same; Same; Where the invitation to bid contains a reservation for the Government to reject any
or all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter
of right for it does not become a ministerial duty of the Government to make such an award.It is a
settled rule that where the invitation to bid contains a reservation for the Government to reject any or
all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of
right for it does not become a ministerial duty of the Government to make such an award. Thus, it has
been held that where the right to eject is so reserved, the lowest bid or any bid for that matter may be
rejected on a mere technicality, that all bids may be rejected, even if arbitrarily and unwisely, or under a
mistake, and that in the exercise of a sound discretion, the award may be made to another than the
lowest bidder. And so, where the Governmentas advertiser, availing itself of that right, makes its
choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that
choice, unless an unfairness or injustice is shown. Accordingly, he has no ground of action to compel the
Government to award the contract in his favor, nor compel it to accept his bid.

Same; Same; Same; Public Bidding; The requirement of public bidding does not negate the exercise of
the right of first refusal.It is true that properties of the National Government, as a rule, may be sold
only after a public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices are eliminated
or minimized. But the requirement for public bidding does not negate the exercise of the right of first
refusal. In fact, public bidding is an essential first step in the exercise of the right of first refusal because
it is only after the public bidding that the terms upon which the Government may be said to be willing to
sell its shares to third parties may be known.

MOTIONS FOR RECONSIDERATION of the decision of the Supreme Court.

The facts are stated in the resolution of the Court. Romulo, Mabanta, Buenaventura, Sayoc& Delos
Angeles for petitioner.

Sycip, Salazar, Hernandez and Gatmaitan for private respondent Philyards Holdings, Inc.

Raul Villanueva and Dinah Bal for Privatization & Management Office.

RESOLUTION

PUNO, J.:
The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility whose
capitalization must be sixty percent (60%) owned by Filipinos. Our resolution of this issue will determine
the fate of the shipbuilding and ship repair industry. It can either spell the industrys demise or breathe
new life to the struggling but potentially healthy partner in the countrys bid for economic growth. It can
either kill an initiative yet in its infancy, or harness creativity in the productive disposition of government
assets.

The facts are undisputed and can be summarized briefly as follows:

On January 27, 1977, the National Investment and Development Corporation (NIDC), a government
corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe,
Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc.
(SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in
the proportion of 60%-40% respectively.1 One of its salient features is the grant to the parties of the
right of first refusal should either of them decide to sell, assign or transfer its interest in the joint
venture, viz.:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third
party without giving the other under the same terms the right of first refusal. This provision shall not
apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI
affiliate.2

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine
National Bank (PNB). Such interests were subsequently transferred to the National Government
pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued
Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust
(APT) to take title to, and possession of, conserve, manage and dispose of non-performing assets of the
National Government. Thereafter, on February 27, 1987, a trust agreement was entered into between
the National Government and the APT wherein the latter was named the trustee of the National
Governments share in PHILSECO. In 1989, as a result of a quasireorganization of PHILSECO to settle its
huge obligations to PNB, the National Governments shareholdings in PHILSECO increased to 97.41%
thereby reducing KAWASAKIS shareholdings to 2.59%.3

In the interest of the national economy and the government, the COP and the APT deemed it best to sell
the National Governments share in PHILSECO to private entities. After a series of negotiations between
the APT and KAWASAKI, they agreed that the latters right of first refusal under the JVA be exchanged
for the right to top by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the
right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top.4

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the
JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the
National Governments 87.6% equity share in PHILSECO.5 The provisions of the ASBR were explained to
the interested bidders who were notified that the bidding would be held on December 2, 1993. A
portion of the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Governments equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67% of
PHILSECOs outstanding capital stock), which will be sold as a whole block in accordance with the rules
herein enumerated.

...

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board of
Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Governments 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION
(P1,300,000,000.00).

...

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting
following the bidding, for the purpose of determining whether or not it should be endorsed by the APT
Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki Heavy
Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a
period of thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest bid plus five
(5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their Option to Top
the Highest Bid, they shall so notify the APT about such exercise of their option and deposit with APT
the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%) thereof within the
thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve notice upon Kawasaki
Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring them as the preferred bidder and they
shall have a period of ninety (90) days from the receipt of the APTs notice within which to pay the
balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise their Option
to Top the Highest Bid within the thirty (30)-day period, APT will declare the highest bidder as the
winning bidder.

...
12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official
bid forms, including any addenda or amendments thereto issued during the bidding period. The bidder
shall likewise be responsible for informing itself with respect to any and all conditions concerning the
PHILSECO Shares which may, in any manner, affect the bidders proposal. Failure on the part of the
bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be
given by APT or COP. . . .6

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of Two
Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of KAWASAKI/Philyards
right to top, viz.:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APTs
recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall
advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the highest bid is
acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their Option to Top the Highest Bid by offering a bid equivalent to the highest
bid plus five (5%) percent thereof.7

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 subject
to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as
specified in the bidding rules.8

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on
the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki, Philyards, Mitsui, Keppel,
SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing
bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI
could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit
to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e)
the JG Summit consortium was not estopped from questioning the proceedings.9

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of
the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to
top the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994,
the APT and PHI executed a Stock Purchase Agreement.10 Consequently, petitioner filed with this Court
a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the
Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that
the petition for mandamus was not the proper remedy to question the constitutionality or legality of the
right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must
be brought by the proper party in the proper forum at the proper time and threshed out in a full blown
trial. The Court of Appeals further ruled that the right of first refusal and the right to top are prima facie
legal and that the petitioner, by participating in the public bidding, with full knowledge of the right to
top granted to KASAWASAKI/Philyards is . . . estopped from questioning the validity of the award given
to Philyards after the latter exercised the right to top and had paid in full the purchase price of the
subject shares, pursuant to the ASBR. Petitioner filed a Motion for Reconsideration of said Decision
which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court
alleging grave abuse of discretion on the part of the appellate court.11

On November 20, 2000, this Court rendered the now assailed Decision ruling among others that the
Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the
special civil action of mandamus because the petition was also one of certiorari.12 It further ruled that a
shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-
owned.13 Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules
(ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegalnot
only because it violates the rules on competitive biddingbut more so, because it allows foreign
corporations to own more than 40% equity in the shipyard.14 It also held that although the petitioner
had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped
from questioning the unconstitutional, illegal and inequitable provisions thereof.15 Thus, this Court
voided the transfer of the national governments 87.67% share in PHILSECO to Philyard Holdings, Inc.,
and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz.:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision and
Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its
bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00), less its bid deposit plus interests upon
the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing 87.6% of
PHILSECOs total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five
Hundred Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.16

In separate Motions for Reconsideration,17 respondents submit three basic issues for our resolution: (1)
Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right
of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top
granted to KAWASAKI violates the principles of competitive bidding.

I. Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a public
utility for the following reasons:

First. By nature, a shipyard is not a public utility.

A public utility is a business or service engaged in regularly supplying the public with some
commodity or service of public consequence such as electricity, gas, water, transportation, telephone or
telegraph service.18 To constitute a public utility, the facility must be necessary for the maintenance of
life and occupation of the residents. However, the fact that a business offers services or goods that
promote public good and serve the interest of the public does not automatically make it a public utility.
Public use is not synonymous with public interest. As its name indicates, the term public utility implies
public use and service to the public. The principal determinative characteristic of a public utility is that of
service to, or readiness to serve, an indefinite public or portion of the public as such which has a legal
right to demand and receive its services or commodities. Stated otherwise, the owner or person in
control of a public utility must have devoted it to such use that the public generally or that part of the
public which has been served and has accepted the service, has the right to demand that use or service
so long as it is continued, with reasonable efficiency and under proper charges.19 Unlike a private
enterprise which independently determines whom it will serve, a public utility holds out generally and
may refuse legitimate demand for service.20 Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility
Board,21 this Court defined public use, viz.:

Public use means the same as use by the public. The essential feature of the public use is that it is
not confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we must
look not only to the character of the business to be done, but also to the proposed mode of doing it. If
the use is merely optional with the owners, or the public benefit is merely incidental, it is not a public
use, authorizing the exercise of jurisdiction of the public utility commission. There must be, in general, a
right which the law compels the owner to give to the general public. It is not enough that the general
prosperity of the public is promoted. Public use is not synonymous with public interest. The true
criterion by which to judge the character of the use is whether the public may enjoy it by right or only by
permission.22 (emphasis supplied)

Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard cannot be
considered a public utility.

A shipyard is a place or enclosure where ships are built or repaired.23 Its nature dictates that it
serves but a limited clientele whom it may choose to serve at its discretion. While it offers its facilities to
whoever may wish to avail of its services, a shipyard is not legally obliged to render its services
indiscriminately to the public. It has no legal obligation to render the services sought by each and every
client. The fact that it publicly offers its services does not give the public a legal right to demand that
such services be rendered.

There can be no disagreement that the shipbuilding and ship repair industry is imbued with public
interest as it involves the maintenance of the seaworthiness of vessels dedicated to the transportation
of either persons or goods. Nevertheless, the fact that a business is affected with public interest does
not imply that it is under a duty to serve the public. While the business may be regulated for public
good, the regulation cannot justify the classification of a purely private enterprise as a public utility. The
legislature cannot, by its mere declaration, make something a public utility which is not in fact such; and
a private business operated under private contracts with selected customers and not devoted to public
use cannot, by legislative fiat or by order of a public service commission, be declared a public utility,
since that would be taking private property for public use without just compensation, which cannot be
done consistently with the due process clause.24

It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to shipyards,
are not considered public utilities despite the fact that their operations greatly impact on land and air
transportation. The reason is simple. Unlike commodities or services traditionally regarded as public
utilities such as electricity, gas, water, transportation, telephone or telegraph service, automobile and
aircraft manufacturingand for that matter ship building and ship repairserve the public only
incidentally.

Second. There is no law declaring a shipyard as a public utility.

History provides us hindsight and hindsight ought to give us a better view of the intent of any law. The
succession of laws affecting the status of shipyards ought not to obliterate, but rather, give us full
picture of the intent of the legislature. The totality of the circumstances, including the contemporaneous
interpretation accorded by the administrative bodies tasked with the enforcement of the law all lead to
a singular conclusion: that shipyards are not public utilities.

Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until its repeal
by Commonwealth Act No. 146, establishing the Public Service Commission (PSC), a shipyard, by
legislative declaration, has been considered a public utility.25 A Certificate of Public Convenience (CPC)
from the PSC to the effect that the operation of the said service and the authorization to do business
will promote the public interests in a proper and suitable manner is required before any person or
corporation may operate a shipyard.26 In addition, such persons or corporations should abide by the
citizenship requirement provided in Article XIII, section 8 of the 1935 Constitution,27 viz.:

Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility
shall be granted except to citizens of the Philippines or to corporations or other entities organized under
the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the
Philippines, nor shall such franchise, certificate or authorization be exclusive in character or for a longer
period than fifty years. No franchise or right shall be granted to any individual, firm or corporation,
except under the condition that it shall be subject to amendment, alteration, or repeal by the National
Assembly when the public interest so requires. (emphasis supplied)

To accelerate the development of shipbuilding and ship repair industry, former President Ferdinand E.
Marcos issued P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall
be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.The importation of machinery, equipment and materials
for shipbuilding, ship repair and/or alteration, including indirect import, as well as replacement and
spare parts for the repair and overhaul of vessels such as steel plates, electrical machinery and
electronic parts, shall be exempt from the payment of customs duty and compensating tax: Provided,
however, That the Maritime Industry Authority certifies that the item or items imported are not
produced locally in sufficient quantity and acceptable quality at reasonable prices, and that the
importation is directly and actually needed and will be used exclusively for the construction, repair,
alteration, or overhaul of merchant vessels, and other watercrafts; Provided, further, That if the above
machinery, equipment, materials and spare parts are sold to non-tax exempt persons or entities, the
corresponding duties and taxes shall be paid by the original importer; Provided, finally, That local
dealers and/or agents who sell machinery, equipment, materials and accessories to shipyards for
shipbuilding and ship repair are entitled to tax credits, subject to approval by the total tariff duties and
compensating tax paid for said machinery, equipment, materials and accessories.

(b) Accelerated depreciation.Industrial plant and equipment may, at the option of the shipbuilder and
ship repairer, be depreciated for any number of years between five years and expected economic life.

(c) Exemption from contractors percentage tax.The gross receipts derived by shipbuilders and ship
repairers from shipbuilding and ship repairing activities shall be exempt from the Contractors Tax
provided in Section 91 of the National Internal Revenue Code during the first ten years from registration
with the Maritime Industry Authority, provided that such registration is effected not later than the year
1990; Provided, That any and all amounts which would otherwise have been paid as contractors tax
shall be set aside as a separate fund, to be known as Shipyard Development Fund, by the contractor
for the purpose of expansion, modernization and/or improvement of the contractors own shipbuilding
or ship repairing facilities; Provided, That, for this purpose, the contractor shall submit an annual
statement of its receipts to the Maritime Industry Authority; and Provided, further, That any
disbursement from such fund for any of the purposes hereinabove stated shall be subject to approval by
the Maritime Industry Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of public
utilities, thereby freeing the industry from the 60% citizenship requirement under the Constitution and
from the need to obtain Certificate of Public Convenience pursuant to section 15 of C.A No. 146. Section
1 (d) of P.D. 666 reads:

(d) Registration required but not as a Public Utility.The business of constructing and repairing vessels
or parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be
required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no
person or enterprise shall engage in construction and/or repair of any vessel, or any phase or part
thereof, without a valid Certificate of Registration and license for this purpose from the Maritime
Industry Authority, except those owned or operated by the Armed Forces of the Philippines or by
foreign governments pursuant to a treaty or agreement. (emphasis supplied)

Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666 were repealed
or modified accordingly.28 Consequently, sections 13 (b) and 15 of C.A. No. 146 were repealed in so far
as the former law included shipyards in the list of public utilities and required the certificate of public
convenience for their operation. Simply stated, the repeal was due to irreconcilable inconsistency, and
by definition, this kind of repeal falls under the category of an implied repeal.29

On April 28, 1983, Batas PambansaBlg. 391, also known as the Investment Incentive Policy Act of
1983, was enacted. It laid down the general policy of the government to encourage private domestic
and foreign investments in the various sectors of the economy, to wit:

Sec. 2. Declaration of Investment Policy.It is the policy of the State to encourage private domestic and
foreign investments in industry, agriculture, mining and other sectors of the economy which shall:
provide significant employment opportunities relative to the amount of the capital being invested;
increase productivity of the land, minerals, forestry, aquatic and other resources of the country, and
improve utilization of the products thereof; improve technical skills of the people employed in the
enterprise; provide a foundation for the future development of the economy; accelerate development
of less developed regions of the country; and result in increased volume and value of exports for the
economy.

It is the policy of the State to extend to projects which will significantly contribute to the attainment of
these objectives, fiscal incentives without which said projects may not be established in the locales,
number and/or pace required for optimum national economic development. Fiscal incentive systems
shall be devised to compensate for market imperfections, reward performance of making contributions
to economic development, cost-efficient and be simple to administer.

The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the
enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of
operation unless a special period is otherwise stated.

The foregoing declaration shall apply to all investment incentive schemes and in particular will
supersede article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas PambansaBlg. 391 repealed the following laws, viz.:

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2)Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789:2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77. Articles
45, 46 and 48 are hereby amended only with respect to domestic and export producers.

All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof
which are inconsistent with the provisions of this Act are hereby repealed, amended or modified
accordingly.

All other incentive systems which are not in any way affected by the provisions of this Act may be
restructured by the President so as to render them cost-efficient and to make them conform with the
other policy guidelines in the declaration of policy provided in Section 2 of this Act. (emphasis supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was expressly and
categorically repealed. As a consequence, the provisions of C.A. No. 146, which were impliedly repealed
by P.D. No. 666, section 1 were revived.30 In other words, with the enactment of Batas PambansaBlg.
391, a shipyard reverted back to its status as a public utility and as such, requires a CPC for its operation.

The crux of the present controversy is the effect of the express repeal of Batas PambansaBlg. 391 by
Executive Order No. 226 issued by former President Corazon C. Aquino under her emergency powers.

We rule that the express repeal of Batas PambansaBlg. 391 by E.O. No. 226 did not revive Section 1 of
P.D. No. 666. But more importantly, it also put a period to the existence of sections 13 (b) and 15 of C.A.
No. 146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally written, owed their
continued existence to Batas PambansaBlg. 391. Had the latter not repealed P.D. No. 666, the former
should have been modified accordingly and shipyards effectively removed from the list of public utilities.
Ergo, with the express repeal of Batas PambansaBlg. 391 by E.O. No. 226, the revival of sections 13 (b)
and 15 of C.A. No. 146 had no more leg to stand on. A law that has been expressly repealed ceases to
exist and becomes inoperative from the moment the repealing law becomes effective.31 Hence, there is
simply no basis in the conclusion that shipyards remain to be a public utility. A repealed statute cannot
be the basis for classifying shipyards as public utilities.

In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a pubic
utility. A shipyard has been considered a public utility merely by legislative declaration. Absent this
declaration, there is no more reason why it should continuously be regarded as such. The fact that the
legislature did not clearly and unambiguously express its intention to include shipyards in the list of
public utilities indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status as
nonpublic utility prior to the enactment of the Public Service Law.

This interpretation is in accord with the uniform interpretation placed upon it by the Board of
Investments (BOI), which was entrusted by the legislature with the preparation of annual Investment
Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the manufacturing sector
and not of the public utilities sector. The enactment of Batas PambansaBlg. 391 did not alter the
treatment of the BOI on shipyards. It has been, as at present, classified as part of the manufacturing and
not of the public utilities sector.32
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the MARINA,33
none appears to have an existing franchise. If we continue to hold that a shipyard is a pubic utility, it is a
necessary consequence that all these entities should have obtained a franchise as was the rule prior to
the enactment of P.D. No. 666. But MARINA remains without authority, pursuant to P.D. No. 47434 to
issue franchises for the operation of shipyards. Surely, the legislature did not intend to create a vacuum
by continuously treating a shipyard as a public utility without giving MARINA the power to issue a
Certificate of Public Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as
required by section 15 of C.A. No. 146.

II. Whether under the 1977 Joint Venture Agreement, KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that prevents
KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization. Section 1 of the 1977 JVA
states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter increase
their subscription in Philseco as may be necessary and as called by the Board of Directors, maintaining a
proportion of 60%-40% for NIDC and KAWASAKI, respectively, up to a total subscribed and paid-up
capital stock of P312 million.

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed PHILSECO] to
any third party without giving the other under the same terms the right of first refusal. This provision
shall not apply if the transferee is a corporation owned and controlled by the GOVERMENT [of the
Philippines] or by a Kawasaki affiliate.

1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of SNS
[PHILSECO].35

Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of their
joint venture. There was no mention of the amount of their initial subscription. What is clear is that they
are to infuse the needed capital from time to time until the total subscribed and paid-up capital reaches
P312 million. The phrase maintaining a proportion of 60%-40% refers to their respective share of the
burden each time the Board of Directors decides to increase the subscription to reach the target paid-up
capital of P312 million. It does not bind the parties to maintain the sharing scheme all throughout the
existence of their partnershipy b.

The parties likewise agreed to arm themselves with protective mechanisms to preserve their respective
interests in the partnership in the event that (a) one party decides to sell its shares to third parties; and
(b) new Philseco shares are issued. Anent the first situation, the non-selling party is given the right of
first refusal under section 1.4 to have a preferential right to buy or to refuse the selling partys shares.
The right of first refusal is meant to protect the original or remaining joint venturer(s) or shareholder(s)
from the entry of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The
joint venture between the Philippine Government and KAWASAKI is in the nature of a partnership36
which, unlike an ordinary corporation, is based on delectus personae.37 No one can become a member
of the partnership association without the consent of all the other associates. The right of first refusal
thus ensures that the parties are given control over who may become a new partner in substitution of or
in addition to the original partners. Should the selling partner decide to dispose all its shares, the non-
selling partner may acquire all these shares and terminate the partnership. No person or corporation
can be compelled to remain or to continue the partnership. Of course, this presupposes that there are
no other restrictions in the maximum allowable share that the non-selling partner may acquire such as
the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can
acquire, as a maximum, only 40% of PHILSECOs shares is correct only if a shipyard is a public utility. In
such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of the total
capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere
agreement, avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a public utility
and no other restriction is present that would limit the right of KAWASAKI to purchase the
Governments share to 40% of Philsecos total capitalization.

Furthermore, the phrase under the same terms in section 1.4 cannot be given an interpretation that
would limit the right of KAWASAKI to purchase PHILSECO shares only to the extent of its original
proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the
whole of section 1.4, the phrase under the same terms means that a partner to the joint venture that
decides to sell its shares to a third party shall make a similar offer to the non-selling partner. The selling
partner cannot make a different or a more onerous offer to the non-selling partner.

The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the
conditions attendant to the sale for it to have a guided choice. While the right of first refusal protects
the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right
to sell its shares to third persons if, under the same offer, it does not buy the shares.

Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the
unissued shares of Philseco. Unlike the former, this situation does not contemplate transfer of a
partners shares to third parties but the issuance of new Philseco shares. The grant of preemptive rights
preserves the proportionate shares of the original partners so as not to dilute their respective interests
with the issuance of the new shares. Unlike the right of first refusal, a preemptive right gives a partner a
preferential right over the newly issued shares only to the extent that it retains its original proportionate
share in the joint venture.

The case at bar does not concern the issuance of new shares but the transfer of a partners share in the
joint venture. Verily, the operative protective mechanism is the right of first refusal which does not
impose any limitation in the maximum shares that the non-selling partner may acquire.

III.

Whether the right to top granted to KAWASAKI in exchange for its right of first refusal violates the
principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not
violate the rules of competitive bidding.

The word bidding in its comprehensive sense means making an offer or an invitation to prospective
contractors whereby the government manifests its intention to make proposals for the purpose of
supplies, materials and equipment for official business or public use, or for public works or repair.38 The
three principles of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and
(3) a basis for comparison of bids.39 As long as these three principles are complied with, the public
bidding can be considered valid and legal. It is not necessary that the highest bid be automatically
accepted. The bidding rules may specify other conditions or the bidding process be subjected to certain
reservation or qualification such as when the owner reserves to himself openly at the time of the sale
the right to bid upon the property, or openly announces a price below which the property will not be
sold. Hence, where the seller reserves the right to refuse to accept any bid made, a binding sale is not
consummated between the seller and the bidder until the seller accepts the bid. Furthermore, where a
right is reserved in the seller to reject any and all bids received, the owner may exercise the right even
after the auctioneer has accepted a bid, and this applies to the auction of public as well as private
property.40 Thus:

It is a settled rule that where the invitation to bid contains a reservation for the Government to reject
any or all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a
matter of right for it does not become a ministerial duty of the Government to make such an award.
Thus, it has been held that where the right to eject is so reserved, the lowest bid or any bid for that
matter may be rejected on a mere technicality, that all bids may be rejected, even if arbitrarily and
unwisely, or under a mistake, and that in the exercise of a sound discretion, the award may be made to
another than the lowest bidder. And so, where the Governmentas advertiser, availing itself of that
right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to
dispute that choice, unless an unfairness or injustice is shown. Accordingly, he has no ground of action
to compel the Government to award the contract in his favor, nor compel it to accept his bid.41

In the instant case, the sale of the Government shares in PHILSECO was publicly known. All interested
bidders were welcomed The basis for comparing the bids were laid down. All bids were accepted sealed
and were opened and read in the presence of the COAs official representative and before all interested
bidders. The only question that remains is whether or not the existence of KAWASAKIs right to top
destroys the essence of competitive bidding so as to say that the bidders did not have an opportunity
for competition. We hold that it does not.

The essence of competition in public bidding is that the bidders are placed on equal footing. This means
that all qualified bidders have an equal chance of winning the auction through their bids. In the case at
bar, all of the bidders were exposed to the same risk and were subjected to the same condition, i.e., the
existence of KAWASAKIs right to top. Under the ASBR, the Government expressly reserved the right to
reject any or all bids, and manifested its intention not to accept the highest bid should KAWASAKI decide
to exercise its right to top under the ABSR. This reservation or qualification was made known to the
bidders in a pre-bidding conference held on September 28, 1993. They all expressly accepted this
condition in writing without any qualification. Furthermore, when the Committee on Privatization
notified petitioner of the approval of the sale of the National Government shares of stock in PHILSECO, it
specifically stated that such approval was subject to the right of KAWASAKI Heavy Industries,
Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules. Clearly, the
approval of the sale was a conditional one. Since Philyards eventually exercised its right to top
petitioners bid by 5%, the sale was not consummated. Parenthetically, it cannot be argued that the
existence of the right to top set for naught the entire public bidding. Had Philyards Holdings, Inc. failed
or refused to exercise its right to top, the sale between the petitioner and the National Government
would have been consummated. In like manner, the existence of the right to top cannot be likened to a
second bidding, which is countenanced, except when there is failure to bid as when there is only one
bidder or none at all. A prohibited second bidding presupposes that based on the terms and conditions
of the sale, there is already a highest bidder with the right to demand that the seller accept its bid. In the
instant case, the highest bidder was well aware that the acceptance of its bid was conditioned upon the
non-exercise of the right to top.

To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI, a non-
bidder, the right to top the highest bidder. The fact that KAWASAKIs nominee to exercise the right to
top has among its stockholders some losing bidders cannot also be deemed unfair.

It must be emphasized that none of the parties questions the existence of KAWASAKIs right of first
refusal, which is concededly the basis for the grant of the right to top. Under KAWASAKIs right of first
refusal, the National Government is under the obligation to give preferential right to KAWASAKI in the
event it decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the
option to buy or refuse under the same terms for which it is willing to sell the said shares to third
parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the incidents of which
are governed by the law on contracts and on partnership.

It is true that properties of the National Government, as a rule, may be sold only after a public bidding is
held. Public bidding is the accepted method in arriving at a fair and reasonable price and ensures that
overpricing, favoritism and other anomalous practices are eliminated or minimized.42 But the
requirement for public bidding does not negate the exercise of the right of first refusal. In fact, public
bidding is an essential first step in the exercise of the right of first refusal because it is only after the
public bidding that the terms upon which the Government may be said to be willing to sell its shares to
third parties may be known. It is only after the public bidding that the Government will have a basis with
which to offer KAWASAKI the option to buy or forego the shares.

Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to top, KAWASAKI
would have been able to buy the National Governments shares in PHILSECO under the same terms as
offered by the highest bidder. Stated otherwise, by exercising its right of first refusal, KAWASAKI could
have bought the shares for only P2.03 billion and not the higher amount of P2.1315 billion. There is,
thus, no basis in the submission that the right to top unfairly favored KAWASAKI. In fact, with the right
to top, KAWASAKI stands to pay higher than it should had itsettled with its right of first refusal. The
obvious beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the right to top is
that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right to top. This is a valid
contractual stipulation; the right to top is an assignable right and both parties are aware of the full legal
consequences of its exercise. As aforesaid, all bidders were aware of the existence of the right to top,
and its possible effects on the result of the public bidding was fully disclosed to them. The petitioner,
thus, cannot feign ignorance nor can it be allowed to repudiate its acts and question the proceedings it
had fully adhered to.43

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to raise P2.131 billion necessary in
exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the
ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not
exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The
petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing
bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation
by Philyards of a consortium is legitimate in a free enterprise system. The appellate court is thus correct
in holding the petitioner estopped from questioning the validity of the transfer of the National
Governments shares in PHILSECO to respondent.

Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal because no
prior approval was given by the COA for it, specifically the provision on the right to top the highest
bidder and that the public auction on December 2, 1993 was not witnessed by a COA representative. No
evidence was proffered to prove these allegations and the Court cannot make legal conclusions out of
mere allegations. Regularity in the performance of official duties is presumed44 and in the absence of
competent evidence to rebut this presumption, this Court is duty bound to uphold this presumption.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The impugned
Decision and Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

Davide, Jr. (C.J., Chairman), Ynares-Santiago and Corona, JJ., concur.

Tinga, J., Please see separate opinion.

105 Phil. 741

[No. L-12164. May 22, 1959]

BENITO LIWANAG and MARIA LIWANAG REYES, petitioners and appellants, vs. WORKMEN'S
COMPENSATION COMMISSION, ET AL., respondents and appellees.

1.WORKMEN'S COMPENSATION; SOLIDARY LIABILITY OF BUSINESS PARTNERS.Although the

Workmen's Compensation Act does not contain any provision expressly declaring that the obligation of
business partners arising from compensable injury or death of an employee should be solidary,
however, there are other provisions of law from which it could be gathered that their liability must be
solidary. Arts. 1711 and 1712 of the New Civil Code and Section 2 of the Workmen's Compensation Act,
reasonably indicate that in compensation cases, the liability of business partners should be solidary. If
the responsibility of the partners were to be merely joint and not solidary, and one of them happens to
be insolvent, the amount awarded to the dependents of the deceased employee would only be partially
satisfied, which is evidently contrary to the intent and purpose of the law to give full protection to the
employee.

2.STATUTORY CONSTRUCTION; LIBERAL CONSTRUCTION OF WORKMEN'S COMPENSATION LAWS.

Workmen's Compensation laws should be construed fairly, reasonably and liberally in favor of and for
the benefit of the employee and his dependents. All doubts as to right of compensation should be
resolved in his favor, and the law should be interpreted to promote its purpose.

PETITION for review by certiorari of a decision of the Workmen's Compensation Commission.

The facts are stated in the opinion of the Court.

J. de Guia for appellants.

Estanislao R. Bayot for appellees.

ENDENCIA, J.:

Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply, a
commercial establishment located at 349 Dimasalang, Sampaloc, Manila. They employed Roque
Balderama as security guard who, while in line of duty, was killed by criminal hands. His widow Ciriaca
vda. de Balderama and minor children Genara, Carlos and Leogardo, all surnamed Balderama, in due
time filed a claim for compensation with the Workmen's Compensation Commission, which was granted
in an award worded as follows:

WHEREFORE, the order of the referee under consideration should be, as it is hereby, affirmed and
respondents Benito Liwanag and Maria Liwanag Reyes, ordered:

"1. To pay jointly and severally the amount of Three Thousand Four Hundred Ninety-four and 40/100
(P3,494.40) Pesos to the claimants in lump sum; and
"To pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00 for this review) as
fees, pursuant to Section 55 of the Act."

In appealing the case to this Tribunal, appellants do not question the right of appellees to compensation
nor the amount awarded. They only claim that, under the Workmen's Compensation Act, the
compensation is divisible, hence the Commission erred in ordering appellants to pay jointly and severally
the amount awarded. They argue that there is nothing in the compensation Act which provides that the
obligation of an employer arising from compensable injury or death of an employee should be solidary;
that if the legislative intent in enacting the law is to impose solidary obligation, the same should have
been specifically provided, and that, in the absence of such clear provision, the responsibility of
appellants should not be solidary but merely joint.

At first blush, appellants' contention would seem to be well taken, for, ordinarily, the liability of the
partners in a partnership is not solidary; but the law governing the liability of partners is not applicable
to the case at bar wherein a claim for compensation by dependents of an employee who died in line of
duty is involved. And although the Workmen's Compensation Act does not contain any provision
expressly declaring solidary obligation of business partners like the herein appellants, there are other
provisions of law from which it could be gathered that their liability must be solidary. Arts. 1711 and
1712 of the new Civil Code provide:

"ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death
of or injuries to their laborers, workmen, mechanics or other employees, even though the event may
have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose
out of and in the course of the employment. * * * "

"ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the
employer shall be solidarily liable for compensation. * * * "

And Section 2 of the Workmen's Compensation Act, as amended, reads in part as follows:

"* * * The right to compensation as provided in this Act shall not be defeated or impaired on the ground
that the death injury or disease was due to the negligence of a fellow servant or employee, without
prejudice to the right of the employer to proceed against the negligent party."

The provisions of the new Civil Code above quoted taken together with those of Section 2 of the
Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of business
partners, like appellants, should be solidary; otherwise, the right of the employee may be defeated, or
at least crippled. If the responsibility of appellants were to be merely joint and not solidary, and one of
them happens to be insolvent, the amount awarded to the appellees would only be partially satisfied,
which is evidently contrary to the intent and purposes of the Act. In previous cases we have already held
that the Workmen's Compensation Act should be construed fairly, reasonably and liberally in favor of
and for the benefit of the employee and his dependents; that all doubts as to right of compensation
resolved in his favor; and that it should be interpreted to promote its purpose. Accordingly, the present
controversy should be decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:

"* * * There is solidary liability only when the obligation expressly so states, or when the law or the
nature of the obligation requires solidarity."

Since the Workmen's Compensation Act was enacted to give full protection to the employee, reason
demands that the nature of the obligation of the employers to pay compensation to the heirs of their
employee who died in line of duty, should be solidary; otherwise, the purpose of the law could not be
attained.

Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs against
appellants.

Pars, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, and Concepcin, JJ., concur.

REYES, A., J., dissenting:

Whether the defendants herein be regarded as co-partners or as mere co-owners, their liability for the
indemnity due their deceased employee would not be solidary but only pro rata (Arts. 485 and 1815,
new Civil Code). The Workmen's Compensation Act does not change the nature of that liability either
expressly or by intendment. To hold that it does, is to read into the Act something that is not there. For
this Court, therefore, to declare that under the said Act the defendants herein are liable solidarily is to
play the role of legislator.

The injustice of the rule sought to be established in the majority opinion may readily be made obvious
with an example. Suppose that one of two co-partners or coowners owns 99 percent of the business
while his copartner or co-owner owns only 1 percent. To hold that in such case the latter's liability may
run up to 100 percent although his interest is only 1 per cent would not only be illogical but also
inequitable.

For the foregoing reasons, I have no choice but to dissent.

Award affirmed.
16 Phil. 423

[No. 5242. August 6, 1910.]

ALDECOA & Co., plaintiff and appellant, vs. WARNER, BARNES & Co., LTD., defendant and appellee.

1.PARTNERSHIP; ACCOUNTING; DUTY OF BUSINESS MANAGER.It is a general rule of law that he who
takes charge of the management of another's property is bound immediately thereafter to render
accounts of his transactions; and that it is always to be understood that all accounts must be duly
supported by proofs.

2.ID. ; ID, ; ID.The acceptance and approval of any account rendered from a certain date does not
excuse nor relieve the manager of a joint-account partnership from complying with the unquestionable
duty of rendering accounts covering a period of time prior to the said date. They must be rendered from
the time the partnership was actually formed and its business actually commenced.

3.ID.; ID.; ID.; REVISION OF ACCOUNTS.Once certain accounts have been approved, which were duly
rendered by the manager of a joint-account partnership, the member of the entity not vested with the
character of manager is not entitled afterwards to claim the revision of the accounts already approved,
unless it shall be proved satisfactorily, by the production of evidence, that there was fraud, deceit, error,
or mistake in the approval of the said accounts. (Arts. 1265, 1266, Civil Code, and law 30, title 11, 5th
Partida.)

4.ID.; ID.; ID.One of the duties of the manager of a joint-account partnership is that of liquidating the
assets of the common ownership and to state the result obtained therefrom in the final rendering of
accounts which he is to present at the conclusion of the partnership, as no person should enrich himself
unjustly at the expense of another. (Art. 243, Code of Commerce, and decision in cassation given on July
1, 1870, by the supreme court of Spain.)

APPEAL from a judgment of the Court of First Instance of Manila. Araullo, J.

The facts are stated in the opinion of the court.

Rosado, Sanz&Opisso, for appellant.

Haussermann, Ortigas, Cohn & Fisher, for appellee.

TORRES, J.:

By a complaint filed on September 26, 1907, the legal representative of Aldecoa and Co., in
liquidation, filed suit in the Court of First Instance of Manila against Warner, Barnes and Co., Ltd.,
alleging in the first three paragraphs of their complaint, as a cause of action, that the plaintiff is a
regular collective mercantile association organized in accordance with the laws of these islands, duly
registered in the mercantile registry, and at present in liquidation; that the defendant is a joint stock
mercantile firm organized in accordance with the laws of England, registered in the mercantile
registry of Manila, and has done and is still doing business in these Islands under the name of
Warner, Barnes and Co., Ltd., which required the business that was conducted in these Islands by
Warner, Barnes and Co., the assets, liabilities, and all the obligations of which were assumed by the
defendant.

In other paragraphs of the complaint, from the fourth to the twelfth, the plaintiff set forth that, prior to
December 1, 1898, Warner, Barnes and Co. were conducting a business in Albay, the principal
object of which was the purchase of hemp in the pueblos of Legaspi and Tobacco for the purpose of
bringing it to Manila, here to sell if for exportation, and that on the said date of December 1, 1898,
the plaintiff company became interested in the said business of Warner, Barnes and Co., in Albay
and formed therewith a joint-account partnership whereby Aldecoa and Co., were to share equally in
the gains and losses of the business in Albay; that the defendant is the successor to all the rights
and obligations of Warner, Barnes and Co., among which is that of being manager of the said joint-
account partnership with Aldecoa and Co.; that the defendant acted, and continues to act as such
manager, and is obliged to render accounts supported by proofs, and to liquidate the business,
which defendant not only has not done, in spite of the demand made upon it, but it has expressly
denied the right of plaintiff to examine the vouchers, contenting itself with forwarding copies of the
entries in its books, which entries contain errors and omissions that hereinafter will be mentioned.

Said entries moreover, whereas its operations should have commenced and did commence on
December 1, 1898, on which date the joint-account partnership commenced; that, with respect to the
liquidation of the business, the operations having been closed on December 31, 1903, Warner,
Barnes and Co., Ltd., the defendant, has not realized upon the assets of the firm by selling the
property which constitutes its capital; that the persons who were the managers and general partners
of Warner, Barnes and Co., Ltd., and are the managers and directors of that firm in the Philippine
Islands and are the ones who, under the previous firm name of Warner, Barnes and Co., admitted
Aldecoa and Co. as a participant in one-half of the said business, on the 1st day of December, 1898;
that the said directors of the defendant company, unlawfully, maliciously, and criminally conspired
with the persons who were managing the commercial firm of Aldecoa and Co. during the years 1899,
1900, 1901, 1902, and 1903, to defraud the latter of its interest in the said joint-account partnership,
buying the silence of the said managers with respect to the operations of the joint-account
partnership during the time comprised between the 1st of December, 1898, and the 30th of June,
1899, and also with respect to the errors and omission in the accounts relating to the second
semester of 1899, and those relating to 1900, 1901, 1902, and 1903.

That the said fraudulent acts were not known to the partners of the plaintiff firm until the managers,
in collusion with the managers of the defendant firm to defraud and injure the plaintiff firm, had
ceased to hold their positions, to wit, until after the 31st of December, 1906, and that by reason of
this conspiracy to defraud the plaintiffs, the defendants have been benefited; that the errors and
omissions found in the entries of the books kept by the defendant firm as manager of the joint-
account partnership are those expressed in details here below:

(a) It appears that between the 10th of July and the 26th of December, 1899, 43,934 piculs of hemp
arrived in Manila for the joint-account partnership, which were purchased in Legaspi and Tobacco at
13 pesos per picul, and, after charging against this hemp excessive expenses for collection, storage,
freight, fire, marine, and war insurance, personnel, etc., the defendants, Warner, Barnes and Co., as
managers of the joint-account partnership and commission agents of their joint-account partners,
claim that they purchased the said hemp for themselves, but do not give the price received from the
sale thereof and merely credit it at 13 pesos a picul, when the average market price at that time was
16.50 pesos a picul; said defendants thereby injuring plaintiffs to the amount of P76,884.50.

(b) Striking a balance from the amount of hemp debited and that credited, there results a difference
of 4,332.96 piculs not credited which, at 24 pesos a picul, the market price at the time, represents an
injury to plaintiffs to the extent of P51,995.52, the said deficit, with respect to the hemp, pertaining to
the period beginning with December 31, 1899, in the manner shown by the following table:

Invoices & Cr. Dr.

Piculs Piculs

1899 Dec. 31 ....................................... 86,534.18 43,934

1900 Apr. 30 ...................................... 13,069.97 50,261.78

1900 Dec. 31 ...................................... 67,892.56 71,277

1901 Dec. 31 ...................................... 101,253.31 100,342

1902 Dec. 31 ...................................... 98,074.52 94,279.20

1903 Dec. 31 ...................................... 66,482.49 68,880.09 433,307.03

428,974.07 4,332.96 Lacking .............................................. 433,307.03
433,307.03

(c) In 1900, on April 30, Messrs. Warner, Barnes and Co. Ltd., give credit for 5,485 piculs of hemp,
at 16 pesos a picul, when the market price at that time, according to themselves, was P23.78;
thereby injuring plaintiffs in the sum of P21,350.36.

(d) In 1901, on the date of January 31, Messrs. Warner, Barnes and Co., Ltd give credit for 4,600
piculs of hemp, at 8.93 pesos a picul, when, according to themselves, the market price at that time
was 11.50 pesos a picul; thereby injuring plaintiffs in the sum of P5,911.

(e) One of the sources of profit of the joint-account partnership between Aldecoa and Co. and
Warner, Barnes and Co., Ltd., was from the pressing of hemp, which profit is to be credited to the
partnership joint-accounts, when the hemp is realized in Manila, and from this source there are due
to the plaintiffs P149,084.12, in which sum they have been injured by the defendants. The said credit
for pressing is omitted from the books of Warner, Barnes and Co., Ltd., and should be entered as
follows:

1899 ............................................. 21,968 bales, at P1.25 ................................. P27,460

1900 to April 30 ......................... 25,130 bales, at P1.25 ................................. 31,412.50
1900 May 10 to Dec. 31 ............ 35,639 bales, at P1.25 ................................. 44,548.75
1901.............................................. 50,151 bales, at P1.25 ................................. 62,688.75
1902 to July 31 ........................... 26,825 bales, at P1.25 ................................. 33,531.25
Aug. 1 to Dec. 31 ............. 20,314 bales, at P1.75 ................................. 35,549.50 1903
............................................. 34,440 bales, at P1.75 ................................. 60,270

214,467 bales ................................................. 295,460.75 2,166 bales,

lacking, at P1.25 2,707.50

216,633 bales .................................................. 298,168.25 20 loose.

216,653 bales.
(f) Another error found in the books of Warner, Barnes, and Co., Ltd., is in connection with the
outstanding accounts, which are debited in the sum of P52,510.36, while only P2,769.24 are
credited in the manner set out in the following statement:

DR.

1899 July 31. W.B. and Co., Tobacco, transferred to net

account their account sale 92.25 piculs hides

byKongsee ............................................................................. P1,149.46

1899 Dec. 31. For transfer account to cover business this

semester without statement .................................................. 16,100.57

1900 Feb. 28. As transferred account items noted page

114 day-book .......................................................................... 18,635.08

1900 Feb. 28. To cover war insurance, January ................................................. 4,000

1900 Feb. 28. To cover outstanding accounts ................................................... 2,625.25

52,510.36

CR.

1900 Feb. 28. As transferred account items noted page

113 day-book .......................................................................... 2,769.24

There remain, therefore ......................................................... 49,741.12 of which

one-half, that is ...................................................... 24,870.56 belongs to the plaintiffs.

(g) In 1900, there is unduly included an item of net account which should be stricken out, as it does
not pertain to this business. This item is the following:

1900

June 30. To Miguel Estela. For transfer made to his account

of 5 per cent commission on his hemp, which should

not be paid according to agreement ..................................... P870.75

Half of this sum, P435.37, must be credited to the plaintiffs.

(h) On the date of December 26, 1899, Messrs. Warner, Barnes and Co., Ltd., deduct from the
profits which they show as belonging to Aldecoa and Co., the sum of P7,400, under the appearance
of the insurance premium, and they delivered that sum to the plaintiffs' managers with whom they
conspired, for the purposes of the collusion alleged in Paragraph VII of the complaint, in the manner
failing to observe the truth in their statement of the facts. Aldecoa and Co., therefore, claim for
themselves this amount, P7,400.

(i) On December 31, 1903, on a capital of P50,000 brought in by Aldecoa and Co., and to whom it
should bear 5 per cent interest from the 8th of June, 1900, the interest is unduly credited to the joint-
account, thereby injuring the plaintiffs in the sum of P8,750.

(j) On December 31, 1902, Aldecoa and Co. are charged with six months' interest, amounting to
P736.46, on a balance debited against them for alleged losses, and on June 30, 1903, they are
charged with P1,818.58 for a like reason. These two items should be stricken out, because the
accounts when correctly made to show no losses, but profits. By such debits the plaintiffs have been
injured in the sum of P1,277.52.

(k) In the entries corresponding to the years 1902 and 1903, Warner, Barnes and Co., Ltd., give the
price of "corrientebuena" (currect good), to the grade which, according to the mark, was classified as
"abaca superior" (superior hemp); the price of "corrienteordinario" (current ordinary), to the hemp
marked under the classification of "corrientebuena" (current good); the price of "segunda superior"
(second superior), to what is "corriente" or "current," and so on successively; whence results a
difference of price to the value of P233,102.18, in 1902, and P74,274.90, in 1903, one-half of which
differences should be credited to Aldecoa and Co., that is P153,688.54.

(l) The value of the properties brought in by Warner, Barnes and Co., Ltd., to the joint-account,
instead of cash capital, is omitted from the accounts. These properties are the following:

Those purchased from Mariano Roisa, consisting of one galvanized-iron-roofed warehouse, with
hemp press; one house of strong materials and the lot on which it stands, in Tobacco, P12,000.

That purchased from Juana Roisa, which is one small warehouse of strong materials, in Tobacco,
worth about P2,500.

Those purchased from D. Manuel Zalvidea situated in Tobacco, which are: One warehouse of strong
materials, with press; another warehouse of strong materials; and two houses of strong materials,
together with the lots on which they are built, P22,000.

Those purchased from D. Marcos Zubeldia, in Legaspi, which are: Four warehouses with three
hemp presses, and one house of strong materials, with their corresponding lots, P50,000.

Total cost, P86,500.

The complaint further sets forth that if the entries made by the defendant in its books show in
themselves the foregoing errors and omissions, the plaintiff has good grounds for believing that, if
the vouchers were examined, still greater errors would be found, as to which the plaintiff can not
formulate its claims with exactness until the defendant renders it an account, accompanied by
vouchers; that the defendant, as manager of the joint-account partnership with Alcodea& Co.,
neglected to comply with what is especially prescribed in article 243 of the Code of Commerce, as a
duty to inherent to its position as manager of the joint-account partnership, which is that of rendering
an account with vouchers, and that of liquidating the said business, for it refuses to furnish the
plaintiff the documents required for their examination and verification, and also refuses to realize the
firm assets by selling the warehouses, houses, and other property which constitute the capital; that,
as the defendant refuses to do the things above related, the plaintiff has no other easy, expeditious
and suitable remedy than to petition the court for a writ of mandamus, wherefore it prays the court to
protect it in its rights and to issue the said mandamus against the defendant, ordering it, within a
date set for this purpose, to render to the court an account, accompanied by invoices, receipts, and
vouchers of the Albay business, beginning the said account as of December 1, 1898, the date on
which the partnership was formed, and correcting in it errors and omissions related in paragraph 9 of
this complaint; that the defendant credit and pay to the plaintiff the sums alleged in that paragraph to
be due to the plaintiff, with interest at the legal rate upon the sums of omitted for the difference
between the amounts incorrectly debited and credited, from the respective dates on which they
should appear, if correctly entered; that after the said accounts have been rendered and discussed,
judgment be entered for any balance which may appear in favor of the plaintiff, including the sums
claimed, and legal interest thereon. The plaintiff also prays that the writ of mandamus fix a term
within which the defendant is to liquidate the business, selling the properties aforementioned and
distributing the proceeds between both the litigants, and that the defendant be adjudged liable for
costs of suit, and plaintiff be granted such other and further relief as may be found just and
equitable.

On November 11, 1907, the defendant filed a written answer an counterclaim against the defendant,
and, notwithstanding the overruling of the demurrer filed by the latter to the counterclaim, the court
by writ of December 4, 1907, ordered that the defendant should, within a period of five days, make
its allegations more specific with respect to certain particulars mentioned in the order of the court,
and both parties being notified thereof, the defendant, on January 24, 1908 prayed the court to
authorize it to file the attached amended answer instead of the original one.

In the said amended answer the firm of Warner, Barnes & Co. Ltd., the defendant, states that it
denies each and every one of the allegations of the complaint, with the exception of those which are
expressly admitted in its answer, and admit the allegations of paragraphs 1, 2, and 3 of the
complaint. In answer to the allegations of paragraphs 4 to 12 of the complaint, it admits that on June
30, 1899, a joint-account partnership was formed between the plaintiff and the defendant
transactions of which were the purchase of hemp in Legaspi and Tobacco, of which business one-
half of the results, whether losses or gains, appertained to the plaintiff. Defendant also admits that
the said business continued under the management of the defendant company, as manager of the
said joint-account partnership, until December 31, 1903; but it denies all the other allegations
contained in the said paragraphs. For its first special defense, the defendant alleges that during the
period that the said joint-account partnership existed, the manager thereof, the defendant, rendered
to the plaintiff just and true accounts of its transaction as manager of the said partnership, which
accounts have been approved by the plaintiff, with the exception of those relating to the year 1903,
and as to the latter, that the same were objected to by plaintiff firm solely upon the grounds
mentioned in clause (k) of paragraph 9 of the complaint, which objections are wholly unfounded. As
its second special defense, the defendant alleges that more than four years have expired between
the time the alleged right of action accrued to the plaintiff and the date of the filing of the complaint.
For all the reasons set forth in this amended answer, the defendant prayed that it be absolved from
the complaint, with the costs against the plaintiff.

On the subsequent to the 14th of August, 1908, the trial of this cause was held and oral evidence
was introduced by the plaintiff, but no witnesses were offered by the defendant, which finally moved
for a dismissal of the case, and the court, on December 26 of the same year, 1908, rendered
judgment, dismissing the complaint with respect to the petition for the rendering of an account,
verified by invoices, receipts and vouchers, of the said Albay business, pertaining to the period
comprised from the beginning of the business to the 31st of December, 1902, inclusive, assessing
the costs against the plaintiff, and opening the second period of the trial with respect to the account
for the whole year 1903, in accordance with the ruling of the court made at the commencement of
the hearing. The plaintiff on being notified of this judgment filed a written exception thereto and
announced his intention to forward through regular channels a bill of exceptions, and by another
writing moved for a new trial on the ground that the evidence did not justify the judgment rendered,
which it alleged it was openly and manifestly contrary to the weight of the evidence and to law. This
motion being denied, to which exception was taken by the plaintiff, the latter duly filed a proper bill of
exceptions which was certified to and forwarded to this court, together with all the documentary and
oral evidence produced at the trial.

This litigation concerns the rendering of accounts pertaining to the management of the business of a
joint-account partnership formed between the two litigants companies.

Both the plaintiff and the defendant are in accord that, through verbal agreement, the said
partnership was established, whereby they should share equally the profits and losses of the
business of gathering and storing hemp in Albay and selling it in Manila for exportation, and that the
commercial firm of Warner, Barnes and Co., Ltd., was the manager of the said joint-account
partnership.

The disagreement between the parties consists in the following points: First, as to the date when the
partnership was formed and began business in the province mentioned; second, whether the
managing firm did render accounts, duly verified by vouchers, of its management from the date of
the organization of the partnership; third, whether errors and omission, prejudicial to the plaintiff,
Aldecoa and Co., exist in the partnership books and in its accounts, and whether, in the
management of the said business, fraudulent acts were committed also to the plaintiff's injury; and,
fourth, whether the partnership property should be included in the liquidation of the said business
and in the accounts appertaining to the year 1903, when the existence of the partnership came to an
end.

With respect to the date on which the said partnership began, the plaintiff, Aldecoa and Co.,
submitted evidence unrebutted by that of the defendant, Warner, Barnes and Co., Ltd., and although
the latter averred that the joint-account partnership began on June 30, 1899, denying that it was
commenced, or was formed, on December 1, 1898, as the plaintiff says that it was, it is certain that
the defendant has not proved its averment; and if, on the opening of this case de novo it shall not
have done so within such period as the court may see fit to determine, it will be proper to find in
accordance with the value of the evidence adduced by the plaintiff and to advise the defendant to
render, within a fixed period, accounts, verified by vouchers, of the management of the partnership
business and pertaining to the seven months from December 1, 1898, to June 29, 1899; and, in view
of the evidence adduced by the plaintiff in proof of the aforesaid first point, if the defendant does not
produce other evidence in rebuttal, they must, for some reason, be expressly rejected in the
judgment, if they are not to be taken into account in reaching the conclusions or in considering the
case upon the merits.

As regards the second point, we agree with the opinion expressed by the lower court and find that
the firm of Warner, Barnes and Co., Ltd., did render accounts from June 30, 1899, to December 31,
1902, inasmuch as the very evidence introduced by the plaintiff showed that the said accounts had
been rendered and were approved by it, according to the context of its own letters of the dates of
July 27, 1907, and February 19, 1903. Therefore, the plaintiff is in nowise entitled, and has no right
of action to compel the defendant to render the accounts pertaining to that period, they having
already been rendered and duly approved.

It is a rule of law generally observed that he who takes charge of the management of another's
property is bound immediately thereafter to render accounts covering his transactions; and that it is
always to be understood that all accounts rendered must be duly substantiated by vouchers.

It is a fact admitted by both litigating parties that Warner, Barnes and Co., Ltd., was the manager of
the business of the joint-account partnership formed between it and Aldecoa and Co., it is
unquestionable that it was and is the defendant's duty to render accounts of the management of the
business, as it partially has done. Although the defendant has not proved, as it should have done,
that it complied with its duty of rendering accounts of its management, since the letters themselves
exhibited by the plaintiff, and duly authenticated as being written by the latter, prove that the
defendant did render accounts from June 30, 1899, to December 31, 1902, no legal reason
whatever exists for not accepting the finding of the lower court which decided that it had been proved
that accounts were rendered pertaining to the period mentioned and that the said accounts were
approved by the plaintiff.

The procedure of the plaintiff is truly inexplicable in accepting and approving accounts that were
rendered to it, and which only begin with June 30, 1899, inasmuch as such approval would appear to
indicate that it agreed to the claim made by the defendant that the partnership commenced on the
said date; but even so, once that it is proved that the actual date on which the partnership was
formed was December 1, 1898, and that it is not shown that the defendant has rendered accounts
corresponding to the seven months subsequent to the said date of December 1, the acceptation and
approval of accounts rendered since the 30th of June 1899, does not excuse nor release the
manager of the partnership, the defendant, from complying with its unquestionable duty of rendering
accounts covering the aforesaid seven months. The presumption must be sustained until proof to the
contrary is presented.

Moreover, the approval of accounts corresponding to the years from June 30, 1899, to December
31, 1902, does not imply that the said approved accounts comprise those pertaining that the seven
months mentioned, December 1, 1899, to June 29, 1899, because the defendant, the accountant,
denied that the partnership commenced on the aforesaid date of December 1st, asserting it began
on June 30, 1899; wherefore, on defendant's rendering those accounts, it is to be presumed that it
did so from the date which it avers was that of the information of the partnership and the beginning
of the business, and it is therefore evident that it has not rendered accounts pertaining to the seven
months mentioned.

With respect to the third point relative to whether errors and omissions prejudicial to the plaintiff,
Aldecoa& Co., exist in the partnership books and in its accounts, and whether, in the management of
the said business, fraudulent acts were committed to plaintiff's injury, it must be borne in mind that
once accounts have been approved which were rendered by the managing firm of Warner, Barnes &
Co., Ltd., the plaintiff, Aldecoa& Co., is not entitled afterwards to claim a revision of the same, unless
it shows that there was fraud, deceit, error, or mistake in the approval of the said accounts.

Under these hypothesis, Alcodea& Co. are strictly obliged to prove the errors, omissions, and
fraudulent acts attributed to the defendant, in connection with the accounts already rendered, and
approved by them, in order that the same may be revised in accordance with law and the
jurisprudence of the courts. (Pastor vs. Nicasio, 6 Phil. Rep., 152.)

The approval of an account does not prevent its subsequent revision, or at least its correction, if it is
proved in a satisfactory manner that there was deceit and fraud or error and omission in it. (Arts.
1265, 1266, Civil Code.)

Law 30, title 11, 5th Partida, provides, among other things, the following:

That is precisely what we say should be observed, in all other accounts that men make
among themselves, in connection with the things which belong to them. Notwithstanding that
they may acknowledge the settlement of the accounts between them and promise never to
bring them up again, if it had be known in truth that he who gave the account or had the
things in his keeping, concealed anything deceitfully, or committed other fraud against those
 who have a share in such thing, then neither the suit, nor such previous status and promise
shall avail; on the contrary, we say that they may sue him to compel him to remedy the
deceit he committed against them, and to pay all the damages and losses that have accrued
to them by reason thereof; provided, however, he especially shall not have repaired the
deceit that he committed.

So that it does not matter that the accounts pertaining to the years comprised between the 30th of
June, 1899, and the 31st of December, 1902, may have been approved by Aldecoa& Co. Whenever
this firm shall succeed in proving that there was error, omission, fraud, or deceit in these accounts,
they may be duly revised, according to the law.

With regard to the last point in controversy, the defendant agrees that the plaintiff has not yet
approved the accounts that the former rendered, pertaining to 1903, the last years of the existence
of the joint-account partnership; and, for this reason, it was provided in the judgment appealed from
that the trial should continue with respect to the said accounts corresponding to the year 1903, in
order that the plaintiff might take such objections and statements in regard to the same as he
deemed proper, and adduce the evidence conducive to prove his claim, in accordance with law.

It is one of the duties of the manager of a joint-account partnership, to liquidate the assets that form
the common property, and to state the result obtained therefrom in the final rendering of the
accounts which he is to present at the conclusion of the partnership.

Article 243 of the Code of Commerce says;

The liquidation shall be effected by the manager, and after the transactions have been
concluded he shall render a proper account of its results.

It is a recognized fact, and one admitted by both parties that the partnership herein concerned
concluded its transactions on December 31, 1903; wherefore the firm of Warner, Barnes & Co. Ltd.,
the manager of the partnership, in declaring the latter's transactions concluded and in rendering duly
verified accounts of its results, owes the duty to include therein the property and effects belonging to
the partnership in common. This rule was established by the supreme court of Spain in applying a
similar precept of the mercantile code, in its decision on an appeal in causation of the 1st of July,
1870, setting up the following doctrine:

In case of the liquidation of a company of this kind (denominated joint-account partnership),

inasmuch as the sale of the firm assets is necessarily uncertain and eventual, considering
the greater or lesser selling price that may be obtained from the property and effects which
comprise such assets, the price received should be alloted in the same proportion as that
fixed in the contract for the division of the profits and losses, for otherwise one of the
partners would be benefited to the detriment and loss of his copartners.

This doctrine is perfectly legal and in accord with justice, as no person should enrich himself
wrongfully at the expense of another; and, in the case under review, should it be duly and fully
proved that the managing firm acquired realty in the name and at the expense of the joint-account
partnership with the plaintiff firm, it is just that, in liquidating the property of common ownership, such
realty should be divided between the partners in the same manner as were the profits and losses
during the existence of the business, from the beginning of the partnership to the date of its
dissolution.

By the facts herein above set forth, it has been shown that in the present state of this cause resulting
from the rendering of the judgment appealed from, it has not been possible to decide in a final
manner the various issues brought up and controverted by the litigants, for, though it be granted as
proved that the defendant firm, the manager of the said partnership, has in fact rendered accounts
pertaining to the years from June 30, 1899, to December 31, 1902, as found in the said judgment,
there still remain to be decided the four points or questions of fact before specified. Wherefore, and
in accordance with section 496 of the Code of Civil Procedure, a new trial should be held For the
purpose of a final decision of all the questions involved in this litigation, and accordingly the
judgment appealed from is set aside and this cause shall be returned to the court below,
accompanied by a certified copy of this decision, for the holding of a new trial, for which purpose,
first, the defendant shall be advised that it must, within a fixed period, render an account, verified by
vouchers, of its management of the business of the joint-account partnership with the plaintiff,
pertaining to the months from December 1, 1898, to June 29, 1899, and to the twelve months of the
year 1903, unless it shall prove in a satisfactory manner that the said partnership began on June 30,
1899, contrary to the averment of the plaintiff supported by evidence that it commenced on
December 1, 1898, in which case the said rendering of account shall be restricted to the twelve
months of the year 1903, in the accounts of which last period must be included all the property that
is found to belong to the said partnership; second, in the examination of the accounts that may be
found to have been rendered, the parties may allege and prove facts conducive to their revision or
approval besides availing themselves of the evidence already adduced at trial; and, third, with
respect to the accounts corresponding to the period from June 30, 1899, to December 31, 1902,
already approved, the trial court shall be proceed in accordance with law, duly considering the
errors, omissions, mistakes and fraudulent or deceitful acts that have been alleged or may
specifically be alleged in rejecting the said approved accounts, as well as the evidence introduced by
both parties, and it shall be careful to decide in its final judgment all the issues raised between the
parties in the course of this litigation and to provide such remedies as are proper in regard to their
respective claims. So ordered.

Johnson, Moreland and Trent, JJ., concur.

44 Phil 172

[No. 18707. December 9, 1922]

Po YENG CHEO, plaintiff and appellee, vs. LIM KA YAM, defendant and appellant.

1.PARTNERSHIP; LIABILITY OF MANAGER TO ACCOUNT; LIQUIDATION. Though the manager of a

mercantile partnership which has ceased to do business is accountable to his associates for any assets of
the concern in his hands, judgment cannot be rendered against him for the proportionate share of the
capital claimed by one of the partners in an action brought by such partner alone, where the concern
has not been liquidated and there is no proof showing the existence of assets applicable to capital
account.

2.ID.; ID.; ACTION BY SINGLE PARTNER.Where the only assets in the hands of the manager of a
defunct partnership consists of shares in other companies, the true value of which is not proved, it is
error, in an action for an accounting brought against him by one of the partners, to give judgment in
favor of the plaintiff for a sum of money equivalent to his aliquot part of the par value of such shares. A
single partner cannot recover from another, without process of liquidation or division, a part of the
undivided property of the partnership.

3.ID.; LIQUIDATION; SURVIVING MEMBER.When the manager of a mercantile partnership dies the
duty of liquidating it devolves upon the surviving member, or members, of the firm and not upon the
legal representative of the deceased member.

4.ID.; ID.; CLAIM FOR DAMAGES AGAINST MANAGER.When the manager of a mercantile partnership
who is charged with the duty of liquidating the same dies, his associates should take the proper steps to
settle its affairs; and any claim against him, or his estate, for damages incident to the misappropriation
of its funds by him or for damage resulting from his wrongful acts as manager, in excess of his interest in
the firm assets, should be prosecuted against his estate in administration in the manner provided by
law.

5.EXECUTORS AND ADMINISTRATORS; PARTNERSHIP; ACCOUNTING; DlSCONTINUANCE OF ACTION.

When the manager of a defunct partnership who is named defendant in an action for an accounting of
its affairs and against whom judgment is sought for mismanagement or misappropriation of its funds
dies, the action should be discontinued, upon motion to that effect by his personal representative, and
the claim for damages should be presented to the committee on claims in the administration of his
estate. It is error to prosecute such an action to judgment over the objection of the administrator.

APPEAL from a judgment of the Court of First Instance of Manila. Imperial, J.

The facts are stated in the opinion of the court.

F. R. Feria and Romualdez Bros. for appellant.

Quintin Llorente and Carlos C. Viana for appellee.

STREET, J.:

By the amended complaint in this action, the present plaintiff, Po YengCheo, alleged sole owner of a
business formerly conducted in the City of Manila under the style of Kwong Cheong Tay, sought to
obtain an accounting from Lim Ka Yam, as managing partner in said business and to recover from him its
properties and assets. The defendant having died during the pendency of the cause in the court below
and the death suggested of record, his administrator, one Lim Yock Tock, was required to appear and
make defense.

In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below, found that
the plaintiff was entitled to an accounting from Lim Ka Yam, the original defendant, as manager of the
business already referred to, and he accordingly required Lim Yock Tock, as administrator, to present a
liquidation of said business within a stated time. This order bore no substantial fruit, for the reason that
Lim Yock Tock personally knew nothing about the aforesaid business (which had ceased operation more
than ten years previously) and was apparently unable to find any books or documents that could shed
any real light on its transactions. However, he did submit to the court a paper written by Lim Ka Yam in
life purporting to give, with vague and uncertain details, a history of the formation of the Kwong Cheong
Tay and some account of its disruption and cessation from business in 1910. To this narrative was
appended a statement of assets and liabilities, purporting to show that after the business was
liquidated, it was actually debtor to Lim Ka Yam to the extent of several thousand pesos. Appreciating
the worthlessness of this so-called statement, and all parties apparently realizing that nothing more was
likely to be discovered by further insisting on an accounting, the court proceeded, on December 27,
1921, to render final judgment in favor of the plaintiff.

The decision made on this occasion takes as its basis the fact stated by the court in its earlier decision of
July 1, 1921, which may be briefly set forth as follows:

The plaintiff, Po YengCheo, is the sole heir of one Po Gui Yao, deceased, and as such Po YengCheo
inherited the interest left by Po Gui Yao in a business conducted in Manila under the style of Kwong
Cheong Tay. This business had been in existence in Manila for many years prior to 1903, as a mercantile
partnership, with a capitalization of P160,000, engaged in the import and export trade; and after the
death of Po Gui Yao the following seven persons were interested therein as partners in the amounts set
opposite their respective names, to wit: Po YengCheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam,
P10,000; Lee KomChuen, P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen,
P10,000. The manager of Kwong Cheong Tay, for many years prior to its complete cessation from
business in 1910, was Lim Ka Yam, the original defendant herein.

Among the properties pertaining to Kwong Cheong Tay and constituting part of its assets were ten
shares of a total par value of P10,000 in an enterprise conducted under the name of
YutSiongChyipKonski and certain shares to the amount of P1,000 in the Manila Electric Railroad and
Light Company, of Manila.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing principally to
the f act that the plaintiff ceased at that time to transmit merchandise from Hongkong, where he then
resided. Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of the
business, though repeated demands to that effect have been made upon him by the plaintiff.

In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff, Po
YengCheo, to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty
thousand pesos (P60,000), constituting the interest of the plaintiff in the capital of Kwong Cheong Tay,
plus the plaintiff's proportional interest in shares of the YutSiongChyipKonski and Manila Electric
Railroad and Light Company, estimated at P11,000, together with the costs. From this judgment the
defendant appealed.

In beginning our comment on the case, it is to be observed that this court finds itself strictly
circumscribed so far as our power of review is concerned, to the facts found by the trial judge, for the
plaintiff did not appeal from the decision of the court below in so far as it was unfavorable to him, and
the defendant, as appellant, has not caused a great part of the oral testimony to be brought up. It
results, as stated, that we must accept the facts as found by the trial judge; and our review must be
limited to the error, or errors, if any, which may be apparent upon the face of the appealed decision, in
relation with the pleadings of record.

Proceeding then to consider the appealed decision in relation with the facts therein stated and other
facts appearing in the orders and proceedings in the cause, it is quite apparent that the judgment
cannot be sustained. In the first place, it was erroneous in any event to give judgment in favor of the
plaintiff to the extent of his share of the capital of Kwong Cheong Tay. The managing partner of a
mercantile enterprise is not a debtor to the shareholders for the capital embarked by them in the
business; and he can only be made liable for the capital when, upon liquidation of the business, there
are found to be assets in his hands applicable to capital account. That the sum of one hundred and sixty
thousand pesos (P160,000) was embarked in this business many years ago reveals nothing as to the
condition of the capital account at the time the concern ceased to do business; and even supposingas
the court possibly didthat the capital was intact in 1908, this would not prove that it was intact in
1910 when the business ceased to be a going concern; for in that precise interval of time the capital may
have been diminished or dissipated from causes in no wise chargeable to the negligence or misfeasance
of the manager.

Again, so far as appears from the appealed decision, the only property pertaining to Kwong Cheong Tay
at the time this action was brought consisted of shares in the two concerns already mentioned of the
total par value of P11,000. Of course, if these shares had been sold and converted into money, the
proceeds, if not needed to pay debts, would have been distributable among the various persons in
interest, that is, among the various shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give judgment in favor of the plaintiff for his
aliquot part of the par value of said shares. It is- elementary that one partner, suing alone, cannot
recover of the managing partner the value of such partner's individual interest; and a liquidation of the
business is an essential prerequisite. It is true that in Lichauco vs. Lichauco (33, Phil., 350), this court
permitted one partner to recover of the manager the plaintiff's aliquot part of the proceeds of the
business, then long since closed; but in that case the affairs of the defunct concern had been actually
liquidated by the manager to the extent that he had apparently converted all its properties into money
and had pocketed the samewhich was admitted;and nothing remained to be done except to compel
him to pay over the money to the persons in interest. In the present case, the shares referred to
constituting the only assets of Kwong Cheong Tayhave not been converted into ready money and
doubtless still remain in the name of Kwong Cheong Tay as owner. Under these circumstances it is
impossible to sustain a judgment in favor of the plaintiff for his aliquot part of the par value of said
shares, which would be equivalent to allowing one of several cowners to recover from another,
without process of division, a part of an undivided property.

Another condition will be noted as present in this case which in our opinion is fatal to the maintenance
of the appealed judgment. This is that, after the death of the original defendant, Lim Ka Yam, the trial
court allowed the action to proceed against Lim Yock Tock, as his administrator, and entered judgment f
or a sum of money against said administrator as the accounting party,notwithstanding the insistence
of the attorneys for the latter that the action should be discontinued in the form in which it was then
being prosecuted. The error of the trial court in so doing can be readily demonstrated from more than
one point of view.

In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of
liquidating its affairs devolves upon the surviving member, or members, of the firm, not upon the legal
representative of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs.
Green, 6 Phil., 744.) And the same rule must be equally applicable to a civil partnership clothed with the
form of a commercial association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350). Upon the
death of Lim Ka Yam it therefore became the duty of his surviving associates to take the proper steps to
settle the affairs of the firm, and any claim against him, or his estate, for a sum of money due to the
partnership by reason of any misappropriation of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it appears,
as here, that the property pertaining to Kwong Cheong Tay, like the shares in the YutSiongChyipKonski
and the Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the
proper step for the surviving associates to take would be to make application to the court having charge
of the administration to require the administrator to surrender such property.

But, in the second place, as already indicated, the proceedings in this cause, considered in the character
of an action for an accounting, were futile; and the court, abandoning entirely the effort to obtain an
accounting, gave judgment against the administrator upon the supposed liability of his intestate to
respond for the plaintiff's proportionate share of the capital and assets. But of course the action was not
maintainable in this aspect after the death of the defendant; and the motion to discontinue the action
as against the administrator should have been granted.

The judgment must be reversed, and the defendant will be absolved from the complaint; but it will be
understood that this order is without prejudice to any proceeding which may be undertaken by the
proper person or persons in interest to settle the affairs of Kwong Cheong Tay and in connection
therewith to recover from the administrator of Lim Ka Yam the shares in the two concerns mentioned
above. No special pronouncement will be made as to costs of either instance. So ordered.

Araullo, C. J., Johnson, Malcolm, Avancea, and Villamor, JJ., concur.

Ostrand, J., concurs in the result.

Johns, and Romualdez, JJ., took no part in the decision of this case.

Judgment reversed.
53 Phil. 900

[No. 28920. October 24, 1928]

MAXIMO GUIDOTE, plaintiff and appellant, vs. ROMANA BORJA, as administratrix of the estate of
Narciso Santos, deceased, defendant and appellee.

1.PARTNERSHIPS, DISSOLUTION OF; LIQUIDATION.The death of one of the partners dissolves the
partnership, but the liquidation of its affairs is by law intrusted to the surviving partners, or to
liquidators appointed by them, and not to the executors of the deceased partner. (Wahl vs. Donaldson
Sim & Co., 5 Phil., 11.)

2.ID.; ID.; DECEASED PARTNER; SURVIVING PARTNERS TRUSTEES.In equity, surviving partners are
treated as trustees of the representatives of the deceased partner in regard to his interest in the firm
and are held to that strictness of accountability required of an incident to the position of one occupying
a confidential relation.

APPEAL from a judgment of the Court of First Instance of Manila. Harvey, J.

The facts are stated in the opinion of the court.

Francisco, Lualhati& Lopez for appellant.

M. G. Goyena for appellee.

OSTRAND, J.:

On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of Narciso
Santos, deceased, to recover the sum of P9,534.14, a part of which was alleged to be the net profits
due the plaintiff in a partnership business conducted under the name of "Taller Sinukuan," in which
the deceased was the capitalist partner and the plaintiff the industrial partner, the rest of the sum
consisting of advances alleged to have been made to said partnership by the plaintiff. The defendant
in her answer admitted the existence of the partnership and in a cross-complaint and counter-claim
prayed that the plaintiff be ordered to render an accounting of the partnership business and to pay to
the estate of the deceased the sum of P25,000 as net profits, credits, and property pertaining to said
deceased.

In the first trial of the case the plaintiff called several witnesses and introduced a so-called
accounting and a mass of documentary evidence consisting of books, bills, and alleged vouchers,
which documentary evidence was so hopelessly and inextricably confused that the court, as stated
in its decision, could not consider it of much probative value. It was, however, fund as facts that the
aforesaid partnership had been formed, on or about June 15, 1918; that Narciso Santos died on
April 6, 1920, leaving the plaintiff as the surviving partner; and that plaintiff failed to liquidate the
affairs of the partnership and to render an account thereof to the administratrix of Santos' estate. The
court, therefore, dismissed the plaintiff's complaint and absolved the defendant therefrom, and
ordered the plaintiff to render a full and complete accounting, verified by vouchers, of the partnership
business from June 15, 1918, until September 1, 1922. To this decision and order the plaintiff duly
excepted.
The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public accountant.
Numerous objections to said account were presented by the defendant, and the court, upon hearing,
disapproved the account and ordered that the defendant submit to the court an accounting of the
partnership business from the date of the commencement of the partnership, June 15, 1918, up to
the time the business was closed. 1aw ph!l.net

On January 25, 1924, the defendant presented an account and liquidation prepared by a public
accountant, Santiago A. Lindaya, showing a balance of P29,088.95 in favor of the defendant. The
account was set down for hearing upon the question of its approval or disapproval by the court, at
which hearing the defendant introduced the public accountant Jose Turiano Santiago to testify as to
the results of an audit made by him of the accounts of the partnership. Santiago testified that he had
been a public accountant for over 20 years, having appeared in court as such on several occasions;
that he had examined the exhibits offered in evidence of the case by both parties; that he had
prepared a separate accounting or liquidation similar in results to that prepared by Lindaya, but with
a few differences in the sums total; and that according to his examination, the financial status of the
partnership was as follows:

Narciso Santos is a creditor of the Taller

<br<
Sinukuan in the sum of P26,020.89 consisting
td=""></br<>
as follows:
For his capital .................................. P12,588.53
For his credit ................................... 10,348.30
For his share of the profits ............ 3,068.06

Total ................................................... 26,020.89

Maximo Guidote is a debtor to the Taller
Sinukuan in the sum of P20,020.89, consisting
as follows:
For his debt (debito) ......................... P29,088.95
Less his share of the profits ........... 3,068.06

Total balance ...................................... 26.020.89

In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff presented
Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses in his favor. In regard to the
character of the testimony of these witnesses, His Honor, the trial judge, says:

The testimony of these two witnesses is so unreliable that the court can place no reliance
thereon. Mr. Tomas Alfonso is the same public accountant who filed the liquidation Exhibit O
on behalf of the plaintiff, in relation to the partnership business, which liquidation was
disapproved by this court in its decision of August 20, 1923. It is also to be noted that Mr.
Alfonso would have this court believe the proposition that the plaintiff, a mere industrial
partner, notwithstanding his having received the sum of P21,649.61 on the various jobs and
contracts of the "Taller Sinukuan," had actually expended and paid out the sum of
P63,360.27, of P44,710.66 in excess of the gross receipts of the business. This proposition
is not only improbable on its face, but it materially contradicts the allegations of plaintiff's
complaint to the effect that the advances made by the plaintiff only the amount to P2,017.50.
 Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct
liquidation for the same partnership business all of which were repeated by the court in its
decisions of September 1, 1922 and the court finds that the testimony given by him at the
last hearing is confusing, contradictory and unreliable.1awph!l.net

As to the other witnesses for the plaintiff His Honor further says:

The testimony of the other witnesses for the plaintiff deserves but scant consideration as
evidence to overcome the testimony of Mr. Santiago, as a whole particularly that of the
witness Chua Chak, who, after identifying and testifying as to a certain exhibit shown him by
counsel for plaintiff, showed that he could neither read nor write English, Spanish, or
Tagalog, and that of the witness Mr. Claro Reyes, who, after positively assuring the court
that a certain exhibit tendered him for identification was an original document, was forced to
admit that it was but a mere copy.

The court therefore, found that the conclusions reached by Santiago A. Lindaya as modified by Jose
Turinao Santiago were just and correct and ordered the plaintiff to pay the defendant the sum of
P26,020.89, Philippine currency, with legal interest thereon from April 2, 1921, the date of the
defendant's answer, and to pay the costs. From this judgment the plaintiff appealed to this court and
presents the following assignments of error:

(1) That the court erred in dismissing the plaintiff's complaint and ordering him to present a
liquidation of the operations and accounts of the partnership formed with the deceased
Narciso Santos, from the beginning of the partnership until September 1, 1922.

(2) That the court erred in approving the liquidation made by the public accountant Santiago
A. Lindaya, with the modification introduced by the witness Jose Turiano Santiago.

(3) That the court erred in ordering the plaintiff and appellant to pay to the defendant and
appellee the sum of P26,020.89.

As to the first assignment of error there may be some merit in the appellant's contention that the
dismissal of his complaint was premature. The better practise would, perhaps, have been to let the
complaint stand until the result of the liquidation of the partnership affairs was known. But under the
circumstances of this case no harm was done by the dismissal of the complaint, and the error, if any
there be, is not reversible.

Under the same assignment of error the plaintiff argues that as the deceased up to the time of his
death generally took care of the payments and collections of the partnership, his legal
representatives were under the obligation to render accounts of the operations of the partnership,
notwithstanding the fact that the plaintiff was in charge of the business subsequent to the death of
Santos. This argument is without merit. In the case of Wahl vs. Donaldson Sim & Co. (5 Phil., 11,
14), it was held that the death of one of the partners dissolves the partnership, but that the
liquidation of its affairs is by law intrusted, not to the executors of the deceased partner, but to the
surviving partners or the liquidators appointed by them (citing article 229 of the Code of Commerce
and secs. 664 and 665 of the Code of Civil Procedure). The same rule is laid down by the Supreme
Court of Spain in sentence of October 12, 1870.

The other assignments of error have reference only to questions of fact in regard to which the
findings of the court below seem to be as nearly correct as possible upon the evidence presented.
There may be errors in the interpretation of the accounts, and it is possible that the amount of
P26,020.89 charged against the plaintiff is excessive, but the evidence presented by him is so
confusing and unreliable as to be practically of no weight and cannot serve as a basis for a
readjustment of the accounts prepared by the accountant Lindaya and the apparently reliable
witness, Jose Turiano Santiago.

We should, perhaps, have been more inclined to question the conclusions of Lindaya and Santiago if
the plaintiff had shown a disposition to render an honest account of the business and to effect a fair
liquidation of the partnership but instead of doing so, he has by means of very questionable, and
apparently false, evidence sought to mulct his deceased partner's estate to the extent of over
P9,000. The rule for the conduct of a surviving partner is thus stated in 20 R. C. L., 1003:

In equity surviving partners are treated as trustees of the representatives of the deceased
partner, in regard to the interest of the deceased partner in the firm. As a consequence of
this trusteeship, surviving partners are held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing and that strictness of accountability
required of and incident to the position of one occupying a confidential relation. It is the duty
of surviving partners to render an account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over to them the share of such
deceased member in the surplus of firm property, whether it consists of real or personal
assets.

The appellant has completely failed to observe the rule quoted, and he is not in position to complain
if his testimony and that of his witnesses is discredited.

The appealed judgment is affirmed with the costs against the appellant. So ordered.

Avancea, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-Real, JJ., concur.