Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 112675 January 25, 1999

AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION; CHARTER INSURANCE CO.,

INC.; CIBELES INSURANCE CORPORATION; COMMONWEALTH INSURANCE COMPANY;
CONSOLIDATED INSURANCE CO., INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION
DOMESTIC INSURANCE COMPANY OF THE PHILIPPINE; EASTERN ASSURANCE COMPANY &
SURETY CORP; EMPIRE INSURANCE COMPANY; EQUITABLE INSURANCE CORPORATION; FEDERAL
INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION; FIDELITY & SURETY COMPANY
OF THE PHILS., INC.; FILIPINO MERCHANTS' INSURANCE CO., INC.; GOVERNMENT SERVICE
INSURANCE SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE CO.; INC.;
MERCANTILE INSURANCE CO., INC.; METROPOLITAN INSURANCE COMPANY; METRO-TAISHO
INSURANCE CORPORATION; NEW ZEALAND INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE
CORPORATION; PARAMOUNT INSURANCE CORPORATION; PEOPLE'S TRANS-EAST ASIA
INSURANCE CORPORATION; PERLA COMPANIA DE SEGUROS, INC.; PHILIPPINE BRITISH
ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE CO., INC.; PIONEER INSURANCE & SURETY
CORP.; PIONEER INTERCONTINENTAL INSURANCE CORPORATION; PROVIDENT INSURANCE
COMPANY OF THE PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY &
INSURANCE COMPANY; RIZAL SURETY & INSURANCE COMPANY; SANPIRO INSURANCE
CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.; SOLID GUARANTY, INC.; SOUTH SEA
SURETY & INSURANCE CO., INC.; STATE BONDING & INSURANCE CO., INC.; SUMMA INSURANCE
CORPORATION; TABACALERA INSURANCE CO., INC. — all assessed as "POOL OF MACHINERY
INSURERS, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMISSIONER OF INTERNAL
REVENUE, respondent.

PANGANIBAN, J.:

Pursuant to "reinsurance treaties," a number of local insurance firms formed themselves into a "pool" in order to facilitate
the handling of business contracted with a nonresident foreign insurance company. May the "clearing house" or "insurance
pool" so formed be deemed a partnership or an association that is taxable as a corporation under the National Internal
Revenue Code (NIRC)? Should the pool's remittances to the member companies and to the said foreign firm be taxable as
dividends? Under the facts of this case, has the goverment's right to assess and collect said tax prescribed?

The Case

These are the main questions raised in the Petition for Review on Certiorari before us, assailing the October 11, 1993
Decision 1 of the Court of Appeals 2 in CA-GR SP 25902, which dismissed petitioners' appeal of the October 19, 1992
Decision 3 of the Court of Tax Appeals 4 (CTA) which had previously sustained petitioners' liability for deficiency income
tax, interest and withholding tax. The Court of Appeals ruled:

WHEREFORE, the petition is DISMISSED, with costs against petitioner 5

The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution 6denying reconsideration.

The Facts
The antecedent facts, 7 as found by the Court of Appeals, are as follows:

The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the
Philippines. Upon issuance by them of Erection, Machinery Breakdown, Boiler Explosion and Contractors'
All Risk insurance policies, the petitioners on August 1, 1965 entered into a Quota Share Reinsurance
Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter
called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners
to form a [p]ool. Accordingly, a pool composed of the petitioners was formed on the same day.

On April 14, 1976, the pool of machinery insurers submitted a financial statement and filed an
"Information Return of Organization Exempt from Income Tax" for the year ending in 1975, on the basis
of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the
amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners, respectively. These assessments were protested by the
petitioners through its auditors Sycip, Gorres, Velayo and Co.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners,
assessed as "Pool of Machinery Insurers," to pay deficiency income tax, interest, and with [h]olding tax,
itemized as follows:

Net income per information return P3,737,370.00

===========

Income tax due thereon P1,298,080.00

Add: 14% Int. fr. 4/15/76

to 4/15/79 545,193.60

——————

TOTAL AMOUNT DUE & P1,843,273.60

COLLECTIBLE

Dividend paid to Munich

Reinsurance Company P3,728,412.00

——————

35% withholding tax at

source due thereon P1,304,944.20

Add: 25% surcharge 326,236.05

14% interest from

1/25/76 to 1/25/79 137,019.14

Compromise penalty-

non-filing of return 300.00

 late payment 300.00

——————

TOTAL AMOUNT DUE & P1,768,799.39

COLLECTIBLE ===========

Dividend paid to Pool Members P655,636.00

===========

10% withholding tax at

source due thereon P65,563.60

Add: 25% surcharge 16,390.90

14% interest from

1/25/76 to 1/25/79 6,884.18

Compromise penalty-

non-filing of return 300.00

late payment 300.00

——————

TOTAL AMOUNT DUE & P89,438.68

COLLECTIBLE =========== 8

The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a corporation, and that the
latter's collection of premiums on behalf of its members, the ceding companies, was taxable income. It added that
prescription did not bar the Bureau of Internal Revenue (BIR) from collecting the taxes due, because "the taxpayer cannot
be located at the address given in the information return filed." Hence, this Petition for Review before us. 9

The Issues

Before this Court, petitioners raise the following issues:

1. Whether or not the Clearing House, acting as a mere agent and performing strictly administrative
functions, and which did not insure or assume any risk in its own name, was a partnership or association
subject to tax as a corporation;

2. Whether or not the remittances to petitioners and MUNICHRE of their respective shares of reinsurance
premiums, pertaining to their individual and separate contracts of reinsurance, were "dividends" subject to
tax; and

3. Whether or not the respondent Commissioner's right to assess the Clearing House had already
prescribed. 10

The Court's Ruling

The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is taxable as a corporation, and
that the government's right to assess and collect the taxes had not prescribed.

First Issue:

Pool Taxable as a Corporation

Petitioners contend that the Court of Appeals erred in finding that the pool of clearing house was an informal partnership,
which was taxable as a corporation under the NIRC. They point out that the reinsurance policies were written by them
"individually and separately," and that their liability was limited to the extent of their allocated share in the original risk
thus reinsured. 11 Hence, the pool did not act or earn income as a reinsurer. 12Its role was limited to its principal function of
"allocating and distributing the risk(s) arising from the original insurance among the signatories to the treaty or the
members of the pool based on their ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions,
such as records, maintenance, collection and custody of funds, etc." 13

Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers, did not share the same risk or
solidary liability, 14 (2) there was no common fund; 15 (3) the executive board of the pool did not exercise control and
management of its funds, unlike the board of directors of a corporation; 16 and (4) the pool or clearing house "was not and
could not possibly have engaged in the business of reinsurance from which it could have derived income for itself." 17

The Court is not persuaded. The opinion or ruling of the Commission of Internal Revenue, the agency tasked with the
enforcement of tax law, is accorded much weight and even finality, when there is no showing. that it is patently
wrong, 18 particularly in this case where the findings and conclusions of the internal revenue commissioner were
subsequently affirmed by the CTA, a specialized body created for the exclusive purpose of reviewing tax cases, and the
Court of Appeals. 19 Indeed,

[I]t has been the long standing policy and practice of this Court to respect the conclusions of quasi-judicial
agencies, such as the Court of Tax Appeals which, by the nature of its functions, is dedicated exclusively
to the study and consideration of tax problems and has necessarily developed an expertise on the subject,
unless there has been an abuse or improvident exercise of its authority. 20

This Court rules that the Court of Appeals, in affirming the CTA which had previously sustained the internal revenue
commissioner, committed no reversible error. Section 24 of the NIRC, as worded in the year ending 1975, provides:

Sec. 24. Rate of tax on corporations. — (a) Tax on domestic corporations. — A tax is hereby imposed
upon the taxable net income received during each taxable year from all sources by every corporation
organized in, or existing under the laws of the Philippines, no matter how created or organized, but not
including duly registered general co-partnership (compañias colectivas), general professional partnerships,
private educational institutions, and building and loan associations . . . .

Ineludibly, the Philippine legislature included in the concept of corporations those entities that resembled them such as
unregistered partnerships and associations. Parenthetically, the NIRC's inclusion of such entities in the tax on corporations
was made even clearer by the tax Reform Act of 1997, 21 which amended the Tax Code. Pertinent provisions of the new
law read as follows:

Sec. 27. Rates of Income Tax on Domestic Corporations. —

(A) In General. — Except as otherwise provided in this Code, an income tax of thirty-five percent (35%)
is hereby imposed upon the taxable income derived during each taxable year from all sources within and
without the Philippines by every corporation, as defined in Section 22 (B) of this Code, and taxable under
this Title as a corporation . . . .

Sec. 22. — Definition. — When used in this Title:

xxx xxx xxx

 (B) The term "corporation" shall include partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participacion), associations, or insurance companies, but does not
include general professional partnerships [or] a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations
pursuant to an operating or consortium agreement under a service contract without the Government.
"General professional partnerships" are partnerships formed by persons for the sole purpose of exercising
their common profession, no part of the income of which is derived from engaging in any trade or
business.

xxx xxx xxx

Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that Section 24 covered these unregistered
partnerships and even associations or joint accounts, which had no legal personalities apart from their individual
members. 23 The Court of Appeals astutely applied Evangelista. 24

. . . Accordingly, a pool of individual real property owners dealing in real estate business was considered a
corporation for purposes of the tax in sec. 24 of the Tax Code in Evangelista v. Collector of Internal
Revenue, supra. The Supreme Court said:

The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. *** (8 Merten's Law of Federal Income Taxation, p.
562 Note 63)

Art. 1767 of the Civil Code recognizes the creation of a contract of partnership when "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." 25 Its requisites are: "(1) mutual contribution to a common stock, and (2) a joint interest in the profits." 26 In
other words, a partnership is formed when persons contract "to devote to a common purpose either money, property, or
labor with the intention of dividing the profits between
themselves." 27 Meanwhile, an association implies associates who enter into a "joint enterprise . . . for the transaction of
business." 28

In the case before us, the ceding companies entered into a Pool Agreement 29 or an association 30 that would handle all the
insurance businesses covered under their quota-share reinsurance treaty 31 and surplus reinsurance treaty32 with Munich.
The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC:

(1) The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the
pool. 33 This common fund pays for the administration and operation expenses of the pool. 24

(2) The pool functions through an executive board, which resembles the board of directors of a corporation, composed of
one representative for each of the ceding companies. 35

(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable,
beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not
have received their premiums. The ceding companies share "in the business ceded to the pool" and in the "expenses"
according to a "Rules of Distribution" annexed to the Pool Agreement. 36 Profit motive or business is, therefore, the
primordial reason for the pool's formation. As aptly found by the CTA:

. . . The fact that the pool does not retain any profit or income does not obliterate an antecedent fact, that of
the pool being used in the transaction of business for profit. It is apparent, and petitioners admit, that their
association or coaction was indispensable [to] the transaction of the business, . . . If together they have
conducted business, profit must have been the object as, indeed, profit was earned. Though the profit was
apportioned among the members, this is only a matter of consequence, as it implies that profit actually
resulted. 37
The petitioners' reliance on Pascuals v. Commissioner 38 is misplaced, because the facts obtaining therein are not on all
fours with the present case. In Pascual, there was no unregistered partnership, but merely a co-ownership which took up
only two isolated transactions. 39 The Court of Appeals did not err in applying Evangelista, which involved a partnership
that engaged in a series of transactions spanning more than ten years, as in the case before us.

Second Issue:

Pool's Remittances are Taxable

Petitioners further contend that the remittances of the pool to the ceding companies and Munich are not dividends subject
to tax. They insist that such remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and "would be
tantamount to an illegal double taxation as it would result in taxing the same taxpayer" 40 Moreover, petitioners argue that
since Munich was not a signatory to the Pool Agreement, the remittances it received from the pool cannot be deemed
dividends. 41 They add that even if such remittances were treated as dividends, they would have been exempt under the
previously mentioned sections of the 1977 NIRC, 42 as well as Article 7 of paragraph 1 43 and Article 5 of paragraph 5 44 of
the RP-West German Tax Treaty. 45

Petitioners are clutching at straws. Double taxation means taxing the same property twice when it should be taxed only
once. That is, ". . . taxing the same person twice by the same jurisdiction for the same thing" 46 In the instant case, the pool
is a taxable entity distinct from the individual corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the said companies. Clearly, there is no double taxation here.

The tax exemptions claimed by petitioners cannot be granted, since their entitlement thereto remains unproven and
unsubstantiated. It is axiomatic in the law of taxation that taxes are the lifeblood of the nation. Hence, "exemptions
therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or
right." 47 Petitioners have failed to discharge this burden of proof. The sections of the 1977 NIRC which they cite are
inapplicable, because these were not yet in effect when the income was earned and when the subject information return for
the year ending 1975 was filed.

Referring, to the 1975 version of the counterpart sections of the NIRC, the Court still cannot justify the exemptions
claimed. Section 255 provides that no tax shall ". . . be paid upon reinsurance by any company that has already paid the tax
. . ." This cannot be applied to the present case because, as previously discussed, the pool is a taxable entity distinct from
the ceding companies; therefore, the latter cannot individually claim the income tax paid by the former as their own.

On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign corporations; hence, it cannot be claimed by the ceding
companies which are domestic corporations. Nor can Munich, a foreign corporation, be granted exemption based solely on
this provision of the Tax Code, because the same subsection specifically taxes dividends, the type of remittances forwarded
to it by the pool. Although not a signatory to the Pool Agreement, Munich is patently an associate of the ceding companies
in the entity formed, pursuant to their reinsurance treaties which required the creation of said pool.

Under its pool arrangement with the ceding companies; Munich shared in their income and loss. This is manifest from a
reading of Article 3 49 and 10 50 of the Quota-Share Reinsurance treaty and Articles 3 51 and 10 52 of the Surplus
Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must
be construed strictissimi juris, and the statutory exemption claimed must be expressed in a language too plain to be
mistaken. 53

Finally the petitioners' claim that Munich is tax-exempt based on the RP- West German Tax Treaty is likewise
unpersuasive, because the internal revenue commissioner assessed the pool for corporate taxes on the basis of the
information return it had submitted for the year ending 1975, a taxable year when said treaty was not yet in
effect.54 Although petitioners omitted in their pleadings the date of effectivity of the treaty, the Court takes judicial notice
that it took effect only later, on December 14, 1984. 55

Third Issue:

Prescription
Petitioners also argue that the government's right to assess and collect the subject tax had prescribed. They claim that the
subject information return was filed by the pool on April 14, 1976. On the basis of this return, the BIR telephoned
petitioners on November 11, 1981, to give them notice of its letter of assessment dated March 27, 1981. Thus, the
petitioners contend that the five-year statute of limitations then provided in the NIRC had already lapsed, and that the
internal revenue commissioner was already barred by prescription from making an assessment. 56

We cannot sustain the petitioners. The CA and the CTA categorically found that the prescriptive period was tolled under
then Section 333 of the NIRC, 57 because "the taxpayer cannot be located at the address given in the information return
filed and for which reason there was delay in sending the assessment." 58 Indeed, whether the government's right to collect
and assess the tax has prescribed involves facts which have been ruled upon by the lower courts. It is axiomatic that in the
absence of a clear showing of palpable error or grave abuse of discretion, as in this case, this Court must not overturn the
factual findings of the CA and the CTA.

Furthermore, petitioners admitted in their Motion for Reconsideration before the Court of Appeals that the pool changed its
address, for they stated that the pool's information return filed in 1980 indicated therein its "present address." The Court
finds that this falls short of the requirement of Section 333 of the NIRC for the suspension of the prescriptive period. The
law clearly states that the said period will be suspended only "if the taxpayer informs the Commissioner of Internal
Revenue of any change in the address."

WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals dated October 11, 1993 and November
15, 1993 are hereby AFFIRMED. Cost against petitioners.1âwphi1.nêt

SO ORDERED.

Romero, Vitug, Purisima, Gonzaga-Reyes, JJ., concur.

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be
financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real
property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts
executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2 (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling
of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders
the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No
pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent
Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision. 4 All three of them also agreed to share the proceeds from the sale of the
subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that
respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal
Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was
able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the
subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters.
Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately
caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite
his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted.
Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an
Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings.
Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the
development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their
share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well as profits
in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner
in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article
1769, and other related provisions of the Civil Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the
earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to
implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA
BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City,
Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-
divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-
division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties
hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of TWENTY
FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND
PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve
as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the
sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount
involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST
PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division
project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY
and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales
will be divided equally according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the
adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the
amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be
paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the FIRST
PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the
uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article
1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was
to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate
its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds
of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article
1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to
all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they
voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the
provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot
now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property
contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a complement of Article 1771, 12 "The execution of a public instrument
would be useless if there is no inventory of the property contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar
does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them
60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an
ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it is the
direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation
of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the
parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of
profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, "the land
was in effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a consideration for the
sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of
the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he
should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits
under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the
project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not
alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. 18Accordingly, we find no
reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED
HEIRS OF JOSE LIM, G.R. No. 172690
represented by ELENITO LIM,
Petitioners, Present:

CORONA, J.,
Chairperson,
VELASCO, JR.,
- versus - NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.

Promulgated:
JULIET VILLA LIM,
Respondent. March 3, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA) Decision[2] dated June 29, 2005, which reversed
and set aside the decision[3] of the Regional Trial Court (RTC) of Lucena City, dated April 12,
2004.

The facts of the case are as follows:

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim (Elenito). They filed a Complaint [4]for Partition,
Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late
Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban,
Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy
(Norberto), formed a partnership to engage in the trucking business. Initially, with a contribution
of P50,000.00 each, they purchased a truck to be used in the hauling and transport of lumber of
the sawmill. Jose managed the operations of this trucking business until his death on August 15,
1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business
under the management of Elfledo. The shares in the partnership profits and income that formed
part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to
use, purchase or acquire properties using said funds.

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

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
claimed that respondent took over the administration of the aforementioned properties, which
belonged to the estate of Jose, without their consent and approval. Claiming that they are co-
owners of the properties, petitioners required respondent to submit an accounting of all income,
profits and rentals received from the estate of Elfledo, and to surrender the administration
thereof. Respondent refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of
Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in
1980, Jose gave Elfledo P50,000.00 as the latter's capital in an informal partnership with Jimmy
and Norberto. When Elfledo and respondent got married in 1981, the partnership only had one
truck; but through the efforts of Elfledo, the business flourished. Other than this trucking
business, Elfledo, together with respondent, engaged in other business ventures. Thus, they were
able to buy real properties and to put up their own car assembly and repair business. When
Norberto was ambushed and killed on July 16, 1993, the trucking business started to falter.
When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to the
heirs of Norberto, as she could no longer run the business. Jimmy suggested that three out of the
nine trucks be given to him as his share, while the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she
sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that
Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the
properties involved in this case were purchased and acquired through her and her husbands joint
efforts and hard work, and without any participation or contribution from petitioners or from
Jose. Respondent submitted that these are conjugal partnership properties; and thus, she had the
right to refuse to render an accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:

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

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

2) Ordering the defendant to submit an accounting of all incomes, profits and rentals
received by her from said properties.

SO ORDERED.

Aggrieved, respondent appealed to the CA.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners'
complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration,[5] which the CA, however, denied in its Resolution[6] dated May 8, 2006.

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

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY

THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE
GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON THE
ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?[7]

In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving
partner, Elfledo was not a partner; and that he and Norberto entered into a partnership with Jose.
Thus, the CA erred in not giving that testimony greater weight than that of Cresencia, who was
merely the spouse of Jose and not a party to the partnership.[8]

Respondent counters that the issue raised by petitioners is not proper in a petition for review
on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review,
evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover, respondent
invokes the rationale of the CA decision that, in light of the admissions of Cresencia
and Edison and the testimony of respondent, the testimony of Jimmy was effectively refuted;
accordingly, the CA's reversal of the RTC's findings was fully justified.[9]
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of
factual issues an exercise that is not appropriate for a petition for review on certiorari under
Rule 45. This rule provides that the parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by the tribunals below.[10] When supported by
substantial evidence, the findings of fact of the CA are conclusive and binding on the parties and
are not reviewable by this Court, unless the case falls under any of the following recognized
exceptions:

(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;

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

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

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

(5) When the findings of fact are conflicting;

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

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

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

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

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

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

On the merits of the case, we find that the instant Petition is bereft of merit.

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

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

A careful review of the records persuades us to affirm the CA decision. The evidence presented
by petitioners falls short of the quantum of proof required to establish that: (1) Jose was the
partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part
of the estate of Jose, having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence
against respondent. It must be considered and weighed along with petitioners' other evidence
vis--vis respondent's contrary evidence. In civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence. "Preponderance of evidence" is the weight,
credit, and value of the aggregate evidence on either side and is usually considered synonymous
with the term "greater weight of the evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last analysis, means probability of the truth.
It is evidence that is more convincing to the court as worthy of belief than that which is offered
in opposition thereto.[13]Rule 133, Section 1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:

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

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

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals[14] is enlightening.
Therein, we cited Article 1769 of the Civil Code, which provides:

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

(1) Except as provided by Article 1825, persons who are not partners as to each other
are not partners as to third persons;
 (2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the
property;

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

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

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise.

Applying the legal provision to the facts of this case, the following circumstances tend to prove
that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose gave
Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the
initial capital in the partnership;[15] (2) Elfledo ran the affairs of the partnership, wielding
absolute control,power and authority, without any intervention or opposition whatsoever from
any of petitioners herein;[16] (3) all of the properties, particularly the nine trucks of the
partnership, were registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not
receive wages or salaries from the partnership, indicating that what he actually received were
shares of the profits of the business;[17] and (5) none of the petitioners, as heirs of Jose, the
alleged partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly
stressed in Heirs of Tan Eng Kee,[18] a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of the
estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto.
They failed to refute respondent's claim that Elfledo and respondent engaged in other
businesses. Edison even admitted that Elfledo also sold Interwood lumber as a
sideline.[19] Petitioners could not offer any credible evidence other than their bare
assertions. Thus, we apply the basic rule of evidence that between documentary and oral
evidence, the former carries more weight.[20]
Finally, we agree with the judicious findings of the CA, to wit:

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

It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that
it was Jose Lim and not Elfledo who was the partner, then upon his
death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done but
instead its operation continued under the helm of Elfledo and without any
participation from the heirs of Jose Lim.

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

In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are
amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated
June 29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

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

DE LEON, JR., J.:

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

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

The facts are:

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

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

Hence, the present petition.

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

In their assignment of errors, petitioners claim that:

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

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY
OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT
TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.

III

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

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

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

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

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

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER
WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP
(PAGE 16-17, DECISION).

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

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

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

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

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

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

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

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

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

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

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

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

(9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are
contradicted by the evidence on record.12

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

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

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

xxx xxx xxx

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

xxx xxx xxx

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

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

xxx xxx xxx

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

And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There
is no proof either that the capital assets of the partnership, assuming them to be in existence, were maliciously assigned or
transferred by Lay, supposedly to the corporation and since then have been treated as a part of the latter's capital assets,
contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:

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

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if it
involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of
the parties to execute the contract; 3) money property or industry contribution; 4) community of funds and interest,
mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the
profits, being the true test of the partnership. The intention to join in the business venture for the purpose of obtaining
profits thereafter to be divided, must be established. We cannot see these elements from the testimonial evidence of the
appellees.

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

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

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

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

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

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

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

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of
pursuing to a successful termination may continue for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party
has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the
conduct of the business."22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we
expressed the view that a joint venture may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is
hardly distinguishable from the partnership, since their elements are similar — community of interest in the business,
sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v.
Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main
distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under
the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos
and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is
none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil
Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well
be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect
on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof
required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on
the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a
partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should be
noted that it is not with the number of witnesses wherein preponderance lies;24 the quality of their testimonies is to be
considered. None of petitioners' witnesses could suitably account for the beginnings of Benguet Lumber Company, except
perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.25 He stated that when he met Tan Eng
Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by
both brothers.26 Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his
brother.27 Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on that
his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here,
of the G.I. sheets) is not an indicium of the existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng
Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses.29 Each
has the right to demand an accounting as long as the partnership exists.30 We have allowed a scenario wherein "[i]f
excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the
firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible." 31 But in the
situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take
ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help
or intervention in the management of the theatre. In the third place, it does not appear that she has even demanded from
defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were
correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was
to receive her share of P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between
them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng Kee appeared never to have
made any such demand for accounting from his brother, Tang Eng Lay.

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

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

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

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

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

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

(a) As a debt by installment or otherwise;

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

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

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

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

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if
the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not
present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share
in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share
in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan
Eng Lay intended to divide the profits of the business between themselves, which is one of the essential features of a
partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of
circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the
employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee
and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that:

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

(i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore,
that an employee's position is higher in rank, it is not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from
suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this
particular task. It is, thus, not an indication that Tan Eng Kee was a partner.

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

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

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

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

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

SO ORDERED.
G.R. No. 154486 December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July 30, 2002 in CA-
G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon
City, Branch 98 in Civil Case No. Q-50464.

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin, Benjamin, Conchita,
Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by
their son Federico Jarantilla, Sr. and his wife Leda Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas
Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt, was the plaintiff
therein. His co-respondents before he joined his aunt Antonieta in her complaint, were his late aunt Conchita Jarantilla’s
husband Buenaventura Remotigue, who died during the pendency of the case, his cousin Cynthia Remotigue, the adopted
daughter of Conchita Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their deceased
parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce
of the said real properties for the years 1947-1949 for the studies of Rafael and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the spouses
Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other by way of financial support to
any commercial and agricultural activity on a joint business arrangement. This business relationship proved to be
successful as they were able to establish a manufacturing and trading business, acquire real properties, and construct
buildings, among other things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to
completely dissolve their "joint business relationship/arrangement."11

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein they acknowledged
that while registered only in Buenaventura Remotigue’s name, they were not the only owners of the capital of the
businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue
Trading (Cotabato City). In this same "Acknowledgement of Participating Capital," they stated the participating capital of
their co-owners as of the year 1952, with Antonieta Jarantilla’s stated as eight thousand pesos (₱8,000.00) and Federico
Jarantilla, Jr.’s as five thousand pesos (₱5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla against
Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the
accounting of the assets and income of the co-ownership, for its partition and the delivery of her share corresponding to
eight percent (8%), and for damages. Antonieta claimed that in 1946, she had entered into an agreement with Conchita and
Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged
that the initial contribution of property and money came from the heirs’ inheritance, and her subsequent annual investment
of seven thousand five hundred pesos (₱7,500.00) as additional capital came from the proceeds of her farm. Antonieta also
alleged that from 1946-1969, she had helped in the management of the business they co-owned without receiving any
salary. Her salary was supposedly rolled back into the business as additional investments in her behalf. Antonieta further
claimed co-ownership of certain properties14 (the subject real properties) in the name of the defendants since the only way
the defendants could have purchased these properties were through the partnership as they had no other source of income.
The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with Antonieta in
1946. They claimed that she was in no position to do so as she was still in school at that time. In fact, the proceeds of the
lands they partitioned were devoted to her studies. They also averred that while she may have helped in the businesses that
her older sister Conchita had formed with Buenaventura Remotigue, she was paid her due salary. They did not deny the
existence and validity of the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their
claim that Antonieta’s 8% share was limited to the businesses enumerated therein. With regard to Antonieta’s claim in their
other corporations and businesses, the respondents said these should also be limited to the number of her shares as
specified in the respective articles of incorporation. The respondents denied using the partnership’s income to purchase the
subject real properties and said that the certificates of title should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original defendants, entered
into a compromise agreement17 with Antonieta Jarantilla wherein he supported Antonieta’s claims and asserted that he too
was entitled to six percent (6%) of the supposed partnership in the same manner as Antonieta was. He prayed for a
favorable judgment in this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the other defendants, and the
partition of the properties of the co-ownership and the delivery to the plaintiff and to defendant Federico Jarantilla, Jr. of
their rightful share of the assets and properties in the co-ownership.181avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise Agreement20and on
December 18, 1992, decided in favor of Antonieta, to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta Jarantilla and
against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering the latter:

1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered by TCT Nos. 35655,
338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT Nos. (18303)23341, 142882 &
490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based on
their present market value;

2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-Industrial Corporation, Manila
Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping Corporation based on the shares of stocks
present book value;

3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful share thereof equivalent to
8%;

4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as moral damages;

5. to pay, jointly and severally, the sum of ₱50,000.00 as attorney’s fees; and

6. to pay, jointly and severally, the costs of the suit.21

Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner claimed that the RTC
"erred in not rendering a complete judgment and ordering the partition of the co-ownership and giving to [him] six per
centum (6%) of the properties."22

While the Court of Appeals agreed to some of the RTC’s factual findings, it also established that Antonieta Jarantilla was
not part of the partnership formed in 1946, and that her 8% share was limited to the businesses enumerated in the
Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals rendered the herein challenged
decision setting aside the RTC’s decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is hereby entered
ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and profits of Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City;

(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and profits of the above-
mentioned enterprises; and, holding that

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in their Articles of
Incorporation:

(a) Rural Bank of Barotac Nuevo, Inc.;

(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and

(d) B. Remotigue Agro-Industrial Development Corp.

(4) No costs.23

The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals denied this in a
Resolution24 dated March 21, 2003.

Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September 16, 2002, assailing
the Court of Appeals’ decision on "similar grounds and similar assignments of errors as this present case" 26 but it was
dismissed on November 20, 2002 for failure to file the appeal within the reglementary period of fifteen (15) days in
accordance with Section 2, Rule 45 of the Rules of Court.27

Petitioner filed before us this petition for review on the sole ground that:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER FEDERICO
JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL
PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES
WHERE HE HAD OWNED SUCH SHARE.28

Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses, Rosita Jarantilla, Rafael
Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends that from this partnership, several other corporations and businesses
were established and several real properties were acquired. In this petition, he is essentially asking for his 6% share in the
subject real properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantilla’s testimony to support this contention.

The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital funded the
subject real properties. In other words, what is the petitioner’s right over these real properties?

It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, only questions of
law may be raised by the parties and passed upon by this Court.29

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact
when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not
involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of
the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of
fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it
is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the questions of law
that are now in issue, shall look into the facts only in so far as the two courts a quo differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957 document, the
"Acknowledgement of Participating Capital." The RTC used this as its basis for giving Antonieta Jarantilla an 8% share in
the three businesses listed therein and in the other businesses and real properties of the respondents as they had supposedly
acquired these through funds from the partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the business enumerated in
the Acknowledgement of Participating Capital, but not as to her share in the other corporations and real properties. The
Court of Appeals ruled that Antonieta’s claim of 8% is based on the "Acknowledgement of Participating Capital," a duly
notarized document which was specific as to the subject of its coverage. Hence, there was no reason to pattern her share in
the other corporations from her share in the partnership’s businesses. The Court of Appeals also said that her claim in the
respondents’ real properties was more "precarious" as these were all covered by certificates of title which served as the best
evidence as to all the matters contained therein.32 Since petitioner’s claim was essentially the same as Antonieta’s, the
Court of Appeals also ruled that petitioner be given his 6% share in the same businesses listed in the Acknowledgement of
Participating Capital.

Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive except in the
following cases: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse
of discretion; (3) when the finding is grounded entirely on speculations, surmises or conjectures; (4) when the judgment of
the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would
justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.33

In this case, we find no error in the ruling of the Court of Appeals.

Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-ownership, but in
the same breath, assert that a verbal partnership was formed in 1946 and was affirmed in the 1957 Acknowledgement of
Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a partnership when 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.35 The Court, in Pascual v. The Commissioner of Internal Revenue,36 quoted the concurring
opinion of Mr. Justice Angelo Bautista in Evangelista v. The Collector of Internal Revenue37 to further elucidate on the
distinctions between a co-ownership and a partnership, to wit:

I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining
when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

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

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

From the above it appears that the fact that those who agree to form a co- ownership share or do not share any profits
made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality
different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with
the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit
in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself
which the proceeds derived.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the parties are only tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiff’s commission, no
partnership existed as between the three parties, whatever their relation may have been as to third parties.

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in
both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property. x x x.

The common ownership of property does not itself create a partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom.38 (Citations omitted.)

Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for, admittedly, all the parties in this case have agreed
to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as
they did.39 It is not denied that all the parties in this case have agreed to contribute capital to a common fund to be able to
later on share its profits. They have admitted this fact, agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would be instructive to
examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age, Filipinos and
residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City and the Remotigue
Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and equipments, and general merchandise are
recorded in their respective books with Buenaventura Remotigue as the registered owner and are being operated by them as
such:

That they are not the only owners of the capital of the three establishments and their participation in the capital of the three
establishments together with the other co-owners as of the year 1952 are stated as follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any interest in the above-
mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.

[Sgd.]
BUENAVENTURA REMOTIGUE

[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by Conchita Jarantilla-
Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its contents and is actually relying on it to
prove his participation in the partnership. Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence of any such
stipulations, then to his share in proportion to his contribution to the partnership. The petitioner himself claims his share to
be 6%, as stated in the Acknowledgement of Participating Capital. However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo
City and Remotigue Trading in Cotabato City. Since there was a clear agreement that the capital the partners contributed
went to the three businesses, then there is no reason to deviate from such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err in limiting petitioner’s share to the assets of the businesses
enumerated in the Acknowledgement of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares to be paid out to
the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be
refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners’ shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in the Acknowledgement of
Participating Capital.
The petitioner further asserts that he is entitled to respondents’ properties based on the concept of trust. He claims that
since the subject real properties were purchased using funds of the partnership, wherein he has a 6% share, then "law and
equity mandates that he should be considered as a co-owner of those properties in such proportion."43 In Pigao v.
Rabanillo,44 this Court explained the concept of trusts, to wit:

Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into being by operation
of law, either through implication of an intention to create a trust as a matter of law or through the imposition of the trust
irrespective of, and even contrary to, any such intention. In turn, implied trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable
title or interest and are presumed always to have been contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another.45

On proving the existence of a trust, this Court held that:

Respondent has presented only bare assertions that a trust was created. Noting the need to prove the existence of a trust,
this Court has held thus:

"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear
and satisfactorily show the existence of the trust and its elements. While implied trusts may be proved by oral evidence, the
evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be fabricated." 46

The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his bare allegations,
he has failed to show that the respondents used the partnership’s money to purchase the said properties. Even assuming
arguendo that some partnership income was used to acquire these properties, the petitioner should have successfully shown
that these funds came from his share in the partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own self-serving
testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents did not have the means to fund their other businesses and real
properties without the partnership’s income. On the other hand, the respondents have not only, by testimonial evidence,
proven their case against the petitioner, but have also presented sufficient documentary evidence to substantiate their
claims, allegations and defenses. They presented preponderant proof on how they acquired and funded such properties in
addition to tax receipts and tax declarations.47 It has been held that "while tax declarations and realty tax receipts do not
conclusively prove ownership, they may constitute strong evidence of ownership when accompanied by possession for a
period sufficient for prescription."48 Moreover, it is a rule in this jurisdiction that testimonial evidence cannot prevail over
documentary evidence.49 This Court had on several occasions, expressed our disapproval on using mere self-serving
testimonies to support one’s claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:

Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their witnesses -- Luisa
Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail over the array of documents presented
by Belen. A claim of ownership cannot be based simply on the testimonies of witnesses; much less on those of interested
parties, self-serving as they are.51

It is true that a certificate of title is merely an evidence of ownership or title over the particular property described therein.
Registration in the Torrens system does not create or vest title as registration is not a mode of acquiring ownership; hence,
this cannot deprive an aggrieved party of a remedy in law.52 However, petitioner asserts ownership over portions of the
subject real properties on the strength of his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held
by this Court in Republic of the Philippines v. Orfinada, Sr.53:

Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and a strong
presumption exists that a Torrens title was regularly issued and valid. A Torrens title is incontrovertible against
any informacion possessoria, of other title existing prior to the issuance thereof not annotated on the Torrens title.
Moreover, persons dealing with property covered by a Torrens certificate of title are not required to go beyond what
appears on its face.54

As we have settled that this action never really was for partition of a co-ownership, to permit petitioner’s claim on these
properties is to allow a collateral, indirect attack on respondents’ admitted titles. In the words of the Court of Appeals,
"such evidence cannot overpower the conclusiveness of these certificates of title, more so since plaintiff’s [petitioner’s]
claims amount to a collateral attack, which is prohibited under Section 48 of Presidential Decree No. 1529, the Property
Registration Decree."55

SEC. 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral attack. It cannot
be altered, modified, or cancelled except in a direct proceeding in accordance with law.

This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify the title, thereby
challenging the judgment pursuant to which the title was decreed."56 In Aguilar v. Alfaro,57 this Court further distinguished
between a direct and an indirect or collateral attack, as follows:

A collateral attack transpires when, in another action to obtain a different relief and as an incident to the present action, an
attack is made against the judgment granting the title. This manner of attack is to be distinguished from a direct attack
against a judgment granting the title, through an action whose main objective is to annul, set aside, or enjoin the
enforcement of such judgment if not yet implemented, or to seek recovery if the property titled under the judgment had
been disposed of. x x x.

Petitioner’s only piece of documentary evidence is the Acknowledgement of Participating Capital, which as discussed
above, failed to prove that the real properties he is claiming co-ownership of were acquired out of the proceeds of the
businesses covered by such document. Therefore, petitioner’s theory has no factual or legal leg to stand on.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 40887,
dated July 30, 2002 is AFFIRMED.

SO ORDERED.
G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,

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

PANGANIBAN, J.:

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

The Case

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

WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. 2

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

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as hereinafter made
by reason of the special and unique facts and circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices and computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

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

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20, 1990
(date of attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

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

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

SO ORDERED. 3

The Facts

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

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

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

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

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess
will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be shouldered and
paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. 11

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

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

Ruling of the Court of Appeals

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

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

Hence, petitioner brought this recourse before this Court. 14

The Issues

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

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA,
YAO AND PETITIONER LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT
EXISTED AMONG THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER LIM'S
GOODS.

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

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership
and Petitioner's Liability

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

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

Art. 1767 — By the contract of partnership, two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves.

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

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

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

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

(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) boats in
favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;

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

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name.

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

(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms
of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was
petitioner's brother. In their Compromise Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not have proceeded.

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

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

Compromise Agreement

Not the Sole Basis of Partnership

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

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

Petitioner Was a Partner,

Not a Lessor

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

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

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

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and Yao, and not
to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:

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

One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that
there was in fact no corporation.

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

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

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

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held jointly 18 liable with Chua and Yao. Petitioner contests such
liability, insisting that only those who dealt in the name of the ostensible corporation should be held liable. Since his name
does not appear on any of the contracts and since he never directly transacted with the respondent corporation, ergo, he
cannot be held liable.

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

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

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

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

Third Issue:

Validity of Attachment

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

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.

SO ORDERED.
G.R. NOS. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR., Petitioner,

vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC.,
DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING
CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L
REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC.,
BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L"
DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC.,
ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical &
Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC.,
(Formerly VF PHILIPPINES),Respondents.

DECISION

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set
aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated cases C.A. G.R. Sp. No.
76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07, 2004,2 denying petitioner’s motion for
reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The
legal dispute between them started when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio
filed a suit against his brother Eduardo and herein respondent Robert T. Yang (Yang) and several corporations for specific
performance and accounting. In his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of
the court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other
corporations. Yang is described in the complaint as petitioner’s and Eduardo’s partner in their Odeon Theater
investment.5 The same complaint also contained the following material averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their
family business and common family funds ….

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings,
parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex "A" and the
portion referring to [Aurelio] submarked as Annex "A-1".

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s] retaining his share in the
remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the
continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those
to be subsequently acquired by them whichever is greater. . . .

4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in
their joint venture/partnership various assets including but not limited to the corporate defendants and [their] respective
assets.

4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but Eduardo caused to be
registered in the names of other parties….

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of some of these real
properties is attached hereto and made an integral part as Annex "B".

xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an
accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and
liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as
Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to
other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of
these real properties… a notice of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)

For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for him by his brother
Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. ….

I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one left with the
company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to
run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be
ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you
get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the
whole thing of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away, I want
you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the
company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100,
000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you
can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack …and Valley
Golf … because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%)
equity. 6

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a joint ANSWER With
Compulsory Counterclaim denying under oath the material allegations of the complaint, more particularly that portion
thereof depicting petitioner and Eduardo as having entered into a contract of partnership. As affirmative defenses,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint states no cause of action, since no
cause of action may be derived from the actionable document, i.e., Annex "A-1", being void under the terms of Article
1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to
do, if any, under Annex "A-1", are unenforceable under the provisions of the Statute of Frauds.7

For his part, Yang - who was served with summons long after the other defendants submitted their answer – moved to
dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action and the complaint does not state
any.8 Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion, petitioner interposed
an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order dated March 5, 2003,
denied the affirmative defenses and, except for Yang, set the case for pre-trial on April 10, 2003.11

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for reconsideration12 and
Yang’s motion to dismiss. The following then transpired insofar as Yang is concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of the April 2, 2003
Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion was denied in
an Order of July 4, 2003.14

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65 of the Rules of
Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial court, the first denying his motion to
dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and injudicious haste
attended the issuance of the trial court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief
from the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R. SP No.
78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate court came out with
the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners therein, disposing as
follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these consolidated cases
annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July 4,
2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein
respondents Eduardo, et al.] with the court a quo is hereby dismissed.

SO ORDERED.17 (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as evidenced by the
actionable documents, Annex "A" and "A-1" attached to the complaint, and upon which petitioner solely predicates his
right/s allegedly violated by Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent".

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally assailed Resolution of
December 7, 2004.18 .

Hence, petitioner’s present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was not a public instrument
and immovable properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his
pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery or payment to him,
as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an accounting has been duly conducted of
what he deems to be partnership/joint venture property.19

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or
business, with the understanding that there shall be a proportionate sharing of the profits and losses between them.20 A
contract of partnership is defined by the Civil Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of dividing the profits among themselves.21 A joint
venture, on the other hand, is hardly distinguishable from, and may be likened to, a partnership since their elements are
similar, i.e., community of interests in the business and sharing of profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.22

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and respondent
Eduardo are partners in the theatre, shipping and realty business, as one claims but which the other denies. And the issue
bearing on the first assigned error relates to the question of what legal provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable document - Annex "A-1" - which he depicts in his complaint to be the contract
of partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the following provisions of
the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the
members thereof to third persons.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the public instrument.

Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned
document, there can be no quibbling that Annex "A-1" does not meet the public instrumentation requirements exacted
under Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more
than P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone registered with the
Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is
contributed to the partnership, the next logical point of inquiry turns on the nature of petitioner’s contribution, if any, to the
supposed partnership.

The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of immovables and real
rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioner’s] contribution to the so-called
"partnership/joint venture" was his supposed share in the family business that is consisting of movie theaters, shipping and
land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and real rights. ….23

Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that, prescinding from
what he himself alleged in his basic complaint, his contribution to the partnership consisted of his share in the Litonjua
family businesses which owned variable immovable properties. Petitioner’s assertion in his motion for reconsideration24 of
the CA’s decision, that "what was to be contributed to the business [of the partnership] was [petitioner’s] industry and his
share in the family [theatre and land development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code applies as long
real property or real rights are initially brought into the partnership. In short, it is really of no moment which of the
partners, or, in this case, who between petitioner and his brother Eduardo, contributed immovables. In context, the more
important consideration is that real property was contributed, in which case an inventory of the contributed property duly
signed by the parties should be attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in question were not
contributed, but were acquired after the formation of the supposed partnership. Needless to stress, the Court cannot accord
cogency to this specious argument. For, as earlier stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which already owned immovables even before
Annex "A-1" was allegedly executed.

Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership, the Court, even if so
disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so desires and pleads to be given.
Annex "A-1", in fine, cannot support the existence of the partnership sued upon and sought to be enforced. The legal and
factual milieu of the case calls for this disposition. A partnership may be constituted in any form, save when immovable
property or real rights are contributed thereto or when the partnership has a capital of at least ₱3,000.00, in which case a
public instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, 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 it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the probative value and
legal effect of Annex "A-1" commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged
partnership, the "Memorandum" (Annex "A" of the complaint) which purports to establish the said "partnership/joint
venture" is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As
such, the said "Memorandum" … is null and void for purposes of establishing the existence of a valid contract of
partnership. Indeed, because of the failure to comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally
inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint,
including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal
right which could be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does NOT
state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring and
words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CA’s equally assailed Resolution of December 7,
200427 denying petitioner’s motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as well as the actionable document
attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its
attention by herein [respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the latter alleged inter
alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public
document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint
and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be
violated by [respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or nullity as a
partnership document, nevertheless created demandable rights in his favor. As petitioner succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code,
Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create rights and obligations of
the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by
the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not mean it is void
or unenforceable.

Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA after he experienced
a reversal of fortune thereat - as an afterthought. The appellate court, however, cannot really be faulted for not yielding to
petitioner’s dubious stratagem of altering his theory of joint venture/partnership to an innominate contract. For, at bottom,
the appellate court’s certiorari jurisdiction was circumscribed by what was alleged to have been the order/s issued by the
trial court in grave abuse of discretion. As respondent Yang pointedly observed,28since the parties’ basic position had been
well-defined, that of petitioner being that the actionable document established a partnership/joint venture, it is on those
positions that the appellate court exercised its certiorari jurisdiction. Petitioner’s act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly declared, an admission of the untenability of such theory in the first
place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended that the actionable
instrument may be considered an innominate contract. xxx Verily, this now changes [petitioner’s] theory of the case
which is not only prohibited by the Rules but also is an implied admission that the very theory he himself … has adopted,
filed and prosecuted before the respondent court is erroneous.

Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable document being a
partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action on the basis of
partnership law xxx.29 (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract, petitioner’s
complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot be over-emphasized that
petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this consideration alone, petitioner’s claim
against Yang is doomed from the very start.

As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting petitioner with a right to
demand from respondent Eduardo the observance of a determinate conduct, reads:

xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this
office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend
entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever
is greater. (Underscoring added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if he indeed wrote
Annex "A-1", is a promise which is not to be performed within one year from "contract" execution on June 22, 1973.
Accordingly, the agreement embodied in Annex "A-1" is covered by the Statute of Frauds and ergounenforceable for non-
compliance therewith.30 By force of the statute of frauds, an agreement that by its terms is not to be performed within a year
from the making thereof shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in
writing and subscribed by the party charged. Corollarily, no action can be proved unless the requirement exacted by the
statute of frauds is complied with.31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family businesses
supposedly promised by Eduardo to give in the near future. Any suggestion that the stated amount or the equity component
of the promise was intended to go to a common fund would be to read something not written in Annex"A-1". Thus, even
this angle alone argues against the very idea of a partnership, the creation of which requires two or more contracting minds
mutually agreeing to contribute money, property or industry to a common fund with the intention of dividing the profits
between or among themselves.32

In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance anchored on an actionable
document of partnership which is legally inexistent or void or, at best, unenforceable does not state a cause of action as
against respondent Eduardo and the corporate defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and petitioner, the Court cannot see its way clear on
how the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or could not
have had any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to him as his partner.
In fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for the continuation of
their family business and common family funds which were theretofore being mainly managed by Eduardo." 33 But Yang
denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his
share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his
proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the
actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be
considered a partner when the document purporting to establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the [respondent]
corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This means that
the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment
thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his "investment and that
of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate respondents" This simply means that the
"Odeon Theatre business" came before the corporate respondents. Significantly enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon Theatre business.34

Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence he sourced his
right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured and formulated the legal situation
in the following wise:

[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo] and the
[petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in
several corporations, thus:

xxx xxx xxx

Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the …respondent.
However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was
created between [petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly affects said claim against …Yang. Since [petitioner]
is trying to establish his claim against … Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect [petitioner] and … Yang. To establish a valid
cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged
partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the Odeon Theater. A
statement of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against … Yang. 35

Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to
state, We have not ignored the actionable document … As a matter of fact, We emphasized in our decision … that insofar
as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person
not mentioned in a document purporting to establish a partnership could be considered a partner.36 (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as peremptorily
determined by the CA, has been discussed at length earlier and need not detain us long. Suffice it to say that after the CA
has ruled that the alleged partnership is inexistent, petitioner took a different tack. Thus, from a joint venture/partnership
theory which he adopted and consistently pursued in his complaint, petitioner embraced the innominate contract theory.
Illustrative of this shift is petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision combined
with what he said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the complainant’s allegations, is whether the actionable document bears out an
actionable contract – be it a partnership, a joint venture or whatever or some innominate contract … It may be noted that
one kind of innominate contract is what is known as du ut facias (I give that you may do).37

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an actionable contract even
though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code,
Article 1307).38

Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due process; hence, the
proscription against a party shifting from one theory at the trial court to a new and different theory in the appellate
court.39 On the same rationale, an issue which was neither averred in the complaint cannot be raised for the first time on
appeal.40 It is not difficult, therefore, to agree with the CA when it made short shrift of petitioner’s innominate contract
theory on the basis of the foregoing basic reasons.

Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case of changing theories
but of supporting his pleaded cause of action – that of the existence of a partnership - by another legal
perspective/argument, strikes the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CA’s decision virtually relegates partnership as a fall-back theory. Two paragraphs later,
in the same notion, petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not to
pursue the original cause of action or altogether abandoning the same, thus:

12. Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and
[petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not
establish a contractual relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his
document does not create a partnership or a joint venture. This is … a myopic reading of the actionable document.

Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership" nineteen (19)
times and the term "partner" four (4) times. He made reference to the "law of joint venture/partnership [being applicable]
to the business relationship … between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific properties of
their joint venture/partnership". Given this consideration, petitioner’s right of action against respondents Eduardo and
Yang doubtless pivots on the existence of the partnership between the three of them, as purportedly evidenced by the
undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip petitioner
of a cause of action under the premises. A complaint for delivery and accounting of partnership property based on such
void or legally non-existent actionable document is dismissible for failure to state of action. So, in gist, said the Court of
Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of
Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.
G.R. No. L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers
and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

Demosthenes B. Gadioma for petitioners.

AQUINO, J.:

This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired
from their father.

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963
square meters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the
petitioners, to enable them to build their residences. The company sold the two lots to petitioners for P178,708.12 on
March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show that they were co-owners
of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the sale a total profit
of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-half
thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue
required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income
tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56
as 42% accumulated interest, or a total of P71,074.56.

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a
mere capital gain of which ½ is taxable) and required them to pay deficiency income taxes aggregating P56,707.20
including the 50% fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture
within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co.,
102 Phil. 822).

The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented.
Hence, the instant appeal.

We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code
simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among
themselves.

To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and
confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as
partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in
any joint venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the
co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeñas says:

Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad presupone
necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin ela; y por razon del fin
objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision es solo mantener en su integridad
la cosa comun y favorecer su conservacion.

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho positive se
ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato de sociedad, la
moderna orientacion de la doctrina cientifica señala como nota fundamental de diferenciacion aparte del origen de fuente
de que surgen, no siempre uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad,
y mera conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are
derived". There must be an unmistakable intention to form a partnership or joint venture.*

Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small
amounts to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the
third prize of P50,000. The 15 persons were held liable for income tax as an unregistered partnership.

The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oña vs.

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.—We find that the case at bar is fundamentally similar to the De Leon case.
Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in question pro-indiviso from their deceased parents;
they did not contribute or invest additional ' capital to increase or expand the inherited properties; they merely continued
dedicating the property to the use to which it had been put by their forebears; they individually reported in their tax returns
their corresponding shares in the income and expenses of the 'hacienda', and they continued for many years the status of co-
ownership in order, as conceded by respondent, 'to preserve its (the 'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July
31, 1963).

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who own properties which produce income
should not automatically be considered partners of an unregistered partnership, or a corporation, within the purview of the
income tax law. To hold otherwise, would be to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not produce an income at
all, it is not subject to any kind of income tax, whether the income tax on individuals or the income tax on corporation. (De
Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp.
77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the co-
heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves, it was
held that they were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son purchased a
lot and building, entrusted the administration of the building to an administrator and divided equally the net income, and
from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista sisters bought four pieces of
real property which they leased to various tenants and derived rentals therefrom. Clearly, the petitioners in these two cases
had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to the
petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It might
have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.

SO ORDERED.
G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

De la Cuesta, De las Alas and Callanta Law Offices for petitioners.

The Solicitor General for respondents

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue
in this petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they
bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968
toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria
Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while
they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by
petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and
required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties way
back in 1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners
as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation
under Section 20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal
Revenue Code 1 that the unregistered partnership was subject to corporate income tax as distinguished from profits derived
from the partnership by them which is subject to individual income tax; and that the availment of tax amnesty under P.D.
No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them
from the tax liability of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax
assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due
course, the respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and action taken by
respondent commissioner with costs against petitioners.

It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact formed by
petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case,
although there might in fact be a co-ownership between the petitioners, there was no adequate basis for the conclusion that
they thereby formed an unregistered partnership which made "hem liable for corporate income tax under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT

COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN
UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW
THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE
SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they
used in buying several real properties. They appointed their brother to manage their properties with full power to lease,
collect, rent, issue receipts, etc. They had the real properties rented or leased to various tenants for several years and they
gained net profits from the rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on
a corporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for
corporations and the real estate dealers' fixed tax. With respect to the tax on corporations, the issue hinges on the meaning
of the terms corporation and partnership as used in sections 24 and 84 of said Code, the pertinent parts of which read:

Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the total net
income received in the preceding taxable year from all sources by every corporation organized in, or existing under the
laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships
(companies collectives), a tax upon such income equal to the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock companies, joint
accounts (cuentas en participation), associations or insurance companies, but does not include duly registered general co-
partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

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

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money,
property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element
is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and
property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all
the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate
transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not a property inherited by them pro
indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish
said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought
a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23, 1944,
by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and transcations undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality peculiar to business transactions
engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein. The
properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by
way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change
in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely, Simeon Evangelists, with
full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit
notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation
or business enterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first
property was acquired, and over twelve (12) years, since Simeon Evangelists became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted
to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective
effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those
cases are not in point. 5

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/
or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain
parcels of land and became co-owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by
them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they
sold the two (2) parcels of land after which they did not make any additional or new purchase. The remaining three (3)
parcels were sold by them in 1970. The transactions were isolated. The character of habituality peculiar to business
transactions for the purpose of gain was not present.

In Evangelista, the properties were leased out to tenants for several years. The business was under the management of one
of the partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in the case at bar.
The co-ownership started only in 1965 and ended in 1970.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for determining
when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

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

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a
joint or common right or interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co- ownership share or do not share any profits
made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality
different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with
the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit
in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself
which the proceeds derived. (Elements of the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142
U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiffs commission, no
partnership existed as between the three parties, whatever their relation may have been as to third parties. (Magee vs.
Magee 123 N.E. 673, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in
both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property.-Municipal Paving Co. vs. Herring 150 P. 1067,
50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S.W. 363,160 No. App.
14.) 6

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

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

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is
no such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said
deficiency corporate income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the
partnership p. 7 However, as petitioners have availed of the benefits of tax amnesty as individual taxpayers in these
transactions, they are thereby relieved of any further tax liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March 30,
1987 is hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the corporate
income tax liability in this case, without pronouncement as to costs.SO ORDERED.
G.R. No. 148187 April 16, 2008

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This is a petition for review on certiorari of the June 30, 2000 Decision1 of the Court of Appeals in CA-G.R. SP No. 49385,
which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April 3, 2001
Resolution3 denying the motion for reconsideration.

The facts of the case are as follows:

On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement 4 with Baguio Gold
Mining Company ("Baguio Gold") for the former to manage and operate the latter’s mining claim, known as the Sto. Nino
mine, located in Atok and Tublay, Benguet Province. The parties’ agreement was denominated as "Power of Attorney" and
provided for the following terms:

4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to the MANAGERS
(Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as from time to time may be
required by the MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO. NINO MINE. The
said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal audit purposes, as the owner’s account in
the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left with the
Sto. Nino PROJECT, shall be added to such owner’s account.

5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the
STO. NINO MINE, they may transfer their own funds or property to the Sto. Nino PROJECT, in accordance with the
following arrangements:

(a) The properties shall be appraised and, together with the cash, shall be carried by the Sto. Nino PROJECT as a special
fund to be known as the MANAGERS’ account.

(b) The total of the MANAGERS’ account shall not exceed P11,000,000.00, except with prior approval of the
PRINCIPAL; provided, however, that if the compensation of the MANAGERS as herein provided cannot be paid in cash
from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to the MANAGERS’ account.

(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino PROJECT until termination of this Agency.

(d) The MANAGERS’ account shall not accrue interest. Since it is the desire of the PRINCIPAL to extend to the
MANAGERS the benefit of subsequent appreciation of property, upon a projected termination of this Agency, the ratio
which the MANAGERS’ account has to the owner’s account will be determined, and the corresponding proportion of the
entire assets of the STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS, except that such
transferred assets shall not include mine development, roads, buildings, and similar property which will be valueless, or of
slight value, to the MANAGERS. The MANAGERS can, on the other hand, require at their option that property originally
transferred by them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.

xxxx

12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto. Nino PROJECT before
income tax. It is understood that the MANAGERS shall pay income tax on their compensation, while the PRINCIPAL
shall pay income tax on the net profit of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS’
compensation.
xxxx

16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future, may incur other
obligations in favor of the MANAGERS. This Power of Attorney has been executed as security for the payment and
satisfaction of all such obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the same.
Therefore, this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS’ account. After all obligations of the PRINCIPAL in favor of the MANAGERS
have been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the
MANAGERS.

17. Notwithstanding any agreement or understanding between the PRINCIPAL and the MANAGERS to the contrary, the
MANAGERS may withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not
in any manner be held liable to the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be
operative in case of the MANAGERS’ withdrawal.

x x x x5

In the course of managing and operating the project, Philex Mining made advances of cash and property in accordance with
paragraph 5 of the agreement. However, the mine suffered continuing losses over the years which resulted to petitioner’s
withdrawal as manager of the mine on January 28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6

Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment"7 wherein Baguio Gold
admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the same in three segments by
first assigning Baguio Gold’s tangible assets to petitioner, transferring to the latter Baguio Gold’s equitable title in its
Philodrill assets and finally settling the remaining liability through properties that Baguio Gold may acquire in the future.

On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment" 8 where the parties
determined that Baguio Gold’s indebtedness to petitioner actually amounted to P259,137,245.00, which sum included
liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor. These liabilities pertained to long-
term loans amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA and Citibank
N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first assigning its tangible assets for
P127,838,051.00 and then transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties then
ascertained that Baguio Gold had a remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.

Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of Baguio Gold by
charging P112,136,000.00 to allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982 operations.

In its 1982 annual income tax return, petitioner deducted from its gross income the amount of P112,136,000.00 as "loss on
settlement of receivables from Baguio Gold against reserves and allowances."9 However, the Bureau of Internal Revenue
(BIR) disallowed the amount as deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.

Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad debt deduction
were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c) it was
charged off within the taxable year when it was determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold. The bad
debt deduction represented advances made by petitioner which, pursuant to the management contract, formed part of
Baguio Gold’s "pecuniary obligations" to petitioner. It also included payments made by petitioner as guarantor of Baguio
Gold’s long-term loans which legally entitled petitioner to be subrogated to the rights of the original creditor.

Petitioner also asserted that due to Baguio Gold’s irreversible losses, it became evident that it would not be able to recover
the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered worthless, petitioner claimed
that it was neither required to institute a judicial action for collection against the debtor nor to sell or dispose of collateral
assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to enforce collection and exhausted all
reasonable means to collect.
On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and factual basis. It held that the alleged debt
was not ascertained to be worthless since Baguio Gold remained existing and had not filed a petition for bankruptcy; and
that the deduction did not consist of a valid and subsisting debt considering that, under the management contract, petitioner
was to be paid fifty percent (50%) of the project’s net profit.10

Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:

WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack of merit. The
assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the amount of P62,811,161.39 is hereby
AFFIRMED.

ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent Commissioner of
Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest due computed from February 10, 1995,
which is the date after the 20-day grace period given by the respondent within which petitioner has to pay the deficiency
amount x x x up to actual date of payment.

SO ORDERED.11

The CTA rejected petitioner’s assertion that the advances it made for the Sto. Nino mine were in the nature of a loan. It
instead characterized the advances as petitioner’s investment in a partnership with Baguio Gold for the development and
exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold
was actually a partnership agreement. Since the advanced amount partook of the nature of an investment, it could not be
deducted as a bad debt from petitioner’s gross income.

The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold could not be
allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in default since its loans were
not yet due and demandable. What petitioner did was to pre-pay the loans as evidenced by the notice sent by Bank of
America showing that it was merely demanding payment of the installment and interests due. Moreover, Citibank imposed
and collected a "pre-termination penalty" for the pre-payment.

The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for reconsideration,13petitioner
took this recourse under Rule 45 of the Rules of Court, alleging that:

I.

The Court of Appeals erred in construing that the advances made by Philex in the management of the Sto. Nino Mine
pursuant to the Power of Attorney partook of the nature of an investment rather than a loan.

II.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino Mine indicates that
Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine notwithstanding the clear absence of any
intent on the part of Philex and Baguio Gold to form a partnership.

III.

The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding the Compromise
Agreement and the Amended Compromise Agreement when it construed the nature of the advances made by Philex.

IV.

The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts write-off.14

Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not only rely on
the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and "Amended Compromise
with Dation in Payment" that the parties executed in 1982. These documents, allegedly evinced the parties’ intent to treat
the advances and payments as a loan and establish a creditor-debtor relationship between them.

The petition lacks merit.

The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the true
nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to the two compromise
agreements, the parties’ contractual intent must first be discovered from the expressed language of the primary contract
under which the parties’ business relations were founded. It should be noted that the compromise agreements were mere
collateral documents executed by the parties pursuant to the termination of their business relationship created under the
"Power of Attorney". On the other hand, it is the latter which established the juridical relation of the parties and defined the
parameters of their dealings with one another.

The execution of the two compromise agreements can hardly be considered as a subsequent or contemporaneous act that is
reflective of the parties’ true intent. The compromise agreements were executed eleven years after the "Power of Attorney"
and merely laid out a plan or procedure by which petitioner could recover the advances and payments it made under the
"Power of Attorney". The parties entered into the compromise agreements as a consequence of the dissolution of their
business relationship. It did not define that relationship or indicate its real character.

An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by the parties.
Under a contract of partnership, two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.15 While a corporation, like petitioner, cannot
generally enter into a contract of partnership unless authorized by law or its charter, it has been held that it may enter into a
joint venture which is akin to a particular partnership:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally
understood to mean an organization formed for some temporary purpose. x x x It is in fact hardly distinguishable from the
partnership, since their elements are similar – community of interest in the business, sharing of profits and losses, and a
mutual right of control. x x x The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the
execution of a single transaction, and is thus of a temporary nature. x x x This observation is not entirely accurate in this
jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have
for its object a specific undertaking. x x x It would seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. x x x (Citations omitted) 16

Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to create a
partnership and establish a common fund for the purpose. They also had a joint interest in the profits of the business as
shown by a 50-50 sharing in the income of the mine.

Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and industry to the
common fund known as the Sto. Niño mine.17 In this regard, we note that there is a substantive equivalence in the
respective contributions of the parties to the development and operation of the mine. Pursuant to paragraphs 4 and 5 of the
agreement, petitioner and Baguio Gold were to contribute equally to the joint venture assets under their respective
accounts. Baguio Gold would contribute P11M under its owner’s account plus any of its income that is left in the project,
in addition to its actual mining claim. Meanwhile, petitioner’s contribution would consist of its expertise in the
management and operation of mines, as well as the manager’s account which is comprised of P11M in funds and property
and petitioner’s "compensation" as manager that cannot be paid in cash.

However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold because it did not
"bind" itself to contribute money or property to the project; that under paragraph 5 of the agreement, it was only optional
for petitioner to transfer funds or property to the Sto. Niño project "(w)henever the MANAGERS shall deem it necessary
and convenient in connection with the MANAGEMENT of the STO. NIÑO MINE."18
The wording of the parties’ agreement as to petitioner’s contribution to the common fund does not detract from the fact that
petitioner transferred its funds and property to the project as specified in paragraph 5, thus rendering effective the other
stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until
termination of the parties’ business relations. As can be seen, petitioner became bound by its contributions once the
transfers were made. The contributions acquired an obligatory nature as soon as petitioner had chosen to exercise its option
under paragraph 5.

There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) against withdrawal of advances should not be
taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation only showed that what
the parties entered into was actually a contract of agency coupled with an interest which is not revocable at will and not a
partnership.

In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest
of a third party that depends upon it, or the mutual interest of both principal and agent.19 In this case, the non-revocation or
non-withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the
principal under the contract. Thus, it cannot be inferred from the stipulation that the parties’ relation under the agreement is
one of agency coupled with an interest and not a partnership.

Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency
and not a partnership. Although the said provision states that "this Agency shall be irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account," it does not necessarily
follow that the parties entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.

It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of petitioner to
contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio
Gold, in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution of material
resources and industry. The essence of an agency, even one that is coupled with interest, is the agent’s ability to represent
his principal and bring about business relations between the latter and third persons.20 Where representation for and in
behalf of the principal is merely incidental or necessary for the proper discharge of one’s paramount undertaking under a
contract, the latter may not necessarily be a contract of agency, but some other agreement depending on the ultimate
undertaking of the parties.21

In this case, the totality of the circumstances and the stipulations in the parties’ agreement indubitably lead to the
conclusion that a partnership was formed between petitioner and Baguio Gold.

First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by petitioner under
the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties’ business relations, "the ratio which
the MANAGER’S account has to the owner’s account will be determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner.22 As pointed out by the Court of
Tax Appeals, petitioner was merely entitled to a proportionate return of the mine’s assets upon dissolution of the parties’
business relations. There was nothing in the agreement that would require Baguio Gold to make payments of the advances
to petitioner as would be recognized as an item of obligation or "accounts payable" for Baguio Gold.

Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Niño mine upon
termination, a provision that is more consistent with a partnership than a creditor-debtor relationship. It should be pointed
out that in a contract of loan, a person who receives a loan or money or any fungible thing acquires ownership thereof and
is bound to pay the creditor an equal amount of the same kind and quality.23 In this case, however, there was no stipulation
for Baguio Gold to actually repay petitioner the cash and property that it had advanced, but only the return of an amount
pegged at a ratio which the manager’s account had to the owner’s account.

In this connection, we find no contractual basis for the execution of the two compromise agreements in which Baguio Gold
recognized a debt in favor of petitioner, which supposedly arose from the termination of their business relations over the
Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would only be entitled to the return of a
proportionate share of the mine assets to be computed at a ratio that the manager’s account had to the owner’s account.
Except to provide a basis for claiming the advances as a bad debt deduction, there is no reason for Baguio Gold to hold
itself liable to petitioner under the compromise agreements, for any amount over and above the proportion agreed upon in
the "Power of Attorney".

Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of millions of pesos
to another corporation with neither security, or collateral, nor a specific deed evidencing the terms and conditions of such
loans. The parties also did not provide a specific maturity date for the advances to become due and demandable, and the
manner of payment was unclear. All these point to the inevitable conclusion that the advances were not loans but capital
contributions to a partnership.

The strongest indication that petitioner was a partner in the Sto Niño mine is the fact that it would receive 50% of the net
profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations simply
leads to no other conclusion than that petitioner’s "compensation" is actually its share in the income of the joint venture.

Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a business
is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no such inference can be
drawn against it since its share in the profits of the Sto Niño project was in the nature of compensation or "wages of an
employee", under the exception provided in Article 1769 (4) (b).24

On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be paid "wages"
pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the project and had put
substantial sums into the venture in order to ensure its viability and profitability. By pegging its compensation to profits,
petitioner also stood not to be remunerated in case the mine had no income. It is hard to believe that petitioner would take
the risk of not being paid at all for its services, if it were truly just an ordinary employee.

Consequently, we find that petitioner’s "compensation" under paragraph 12 of the agreement actually constitutes its share
in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal share in the income of the mine if it
were just an employee of Baguio Gold.25 It is not surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal contribution of the parties to the St. Nino mine.
The "compensation" agreed upon only serves to reinforce the notion that the parties’ relations were indeed of partners and
not employer-employee.

All told, the lower courts did not err in treating petitioner’s advances as investments in a partnership known as the Sto.
Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was under no unconditional
obligation to return the same to the former under the "Power of Attorney". As for the amounts that petitioner paid as
guarantor to Baguio Gold’s creditors, we find no reason to depart from the tax court’s factual finding that Baguio Gold’s
debts were not yet due and demandable at the time that petitioner paid the same. Verily, petitioner pre-paid Baguio Gold’s
outstanding loans to its bank creditors and this conclusion is supported by the evidence on record.26

In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for income tax
purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction claimed.27 In this case, petitioner failed to substantiate its assertion
that the advances were subsisting debts of Baguio Gold that could be deducted from its gross income. Consequently, it
could not claim the advances as a valid bad debt deduction.

WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated June 30,
2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner Philex
Mining Corporation is ORDERED to PAY the deficiency tax on its 1982 income in the amount of P62,811,161.31, with
20% delinquency interest computed from February 10, 1995, which is the due date given for the payment of the deficiency
income tax, up to the actual date of payment.

SO ORDERED.
G.R. No. 143340 August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
LAMBERTO T. CHUA, respondent.

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision1 of the Court of Appeals
dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the
Resolution dated May 23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga and Cecilia
Sunga (hereafter collectively referred to as petitioners).

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter
petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto
L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and
Damages with Writ of Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del
Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto allegedly agreed to register
the business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of
Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to Jacinto
while the latter in turn produced P100,000.00 as his counterpart contribution, with the intention that the profits would be
equally divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter
Josephine), a sister of the wife respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's fee or
remuneration of 10% of the gross profit and Josephine would receive 10% of the net profits, in addition to her wages and
other remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite and was
profitable. Respondent claimed that he could attest to success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished
respondent with the merchandise inventories, balance sheets and net worth of Shellite from 1977 to 1989, respondent
however suspected that the amount indicated in these documents were understated and undervalued by Jacinto and
Josephine for their own selfish reasons and for tax avoidance.

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner
Lilibeth, took over the operations, control, custody, disposition and management of Shellite without respondent's consent.
Despite respondent's repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of
his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of
Shellite, converting to her own use and advantage its properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to evade respondent's
demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to respondent.
Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the latter's share in
the partnership, with a promise that the former would make the complete inventory and winding up of the properties of the
business establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to account, and
continued to benefit from the assets and income of Shellite to the damage and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange Commission
(SEC) in Manila, not the Regional Trial Court in Zamboanga del Norte had jurisdiction over the action. Respondent
opposed the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that they are not liable
for partnership shares, unreceived income/profits, interests, damages and attorney's fees, that respondent does not have a
cause of action against them, and that the trial court has no jurisdiction over the nature of the action, the SEC being the
agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and
expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of
partnership affairs, accounting and recovery of shares in partnership affairs, accounting and recovery of shares in
partnership assets/properties should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or
intestate proceeding.

On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.

On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of Appeals
docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as petitioners failed to
show that a reversible error was committed by the appellate court."2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the trial court on
April 26, 1995.

On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case of January 17,
1996. Respondent presented his evidence while petitioners were considered to have waived their right to present evidence
for their failure to attend the scheduled date for reception of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the Decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the
properties, assets, income and profits of the Shellite Gas Appliance Center Since the time of death of Jacinto L. Sunga,
from whom they continued the business operations including all businesses derived from Shellite Gas Appliance Center,
submit an inventory, and appraisal of all these properties, assets, income, profits etc. to the Court and to plaintiff for
approval or disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they
misapplied and converted to their own use and advantage the legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the plaintiff in the partnership of the
listed properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to May
30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest
until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after
delivering to the plaintiff all the ½ interest, shares, participation and equity in the partnership, or the value thereof in money
or money's worth, if the properties are not physically divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the
plaintiff the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic) and P25,000.00 as litigation
expenses.

NO special pronouncements as to COSTS.

SO ORDERED."3

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the Court of Appeals.

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects." 4

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.

Hence, this petition wherein petitioner relies upon following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent Lamberto
T. Chua and the late Jacinto L. Sunga upon the latter'' invitation and offer and that upon his death the partnership assets and
business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the instant
case.

3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to warrant
the finding of a partnership, and assuming arguendo that indeed there was a partnership, the finding of highly exaggerated
amounts or values in the partnership assets and profits."5

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership existed
between respondent and Jacinto from 1977 until Jacinto's death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argues that these courts were proscribes from hearing the
testimonies of respondent and his witness, Josephine, to prove the alleged partnership three years after Jacinto's death. To
support this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule 130 of
the Rules of Court that provides:

"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Parties or assignors of parties to a case, or
persons in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased
person, or against a person of unsound mind, upon a claim or demand against the estate of such deceased person, or against
such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or
before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should not have
been admitted to prove certain claims against a deceased person (Jacinto), now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in
which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the facts and
ascertained from their language and conduct, a verbal contract of partnership may arise. 7 The essential profits that must be
proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the
profits.8 Understandably so, in view of the absence of the written contract of partnership between respondent and Jacinto,
respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership. The crucial
issue to settle then is to whether or not the "Dead Man's Statute" applies to this case so as to render inadmissible
respondent's testimony and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction.9 But before this rule can be successfully invoked to bar the
introduction of testimonial evidence, it is necessary that:

"1. The witness is a party or assignor of a party to case or persons in whose behalf a case in prosecuted.

2. The action is against an executor or administrator or other representative of a deceased person or a person of unsound
mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against person of
unsound mind;

4. His testimony refers to any matter of fact of which occurred before the death of such deceased person or before such
person became of unsound mind."10

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim11 against respondents in their answer before the trial court, and with the
filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of the "Dead Man's
Statute".12 Well entrenched is the rule that when it is the executor or administrator or representatives of the estates that sets
up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat
the counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to matters
of facts occurring before the death of the deceased, said action not having been brought against but by the estate or
representatives of the deceased.14

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple reason that she is not "a party
or assignor of a party to a case or persons in whose behalf a case is prosecuted." Records show that respondent offered the
testimony of Josephine to establish the existence of the partnership between respondent and Jacinto. Petitioners' insistence
that Josephine is the alter ego of respondent does not make her an assignor because the term "assignor" of a party means
"assignor of a cause of action which has arisen, and not the assignor of a right assigned before any cause of action has
arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because she was allegedly
coerced coerced by respondent, her brother-in-law, to testify in his favor, Josephine merely declared in court that she was
requested by respondent to testify and that if she were not requested to do so she would not have testified. We fail to see
how we can conclude from this candid admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent.

Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her testimony since
relationship per se, without more, does not affect the credibility of witnesses.16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail over the factual findings
of the trial court and the Court of Appeals that a partnership was established between respondent and Jacinto. Based not
only on the testimonial evidence, but the documentary evidence as well, the trial court and the Court of Appeals considered
the evidence for respondent as sufficient to prove the formation of partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual
matter like the finding of the existence of a partnership between respondent and Jacinto cannot be inquired into by this
Court on review.17 This Court can no longer be tasked to go over the proofs presented by the parties and analyze, assess and
weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that
piece of evidence of one party or the other.18 It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and authenticity of the
documentary evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that
such evidence was offered.19

With regard to petitioners' insistence that laches and/or prescription should have extinguished respondent's claim, we agree
with the trial court and the Court of Appeals that the action for accounting filed by respondents three (3) years after
Jacinto's death was well within the prescribed period. The Civil Code provides that an action to enforce an oral contract
prescribes in six (6) years20 while the right to demand an accounting for a partner's interest as against the person continuing
the business accrues at the date of dissolution, in the absence of any contrary agreement.21 Considering that the death of a
partner results in the dissolution of the partnership22 , in this case, it was Jacinto's death that respondent as the surviving
partner had the right to an account of his interest as against petitioners. It bears stressing that while Jacinto's death
dissolved the partnership, the dissolution did not immediately terminate the partnership. The Civil Code23 expressly
provides that upon dissolution, the partnership continues and its legal personality is retained until the complete winding up
of its business, culminating in its termination.24

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners maintain
that said partnership that had initial capital of P200,000.00 should have been registered with the Securities and Exchange
Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires that
partnerships with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical personality even if it
fails to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so
long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties,
and it can be assumed that the members themselves knew of the contents of their contract.26 In the case at bar, non-
compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the
evidence proves that respondent and Jacinto indeed forged the partnership in question.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.

SO ORDERED.1âwphi1.nêt
G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be
financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real
property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts
executed in accordance with their agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of Appeals 2 (CA) in
CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed Decision affirmed the ruling
of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the plaintiffs, orders
the dismissal of the plaintiffs complaint. The counterclaims of the defendant are likewise ordered dismissed. No
pronouncement as to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement" with Respondent
Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision. 4 All three of them also agreed to share the proceeds from the sale of the
subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills." They add that
respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal
Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he was
able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of the
subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters.
Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately
caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite
his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted.
Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an
Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings.
Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a partnership for the
development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their
share in the profits stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as well as profits
in a joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner
in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article
1769, and other related provisions of the Civil Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the
earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to
implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA
BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-Lapu City,
Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-
divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-
division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties
hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of TWENTY
FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND
PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this particular amount will serve
as an advance payment from the FIRST PARTY for the property mentioned to be sub-divided and to be deducted from the
sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal amount
involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by the FIRST
PARTY, exclusively and all the expenses will not be deducted from the sales after the development of the sub-division
project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY
and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales
will be divided equally according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all improvements upon the
adjacent lots will be negotiated in both parties['] favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned provided the
amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be
paid in full to the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY, and-the FIRST
PARTY will be given a grace period to turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and voluntarily for the
uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article
1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the form of land which was
to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate
its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds
of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made no contribution to the partnership. Under Article
1767 of the Civil Code, a partner may contribute not only money or property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly stipulated, but also to
all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of the contract they
voluntarily signed. If it was not in consonance with their expectations, they should have objected to it and insisted on the
provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual
stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot
now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property
contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a complement of Article 1771, 12 "The execution of a public instrument
would be useless if there is no inventory of the property contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons. This will
result in fraud to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar
does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them
60 percent of the value of the property. 13 They cannot in one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an
ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it is the
direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation
of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the
parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of
profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, "the land
was in effect given to the partnership as [petitioner's] participation therein. . . . There was therefore a consideration for the
sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of
the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners maintain that he
should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits
under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the failure of the
project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners have not
alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine. 18Accordingly, we find no
reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against petitioners.

SO ORDERED
G.R. No. 127405 October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondents.

DECISION

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 Belo’s
name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to
use Anay’s 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 Belo’s 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 Tocao’s 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) P32,00.00 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 P100,000.00 as exemplary damages, and

5. Ordering defendants to pay P50,000.00 as attorney’s 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, Anay’s 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 Marjorie’s financial contribution and Anay’s experience, the combination of the two would be
invaluable to the partnership, also supported that conclusion. Belo’s 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 Tocao’s 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 Appeals 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 company’s cookware products; it was through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private respondent’s 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, it’s 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 Belo’s 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 Belo’s roles as both capitalists to the partnership with private respondent are buttressed by
petitioner Tocao’s 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 Belo’s first name,
William, and her nickname, Jiji.23 The special relationship between them dovetails with petitioner Belo’s 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 Tocao’s 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. That’s 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: That’s 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: I am 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 respondent’s 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
reasons - it was utilized as the common name for petitioner Tocao’s 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 respondent’s 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 x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner’s
capability to give it, and the absence of 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." 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 Tocao’s 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 Tocao 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. 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.1âwphi1 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,"48should 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, attorney’s fees that should be granted
on account of the award of exemplary damages and petitioners’ evident bad faith in refusing to satisfy private respondent’s
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 respondent’s 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 attorney’s fees in the amount of P25,000.00.

SO ORDERED.
OBLIGATION OF THE PARTNERS AMONG THEMSELVES

G.R. No. 126334 November 23, 2001 EMILIO EMNACE, petitioner,

vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE WILLIAM
TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO
and VINCENT TABANAO, respondents.

YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma.
Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve their partnership and executed an
agreement of partition and distribution of the partnership properties among them, consequent to Jacinto Divinagracia's
withdrawal from the partnership.1 Among the assets to be distributed were five (5) fishing boats, six (6) vehicles, two (2)
parcels of land located at Sto. Niño and Talisay, Negros Occidental, and cash deposits in the local branches of the Bank of
the Philippine Islands and Prudential Bank.

Throughout the existence of the partnership, and even after Vicente Tabanao's untimely demise in 1994, petitioner failed to
submit to Tabanao's heirs any statement of assets and liabilities of the partnership, and to render an accounting of the
partnership's finances. Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3 share in the
total assets of the partnership, amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for
payment thereof.2

Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for accounting, payment of shares,
division of assets and damages.3 In their complaint, respondents prayed as follows:

1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the partnership at bar; and

2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the plaintiffs the following:

A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing vessels, trucks, motor vehicles,
and other forms and substance of treasures which belong and/or should belong, had accrued and/or must accrue to the
partnership;

B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;

C. Attorney's fees equivalent to Thirty Percent (30%) of the entire share/amount/award which the Honorable Court may
resolve the plaintiffs as entitled to plus P1,000.00 for every appearance in court.4

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction over the nature of
the action or suit, and lack of capacity of the estate of Tabanao to sue.5 On August 30, 1994, the trial court denied the
motion to dismiss. It held that venue was properly laid because, while realties were involved, the action was directed
against a particular person on the basis of his personal liability; hence, the action is not only a personal action but also an
action in personam. As regards petitioner's argument of lack of jurisdiction over the action because the prescribed docket
fee was not paid considering the huge amount involved in the claim, the trial court noted that a request for accounting was
made in order that the exact value of the partnership may be ascertained and, thus, the correct docket fee may be paid.
Finally, the trial court held that the heirs of Tabanao had aright to sue in their own names, in view of the provision of
Article 777 of the Civil Code, which states that the rights to the succession are transmitted from the moment of the death of
the decedent.6

The following day, respondents filed an amended complaint,7 incorporating the additional prayer that petitioner be ordered
to "sell all (the partnership's) assets and thereafter pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding
share in the proceeds thereof. In due time, petitioner filed a manifestation and motion to dismiss,8arguing that the trial court
did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the proper docket fees. Further, in a supplement
to his motion to dismiss,9 petitioner also raised prescription as an additional ground warranting the outright dismissal of the
complaint.
On June 15, 1995, the trial court issued an Order,10 denying the motion to dismiss inasmuch as the grounds raised therein
were basically the same as the earlier motion to dismiss which has been denied. Anent the issue of prescription, the trial
court ruled that prescription begins to run only upon the dissolution of the partnership when the final accounting is done.
Hence, prescription has not set in the absence of a final accounting. Moreover, an action based on a written contract
prescribes in ten years from the time the right of action accrues.

Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following issues:

I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in taking cognizance of
a case despite the failure to pay the required docket fee;

II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in insisting to try the
case which involve (sic) a parcel of land situated outside of its territorial jurisdiction;

III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in allowing the estate of
the deceased to appear as party plaintiff, when there is no intestate case and filed by one who was never appointed by the
court as administratrix of the estates; and

IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of discretion in not dismissing the
case on the ground of prescription.

On August 8, 1996, the Court of Appeals rendered the assailed decision,12 dismissing the petition for certiorari, upon a
finding that no grave abuse of discretion amounting to lack or excess of jurisdiction was committed by the trial court in
issuing the questioned orders denying petitioner's motions to dismiss.

Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by the Court of Appeals,
namely:

I. Failure to pay the proper docket fee;

II. Parcel of land subject of the case pending before the trial court is outside the said court's territorial jurisdiction;

III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and

IV. Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in instituting the action below was to recover the
decedent's 1/3 share in the partnership' s assets. While they ask for an accounting of the partnership' s assets and finances,
what they are actually asking is for the trial court to compel petitioner to pay and turn over their share, or the equivalent
value thereof, from the proceeds of the sale of the partnership assets. They also assert that until and unless a proper
accounting is done, the exact value of the partnership' s assets, as well as their corresponding share therein, cannot be
ascertained. Consequently, they feel justified in not having paid the commensurate docket fee as required by the Rules of
Court.1âwphi1.nêt

We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated value of the partnership's
assets, for respondents themselves voluntarily pegged the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence,
this case is one which is really not beyond pecuniary estimation, but rather partakes of the nature of a simple collection
case where the value of the subject assets or amount demanded is pecuniarily determinable.13 While it is true that the exact
value of the partnership's total assets cannot be shown with certainty at the time of filing, respondents can and must
ascertain, through informed and practical estimation, the amount they expect to collect from the partnership, particularly
from petitioner, in order to determine the proper amount of docket and other fees.14 It is thus imperative for respondents to
pay the corresponding docket fees in order that the trial court may acquire jurisdiction over the action.15

Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals,16 where there was clearly an effort
to defraud the government in avoiding to pay the correct docket fees, we see no attempt to cheat the courts on the part of
respondents. In fact, the lower courts have noted their expressed desire to remit to the court "any payable balance or lien on
whatever award which the Honorable Court may grant them in this case should there be any deficiency in the payment of
the docket fees to be computed by the Clerk of Court."17 There is evident willingness to pay, and the fact that the docket
fee paid so far is inadequate is not an indication that they are trying to avoid paying the required amount, but may simply
be due to an inability to pay at the time of filing. This consideration may have moved the trial court and the Court of
Appeals to declare that the unpaid docket fees shall be considered a lien on the judgment award.

Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the non-payment of the proper
legal fees and in allowing the same to become a lien on the monetary or property judgment that may be rendered in favor
of respondents. There is merit in petitioner's assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court
states that:

The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-litigant.

Respondents cannot invoke the above provision in their favor because it specifically applies to pauper-litigants. Nowhere
in the records does it appear that respondents are litigating as paupers, and as such are exempted from the payment of court
fees.18

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines the two kinds of
claims as: (1) those which are immediately ascertainable; and (2) those which cannot be immediately ascertained as to the
exact amount. This second class of claims, where the exact amount still has to be finally determined by the courts based on
evidence presented, falls squarely under the third paragraph of said Section 5(a), which provides:

In case the value of the property or estate or the sum claimed is less or more in accordance with the appraisal of the court,
the difference of fee shall be refunded or paid as the case may be. (Underscoring ours)

In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this Court pronounced that the above-quoted provision
"clearly contemplates an Initial payment of the filing fees corresponding to the estimated amount of the claim subject to
adjustment as to what later may be proved."20 Moreover, we reiterated therein the principle that the payment of filing fees
cannot be made contingent or dependent on the result of the case. Thus, an initial payment of the docket fees based on an
estimated amount must be paid simultaneous with the filing of the complaint. Otherwise, the court would stand to lose the
filing fees should the judgment later turn out to be adverse to any claim of the respondent heirs.

The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court expenses in the
handling of cases. Consequently, in order to avoid tremendous losses to the judiciary, and to the government as well, the
payment of docket fees cannot be made dependent on the outcome of the case, except when the claimant is a pauper-
litigant.

Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the partnership assets - but they did
not allege a specific amount. They did, however, estimate the partnership's total assets to be worth Thirty Million Pesos
(P30,000,000.00), in a letter21 addressed to petitioner. Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form part of the records of this case. They cannot avoid paying the
initial docket fees by conveniently omitting the said amount in their amended complaint. This estimate can be made the
basis for the initial docket fees that respondents should pay. Even if it were later established that the amount proved was
less or more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that
the court may refund the 'excess or exact additional fees should the initial payment be insufficient. It is clear that it is only
the difference between the amount finally awarded and the fees paid upon filing of this complaint that is subject to
adjustment and which may be subjected to alien.

In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this Court held that when the specific
claim "has been left for the determination by the court, the additional filing fee therefor shall constitute a lien on the
judgment and it shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate the initial payment of filing and
docket fees based on the estimated claims of the plaintiff, and it is only when there is a deficiency that a lien may be
constituted on the judgment award until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright despite their failure to pay the proper
docket fees. Nevertheless, as in other procedural rules, it may be liberally construed in certain cases if only to secure a just
and speedy disposition of an action. While the rule is that the payment of the docket fee in the proper amount should be
adhered to, there are certain exceptions which must be strictly construed.23

In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine, allowing the plaintiff to pay the
proper docket fees within a reasonable time before the expiration of the applicable prescriptive or reglementary period. 24

In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:

The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied by the payment of the
requisite fees, or, if the fees are not paid at the time of the filing of the pleading, as of the time of full payment of the fees
within such reasonable time as the court may grant, unless, of course, prescription has set in the meantime.

It does not follow, however, that the trial court should have dismissed the complaint for failure of private respondent to pay
the correct amount of docket fees. Although the payment of the proper docket fees is a jurisdictional requirement, the trial
court may allow the plaintiff in an action to pay the same within a reasonable time before the expiration of the applicable
prescriptive or reglementary period. If the plaintiff fails to comply within this requirement, the defendant should timely
raise the issue of jurisdiction or else he would be considered in estoppel. In the latter case, the balance between the
appropriate docket fees and the amount actually paid by the plaintiff will be considered a lien or any award he may obtain
in his favor. (Underscoring ours)

Accordingly, the trial court in the case at bar should determine the proper docket fee based on the estimated amount that
respondents seek to collect from petitioner, and direct them to pay the same within a reasonable time, provided the
applicable prescriptive or reglementary period has not yet expired, Failure to comply therewith, and upon motion by
petitioner, the immediate dismissal of the complaint shall issue on jurisdictional grounds.

On the matter of improper venue, we find no error on the part of the trial court and the Court of Appeals in holding that the
case below is a personal action which, under the Rules, may be commenced and tried where the defendant resides or may
be found, or where the plaintiffs reside, at the election of the latter.26

Petitioner, however, insists that venue was improperly laid since the action is a real action involving a parcel of land that is
located outside the territorial jurisdiction of the court a quo. This contention is not well-taken. The records indubitably
show that respondents are asking that the assets of the partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the partnership are parcels of land does not materially change
the nature of the action. It is an action in personam because it is an action against a person, namely, petitioner, on the basis
of his personal liability. It is not an action in rem where the action is against the thing itself instead of against the
person.27 Furthermore, there is no showing that the parcels of land involved in this case are being disputed. In fact, it is
only incidental that part of the assets of the partnership under liquidation happen to be parcels of land.

The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in question, did not change
the nature or character of the action, such sale being merely a necessary incident of the liquidation of the partnership,
which should precede and/or is part of its process of dissolution.

The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of, and petitioner's
compliance with, the contract that the partners executed to formalize the partnership's dissolution, as well as to implement
the liquidation and partition of the partnership's assets. Clearly, it is a personal action that, in effect, claims a debt from
petitioner and seeks the performance of a personal duty on his part.29 In fine, respondents' complaint seeking the liquidation
and partition of the assets of the partnership with damages is a personal action which may be filed in the proper court
where any of the parties reside.30 Besides, venue has nothing to do with jurisdiction for venue touches more upon the
substance or merits of the case.31 As it is, venue in this case was properly laid and the trial court correctly ruled so.

On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to sue since she
was never appointed as administratrix or executrix of his estate. Petitioner's objection in this regard is misplaced. The
surviving spouse does not need to be appointed as executrix or administratrix of the estate before she can file the action.
She and her children are complainants in their own right as successors of Vicente Tabanao. From the very moment of
Vicente Tabanao' s death, his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the
succession are transmitted from the moment of death of the decedent.32

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to respondents by
operation of law, more particularly by succession, which is a mode of acquisition by virtue of which the property, rights
and obligations to the extent of the value of the inheritance of a person are transmitted.33Moreover, respondents became
owners of their respective hereditary shares from the moment Vicente Tabanao died.34

A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or administratrix, is not
necessary for any of the heirs to acquire legal capacity to sue. As successors who stepped into the shoes of their decedent
upon his death, they can commence any action originally pertaining to the decedent.35 From the moment of his death, his
rights as a partner and to demand fulfillment of petitioner's obligations as outlined in their dissolution agreement were
transmitted to respondents. They, therefore, had the capacity to sue and seek the court's intervention to compel petitioner to
fulfill his obligations.

Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of prescription, arguing
that respondents' action prescribed four (4) years after it accrued in 1986. The trial court and the Court of Appeals gave
scant consideration to petitioner's hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3) termination.36 The partnership,
although dissolved, continues to exist and its legal personality is retained, at which time it completes the winding up of its
affairs, including the partitioning and distribution of the net partnership assets to the partners.37 For as long as the
partnership exists, any of the partners may demand an accounting of the partnership's business. Prescription of the said
right starts to run only upon the dissolution of the partnership when the final accounting is done. 38

Contrary to petitioner's protestations that respondents' right to inquire into the business affairs of the partnership accrued in
1986, prescribing four (4) years thereafter, prescription had not even begun to run in the absence of a final accounting.
Article 1842 of the Civil Code provides:

The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited provision states
that the right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the contrary.
When a final accounting is made, it is only then that prescription begins to run. In the case at bar, no final accounting has
been made, and that is precisely what respondents are seeking in their action before the trial court, since petitioner has
failed or refused to render an accounting of the partnership's business and assets. Hence, the said action is not barred by
prescription.

In fine, the trial court neither erred nor abused its discretion when it denied petitioner's motions to dismiss. Likewise, the
Court of Appeals did not commit reversible error in upholding the trial court's orders. Precious time has been lost just to
settle this preliminary issue, with petitioner resurrecting the very same arguments from the trial court all the way up to the
Supreme Court. The litigation of the merits and substantial issues of this controversy is now long overdue and must
proceed without further delay.

WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and the case
is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to determine the proper
docket fee based on the estimated amount that plaintiffs therein seek to collect, and direct said plaintiffs to pay the same
within a reasonable time, provided the applicable prescriptive or reglementary period has not yet expired. Thereafter, the
trial court is ORDERED to conduct the appropriate proceedings in Civil Case No. 416-C.

Costs against petitioner.1âwphi1.nêtSO ORDERED.

G.R. No. 154486 December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July 30, 2002 in CA-
G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the Regional Trial Court (RTC) of Quezon
City, Branch 98 in Civil Case No. Q-50464.

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin, Benjamin, Conchita,
Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla spouses by
their son Federico Jarantilla, Sr. and his wife Leda Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas
Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt, was the plaintiff
therein. His co-respondents before he joined his aunt Antonieta in her complaint, were his late aunt Conchita Jarantilla’s
husband Buenaventura Remotigue, who died during the pendency of the case, his cousin Cynthia Remotigue, the adopted
daughter of Conchita Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their deceased
parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot the produce
of the said real properties for the years 1947-1949 for the studies of Rafael and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the spouses
Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other by way of financial support to
any commercial and agricultural activity on a joint business arrangement. This business relationship proved to be
successful as they were able to establish a manufacturing and trading business, acquire real properties, and construct
buildings, among other things.9 This partnership ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to
completely dissolve their "joint business relationship/arrangement."11

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein they acknowledged
that while registered only in Buenaventura Remotigue’s name, they were not the only owners of the capital of the
businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue
Trading (Cotabato City). In this same "Acknowledgement of Participating Capital," they stated the participating capital of
their co-owners as of the year 1952, with Antonieta Jarantilla’s stated as eight thousand pesos (₱8,000.00) and Federico
Jarantilla, Jr.’s as five thousand pesos (₱5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla against
Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the
accounting of the assets and income of the co-ownership, for its partition and the delivery of her share corresponding to
eight percent (8%), and for damages. Antonieta claimed that in 1946, she had entered into an agreement with Conchita and
Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged
that the initial contribution of property and money came from the heirs’ inheritance, and her subsequent annual investment
of seven thousand five hundred pesos (₱7,500.00) as additional capital came from the proceeds of her farm. Antonieta also
alleged that from 1946-1969, she had helped in the management of the business they co-owned without receiving any
salary. Her salary was supposedly rolled back into the business as additional investments in her behalf. Antonieta further
claimed co-ownership of certain properties14 (the subject real properties) in the name of the defendants since the only way
the defendants could have purchased these properties were through the partnership as they had no other source of income.
The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with Antonieta in
1946. They claimed that she was in no position to do so as she was still in school at that time. In fact, the proceeds of the
lands they partitioned were devoted to her studies. They also averred that while she may have helped in the businesses that
her older sister Conchita had formed with Buenaventura Remotigue, she was paid her due salary. They did not deny the
existence and validity of the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their
claim that Antonieta’s 8% share was limited to the businesses enumerated therein. With regard to Antonieta’s claim in their
other corporations and businesses, the respondents said these should also be limited to the number of her shares as
specified in the respective articles of incorporation. The respondents denied using the partnership’s income to purchase the
subject real properties and said that the certificates of title should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original defendants, entered
into a compromise agreement17 with Antonieta Jarantilla wherein he supported Antonieta’s claims and asserted that he too
was entitled to six percent (6%) of the supposed partnership in the same manner as Antonieta was. He prayed for a
favorable judgment in this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the other defendants, and the
partition of the properties of the co-ownership and the delivery to the plaintiff and to defendant Federico Jarantilla, Jr. of
their rightful share of the assets and properties in the co-ownership.181avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise Agreement20and on
December 18, 1992, decided in favor of Antonieta, to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta Jarantilla and
against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering the latter:

1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered by TCT Nos. 35655,
338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT Nos. (18303)23341, 142882 &
490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based on
their present market value;

2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-Industrial Corporation, Manila
Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping Corporation based on the shares of stocks
present book value;

3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful share thereof equivalent to
8%;

4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as moral damages;

5. to pay, jointly and severally, the sum of ₱50,000.00 as attorney’s fees; and

6. to pay, jointly and severally, the costs of the suit.21

Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner claimed that the RTC
"erred in not rendering a complete judgment and ordering the partition of the co-ownership and giving to [him] six per
centum (6%) of the properties."22

While the Court of Appeals agreed to some of the RTC’s factual findings, it also established that Antonieta Jarantilla was
not part of the partnership formed in 1946, and that her 8% share was limited to the businesses enumerated in the
Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals rendered the herein challenged
decision setting aside the RTC’s decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is hereby entered
ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and profits of Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City;

(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and profits of the above-
mentioned enterprises; and, holding that

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in their Articles of
Incorporation:

(a) Rural Bank of Barotac Nuevo, Inc.;

(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and

(d) B. Remotigue Agro-Industrial Development Corp.

(4) No costs.23

The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals denied this in a
Resolution24 dated March 21, 2003.

Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September 16, 2002, assailing
the Court of Appeals’ decision on "similar grounds and similar assignments of errors as this present case"26 but it was
dismissed on November 20, 2002 for failure to file the appeal within the reglementary period of fifteen (15) days in
accordance with Section 2, Rule 45 of the Rules of Court.27

Petitioner filed before us this petition for review on the sole ground that:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER FEDERICO
JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL
PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES
WHERE HE HAD OWNED SUCH SHARE.28

Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses, Rosita Jarantilla, Rafael
Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He contends that from this partnership, several other corporations and businesses
were established and several real properties were acquired. In this petition, he is essentially asking for his 6% share in the
subject real properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantilla’s testimony to support this contention.

The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital funded the
subject real properties. In other words, what is the petitioner’s right over these real properties?

It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure, only questions of
law may be raised by the parties and passed upon by this Court.29

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact
when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not
involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of
the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of
fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it
is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the questions of law
that are now in issue, shall look into the facts only in so far as the two courts a quo differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957 document, the
"Acknowledgement of Participating Capital." The RTC used this as its basis for giving Antonieta Jarantilla an 8% share in
the three businesses listed therein and in the other businesses and real properties of the respondents as they had supposedly
acquired these through funds from the partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the business enumerated in
the Acknowledgement of Participating Capital, but not as to her share in the other corporations and real properties. The
Court of Appeals ruled that Antonieta’s claim of 8% is based on the "Acknowledgement of Participating Capital," a duly
notarized document which was specific as to the subject of its coverage. Hence, there was no reason to pattern her share in
the other corporations from her share in the partnership’s businesses. The Court of Appeals also said that her claim in the
respondents’ real properties was more "precarious" as these were all covered by certificates of title which served as the best
evidence as to all the matters contained therein.32 Since petitioner’s claim was essentially the same as Antonieta’s, the
Court of Appeals also ruled that petitioner be given his 6% share in the same businesses listed in the Acknowledgement of
Participating Capital.

Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive except in the
following cases: (1) when the inference made is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse
of discretion; (3) when the finding is grounded entirely on speculations, surmises or conjectures; (4) when the judgment of
the Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court
of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would
justify a different conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.33

In this case, we find no error in the ruling of the Court of Appeals.

Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-ownership, but in
the same breath, assert that a verbal partnership was formed in 1946 and was affirmed in the 1957 Acknowledgement of
Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a partnership when 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.35 The Court, in Pascual v. The Commissioner of Internal Revenue,36 quoted the concurring
opinion of Mr. Justice Angelo Bautista in Evangelista v. The Collector of Internal Revenue37 to further elucidate on the
distinctions between a co-ownership and a partnership, to wit:

I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining
when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

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

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

From the above it appears that the fact that those who agree to form a co- ownership share or do not share any profits
made by the use of the property held in common does not convert their venture into a partnership. Or the sharing of the
gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements
constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a juridical personality
different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with
the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit
in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself
which the proceeds derived.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the parties are only tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in common,
and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiff’s commission, no
partnership existed as between the three parties, whatever their relation may have been as to third parties.

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in
both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party
to make contract, manage the business, and dispose of the whole property. x x x.

The common ownership of property does not itself create a partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom.38 (Citations omitted.)

Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for, admittedly, all the parties in this case have agreed
to, and did, contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as
they did.39 It is not denied that all the parties in this case have agreed to contribute capital to a common fund to be able to
later on share its profits. They have admitted this fact, agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would be instructive to
examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age, Filipinos and
residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City and the Remotigue
Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and equipments, and general merchandise are
recorded in their respective books with Buenaventura Remotigue as the registered owner and are being operated by them as
such:

That they are not the only owners of the capital of the three establishments and their participation in the capital of the three
establishments together with the other co-owners as of the year 1952 are stated as follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any interest in the above-
mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.

[Sgd.]
BUENAVENTURA REMOTIGUE

[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by Conchita Jarantilla-
Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its contents and is actually relying on it to
prove his participation in the partnership. Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the losses shall be in the same proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive
such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence of any such
stipulations, then to his share in proportion to his contribution to the partnership. The petitioner himself claims his share to
be 6%, as stated in the Acknowledgement of Participating Capital. However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo
City and Remotigue Trading in Cotabato City. Since there was a clear agreement that the capital the partners contributed
went to the three businesses, then there is no reason to deviate from such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err in limiting petitioner’s share to the assets of the businesses
enumerated in the Acknowledgement of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares to be paid out to
the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be
refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners’ shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in the Acknowledgement of
Participating Capital.
The petitioner further asserts that he is entitled to respondents’ properties based on the concept of trust. He claims that
since the subject real properties were purchased using funds of the partnership, wherein he has a 6% share, then "law and
equity mandates that he should be considered as a co-owner of those properties in such proportion."43 In Pigao v.
Rabanillo,44 this Court explained the concept of trusts, to wit:

Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into being by operation
of law, either through implication of an intention to create a trust as a matter of law or through the imposition of the trust
irrespective of, and even contrary to, any such intention. In turn, implied trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable
title or interest and are presumed always to have been contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another.45

On proving the existence of a trust, this Court held that:

Respondent has presented only bare assertions that a trust was created. Noting the need to prove the existence of a trust,
this Court has held thus:

"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear
and satisfactorily show the existence of the trust and its elements. While implied trusts may be proved by oral evidence, the
evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be fabricated." 46

The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his bare allegations,
he has failed to show that the respondents used the partnership’s money to purchase the said properties. Even assuming
arguendo that some partnership income was used to acquire these properties, the petitioner should have successfully shown
that these funds came from his share in the partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own self-serving
testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not presented evidence, other than these
unsubstantiated testimonies, to prove that the respondents did not have the means to fund their other businesses and real
properties without the partnership’s income. On the other hand, the respondents have not only, by testimonial evidence,
proven their case against the petitioner, but have also presented sufficient documentary evidence to substantiate their
claims, allegations and defenses. They presented preponderant proof on how they acquired and funded such properties in
addition to tax receipts and tax declarations.47 It has been held that "while tax declarations and realty tax receipts do not
conclusively prove ownership, they may constitute strong evidence of ownership when accompanied by possession for a
period sufficient for prescription."48 Moreover, it is a rule in this jurisdiction that testimonial evidence cannot prevail over
documentary evidence.49 This Court had on several occasions, expressed our disapproval on using mere self-serving
testimonies to support one’s claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:

Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their witnesses -- Luisa
Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail over the array of documents presented
by Belen. A claim of ownership cannot be based simply on the testimonies of witnesses; much less on those of interested
parties, self-serving as they are.51

It is true that a certificate of title is merely an evidence of ownership or title over the particular property described therein.
Registration in the Torrens system does not create or vest title as registration is not a mode of acquiring ownership; hence,
this cannot deprive an aggrieved party of a remedy in law.52 However, petitioner asserts ownership over portions of the
subject real properties on the strength of his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held
by this Court in Republic of the Philippines v. Orfinada, Sr.53:

Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and a strong
presumption exists that a Torrens title was regularly issued and valid. A Torrens title is incontrovertible against
any informacion possessoria, of other title existing prior to the issuance thereof not annotated on the Torrens title.
Moreover, persons dealing with property covered by a Torrens certificate of title are not required to go beyond what
appears on its face.54

As we have settled that this action never really was for partition of a co-ownership, to permit petitioner’s claim on these
properties is to allow a collateral, indirect attack on respondents’ admitted titles. In the words of the Court of Appeals,
"such evidence cannot overpower the conclusiveness of these certificates of title, more so since plaintiff’s [petitioner’s]
claims amount to a collateral attack, which is prohibited under Section 48 of Presidential Decree No. 1529, the Property
Registration Decree."55

SEC. 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral attack. It cannot
be altered, modified, or cancelled except in a direct proceeding in accordance with law.

This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify the title, thereby
challenging the judgment pursuant to which the title was decreed."56 In Aguilar v. Alfaro,57 this Court further distinguished
between a direct and an indirect or collateral attack, as follows:

A collateral attack transpires when, in another action to obtain a different relief and as an incident to the present action, an
attack is made against the judgment granting the title. This manner of attack is to be distinguished from a direct attack
against a judgment granting the title, through an action whose main objective is to annul, set aside, or enjoin the
enforcement of such judgment if not yet implemented, or to seek recovery if the property titled under the judgment had
been disposed of. x x x.

Petitioner’s only piece of documentary evidence is the Acknowledgement of Participating Capital, which as discussed
above, failed to prove that the real properties he is claiming co-ownership of were acquired out of the proceeds of the
businesses covered by such document. Therefore, petitioner’s theory has no factual or legal leg to stand on.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV No. 40887,
dated July 30, 2002 is AFFIRMED.

SO ORDERED.
G.R. No. 217777

PRISCILLA Z. ORBE, Petitioner,

vs.
LEONORA O. MIARAL,, Respondent.

DECISION

CARPIO, J.:

The Case

This petition for review on certiorari1 under Rule 45 of the Rules of Court seeks to annul the 24 September 2014
Decision2 and the 24 March 2015 Resolution3 of the Court of Appeals in CA-G.R. SP No. 134555, which annulled and set
aside the 27 August 20134 and 7 January 20145 Orders of the Regional Trial Court (RTC) of Quezon City, Branch 104.

The RTC Orders denied the Motion to Withdraw Information6 for Estafa filed by Quezon City Prosecutor Donald T. Lee in
Criminal Case Q- 12-174206, entitled People of the Philippines v. Leonora O. Miaral, et al.

The Facts

On 6 March 1996, Leonora O. Miaral (respondent) agreed to engage in the garment exportation business with her sister,
Priscilla Z. Orbe (petitioner). They executed a partnership agreement7 where they agreed to contribute Two Hundred Fifty
Thousand Pesos (₱250,000.00) each to Toppy Co., Inc. and Miaral Enterprises, and to equally divide the profits they may
earn. The partnership agreement reads:

Agreement

Agreement is executed [on the] 6111 day of March 1996 by:

Mrs. Nora 0. Miaral

11-0 Legaspi Towers, R[o]xas Blvd., Mla.
as (Party [A])

and Mrs. Priscilla Orbe of No._, Villa

Verde Subd., Novaliches, Quezon City
as (Party B).

Both parties agreed on the ff:

Both parties A & B shall invest ₱250,000.00 each in cash & or goods into a buying & selling of stock lots of garments to
be exported to the United States particularly in Los Angeles, California. Authorized purchaser may be Party A or B;

That the exportation of garments shall be done by Toppy Co., Inc. using Toppy’s available quota;

That the importation of garments shall be done by Miaral Enterprises in U.S.A.

That whatever income in sales both retail & wholesale shall be divided into equal share after deducting all expenses in
export & import including taxes & sea/air freight expenses in connection with the buying and selling of stocks & garments.

That this Contract is renewable yearly as both parties may wish.

Conforme:

(Sgd.) (Sgd.)
 Party A Party B

Signed in the presence of

Petitioner initially invested the amount of One Hundred Eighty-Three Thousand Nine Hundred Ninety-Nine Pesos
(₱183,999.00).8 She subsequently tendered the amount of Twenty Thousand Pesos (₱20,000.00) for the payment of salaries
of the workers at the factory.9

On one trip to the United States of America in April of 1996, respondent told petitioner that petitioner could join
respondent, her daughter Anne Kristine, and her granddaughter Ara in the trip to the United States. Respondent convinced
petitioner to pay for the plane tickets of respondent, Anne Kristine and Ara amounting to Two Thousand Seventy One
Dollars (US$2,071.00) with a promise to pay petitioner once they arrive in the United States.10

Upon arrival, respondent issued three (3) checks drawn in a bank in the United States as payment. However, one of the
checks was dishonored for having been drawn against insufficient funds.11 Petitioner likewise discovered that there was no
exportation of garments to the United States or any other transactions in the United States that took place.

Petitioner demanded from respondent and Anne Kristine the total payment of Two Hundred Three Thousand Nine Hundred
Ninety-Nine Pesos (₱203,999.00) and One Thousand Dollars (US$1,000.00). Despite demands, respondent and Anne
Kristine failed to return the money.12

On 7 February 2011, petitioner filed a complaint13 for estafa against respondent and Anne Kristine before the Office of the
City Prosecutor (OCP) of Quezon City.

In their counter-affidavit,14 respondent and Anne Kristine denied petitioner's allegations and claimed, among others, that
the partnership agreement they entered into rules out a successful prosecution for estafa. They also claimed that the action
had already prescribed since the complaint was filed 15 years after the agreement. They contended that it was petitioner
who owed them the amount of Two Hundred Seven Thousand Eighty-Seven Pesos and Sixty-Five Centavos (₱207,087.65)
because she issued several checks in the name of respondent and Anne Kristine. Lastly, they alleged that Anne Kristine
could not be held liable because she was merely acting under her mother's direction.

In her reply-affidavit,15 petitioner claimed that the twenty-four (24) checks amounting to Two Hundred Seven Thousand
Eighty-Seven Pesos and Sixty-Five Centavos (₱207,087.65) were only borrowed from her as an accommodation party, and
that it was respondent who ordered her to close her account with the Republic Planters Bank.

The OCP of Quezon City issued a Resolution dated 15 July 2011,16 the dispositive portion of which reads:

WHEREFORE, it is respectfully recommended that, upon approval of this Resolution, the attached Information for Estafa
under Article 315, paragraph 2(a) of the Revised Penal Code be filed against respondents Leonora O. Miaral and Anne
Kristine O. Miaral.17

Respondent and Anne Kristine filed a Motion for Reconsideration with Motion for Inhibition18 dated 27 January 2012, on
the ground that petitioner failed to establish the elements of the crime charged. Subsequently, they filed a Motion to
Suspend Proceedings and to Lift/Recall Warrant of Arrest19 on 14 February 2012.

On 10 August 2012, the OCP of Quezon. City issued a Resolution resolving the Motion for Reconsideration with Motion
for Inhibition filed by respondent and Anne Kristine, assailing the 15 July 2011 Resolution, the dispositive portion of
which reads:
Premises considered, the resolution dated July 15, 2011 is hereby set aside on the ground that the transaction between the
parties is civil in nature. The attached Motion to Withdraw Information against movants in Crim. Case No. Q-12-174206 is
to be filed in court for the purpose.20

Accordingly, the City Prosecutor filed with the RTC a Motion to Withdraw Information.21 On 27 August 2013, the RTC
issued an Order22 denying the Motion to Withdraw Information, and directing the arraignment of respondent and Anne
Kristine.

On 14 October 2013, respondent and Anne Kristine moved for the reconsideration of said Order.23 On 30 October 2013,
petitioner filed her corresponding comment,24 contending that the alleged partnership entered into by the parties merely
existed on paper. In fact, respondent and Anne Kristine deceived her into contributing substantial sums of money for a
sham investment. The Motion for Reconsideration was denied by the RTC in its Order dated 7 January 2014.25

The Ruling of the Court of Appeals

On 25 March 2014, respondent filed with the Court of Appeals a Petition for Certiorari26 under Rule 65 of the Rules of
Court, assailing the Orders of the RTC dated 27 August 2013 and 7 January 2014. In its Decision27 dated 24 September
2014, the Court of Appeals granted the petition, and reversed and set aside the assailed Orders of the RTC. It further
directed the RTC to issue an order for the withdrawal of the Information for estafa against respondent and Anne Kristine.28

Petitioner filed a Motion for Reconsideration29 dated 18 October 2014 which was denied by the Court of Appeals on 24
March 2015.30

Hence, this petition.

The Issues

Petitioner presents the following issues in this petition:

1. Whether the Court of Appeals committed reversible error in ruling that the RTC committed grave abuse of discretion
amounting to lack or excess of jurisdiction;

2. Whether the Court of Appeals committed reversible error in reversing and setting aside the 27 August 2013 and 7
January 2014 Orders of the RTC, and in directing the issuance of an Order for the Withdrawal of the Information for estafa
against respondent and Anne Kristine; and

3. Whether the action for estafa penalized under Article 315 2(a) of the Revised Penal Code has been barred by
prescription.

The Ruling

The petition is meritorious.

The Court of Appeals erred in overturning

the Orders of the RTC and in ruling that the
RTC gravely abused its discretion when it
denied the Motion to Withdraw Information.

Under Section 5, Rule 110 of the Rules of Court, all criminal actions commenced by a complaint or information shall be
prosecuted under the direction and control of the prosecutor. As the representative of the State, the public prosecutor
determines in a preliminary investigation whether there is probable cause that the accused committed a crime. 31 Probable
cause is defined as "such facts and circumstances that will engender a well-founded belief that a crime has been committed
and that respondent is probably guilty thereof, and should be held for trial."32
The general rule is that in the conduct of a preliminary investigation, the prosecutor is given a wide latitude of discretion to
determine what constitutes sufficient evidence as will establish probable cause.33 However, when the respondent
establishes that the prosecutor committed grave abuse of discretion amounting to lack or excess of jurisdiction in
determining whether there is probable cause, the courts may interfere. Under the doctrine of separation of powers, the
courts have no right to decide matters where full discretionary authority has been delegated to the Executive Branch, or to
substitute their own judgements for that of the. Executive Branch, in the absence of grave abuse of discretion.34 The abuse
of discretion must be "so patent and gross as to amount to an evasion of a positive duty or a virtual refusal to perform a
duty enjoined by law or to act at all in contemplation of law, such as where the power is exercised in an arbitrary or
despotic manner by reason of passion or hostility."35

In this case, the OCP found that no probable cause existed against respondent and Anne Kristine for the commission of the
crime of estafa. In its Resolution36 dated 10 August 2012, relying mainly on the case of United States v. Clarin,37 the OCP
found that there was a partnership agreement between the parties, thus resolving that the failure of a partner to account for
partnership funds may only give rise to a civil obligation, not a criminal case for estafa. The OCP held:

After a careful and more circumspect evaluation of the evidence on record in relation to the issues in the Motion for
Reconsideration, provisions of law involved and pertinent jurisprudence on the matter, we find the existence of a
partnership agreement between complainant and her sister, respondent Leonora O. Miaral to have been duly established.
The Agreement signed by them on March 6, 1996 clearly speaks for itself, among others a ₱250,000.00 investment each
with equal profit sharing minus all expenses. It also defined in unequivocal terms the buy and sell business, exporting of
garments to be undertaken by respondent Leonora Miaral’s Toppy Co. Inc. and importation of garments by Miaral
Enterprises in the United States.

Such being the case, Estafa either by means of deceit or misappropriation will not lie against respondents, because
"partners are not liable for estafa of money or property received for the partnership when the business commenced and
profits accrued." (U.S. vs. Clarin, 17 P[h]il. 85). It was further held in said case that "when 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, a contract is formed which is a partnership."

Furthermore, "failure of a partner to account for partnership funds may give rise to a civil obligation only not estafa."
(People vs. Alegre, Jr., C.A. 48 O.G. 5341) x x x.38

We disagree with the ruling of the Court of Appeals when it sustained the OCP on the issue of whether there is probable
cause to file an Information. The OCP was in the best position to determine whether or not there was probable cause that
the crime of estafa was committed. However, the OCP erred gravely, amounting to grave abuse of discretion, when it
applied United States v. Clarin39 as basis for dismissing the complaint for lack of probable cause. United States v.
Clarin has already been superseded by Liwanag v. Court of Appeals.40

In Clarin, four individuals entered into a contract of partnership for the business of buying and selling mangoes.When one
of the partners demanded from the other three the return of his monetary contribution, this Court ruled that "the action that
lies with the [capitalist] partner x x x for the recovery of his money is not a criminal action for estafa, but a civil one arising
from the partnership contract for a liquidation of the partnership and a levy on its assets, if there should be any." 41 Simply
put, if a partner demands his money back, the duty to return the contribution does not devolve on the other partners; the
duty now belongs to the partnership itself as a separate and distinct personality.

In 1997, a case with similar circumstances was decided differently. In Liwanag v. Court of Appeals,42 three individuals
entered into a contract of partnership for the business of buying and selling cigarettes. They agreed that one would
contribute money to buy the cigarettes while the other two would act as agents in selling. When the capitalist partner
demanded from the industrial partners her monetary contribution because they stopped informing her of business updates,
this time, this Court held the industrial partners liable for estafa.

In this case, the OCP erred gravely when it based its conclusion on the Clarin case. Liwanag applies to the partnership
agreement executed between petitioner and respondent. Petitioner's initial contributions of ₱183,999.00 and ₱20,000.00
were all for specific purposes: for the buying and selling of garments and for the salaries of the factory workers,
respectively. When respondent failed to account for these amounts or to return these amounts to petitioner upon demand,
there is probable cause to hold that respondent misappropriated the amounts and had not used them for their intended
purposes. The Information for estafa should thus proceed.

In Liwanag, this Court held:

Thus, even assuming that a contract of partnership was indeed entered into by and between the parties, we have ruled that
when money or property [had] been received by a partner for a specific purpose (such as that obtaining in the instant
case) and he later misappropriated it, such partner is guilty of estafa.43 (Emphasis supplied)

Furthermore, the RTC made its own independent assessment whether or not probable cause exists that the crime was
committed by respondent and Anne Kristine. When the RTC is confronted with a Motion to Withdraw Information on the
ground of lack of probable cause, its duty is to make an independent assessment of the totality of the evidence presented by
both parties, including affidavits, counter-affidavits, evidence appended to the complaint, and records produced by the
OCP on court order.44 "Independent assessment" does not mean mere approval or disapproval of the prosecution's stand; it
also means that the RTC must itself be convinced that indeed there is or there is no sufficient evidence against the
accused.45

Both the 27 August 2013 and 7 January 2014 Orders of the RTC were based on facts and allegations of both parties. The
RTC held:

From the evidence adduced by the parties, the Court finds that there is probable cause that the crime charged was
committed by the accused when they convinced the complainant to invest money in a business partnership which appears
to be non-existent. It was not controverted that Leonora received the total amount of ₱183,999.00 from the
complainant. Accused failed to present evidence to show the existence of a business partnership apart from relying
on the Agreement dated March 6, 1996. Neither was there any evidence presented showing that complainant's
money was used to purchase garments to be sold abroad. Basic is the rule that one who alleges must prove. In this case,
the accused failed to establish, by clear and convincing evidence, their defense of partnership.46 (Emphasis supplied)

The question is not so much whether the RTC has the authority to grant or not to grant the OCP's Motion to Withdraw
Information, because it has such authority, but whether, in the exercise of that authority, the RTC acted justly and
fairly.47 This Court finds that it did.

The action for estafa penalized under paragraph 2(a),

Article 315 of the Revised Penal Code
has not yet been barred by prescription.

Under Article 315 of the Revised Penal Code, the penalty for estafa shall be determined by the amount allegedly swindled
by the accused. The first paragraph of Article 315 reads:

ART. 315. Swindling (estafa). - Any person who shall defraud another by any of the means mentioned hereinbelow shall be
punished by:

1st. The penalty of prision correccional in its maximum period to prision mayor in its minimum period, if the amount of
the fraud is over 12,000 pesos but does not exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one year for each additional 10,000
pesos; but the total penalty which may be imposed shall not exceed twenty years. In such cases, and in connection with
the accessory penalties which may be imposed under the provisions of this Code, the penalty shall be termed prision
mayor or reclusion temporal, as the case may be. (Emphasis supplied)

The total amount allegedly swindled by respondent is ₱203,999.00 for the buying of garments and workers' salaries plus
US$ 1,000.00for the plane tickets which exceeds ₱22,000.00. Taking into consideration the whole amount with the
additional one year for each additional ₱10,000.00, the penalty imposable on respondent shall be prision mayorin its
maximum period to reclusion temporal, the total penalty not exceeding twenty (20) years.
Under Article 25 of the Revised Penal Code, the penalties of prision mayor and reclusion temporal are included in the
enumeration of afflictive penalties.1âwphi1 Furthermore, Article 90 of the Revised Penal Code states that crimes
punishable by afflictive penalties, such as the crime of estafa, prescribe in fifteen (15) years.

The said prescriptive period is computed under Article 91 of the Revised Penal Code, as follows:

ART. 91. Computation of prescription of offenses. - The period of prescription shall commence to run from the day on
which the crime is discovered by the off ended party, the authorities, or their agents, and shall be interrupted by the filing
of the complaint or information, and shall commence to run again when such proceedings terminate without the accused
being convicted or acquitted, or are unjustifiably stopped for any reason not imputable to him.

xxxx

In this case, the fifteen-year prescriptive period commenced in April 1996 when the petitioner discovered that one of the
checks that respondent issued as payment was dishonored for having been drawn against insufficient funds. At around that
time, petitioner likewise discovered that there was no buying, selling and exportation of garments or any other transactions
that took place in the United States.

The fifteen-year period was interrupted on 7 February 2011 when petitioner filed a complaint for estafa against respondent
and Anne Kristine before the OCP of Quezon City. In People v. Olarte,48 "the filing of the complaint, even if it be merely
for purposes of preliminary examination or investigation, should and does interrupt the period of prescription of the
criminal responsibility, even if the court where the complaint or information is filed cannot try the case on its merits."

As of the filing of the complaint on 7 February 2011, the prescriptive period had run for fourteen (14) years and ten (10)
months. Thus, the fifteen-year period has not yet prescribed.

WHEREFORE, we GRANT the petition. We REVERSE the 24 September 2014 Decision and the 24 March 2015
Resolution of the Court of Appeals in CA-G.R. SP No. 134555. We REINSTATE the Orders of the Regional Trial Court
of Quezon City, Branch 104, dated 27 August 2013 and 7 January 2014, directing the arraignment of Leonora 0. Miaral
and Anne Kristine Miaral. The case against Leonora O. Miaral and Anne Kristine Miaral may still proceed because
prescription has not set in.

SO ORDERED.
RIGHTS OF A PARTNER

G.R. No. 178782 September 21, 2011

JOSEFINA P. REALUBIT, Petitioner,

vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.

DECISION

PEREZ, J.:

The validity as well as the consequences of an assignment of rights in a joint venture are at issue in this petition for review
filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure,1 assailing the 30 April 2007 Decision2rendered by the Court
of Appeals’ (CA) then Twelfth Division in CA-G.R. CV No. 73861,3 the dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint venture between
defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and the subsequent conduct of accounting,
liquidation of assets and division of shares of the joint venture business.

Let a copy hereof and the records of the case be remanded to the trial court for appropriate proceedings.4

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement with Francis Eric
Amaury Biondo (Biondo), a French national, for the operation of an ice manufacturing business. With Josefina as the
industrial partner and Biondo as the capitalist partner, the parties agreed that they would each receive 40% of the net profit,
with the remaining 20% to be used for the payment of the ice making machine which was purchased for the business.5 For
and in consideration of the sum of ₱500,000.00, however, Biondo subsequently executed a Deed of Assignment dated 27
June 1997, transferring all his rights and interests in the business in favor of respondent Eden Jaso (Eden), the wife of
respondent Prosencio Jaso.6 With Biondo’s eventual departure from the country, the Spouses Jaso caused their lawyer to
send Josefina a letter dated 19 February 1998, apprising her of their acquisition of said Frenchman’s share in the business
and formally demanding an accounting and inventory thereof as well as the remittance of their portion of its profits.7

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the instant suit with the filing
of their 3 August 1998 Complaint against Josefina, her husband, Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as Civil Case No. 98-0331 before respondent Branch 257 of the
Regional Trial Court (RTC) of Parañaque City, said complaint alleged, among other matters, that the Spouses Realubit had
no gainful occupation or business prior to their joint venture with Biondo; that with the income of the business which
earned not less than ₱3,000.00 per day, they were, however, able to acquire the two-storey building as well as the land on
which the joint venture’s ice plant stands, another building which they used as their office and/or residence and six (6)
delivery vans; and, that aside from appropriating for themselves the income of the business, the Spouses Realubit have
fraudulently concealed the funds and assets thereof thru their relatives, associates or dummies.8

Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998, specifically denying the material
allegations of the foregoing complaint. Claiming that they have been engaged in the tube ice trading business under a
single proprietorship even before their dealings with Biondo, the Spouses Realubit, in turn, averred that their said business
partner had left the country in May 1997 and could not have executed the Deed of Assignment which bears a signature
markedly different from that which he affixed on their Joint Venture Agreement; that they refused the Spouses Jaso’s
demand in view of the dubious circumstances surrounding their acquisition of Biondo’s share in the business which was
established at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said business had already stopped
operations on 13 January 1996 when its plant shut down after its power supply was disconnected by MERALCO for non-
payment of utility bills; and, that it was their own tube ice trading business which had been moved to 66-C Cenacle Drive,
Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso mistook for the ice manufacturing business established
in partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently terminated, the RTC went on to try the case on
its merits and, thereafter, to render its Decision dated 17 September 2001, discounting the existence of sufficient evidence
from which the income, assets and the supposed dissolution of the joint venture can be adequately reckoned. Upon the
finding, however, that the Spouses Jaso had been nevertheless subrogated to Biondo’s rights in the business in view of their
valid acquisition of the latter’s share as capitalist partner,10 the RTC disposed of the case in the following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and inventory of the assets and
liabilities of the joint venture from its inception to the present, to allow plaintiffs access to the books and accounting
records of the joint venture, to deliver to plaintiffs their share in the profits, if any, and to pay the plaintiffs the amount of
₱20,000. for moral damages. The claims for exemplary damages and attorney’s fees are denied for lack of basis.11

On appeal before the CA, the foregoing decision was set aside in the herein assailed Decision dated 30 April 2007, upon
the following findings and conclusions: (a) the Spouses Jaso validly acquired Biondo’s share in the business which had
been transferred to and continued its operations at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and
not dissolved as claimed by the Spouses Realubit; (b) absent showing of Josefina’s knowledge and consent to the transfer
of Biondo’s share, Eden cannot be considered as a partner in the business, pursuant to Article 1813 of the Civil Code of the
Philippines; (c) while entitled to Biondo’s share in the profits of the business, Eden cannot, however, interfere with the
management of the partnership, require information or account of its transactions and inspect its books; (d) the partnership
should first be dissolved before Eden can seek an accounting of its transactions and demand Biondo’s share in the business;
and, (e) the evidence adduced before the RTC do not support the award of moral damages in favor of the Spouses Jaso.12

The Spouses Realubit’s motion for reconsideration of the foregoing decision was denied for lack of merit in the CA’s 28
June 2007 Resolution,13 hence, this petition.

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the negative of the following issues, to wit:

A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN THE JOINT
VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID JOINT VENTURE.

C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT VENTURE AND
IN THE SEPARATE ICE BUSINESS OF PETITIONER[S].14

The Court’s Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA inordinately gave premium to the
notarization of the 27 June 1997 Deed of Assignment executed by Biondo in favor of the Spouses Jaso. Calling attention to
the latter’s failure to present before the RTC said assignor or, at the very least, the witnesses to said document, the Spouses
Realubit maintain that the testimony of Rolando Diaz, the Notary Public before whom the same was acknowledged, did not
suffice to establish its authenticity and/or validity. They insist that notarization did not automatically and conclusively
confer validity on said deed, since it is still entirely possible that Biondo did not execute said deed or, for that matter,
appear before said notary public.15 The dearth of merit in the Spouses Realubit’s position is, however, immediately evident
from the settled rule that documents acknowledged before notaries public are public documents which are admissible in
evidence without necessity of preliminary proof as to their authenticity and due execution.16

It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in favor of Eden not only enjoys
a presumption of regularity17 but is also considered prima facie evidence of the facts therein stated.18 A party assailing the
authenticity and due execution of a notarized document is, consequently, required to present evidence that is clear,
convincing and more than merely preponderant.19 In view of the Spouses Realubit’s failure to discharge this onus, we find
that both the RTC and the CA correctly upheld the authenticity and validity of said Deed of Assignment upon the
combined strength of the above-discussed disputable presumptions and the testimonies elicited from Eden20 and Notary
Public Rolando Diaz.21 As for the Spouses’ Realubit’s bare assertion that Biondo’s signature on the same document
appears to be forged, suffice it to say that, like fraud,22 forgery is never presumed and must likewise be proved by clear and
convincing evidence by the party alleging the same.23 Aside from not being borne out by a comparison of Biondo’s
signatures on the Joint Venture Agreement24 and the Deed of Assignment,25 said forgery is, moreover debunked by
Biondo’s duly authenticated certification dated 17 November 1998, confirming the transfer of his interest in the business in
favor of Eden.26

Generally understood to mean an organization formed for some temporary purpose, a joint venture is likened to a particular
partnership or one which "has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise
of a profession or vocation."27 The rule is settled that joint ventures are governed by the law on partnerships28 which are, in
turn, based on mutual agency or delectus personae.29 Insofar as a partner’s conveyance of the entirety of his interest in the
partnership is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs, or to require any information or
account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in
accordance with his contracts the profits to which the assigning partners would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an
account from the date only of the last account agreed to by all the partners.

From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership interest does not make the
assignee of such interest a partner of the firm, nor entitle the assignee to interfere in the management of the partnership
business or to receive anything except the assignee’s profits. The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the capital."30 Since a partner’s interest in the partnership includes his
share in the profits,31 we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled to
Biondo’s share in the profits, despite Juanita’s lack of consent to the assignment of said Frenchman’s interest in the joint
venture. Although Eden did not, moreover, become a partner as a consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code. 32 1âwphi1

Considering that they involve questions of fact, neither are we inclined to hospitably entertain the Spouses Realubit’s
insistence on the supposed fact that Josefina’s joint venture with Biondo had already been dissolved and that the ice
manufacturing business at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was merely a continuation of
the same business they previously operated under a single proprietorship. It is well-entrenched doctrine that questions of
fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal is confined to
questions of law.33 Upon the principle that this Court is not a trier of facts, we are not duty bound to examine the evidence
introduced by the parties below to determine if the trial and the appellate courts correctly assessed and evaluated the
evidence on record.34 Absent showing that the factual findings complained of are devoid of support by the evidence on
record or the assailed judgment is based on misapprehension of facts, the Court will limit itself to reviewing only errors of
law.35

Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the dissolution of the joint venture and
concluded that the ice manufacturing business at the aforesaid address was the same one established by Juanita and
Biondo. As a rule, findings of fact of the CA are binding and conclusive upon this Court,38 and will not be reviewed or
disturbed on appeal39 unless the case falls under any of the following recognized exceptions: (1) when the conclusion is a
finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based on a misapprehension
of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are contrary to
those of the trial court; (8) when the findings of fact are conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by the
respondents; and, (10) when the findings of fact of the CA are premised on the supposed absence of evidence and
contradicted by the evidence on record.40Unfortunately for the Spouses Realubit’s cause, not one of the foregoing
exceptions applies to the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April 2007 is, accordingly,
AFFIRMED in toto.

SO ORDERED.