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A. Historical Background theatres), Avenue Realty, Inc., owner of lands and buildings, among other corporations.
B. The Nature of Partnership 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
1. Litonjua vs. Litonjua averments:

[G.R. Nos. 166299-300. December 13, 2005.] 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 . . . .
AURELIO K. LITONJUA, JR., petitioner, vs. EDUARDO K.
LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, 3.01.1 This joint venture/[partnership] agreement was contained in
INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. a memorandum addressed by Eduardo to his siblings, parents and
LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA other relatives. Copy of this memorandum is attached hereto and
SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly made an integral part as Annex "A" and the portion referring to
E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, [Aurelio] submarked as Annex "A-1". AcSIDE
(formerly E & L INT'L SHIPPING CORP.), FNP CO., INC., HOME
3.02 It was then agreed upon between [Aurelio] and Eduardo that
ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC.,
in consideration of [Aurelio's] retaining his share in the remaining
GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP.,
family businesses (mostly, movie theaters, shipping and land
"L" DEV. CORP, LCM THEATRICAL ENTERPRISES, INC.,
development) and contributing his industry to the continued
LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON operation of these businesses, [Aurelio] will be given P1 Million or
REALTY CORP., SARATOGA REALTY, INC., ACT THEATER 10% equity in all these businesses and those to be subsequently
INC. (formerly General Theatrical & Film Exchange, INC.),
acquired by them whichever is greater. . . .
AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF
PHILIPPINES, INC., (Formerly VF PHILIPPINES), respondents. 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.
DECISION
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 . . . .
GARCIA, J p: xxx xxx xxx

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. 4.04 The substantial assets of most of the corporate defendants
Litonjua, Jr. seeks to nullify and set aside the Decision of the Court of Appeals (CA) consist of real properties . . . . A list of some of these real properties
dated March 31, 2004 1 in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. is attached hereto and made an integral part as Annex "B".
SP. No 78774 and its Resolution dated December 07, 2004, 2 denying petitioner's
motion for reconsideration. xxx xxx xxx

The recourse is cast against the following factual backdrop: 5.02 Sometime in 1992, the relations between [Aurelio] and
Eduardo became sour so that [Aurelio] requested for an
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, accounting and liquidation of his share in the joint
Sr. (Eduardo) are brothers. The legal dispute between them started when, on venture/partnership [but these demands for complete accounting
December 4, 2002, in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit and liquidation were not heeded].
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 xxx xxx xxx
Civil Case No. 69235 and eventually raffled to Branch 68 of the court, 4 Aurelio alleged
5.05 What is worse, [Aurelio] has reasonable cause to believe that
that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement
Eduardo and/or the corporate defendants as well as Bobby [Yang],
in the Odeon Theater business which had expanded thru investment in Cineplex, Inc.,
are transferring . . . various real properties of the corporations
LCM Theatrical Enterprises, Odeon Realty Corporation (operator of Odeon I and II
belonging to the joint venture/partnership to other parties in fraud
PAT 1

of [Aurelio]. In consequence, [Aurelio] is therefore causing at this For his part, Yang — who was served with summons long after the other defendants
time the annotation on the titles of these real properties . . . a notice submitted their answer — moved to dismiss on the ground, inter alia, that, as to him,
of lis pendens . . . . (Emphasis in the original; underscoring and petitioner has no cause of action and the complaint does not state any. 8 Petitioner
words in bracket added.) opposed this motion to dismiss.

For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative
been meant for him by his brother Eduardo, pertinently reads: Defenses. 9 To this motion, petitioner interposed an Opposition with ex-Parte Motion
to Set the Case for Pre-trial. 10
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
Acting on the separate motions immediately adverted to above, the trial court, in an
You have now your own life to live after having been married. . . . 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
I am trying my best to mold you the way I work so you can follow In another Omnibus Order of April 2, 2003, the same court denied the motion of
the pattern . . . . You will be the only one left with the company, Eduardo, et al., for reconsideration 12 and Yang's motion to dismiss. The following then
among us brothers and I will ask you to stay as I want you to run transpired insofar as Yang is concerned:
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 1. On April 14, 2003, Yang filed his ANSWER, but expressly
to you (sic). My sons will not be ready to help me yet until about reserved the right to seek reconsideration of the April 2, 2003
maybe 15/20 years from now. Whatever is left in the corporation, I Omnibus Order and to pursue his failed motion to dismiss 13 to its
will make sure that you get ONE MILLION PESOS full resolution.
(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 2. On April 24, 2003, he moved for reconsideration of the Omnibus
are entitled to. . . . . It will be you and me alone on this. If ever I Order of April 2, 2003, but his motion was denied in an Order of
pass away, I want you to take care of all of this. You keep my share July 4, 2003. 14
for my two sons are ready take over but give them the chance to
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in
run the company which I have built.
a petition for certiorari under Rule 65 of the Rules of Court,
xxx xxx xxx 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
Because you will need a place to stay, I will arrange to give you basic complaint and, the second, denying his motion for
first ONE HUNDRED THOUSANDS PESOS: (P100,000.00) in reconsideration.
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 Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of
assure you is good and saleable. I will also gladly give you the discretion and injudicious haste attended the issuance of the trial court's
share of Wack-Wack . . . and Valley Golf . . . because you have aforementioned Omnibus Orders dated March 5, and April 2, 2003, sought relief from
been good. The rest will be in stocks from all the corporations the CA via similar recourse. Their petition for certiorari was docketed as CA G.R. SP
which I repeat, ten percent (10%) equity. 6 No. 76987.

On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, Per its resolution dated October 2, 2003, 16 the CA's 14th Division ordered the
filed a joint ANSWER With Compulsory Counterclaim denying under oath the material consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987. CIAcSa
allegations of the complaint, more particularly that portion thereof depicting petitioner
Following the submission by the parties of their respective Memoranda of Authorities,
and Eduardo as having entered into a contract of partnership. As affirmative defenses,
the appellate court came out with the herein assailed Decision dated March 31, 2004,
Eduardo, et al., apart from raising a jurisdictional matter, alleged that the complaint
finding for Eduardo and Yang, as lead petitioners therein, disposing as follows:
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 WHEREFORE, judgment is hereby rendered granting the
Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking issuance of the writ of certiorari in these consolidated cases
Eduardo agreed to do, if any, under Annex "A-1", are unenforceable under the annulling, reversing and setting aside the assailed orders of the
provisions of the Statute of Frauds. 7 court a quo dated March 5, 2003, April 2, 2003 and July 4, 2003
and the complaint filed by private respondent [now petitioner
PAT 1

Aurelio] against all the petitioners [now herein respondents The underlying issue that necessarily comes to mind in this proceedings is whether or
Eduardo, et al.] with the court a quo is hereby dismissed. 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
SO ORDERED. 17 (Emphasis in the original; words in bracket
"A-1" — which he depicts in his complaint to be the contract of partnership/joint venture
added.)
between himself and Eduardo. Clearly, then, a look at the legal provisions determinative
Explaining its case disposition, the appellate court stated, inter alia, that the alleged of the existence, or defining the formal requisites, of a partnership is indicated.
partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached Foremost of these are the following provisions of the Civil Code:
to the complaint, and upon which petitioner solely predicates his right/s allegedly
Art. 1771. A partnership may be constituted in any form, except
violated by Eduardo, Yang and the corporate defendants a quo is "void or legally
where immovable property or real rights are contributed thereto, in
inexistent".
which case a public instrument shall be necessary. TCDcSE
In time, petitioner moved for reconsideration but his motion was denied by the CA in its
Art. 1772. Every contract of partnership having a capital of three
equally assailed Resolution of December 7, 2004. 18
thousand pesos or more, in money or property, shall appear in a
Hence, petitioner's present recourse, on the contention that the CA erred: public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
A. When it ruled that there was no partnership created by the
actionable document because this was not a public instrument and Failure to comply with the requirement of the preceding paragraph
immovable properties were contributed to the partnership. shall not affect the liability of the partnership and the members
thereof to third persons.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner. Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is
C. When it ruled that the complaint stated no cause of action not made, signed by the parties, and attached to the public
against [respondent] Robert Yang; and instrument.
D. When it ruled that petitioner has changed his theory on appeal Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned
when all that Petitioner had done was to support his pleaded cause and undated. As an unsigned document, there can be no quibbling that Annex "A-
of action by another legal perspective/argument. 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
The petition lacks merit. involving more than P3,000.00 in money or property, Annex "A-1" cannot be presented
Petitioner's demand, as defined in the petitory portion of his complaint in the trial court, for notarization, let alone registered with the Securities and Exchange Commission
is for delivery or payment to him, as Eduardo's and Yang's partner, of his (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory
partnership/joint venture share, after an accounting has been duly conducted of what requirement under the succeeding Article 1773 goes into the matter of validity when
he deems to be partnership/joint venture property. 19 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.
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 The CA, addressing the foregoing query, correctly stated that petitioner's contribution
be a proportionate sharing of the profits and losses between them. 20 A contract of consisted of immovables and real rights. Wrote that court:
partnership is defined by the Civil Code as one where two or more persons bound A further examination of the allegations in the complaint would
themselves to contribute money, property, or industry to a common fund with the show that [petitioner's] contribution to the so-called
intention of dividing the profits among themselves. 21 A joint venture, on the other hand, "partnership/joint venture" was his supposed share in the family
is hardly distinguishable from, and may be likened to, a partnership since their elements business that is consisting of movie theaters, shipping and land
are similar, i.e., community of interests in the business and sharing of profits and losses. development under paragraph 3.02 of the complaint. In other
Being a form of partnership, a joint venture is generally governed by the law on words, his contribution as a partner in the alleged partnership/joint
partnership. 22 venture consisted of immovable properties and real rights. . . . . 23
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Significantly enough, petitioner matter-of-factly concurred with the appellate court's the purported "partnership/joint venture" is legally inexistent and it
observation that, prescinding from what he himself alleged in his basic complaint, his produces no effect whatsoever. Necessarily, a void or legally
contribution to the partnership consisted of his share in the Litonjua family businesses inexistent contract cannot be the source of any contractual or legal
which owned variable immovable properties. Petitioner's assertion in his motion for right. Accordingly, the allegations in the complaint, including the
reconsideration 24 of the CA's decision, that "what was to be contributed to the actionable document attached thereto, clearly demonstrates that
business [of the partnership] was [petitioner's] industry and his share in the family [petitioner] has NO valid contractual or legal right which could be
[theatre and land development] business" leaves no room for speculation as to what violated by the [individual respondents] herein. As a consequence,
petitioner contributed to the perceived partnership. [petitioner's] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 present. (Underscoring and words in bracket added.)
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, Likewise well-taken are the following complementary excerpts from the CA's equally
who between petitioner and his brother Eduardo, contributed immovables. In context, assailed Resolution of December 7, 2004 27 denying petitioner's motion for
the more important consideration is that real property was contributed, in which case reconsideration:
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. Further, We conclude that despite glaring defects in the allegations
in the complaint as well as the actionable document attached
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the thereto (Rollo, p. 191), the [trial] court did not appreciate and apply
immovables in question were not contributed, but were acquired after the formation of the legal provisions which were brought to its attention by herein
the supposed partnership. Needless to stress, the Court cannot accord cogency to this [respondents] in the their pleadings. In our evaluation of
specious argument. For, as earlier stated, petitioner himself admitted contributing his [petitioner's] complaint, the latter alleged inter alia to have
share in the supposed shipping, movie theatres and realty development family contributed immovable properties to the alleged partnership but
businesses which already owned immovables even before Annex "A-1" was allegedly the actionable document is not a public document and there was
executed. IATHaS no inventory of immovable properties signed by the parties. Both
the allegations in the complaint and the actionable documents
Considering thus the value and nature of petitioner's alleged contribution to the considered, it is crystal clear that [petitioner] has no valid or legal
purported partnership, the Court, even if so disposed, cannot plausibly extend right which could be violated by [respondents]. (Words in bracket
Annex "A-1" the legal effects that petitioner so desires and pleads to be given. added.)
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 Under the second assigned error, it is petitioner's posture that Annex "A-1", assuming
P3,000.00, in which case a public instrument shall be necessary. 25 And if only to stress its inefficacy or nullity as a partnership document, nevertheless created demandable
what has repeatedly been articulated, an inventory to be signed by the parties and rights in his favor. As petitioner succinctly puts it in this petition:
attached to the public instrument is also indispensable to the validity of the partnership
43. Contrariwise, this actionable document, especially its above-
whenever immovable property is contributed to it.
quoted provisions, established an actionable contract even though
Given the foregoing perspective, what the appellate court wrote in its assailed it may not be a partnership. This actionable contract is what is
Decision 26 about the probative value and legal effect of Annex "A-1"commends itself known as an innominate contract (Civil Code, Article 1307).
for concurrence:
44. It may not be a contract of loan, or a mortgage or whatever,
Considering that the allegations in the complaint showed that but surely the contract does create rights and obligations of the
[petitioner] contributed immovable properties to the alleged parties and which rights and obligations may be enforceable and
partnership, the "Memorandum" (Annex "A" of the complaint) demandable. Just because the relationship created by the
which purports to establish the said "partnership/joint venture" is agreement cannot be specifically labeled or pigeonholed into a
NOT a public instrument and there was NO inventory of the category of nominate contract does not mean it is void or
immovable property duly signed by the parties. As such, the said unenforceable. aESHDA
"Memorandum" . . . is null and void for purposes of establishing the
Petitioner has thus thrusted the notion of an innominate contract on this Court — and
existence of a valid contract of partnership. Indeed, because of the
earlier on the CA after he experienced a reversal of fortune thereat — as an
failure to comply with the essential formalities of a valid contract,
afterthought. The appellate court, however, cannot really be faulted for not yielding to
PAT 1

petitioner's dubious stratagem of altering his theory of joint venture/partnership to an no action can be proved unless the requirement exacted by the statute of frauds is
innominate contract. For, at bottom, the appellate court's certiorari jurisdiction was complied with. 31
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, 28 since the Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10%
parties' basic position had been well-defined, that of petitioner being that the actionable equity of the family businesses supposedly promised by Eduardo to give in the near
document established a partnership/joint venture, it is on those positions that the future. Any suggestion that the stated amount or the equity component of the promise
appellate court exercised its certiorari jurisdiction. Petitioner's act of changing his was intended to go to a common fund would be to read something not written
original theory is an impermissible practice and constitutes, as the CA aptly declared, in Annex "A-1". Thus, even this angle alone argues against the very idea of a
an admission of the untenability of such theory in the first place. 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
[Petitioner] is now humming a different tune . . . . In a sudden twist of dividing the profits between or among themselves. 32
of stance, he has now contended that the actionable instrument
may be considered an innominate contract. . . . Verily, this now In sum then, the Court rules, as did the CA, that petitioner's complaint for specific
changes [petitioner's] theory of the case which is not only performance anchored on an actionable document of partnership which is legally
prohibited by the Rules but also is an implied admission that the inexistent or void or, at best, unenforceable does not state a cause of action as against
very theory he himself . . . has adopted, filed and prosecuted respondent Eduardo and the corporate defendants. And if no action can successfully
before the respondent court is erroneous. 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
Be that as it may . . . . We hold that this new theory contravenes could plausibly prosper against Yang. Surely, Yang could not have become a partner
[petitioner's] theory of the actionable document being a partnership in, or could not have had any form of business relationship with, an inexistent
document. If anything, it is so obvious we do have to test the partnership.
sufficiency of the cause of action on the basis of partnership law .
. . . 29(Emphasis in the original; Words in bracket added). 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
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected the contrary. Consider:
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 1. Petitioner asserted in his complaint that his so-called joint
Eduardo as the author of Annex "A-1". Withal, even on this consideration alone, venture/partnership with Eduardo was "for the continuation of their
petitioner's claim against Yang is doomed from the very start. family business and common family funds which were theretofore
being mainly managed by Eduardo." 33 But Yang denies kinship
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded with the Litonjua family and petitioner has not disputed the
as vesting petitioner with a right to demand from respondent Eduardo the observance disclaimer.
of a determinate conduct, reads:
2. In some detail, petitioner mentioned what he had contributed to
. . . You will be the only one left with the company, among us the joint venture/partnership with Eduardo and what his share in
brothers and I will ask you to stay as I want you to run this office the businesses will be. No allegation is made whatsoever about
everytime I am away. I want you to run it the way I am trying to run what Yang contributed, if any, let alone his proportional share in
it because I will be alone and I will depend entirely to you, My sons the profits. But such allegation cannot, however, be made
will not be ready to help me yet until about maybe 15/20 years from because, as aptly observed by the CA, the actionable document
now. Whatever is left in the corporation, I will make sure that you did not contain such provision, let alone mention the name of Yang.
get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) How, indeed, could a person be considered a partner when the
equity, whichever is greater. (Underscoring added) document purporting to establish the partnership contract did not
even mention his name.
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 3. Petitioner states in par. 2.01 of the complaint that "[he] and
performed within one year from "contract" execution on June 22, 1973. Accordingly, the Eduardo are business partners in the [respondent] corporations,"
agreement embodied in Annex "A-1" is covered by the Statute of Frauds while "Bobby is his and Eduardo's partner in their Odeon Theater
and ergo unenforceable for non-compliance therewith. 30 By force of the statute of investment' (par. 2.03). This means that the partnership between
frauds, an agreement that by its terms is not to be performed within a year from the petitioner and Eduardo came first; Yang became their partner in
making thereof shall be unenforceable by action, unless the same, or some note or their Odeon Theater investment thereafter. Several paragraphs
memorandum thereof, be in writing and subscribed by the party charged. Corollarily, later, however, petitioner would contradict himself by alleging that
PAT 1

his "investment and that of Eduardo and Yang in the Odeon theater in a document purporting to establish a partnership could be
business has expanded through a reinvestment of profit income considered a partner. 36 (Words in bracket ours).
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
The last issue raised by petitioner, referring to whether or not he changed his theory of
respondents. Significantly enough, petitioner refers to the
the case, as peremptorily determined by the CA, has been discussed at length earlier
corporate respondents as "progeny" of the Odeon Theatre
and need not detain us long. Suffice it to say that after the CA has ruled that the alleged
business. 34
partnership is inexistent, petitioner took a different tack. Thus, from a joint
Needless to stress, petitioner has not sufficiently established in his complaint the venture/partnership theory which he adopted and consistently pursued in his complaint,
legal vinculum whence he sourced his right to drag Yang into the fray. The Court of petitioner embraced the innominate contract theory. Illustrative of this shift is petitioner's
Appeals, in its assailed decision, captured and formulated the legal situation in the statement in par. #8 of his motion for reconsideration of the CA's decision combined
following wise: with what he said in par. # 43 of this petition, as follows:

[Respondent] Yang, . . . is impleaded because, as alleged in the 8. Whether or not the actionable document creates a partnership,
complaint, he is a "partner" of [Eduardo] and the [petitioner] in the joint venture, or whatever, is a legal matter. What is determinative
Odeon Theater Investment which expanded through for purposes of sufficiency of the complainant's allegations, is
reinvestments of profits and direct investments in several whether the actionable document bears out an actionable contract
corporations, thus: — be it a partnership, a joint venture or whatever or some
innominate contract . . . It may be noted that one kind of innominate
xxx xxx xxx contract is what is known as du ut facias (I give that you may
do). 37
Clearly, [petitioner's] claim against . . . Yang arose from his alleged
partnership with petitioner and the . . . respondent. However, there 43. Contrariwise, this actionable document, especially its above-
was NO allegation in the complaint which directly alleged how the quoted provisions, established an actionable contract even though
supposed contractual relation was created between [petitioner] it may not be a partnership. This actionable contract is what is
and . . . Yang. More importantly, however, the foregoing ruling of known as an innominate contract (Civil Code, Article 1307). 38
this Court that the purported partnership between [Eduardo] is void
and legally inexistent directly affects said claim against . . . Yang. Springing surprises on the opposing party is offensive to the sporting idea of fair play,
Since [petitioner] is trying to establish his claim against . . . Yang justice and due process; hence, the proscription against a party shifting from one theory
by linking him to the legally inexistent partnership . . . such attempt at the trial court to a new and different theory in the appellate court. 39 On the same
had become futile because there was NOTHING that would rationale, an issue which was neither averred in the complaint cannot be raised for the
contractually connect [petitioner] and . . . Yang. To establish a valid first time on appeal. 40 It is not difficult, therefore, to agree with the CA when it made
cause of action, the complaint should have a statement of fact short shrift of petitioner's innominate contract theory on the basis of the foregoing basic
upon which to connect [respondent] Yang to the alleged reasons. cDIHES
partnership between [petitioner] and respondent [Eduardo],
Petitioner's protestation that his act of introducing the concept of innominate contract
including their alleged investment in the Odeon Theater. A
was not a case of changing theories but of supporting his pleaded cause of action —
statement of facts on those matters is pivotal to the complaint as
that of the existence of a partnership — by another legal perspective/argument, strikes
they would constitute the ultimate facts necessary to establish the
the Court as a strained attempt to rationalize an untenable position. Paragraph 12 of
elements of a cause of action against . . . Yang. 35
his motion for reconsideration of the CA's decision virtually relegates partnership as a
Pressing its point, the CA later stated in its resolution denying petitioner's motion for fall-back theory. Two paragraphs later, in the same notion, petitioner faults the appellate
reconsideration the following: 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
. . . Whatever the complaint calls it, it is the actionable document whether or not to pursue the original cause of action or altogether abandoning the
attached to the complaint that is controlling. Suffice it to state, We same, thus:
have not ignored the actionable document . . . As a matter of fact,
We emphasized in our decision . . . that insofar as [Yang] is 12. Incidentally, assuming that the actionable document created a
concerned, he is not even mentioned in the said actionable partnership between [respondent] Eduardo, Sr. and [petitioner], no
document. We are therefore puzzled how a person not mentioned immovables were contributed to this partnership. . . .
PAT 1

14. All told, the Decision takes off from a false premise that the incorporated as "Benguet Lumber Company" which was allegedly a partnership
actionable document attached to the complaint does not establish entered into and managed by their father, Tan Eng Kee, and Tan Eng Lay. Tan Eng
a contractual relationship between [petitioner] and . . . Eduardo, Lay, however, countered that he had his business and his brother (Tan Eng Kee) had
Sr. and Roberto T Yang simply because his document does not his, and that it was only later on that Tan Eng Kee came to work for him as an employee.
create a partnership or a joint venture. This is . . . a myopic reading
of the actionable document. The court a quo declared that Tan Eng Kee and Tan Eng Lay were joint adventurers
and/or partners and ruled that petitioners-heirs of the deceased Tan Eng Kee, had a
Per the Court's own count, petitioner used in his complaint the mixed words "joint right to share in the company's assets. The CA, however, ruled that there was no
venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made partnership since Benguet Lumber was a sole proprietorship, and that Tan Eng Kee
reference to the "law of joint venture/partnership [being applicable] to the business was only an employee thereof.
relationship . . . between [him], Eduardo and Bobby [Yang]" and to his "rights in all
specific properties of their joint venture/partnership". Given this consideration, While as a rule, the Supreme Court cannot entertain inquiries relative to the correctness
petitioner's right of action against respondents Eduardo and Yang doubtless pivots on of the assessment of the evidence by the court a quo, the Supreme Court examined
the existence of the partnership between the three of them, as purportedly evidenced the record to determine if the reversal was justified.
by the undated and unsigned Annex "A-1". A void Annex "A-1", as an actionable
The Supreme Court concluded that Tan Eng Kee was only an employee, not a partner,
document of partnership, would strip petitioner of a cause of action under the premises.
because: Tan Eng Lay directly controverted testimonies of petitioners' witnesses that
A complaint for delivery and accounting of partnership property based on such void or
Tan Eng Kee contributed resources to a common fund to establish a partnership;
legally non-existent actionable document is dismissible for failure to state of action. So,
despite the forty years the partnership was allegedly in existence, Tan Eng Kee never
in gist, said the Court of Appeals. The Court agrees.
asked for an accounting; payrolls show that Tan Eng Kee was an ordinary employee of
WHEREFORE, the instant petition is DENIED and the impugned Decision and Benguet Lumber who received wages; petitioners failed to show how much share in
Resolution of the Court of Appeals AFFIRMED. the profits of the company, if any, their father Tan Eng Kee, received for any particular
period.
Cost against the petitioner.
SO ORDERED.
SYLLABUS
||| (Litonjua, Jr. v. Litonjua, Sr., G.R. Nos. 166299-300, [December 13, 2005], 513 PHIL
707-730)
1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL UNDER RULE 45; RULE WHEN
FACTUAL FINDINGS OF THE COURT OF APPEALS AND THE COURT A QUO ARE
CONFLICTING. — As can be seen, the appellate court disputed and differed from the
2. Heirs of Tan Eng Kee vs. CA
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
[G.R. No. 126881. October 3, 2000.]
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
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS evidence by the court a quo. Inasmuch as the Court of Appeals and the trial court had
and BENGUET LUMBER COMPANY, represented by its reached conflicting conclusions, perforce we must examine the record to determine if
President TAN ENG LAY, respondents. the reversal was justified.
2. CIVIL LAW; CIVIL CODE; SPECIAL CONTRACTS; PARTNERSHIP; PROOF
REQUIRED TO ESTABLISH A PARTNERSHIP. — In order to constitute a partnership,
Soo Gutierrez Leogardo & Lee for petitioners. 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
Francisco S. Reyes Law Office for private respondents.
among themselves. The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two instances: (1) when
immovable property or real rights are contributed, and (2) when the partnership has a
SYNOPSIS capital of three thousand pesos or more. In both cases, a public instrument is required.
An inventory to be signed by the parties and attached to the public instrument is also
Petitioners, Heirs of Tan Eng Kee, filed a complaint for accounting of partnership indispensable to the validity of the partnership whenever immovable property is
assets, dissolution and the equal division of the net assets of Benguet Lumber, later contributed to the partnership. TEcHCA
PAT 1

3. ID.; ID.; ID.; ID.; ID.; CIRCUMSTANCES INDICATING TAN ENG KEE WAS AN to the hard work and thrift of the alleged partners. However, they claimed that in 1981,
EMPLOYEE, NOT A PARTNER IN CASE AT BAR. — Unfortunately for petitioners, Tan Tan Eng Lay and his children caused the conversion of the partnership "Benguet
Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded Lumber" into a corporation called "Benguet Lumber Company." The incorporation was
on the precise nature of the business relationship between them. In the absence of purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in
evidence, we cannot accept as an established fact that Tan Eng Kee allegedly the profits of the business. Petitioners prayed for accounting of the partnership assets,
contributed his resources to a common fund for the purpose of establishing a and the dissolution, winding up and liquidation thereof, and the equal division of the net
partnership. The testimonies to that effect of petitioners' witnesses is directly assets of Benguet Lumber.
controverted by Tan Eng Lay. . . . Besides, it is indeed odd, if not unnatural, that despite
the forty years the partnership was allegedly in existence, Tan Eng Kee never asked After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April
for an accounting. The essence of a partnership is that the partners share in the profits 12, 1995, to wit:
and losses. Each has the right to demand an accounting as long as the partnership
WHEREFORE, in view of all the foregoing, judgment is hereby
exists. . . . Exhibits "4" to "4-U" . . . shows that Tan Eng Kee received sums as wages of
rendered:
an employee. . . . Even if the payrolls as evidence were discarded, petitioners would
still be back to square one, so to speak, since they did not present and offer evidence a) Declaring that Benguet Lumber is a joint venture which is akin
that would show that Tan Eng Kee received amounts of money allegedly representing to a particular partnership;
his share in the profits of the enterprise.
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
DECISION 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
DE LEON, JR., J p:
heirs or legal representatives of the deceased Tan Eng Kee have
a legal right to share in said assets;
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision 1 dated March 13, 1996 of the former Fifth Division 2 of the Court of Appeals d) Declaring that all the rights and obligations of Tan Eng Kee as
in CA-G.R. CV No. 47937, the dispositive portion of which states: joint adventurer and/or as partner in a particular partnership have
descended to the plaintiffs who are his legal heirs.
THE FOREGOING CONSIDERED, the appealed decision is
hereby set aside, and the complaint dismissed. e) Ordering the defendant Tan Eng Lay and/or the President
and/or General Manager of Benguet Lumber Company Inc. to
The facts are: THacES render an accounting of all the assets of Benguet Lumber
Company, Inc. so the plaintiffs know their proper share in the
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the
business;
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 f) Ordering the appointment of a receiver to preserve and/or
ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19, administer the assets of Benguet Lumber Company, Inc. until such
1990. The complaint, 3 docketed as Civil Case No. 1983-R in the Regional Trial Court time that said corporation is finally liquidated are directed to submit
of Baguio City was for accounting, liquidation and winding up of the alleged partnership the name of any person they want to be appointed as receiver
formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, failing in which this Court will appoint the Branch Clerk of Court or
the petitioners filed an amended complaint 4 impleading private respondent herein another one who is qualified to act as such.
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 g) Denying the award of damages to the plaintiffs for lack of proof
except the expenses in filing the instant case.
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 h) Dismissing the counter-claim of the defendant for lack of merit.
partnership engaged in the business of selling lumber and hardware and construction
supplies. They named their enterprise "Benguet Lumber" which they jointly managed SO ORDERED.
until Tan Eng Kee's death. Petitioners herein averred that the business prospered due
PAT 1

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY
rendered the assailed decision reversing the judgment of the trial court. Petitioners' WERE ALL LIVING AT THE BENGUET LUMBER
motion for reconsideration 7 was denied by the Court of Appeals in a Resolution 8 dated COMPOUND;
October 11, 1996.
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE
Hence, the present petition. HTCESI COMMANDING THE EMPLOYEES OF BENGUET
LUMBER;
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 c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE
proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the defendants SUPERVISING THE EMPLOYEES THEREIN;
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 d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES
of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, DETERMINING THE PRICES OF STOCKS TO BE
Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged SOLD TO THE PUBLIC; AND
falsification of commercial documents by a private individual. On March 20, 1999, the
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES
Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered
MAKING ORDERS TO THE SUPPLIERS (PAGE 18,
judgment 9 dismissing the cases for insufficiency of evidence.
DECISION).

IV
In their assignment of errors, petitioners claim that:
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
I THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE
CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING VERONICA CHOI, TOGETHER WITH THEIR WITNESS
THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW
TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS
(A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO BENGUET LUMBER WAS STARTED AS A PARTNERSHIP
FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE (PAGE 16-17, DECISION).
WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS
NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) V
THERE WAS NO TIME FIXED FOR THE DURATION OF THE
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
PARTNERSHIP (PAGE 13, DECISION).
THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE
II TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE
THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER
THE HONORABLE COURT OF APPEALS ERRED IN RELYING IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE
SOLELY ON THE SELF-SERVING TESTIMONY OF EXECUTION OF A PUBLIC INSTRUMENT CREATING A
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH
A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES
ONLY AN EMPLOYEE THEREOF. (PAGE 17, DECISION).

III 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
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING jurisdiction, it must be emphasized, does not include review of factual issues. Thus:
THAT THE FOLLOWING FACTS WHICH WERE DULY
SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT Filing of petition with Supreme Court. — A party desiring to appeal
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST by certiorari from a judgment or final order or resolution of the
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP Court of Appeals, the Sandiganbayan, the Regional Trial Court or
DULY RECORDED BEFORE THE SECURITIES AND other courts whenever authorized by law, may file with the
EXCHANGE COMMISSION: Supreme Court a verified petition for review on certiorari. The
PAT 1

petition shall raise only questions of law which must be distinctly We have the admission that the father of the plaintiffs was not a
set forth. 11 [italics supplied] partner of the Benguet Lumber before the war. The appellees
however argued that (Rollo, p. 104; Brief, p. 6) this is because
Admitted exceptions have been recognized, though, and when present, may compel during the war, the entire stocks of the pre-war Benguet Lumber
us to analyze the evidentiary basis on which the lower court rendered judgment. Review were confiscated if not burned by the Japanese. After the war,
of factual issues is therefore warranted: because of the absence of capital to start a lumber and hardware
business, Lay and Kee pooled the proceeds of their individual
(1) when the factual findings of the Court of Appeals and the trial
businesses earned from buying and selling military supplies, so
court are contradictory;
that the common fund would be enough to form a partnership, both
(2) when the findings are grounded entirely on speculation, in the lumber and hardware business. That Lay and Kee actually
surmises, or conjectures; established the Benguet Lumber in Baguio City, was even testified
to by witnesses. Because of the pooling of resources, the post-war
(3) when the inference made by the Court of Appeals from its Benguet Lumber was eventually established. That the father of the
findings of fact is manifestly mistaken, absurd, or impossible; plaintiffs and Lay were partners, is obvious from the fact that: (1)
they conducted the affairs of the business during Kee's lifetime,
(4) when there is grave abuse of discretion in the appreciation of jointly, (2) they were the ones giving orders to the employees, (3)
facts; they were the ones preparing orders from the suppliers, (4) their
(5) when the appellate court, in making its findings, goes beyond families stayed together at the Benguet Lumber compound, and
the issues of the case, and such findings are contrary to the (5) all their children were employed in the business in different
admissions of both appellant and appellee; capacities.

(6) when the judgment of the Court of Appeals is premised on a xxx xxx xxx
misapprehension of facts; It is obvious that there was no partnership whatsoever. Except for
(7) when the Court of Appeals fails to notice certain relevant facts a firm name, there was no firm account, no firm letterheads
which, if properly considered, will justify a different conclusion; submitted as evidence, no certificate of partnership, no agreement
as to profits and losses, and no time fixed for the duration of the
(8) when the findings of fact are themselves conflicting; partnership. There was even no attempt to submit an accounting
corresponding to the period after the war until Kee's death in 1984.
(9) when the findings of fact are conclusions without citation of the It had no business book, no written account nor any memorandum
specific evidence on which they are based; and for that matter and no license mentioning the existence of a
partnership [citation omitted].
(10) when the findings of fact of the Court of Appeals are premised
on the absence of evidence but such findings are contradicted by Also, the exhibits support the establishment of only a
the evidence on record. 12 proprietorship. The certification dated March 4, 1971, Exhibit "2",
mentioned co-defendant Lay as the only registered owner of the
In reversing the trial court, the Court of Appeals ruled, to wit:
Benguet Lumber and Hardware. His application for registration,
We note that the Court a quo over extended the issue because effective 1954, in fact mentioned that his business started in 1945
while the plaintiffs mentioned only the existence of a partnership, until 1985 (thereafter, the incorporation). The deceased, Kee, on
the Court in turn went beyond that by justifying the existence of a the other hand, was merely an employee of the Benguet Lumber
joint venture. Company, on the basis of his SSS coverage effective 1958, Exhibit
"3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years
When mention is made of a joint venture, it would presuppose 1982 to 1983, Kee was similarly listed only as an employee;
parity of standing between the parties, equal proprietary interest precisely, he was on the payroll listing. In the Termination Notice,
and the exercise by the parties equally of the conduct of the Exhibit "5", Lay was mentioned also as the proprietor.
business, thus:
xxx xxx xxx
xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner
[sic] may be constituted in any form, but when an immovable is
PAT 1

constituted, the execution of a public instrument becomes conflicting conclusions, perforce we must examine the record to determine if the
necessary. This is equally true if the capitalization exceeds reversal was justified.
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
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in
business establishment, which from the language of the appellees,
Benguet Lumber. A contract of partnership is defined by law as one where:
prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00,
in addition to the accumulation of real properties and to the fact . . . two or more persons bind themselves to contribute money,
that it is now a compound. The execution of a public instrument, property, or industry to a common fund, with the intention of
on the other hand, was never established by the appellees. dividing the profits among themselves.
And then in 1981, the business was incorporated and the Two or more persons may also form a partnership for the exercise
incorporators were only Lay and the members of his family. There of a profession. 14
is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or Thus, in order to constitute a partnership, it must be established that (1) two or more
transferred by Lay, supposedly to the corporation and since then persons bound themselves to contribute money, property, or industry to a common
have been treated as a part of the latter's capital assets, contrary fund, and (2) they intend to divide the profits among themselves. 15 The agreement
to the allegations in pars. 6, 7 and 8 of the complaint. 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
These are not evidences supporting the existence of a partnership: 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
1) That Kee was living in a bunk house just across the lumber
by the parties and attached to the public instrument is also indispensable to the validity
store, and then in a room in the bunk house in Trinidad, but within
of the partnership whenever immovable property is contributed to the partnership. 19
the compound of the lumber establishment, as testified to by
Tandoc; 2) that both Lay and Kee were seated on a table and were The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint
"commanding people" as testified to by the son, Elpidio Tan; 3) venture, which it said is akin to a particular partnership. 20 A particular partnership is
that both were supervising the laborers, as testified to by Victoria distinguished from a joint adventure, to wit:
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 (a) A joint adventure (an American concept similar to our joint
added to the business. DTaSIc accounts) is a sort of informal partnership, with no firm
name and no legal personality. In a joint account, the
Partnership presupposes the following elements [citation omitted]: participating merchants can transact business under their
1) a contract, either oral or written. However, if it involves real own name, and can be individually liabletherefor.
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 (b) Usually, but not necessarily a joint adventure is limited to a
the contract; 3) money property or industry contribution; 4) SINGLE TRANSACTION, although the business of
community of funds and interest, mentioning equality of the pursuing to a successful termination may continue for a
partners or one having a proportionate share in the benefits; and number of years; a partnership generally relates to a
5) intention to divide the profits, being the true test of the continuing business of various transactions of a certain
partnership. The intention to join in the business venture for the kind. 21
purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial A joint venture "presupposes generally a parity of standing between the joint co-
evidence of the appellees. 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
As can be seen, the appellate court disputed and differed from the trial court which had the business." 22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing
adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint Corporation, et. al., 23 we expressed the view that a joint venture may be likened to a
venture. In this connection, we have held that whether a partnership exists is a factual particular partnership, thus:
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 The legal concept of a joint venture is of common law origin. It has
court a quo. 13Inasmuch as the Court of Appeals and the trial court had reached no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. (Gates
PAT 1

v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from supposedly owned by both brothers. 26 Tan Eng Lay, however, denied knowledge of
the partnership, since their elements are similar — community of this meeting or of the conversation between Peralta and his brother. 27 Tan Eng Lay
interest in the business, sharing of profits and losses, and a mutual consistently testified that he had his business and his brother had his, that it was only
right of control. (Blackner v. McDermott, 176 F. 2d. 498, later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-
[1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of
Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). the existence of a partnership. 28
The main distinction cited by most opinions in common law
jurisdiction is that the partnership contemplates a general business Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership
with some degree of continuity, while the joint venture is formed was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence
for the execution of a single transaction, and is thus of a temporary of a partnership is that the partners share in the profits and losses. 29 Each has the
nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 right to demand an accounting as long as the partnership exists. 30 We have allowed
[1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates a scenario wherein "[i]f excellent relations exist among the partners at the start of the
v. Megargel 266 Fed. 811 [1920]). This observation is not entirely business and all the partners are more interested in seeing the firm grow rather than
accurate in this jurisdiction, since under the Civil Code, a get immediate returns, a deferment of sharing in the profits is perfectly
partnership may be particular or universal, and a particular plausible." 31 But in the situation in the case at bar, the deferment, if any, had gone on
partnership may have for its object a specific undertaking. (Art. too long to be plausible. A person is presumed to take ordinary care of his
1783, Civil Code). It would seem therefore that under Philippine concerns. 32 As we explained in another case:
law, a joint venture is a form of partnership and should thus be
In the first place, plaintiff did not furnish the supposed P20,000.00
governed by the law of partnerships. The Supreme Court has
capital. In the second place, she did not furnish any help or
however recognized a distinction between these two business
intervention in the management of the theatre. In the third place, it
forms, and has held that although a corporation cannot enter into
does not appear that she has even demanded from defendant any
a partnership contract, it may however engage in a joint venture
accounting of the expenses and earnings of the business. Were
with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954])
she really a partner, her first concern should have been to find out
(Campos and Lopez-Campos, Comments, Notes and Selected
how the business was progressing, whether the expenses were
Cases, Corporation Code 1981).
legitimate, whether the earnings were correct, etc. She was
Undoubtedly, the best evidence would have been the contract of partnership itself, or absolutely silent with respect to any of the acts that a partner
the articles of partnership but there is none. The alleged partnership, though, was never should have done; all that she did was to receive her share of
formally organized. In addition, petitioners point out that the New Civil Code was not P3,000.00 a month, which cannot be interpreted in any manner
yet in effect when the partnership was allegedly formed sometime in 1945, although than a payment for the use of the premises which she had leased
the contrary may well be argued that nothing prevented the parties from complying with from the owners. Clearly, plaintiff had always acted in accordance
the provisions of the New Civil Code when it took effect on August 30, 1950. But all that with the original letter of defendant of June 17, 1945 (Exh. "A"),
is in the past. The net effect, however, is that we are asked to determine whether a which shows that both parties considered this offer as the real
partnership existed based purely on circumstantial evidence. A review of the record contract between them. 33 [italics supplied]
persuades us that the Court of Appeals correctly reversed the decision of the trial court.
A demand for periodic accounting is evidence of a partnership. 34 During his
The evidence presented by petitioners falls short of the quantum of proof required to
lifetime, Tan Eng Kee appeared never to have made any such demand for
establish a partnership. accounting from his brother, Tang Eng Lay.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting
Eng Lay, could have expounded on the precise nature of the business relationship of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet
between them. In the absence of evidence, we cannot accept as an established fact Lumber, as it was then called. The authenticity of these documents was questioned by
that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his
of establishing a partnership. The testimonies to that effect of petitioners' witnesses is wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of
directly controverted by Tan Eng Lay. It should be noted that it is not with the number evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as
of witnesses wherein preponderance lies; 24 the quality of their testimonies is to be wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:
considered. None of petitioners' witnesses could suitably account for the beginnings of
Benguet Lumber Company, exceptperhaps for Dionisio Peralta whose deceased wife In determining whether a partnership exists, these rules shall
was related to Matilde Abubo. 25 He stated that when he met Tan Eng Kee after the apply:
liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets
PAT 1

(1) Except as provided by Article 1825, persons who are not Petitioners seem to have missed the point in asserting that the
partners as to each other are not partners as to third persons; above enumerated powers and privileges granted in favor of Tan
Eng Kee, were indicative of his being a partner in Benguet Lumber
(2) Co-ownership or co-possession does not of itself establish a for the following reasons:
partnership, whether such co-owners or co-possessors do or do
not share any profits made by the use of the property; (i) even a mere supervisor in a company, factory or store gives
orders and directions to his subordinates. So long, therefore, that
(3) The sharing of gross returns does not of itself establish a an employee's position is higher in rank, it is not unusual that he
partnership, whether or not the persons sharing them have a joint orders around those lower in rank.
or common right or interest in any property which the returns are
derived; (ii) even a messenger or other trusted employee, over whom
confidence is reposed by the owner, can order materials from
(4) The receipt by a person of a share of the profits of a business suppliers for and in behalf of Benguet Lumber. Furthermore, even
is a prima facie evidence that he is a partner in the business, but a partner does not necessarily have to perform this particular task.
no such inference shall be drawn if such profits were received in It is, thus, not an indication that Tan Eng Kee was a partner.
payment:
(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
(a) As a debt by installment or otherwise;
brother of Tan Eng Lay. Naturally, close personal relations existed
(b) As wages of an employee or rent to a landlord; between them. Whatever privileges Tan Eng Lay gave his brother,
and which were not given the other employees, only proves the
(c) As an annuity to a widow or representative of a kindness and generosity of Tan Eng Lay towards a blood relative.
deceased partner;
(iv) and even if it is assumed that Tan Eng Kee was quarreling with
(d) As interest on a loan, though the amount of payment Tan Eng Lay in connection with the pricing of stocks, this does not
vary with the profits of the business; adequately prove the existence of a partnership relation between
them. Even highly confidential employees and the owners of a
(e) As the consideration for the sale of a goodwill of a company sometimes argue with respect to certain matters which,
business or other property by installments or in no way indicates that they are partners as to each other. 35
otherwise.
In the instant case, we find private respondent's arguments to be well-taken. Where
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only circumstances taken singly may be inadequate to prove the intent to form a partnership,
an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners nevertheless, the collective effect of these circumstances may be such as to support a
would still be back to square one, so to speak, since they did not present and offer finding of the existence of the parties' intent. 36 Yet, in the case at bench, even the
evidence that would show that Tan Eng Kee received amounts of money allegedly aforesaid circumstances when taken together are not persuasive indicia of a
representing his share in the profits of the enterprise. Petitioners failed to show how partnership. They only tend to show that Tan Eng Kee was involved in the operations
much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood
Lumber Company for any particular period. Hence, they failed to prove that Tan Eng that as a member of the family, he occupied a niche above the rank-and-file employees.
Kee and Tan Eng Lay intended to divide the profits of the business between He would have enjoyed liberties otherwise unavailable were he not kin, such as his
themselves, which is one of the essential features of a partnership. residence in the Benguet Lumber Company compound. He would have moral, if not
Nevertheless, petitioners would still want us to infer or believe the alleged existence of actual, superiority over his fellow employees, thereby entitling him to exercise powers
a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were of supervision. It may even be that among his duties is to place orders with suppliers.
commanding the employees; that both were supervising the employees; that both were Again, the circumstances proffered by petitioners do not provide a logical nexus to the
the ones who determined the price at which the stocks were to be sold; and that both conclusion desired; these are not inconsistent with the powers and duties of a manager,
placed orders to the suppliers of the Benguet Lumber Company. They also point out even in a business organized and run as informally as Benguet Lumber Company.
that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet There being no partnership, it follows that there is no dissolution, winding up or
Lumber Company compound, a privilege not extended to its ordinary employees. liquidation to speak of. Hence, the petition must fail.
However, private respondent counters that: TCacIA
PAT 1

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of produce of the said real properties for the years 1947-1949 for the studies of Rafael
Appeals is hereby AFFIRMED in toto. No pronouncement as to costs. and Antonieta Jarantilla. 8
SO ORDERED. In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo
entered into an agreement with the spouses Buenaventura Remotigue and
||| (Heirs of Tan Eng Kee v. Court of Appeals, G.R. No. 126881, [October 3, 2000], 396 Conchita Jarantilla to provide mutual assistance to each other by way of financial
PHIL 68-86) 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
3. Jarantilla, Jr. vs. Jarantilla construct buildings, among other things. 9 This partnership ended in 1973 when
the parties, in an "Agreement," 10 voluntarily agreed to completely dissolve their
[G.R. No. 154486. December 1, 2010.] "joint business relationship/arrangement." 11 DHATcE
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue
FEDERICO JARANTILLA, JR., petitioner, vs. ANTONIETA executed a document wherein they acknowledged that while registered only in
JARANTILLA, BUENAVENTURA REMOTIGUE, SUBSTITUTED Buenaventura Remotigue's name, they were not the only owners of the capital of
BY CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and the businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue
TOMAS JARANTILLA, respondents. 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 (P8,000.00) and Federico Jarantilla, Jr.'s as five thousand
DECISION pesos (P5,000.00). 12
The present case stems from the amended complaint 13 dated April 22,
1987 filed by Antonieta Jarantilla against Buenaventura Remotigue, Cynthia
Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas Jarantilla, for the
LEONARDO-DE CASTRO, J p: 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.
This petition for review on certiorari 1 seeks to modify the Decision 2 of Antonieta claimed that in 1946, she had entered into an agreement with Conchita
the Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set and Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio
aside the Decision 3 dated December 18, 1992 of the Regional Trial Court (RTC) Deocampo to engage in business. Antonieta alleged that the initial contribution of
of Quezon City, Branch 98 in Civil Case No. Q-50464. property and money came from the heirs' inheritance, and her subsequent annual
The pertinent facts are as follows: investment of seven thousand five hundred pesos (P7,500.00) as additional capital
came from the proceeds of her farm. Antonieta also alleged that from 1946-1969,
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight she had helped in the management of the business they co-owned without
children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and receiving any salary. Her salary was supposedly rolled back into the business as
Antonieta. 4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late Jarantilla additional investments in her behalf. Antonieta further claimed co-ownership of
spouses by their son Federico Jarantilla, Sr. and his wife Leda Jamili. 5 Petitioner certain properties 14 (the subject real properties) in the name of the defendants
also has two other brothers: Doroteo and Tomas Jarantilla. since the only way the defendants could have purchased these properties were
through the partnership as they had no other source of income.
Petitioner was one of the defendants in the complaint before the RTC
while Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-respondents The respondents, including petitioner herein, in their Answer, 15 denied
before he joined his aunt Antonieta in her complaint, were his late aunt Conchita having formed a partnership with Antonieta in 1946. They claimed that she was in
Jarantilla's husband Buenaventura Remotigue, who died during the pendency of no position to do so as she was still in school at that time. In fact, the proceeds of
the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita the lands they partitioned were devoted to her studies. They also averred that while
Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas she may have helped in the businesses that her older sister Conchita had formed
Jarantilla. 6 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
In 1948, the Jarantilla heirs extrajudicially partitioned amongst
used this as evidence to support their claim that Antonieta's 8% share was limited
themselves the real properties of their deceased parents. 7 With the exception of
to the businesses enumerated therein. With regard to Antonieta's claim in their
the real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot the
other corporations and businesses, the respondents said these should also be
PAT 1

limited to the number of her shares as specified in the respective articles of 6. to pay, jointly and severally, the costs of the suit. 21
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 Both the petitioner and the respondents appealed this decision to the
on her. 16 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
During the course of the trial at the RTC, petitioner Federico Jarantilla, [him] six per centum (6%) of the properties." 22
Jr., who was one of the original defendants, entered into a compromise
agreement 17 with Antonieta Jarantilla wherein he supported Antonieta's claims While the Court of Appeals agreed to some of the RTC's factual findings,
and asserted that he too was entitled to six percent (6%) of the supposed it also established that Antonieta Jarantilla was not part of the partnership formed
partnership in the same manner as Antonieta was. He prayed for a favorable in 1946, and that her 8% share was limited to the businesses enumerated in the
judgment in this wise: Acknowledgement of Participating Capital. On July 30, 2002, the Court of Appeals
rendered the herein challenged decision setting aside the RTC's decision, as
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff's prayer follows:
for an accounting from the other defendants, and the partition of
the properties of the co-ownership and the delivery to the plaintiff WHEREFORE, the decision of the trial court, dated 18 December
and to defendant Federico Jarantilla, Jr. of their rightful share of 1992 is SET ASIDE and a new one is hereby entered ordering that:
the assets and properties in the co-ownership. 18 acCETD
(1) after accounting, plaintiff Antonieta Jarantilla be given
The RTC, in an Order 19 dated March 25, 1992, approved the Joint her share of 8% in the assets and profits of
Motion to Approve Compromise Agreement 20 and on December 18, 1992, Manila Athletic Supply, Remotigue Trading in
decided in favor of Antonieta, to wit: Iloilo City and Remotigue Trading in Cotabato
City;
WHEREFORE, premises above-considered, the Court renders
judgment in favor of the plaintiff Antonieta Jarantilla and against (2) after accounting, defendant Federico Jarantilla, Jr. be
defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas given his share of 6% of the assets and profits
Jarantilla ordering the latter: of the above-mentioned enterprises; and,
holding that caDTSE
1. to deliver to the plaintiff her 8% share or its equivalent
amount on the real properties covered by TCT (3) plaintiff Antonieta Jarantilla is a stockholder in the
Nos. 35655, 338398, 338399 & 335395, all of following corporations to the extent stated in
the Registry of Deeds of Quezon City; TCT Nos. their Articles of Incorporation:
(18303)23341, 142882 & 490007(4615), all of
the Registry of Deeds of Rizal; and TCT No. T- (a) Rural Bank of Barotac Nuevo, Inc.;
6309 of the Registry of Deeds of Cotabato (b) MAS Rubber Products, Inc.;
based on their present market value;
(c) Manila Athletic Supply, Inc.; and
2. to deliver to the plaintiff her 8% share or its equivalent
amount on the Remotigue Agro-Industrial (d) B. Remotigue Agro-Industrial Development
Corporation, Manila Athletic Supply, Inc., MAS Corp.
Rubber Products, Inc. and Buendia Recapping
Corporation based on the shares of stocks (4) No costs. 23
present book value;
The respondents, on August 20, 2002, filed a Motion for Partial
3. to account for the assets and income of the co- Reconsideration but the Court of Appeals denied this in a Resolution 24dated
ownership and deliver to plaintiff her rightful March 21, 2003.
share thereof equivalent to 8%; Antonieta Jarantilla filed before this Court her own petition for review
4. to pay plaintiff, jointly and severally, the sum of on certiorari 25 dated September 16, 2002, assailing the Court of Appeals' decision
P50,000.00 as moral damages; 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
5. to pay, jointly and severally, the sum of P50,000.00 as reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of
attorney's fees; and the Rules of Court. 27
PAT 1

Petitioner filed before us this petition for review on the sole ground that: properties of the respondents as they had supposedly acquired these through
funds from the partnership. 31
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
IN NOT RULING THAT PETITIONER FEDERICO JARANTILLA, The Court of Appeals, on the other hand, agreed with the RTC as to
JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE Antonieta's 8% share in the business enumerated in the Acknowledgement of
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE Participating Capital, but not as to her share in the other corporations and real
OTHER DEFENDANTS USING COMMON FUNDS FROM THE properties. The Court of Appeals ruled that Antonieta's claim of 8% is based on the
BUSINESSES WHERE HE HAD OWNED SUCH SHARE. 28 "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
Petitioner asserts that he was in a partnership with the Remotigue her share in the other corporations from her share in the partnership's businesses.
spouses, the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta The Court of Appeals also said that her claim in the respondents' real properties
Jarantilla and Quintin Vismanos, as evidenced by the Acknowledgement of was more "precarious" as these were all covered by certificates of title which
Participating Capital the Remotigue spouses executed in 1957. He contends that served as the best evidence as to all the matters contained therein. 32 Since
from this partnership, several other corporations and businesses were established petitioner's claim was essentially the same as Antonieta's, the Court of Appeals
and several real properties were acquired. In this petition, he is essentially asking also ruled that petitioner be given his 6% share in the same businesses listed in
for his 6% share in the subject real properties. He is relying on the the Acknowledgement of Participating Capital.
Acknowledgement of Participating Capital, on his own testimony, and Antonieta
Jarantilla's testimony to support this contention. 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
The core issue is whether or not the partnership subject of the is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of
Acknowledgement of Participating Capital funded the subject real properties. In discretion; (3) when the finding is grounded entirely on speculations, surmises or
other words, what is the petitioner's right over these real properties? conjectures; (4) when the judgment of the Court of Appeals is based on
It is a settled rule that in a petition for review on certiorari under Rule 45 misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
of the Rules of Civil Procedure, only questions of law may be raised by the parties Court of Appeals, in making its findings, went beyond the issues of the case and
and passed upon by this Court. 29 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
A question of law arises when there is doubt as to what the law is the findings of fact are conclusions without citation of specific evidence on which
on a certain state of facts, while there is a question of fact when they are based; (9) when the Court of Appeals manifestly overlooked certain
the doubt arises as to the truth or falsity of the alleged facts. For a relevant facts not disputed by the parties and which, if properly considered, would
question to be one of law, the same must not involve an justify a different conclusion; and (10) when the findings of fact of the Court of
examination of the probative value of the evidence presented by Appeals are premised on the absence of evidence and are contradicted by the
the litigants or any of them. The resolution of the issue must rest evidence on record. 33
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 In this case, we find no error in the ruling of the Court of Appeals.
presented, the question posed is one of fact. Thus, the test of Both the petitioner and Antonieta Jarantilla characterize their relationship
whether a question is one of law or of fact is not the appellation with the respondents as a co-ownership, but in the same breath, assert that a
given to such question by the party raising the same; rather, it is verbal partnership was formed in 1946 and was affirmed in the 1957
whether the appellate court can determine the issue raised without Acknowledgement of Participating Capital.
reviewing or evaluating the evidence, in which case, it is a question
of law; otherwise it is a question of fact. 30 TCDHaE 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
Since the Court of Appeals did not fully adopt the factual findings of the to contribute money, property, or industry to a common fund, with the intention of
RTC, this Court, in resolving the questions of law that are now in issue, shall look dividing the profits among themselves. 35The Court, in Pascual v. The
into the facts only in so far as the two courts a quo differed in their appreciation Commissioner of Internal Revenue, 36 quoted the concurring opinion of Mr. Justice
thereof. Angelo Bautista in Evangelista v. The Collector of Internal Revenue 37 to further
elucidate on the distinctions between a co-ownership and a partnership, to wit:
The RTC found that an unregistered partnership existed since 1946 which
was affirmed in the 1957 document, the "Acknowledgement of Participating I wish however to make the following observation: Article 1769 of
Capital." The RTC used this as its basis for giving Antonieta Jarantilla an 8% share the new Civil Code lays down the rule for determining when a
in the three businesses listed therein and in the other businesses and real
PAT 1

transaction should be deemed a partnership or a co-ownership. In order to constitute a partnership inter sese there must be: (a) An
Said article paragraphs 2 and 3, provides; intent to form the same; (b) generally participating in both profits
and losses; (c) and such a community of interest, as far as third
(2) Co-ownership or co-possession does not itself establish a persons are concerned as enables each party to make contract,
partnership, whether such co-owners or co-possessors do or do manage the business, and dispose of the whole property. . . . .
not share any profits made by the use of the property;
The common ownership of property does not itself create a
(3) The sharing of gross returns does not of itself establish a partnership between the owners, though they may use it for the
partnership, whether or not the persons sharing them have a joint purpose of making gains; and they may, without becoming
or common right or interest in any property from which the returns partners, agree among themselves as to the management, and
are derived; CAIaDT use of such property and the application of the proceeds
therefrom. 38 (Citations omitted.)
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 Under Article 1767 of the Civil Code, there are two essential elements in
the use of the property held in common does not convert their a contract of partnership: (a) an agreement to contribute money, property or
venture into a partnership. Or the sharing of the gross returns does industry to a common fund; and (b) intent to divide the profits among the
not of itself establish a partnership whether or not the persons contracting parties. The first element is undoubtedly present in the case at bar, for,
sharing therein have a joint or common right or interest in the admittedly, all the parties in this case have agreed to, and did, contribute money
property. This only means that, aside from the circumstance of and property to a common fund.Hence, the issue narrows down to their intent in
profit, the presence of other elements constituting partnership is acting as they did. 39 It is not denied that all the parties in this case have agreed
necessary, such as the clear intent to form a partnership, the to contribute capital to a common fund to be able to later on share its profits. They
existence of a juridical personality different from that of the have admitted this fact, agreed to its veracity, and even submitted one common
individual partners, and the freedom to transfer or assign any documentary evidence to prove such partnership — the Acknowledgement of
interest in the property by one with the consent of the others. Participating Capital. SDTIaE
It is evident that an isolated transaction whereby two or more As this case revolves around the legal effects of the Acknowledgement of
persons contribute funds to buy certain real estate for profit in the Participating Capital, it would be instructive to examine the pertinent portions of
absence of other circumstances showing a contrary intention this document:
cannot be considered a partnership.
ACKNOWLEDGEMENT OF
Persons who contribute property or funds for a common enterprise PARTICIPATING CAPITAL
and agree to share the gross returns of that enterprise in proportion
to their contribution, but who severally retain the title to their KNOW ALL MEN BY THESE PRESENTS:
respective contribution, are not thereby rendered partners. They
That we, the spouses Buenaventura Remotigue and Conchita
have no common stock or capital, and no community of interest as
Jarantilla de Remotigue, both of legal age, Filipinos and residents
principal proprietors in the business itself which the proceeds
of Loyola Heights, Quezon City, P.I. hereby state:
derived.
That the Manila Athletic Supply at 712 Raon, Manila, the
A joint purchase of land, by two, does not constitute a co-
Remotigue Trading of Calle Real, Iloilo City and the Remotigue
partnership in respect thereto; nor does an agreement to share the
Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic
profits and losses on the sale of land create a partnership; the
goods and equipments, and general merchandise are recorded in
parties are only tenants in common.
their respective books with Buenaventura Remotigue as the
Where plaintiff, his brother, and another agreed to become owners registered owner and are being operated by them as such:
of a single tract of realty, holding as tenants in common, and to
That they are not the only owners of the capital of the three
divide the profits of disposing of it, the brother and the other not
establishments and their participation in the capital of the three
being entitled to share in plaintiff's commission, no partnership
establishments together with the other co-owners as of the year
existed as between the three parties, whatever their relation may
1952 are stated as follows:
have been as to third parties.
1. Buenaventura Remotigue (TWENTY-FIVE P25,000.00
PAT 1

It is clear from the foregoing that a partner is entitled only to his share as
OUSAND)
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
nchita Jarantilla de Remotigue (TWENTY-FIVE 25,000.00 share to be 6%, as stated in the Acknowledgement of Participating Capital.
However, petitioner fails to realize that this document specifically enumerated the
OUSAND)
businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading
in Iloilo City and Remotigue Trading in Cotabato City. Since there was a clear
encio Deocampo (FIFTEEN THOUSAND) 15,000.00
agreement that the capital the partners contributed went to the three businesses,
sita J. Deocampo (FIFTEEN THOUSAND) 15,000.00 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
tonieta Jarantilla (EIGHT THOUSAND) 8,000.00 limiting petitioner's share to the assets of the businesses enumerated in the
Acknowledgement of Participating Capital.
fael Jarantilla (SIX THOUSAND) 6,000.00 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
derico Jarantilla, Jr. (FIVE THOUSAND) 5,000.00 limited only to its total resources, to wit:
intin Vismanos (TWO THOUSAND) 2,000.00 Since it is the partnership, as a separate and distinct entity, that
That aside from the persons mentioned in the next preceding must refund the shares of the partners, the amount to be refunded
paragraph, no other person has any interest in the above- is necessarily limited to its total resources. In other words, it can
mentioned three establishments. 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
IN WITNESS WHEREOF, they sign this instrument in the City of creditors of the partnership must first be compensated. After all the
Manila, P.I., this 29th day of April, 1957. creditors have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners' shares. 42
[Sgd.]
There is no evidence that the subject real properties were assets of the
BUENAVENTURA REMOTIGUE partnership referred to in the Acknowledgement of Participating Capital.
[Sgd.] 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
CONCHITA JARANTILLA DE REMOTIGUE 40 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
The Acknowledgement of Participating Capital is a duly notarized
properties in such proportion." 43 In Pigao v. Rabanillo, 44 this Court explained the
document voluntarily executed by Conchita Jarantilla-Remotigue and
concept of trusts, to wit:
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 Express trusts are created by the intention of the trustor or of the
Civil Code provides: aEHASI parties, while implied trusts come into being by operation of law,
either through implication of an intention to create a trust as a
Art. 1797. The losses and profits shall be distributed in
matter of law or through the imposition of the trust irrespective of,
conformity with the agreement. If only the share of each partner
and even contrary to, any such intention. In turn, implied trusts are
in the profits has been agreed upon, the share of each in the losses
either resulting or constructive trusts. Resulting trusts are based
shall be in the same proportion.
on the equitable doctrine that valuable consideration and not legal
In the absence of stipulation, the share of each partner in the title determines the equitable title or interest and are presumed
profits and losses shall be in proportion to what he may have always to have been contemplated by the parties. They arise from
contributed, but the industrial partner shall not be liable for the the nature or circumstances of the consideration involved in a
losses. As for the profits, the industrial partner shall receive such transaction whereby one person thereby becomes invested with
share as may be just and equitable under the circumstances. If legal title but is obligated in equity to hold his legal title for the
besides his services he has contributed capital, he shall also benefit of another. 45 HTAIcD
receive a share in the profits in proportion to his capital.
On proving the existence of a trust, this Court held that:
(Emphases supplied.)
PAT 1

Respondent has presented only bare assertions that a trust was system does not create or vest title as registration is not a mode of acquiring
created. Noting the need to prove the existence of a trust, this ownership; hence, this cannot deprive an aggrieved party of a remedy in
Court has held thus: 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
"As a rule, the burden of proving the existence of a trust Jarantilla. As held by this Court in Republic of the Philippines v. Orfinada, Sr.: 53
is on the party asserting its existence, and such proof
must be clear and satisfactorily show the existence of the Indeed, a Torrens title is generally conclusive evidence of
trust and its elements. While implied trusts may be proved ownership of the land referred to therein, and a strong presumption
by oral evidence, the evidence must be trustworthy and exists that a Torrens title was regularly issued and valid. A Torrens
received by the courts with extreme caution, and should title is incontrovertible against any informacion possessoria, of
not be made to rest on loose, equivocal or indefinite other title existing prior to the issuance thereof not annotated on
declarations. Trustworthy evidence is required because the Torrens title. Moreover, persons dealing with property covered
oral evidence can easily be fabricated." 46 by a Torrens certificate of title are not required to go beyond what
appears on its face. 54
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 As we have settled that this action never really was for partition of a co-
respondents used the partnership's money to purchase the said properties. Even ownership, to permit petitioner's claim on these properties is to allow a collateral,
assuming arguendo that some partnership income was used to acquire these indirect attack on respondents' admitted titles. In the words of the Court of Appeals,
properties, the petitioner should have successfully shown that these funds came "such evidence cannot overpower the conclusiveness of these certificates of title,
from his share in the partnership profits. After all, by his own admission, and as more so since plaintiff's [petitioner's] claims amount to a collateral attack, which is
stated in the Acknowledgement of Participating Capital, he owned a mere 6% prohibited under Section 48 of Presidential Decree No. 1529, the Property
equity in the partnership. Registration Decree." 55 aAcDSC
In essence, the petitioner is claiming his 6% share in the subject real SEC. 48. Certificate not subject to collateral attack. — A certificate
properties, by relying on his own self-serving testimony and the equally biased of title shall not be subject to collateral attack. It cannot be altered,
testimony of Antonieta Jarantilla. Petitioner has not presented evidence, other than modified, or cancelled except in a direct proceeding in accordance
these unsubstantiated testimonies, to prove that the respondents did not have the with law.
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 This Court has deemed an action or proceeding to be "an attack on a title
evidence, proven their case against the petitioner, but have also presented when its objective is to nullify the title, thereby challenging the judgment pursuant
sufficient documentary evidence to substantiate their claims, allegations and to which the title was decreed." 56 In Aguilar v. Alfaro, 57 this Court further
defenses. They presented preponderant proof on how they acquired and funded distinguished between a direct and an indirect or collateral attack, as follows:
such properties in addition to tax receipts and tax declarations. 47 It has been held A collateral attack transpires when, in another action to obtain a
that "while tax declarations and realty tax receipts do not conclusively prove different relief and as an incident to the present action, an attack
ownership, they may constitute strong evidence of ownership when accompanied is made against the judgment granting the title. This manner of
by possession for a period sufficient for prescription." 48 Moreover, it is a rule in attack is to be distinguished from a direct attack against a judgment
this jurisdiction that testimonial evidence cannot prevail over documentary granting the title, through an action whose main objective is to
evidence. 49 This Court had on several occasions, expressed our disapproval on annul, set aside, or enjoin the enforcement of such judgment if not
using mere self-serving testimonies to support one's claim. In Ocampo v. yet implemented, or to seek recovery if the property titled under
Ocampo, 50 a case on partition of a co-ownership, we held that: the judgment had been disposed of. . . . .
Petitioners assert that their claim of co-ownership of the property Petitioner's only piece of documentary evidence is the Acknowledgement
was sufficiently proved by their witnesses — Luisa Ocampo-Llorin of Participating Capital, which as discussed above, failed to prove that the real
and Melita Ocampo. We disagree. Their testimonies cannot prevail properties he is claiming co-ownership of were acquired out of the proceeds of the
over the array of documents presented by Belen. A claim of businesses covered by such document. Therefore, petitioner's theory has no
ownership cannot be based simply on the testimonies of factual or legal leg to stand on.
witnesses; much less on those of interested parties, self-serving
as they are. 51 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.
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 SO ORDERED.
PAT 1

||| (Jarantilla, Jr. v. Jarantilla, G.R. No. 154486, [December 1, 2010], 651 PHIL 13-36) written notices before the latter is dismissed: (1) the notice to apprise the employee
of the particular acts or omission for which his dismissal is sought, which is
equivalent of a charge; and (2) the notice informing the employee of his dismissal,
4. Sy vs. CA to be issued after the employee has been given reasonable opportunity to answer
and to be heard on his defense. These, the petitioners failed to do, even only for
[G.R. No. 142293. February 27, 2003.] record purposes. Both the substantive and procedural aspects of due process
were violated. Therefore, Sahot's dismissal was tainted with invalidity. Petition
denied and the Court of Appeals' decision was affirmed. AacCIT
VICENTE SY, TRINIDAD PAULINO, 6B'S TRUCKING
CORPORATION, and SBT 1 TRUCKING
CORPORATION, petitioners, vs. HON. COURT OF APPEALS,
SYLLABUS
and JAIME SAHOT, respondents.

1. LABOR AND SOCIAL LEGISLATION; LABOR RELATIONS; EMPLOYMENT


Albon & Serrano Law Office for petitioners. RELATIONSHIP; ELEMENTS. — The elements to determine the existence of an
employment relationship are: (a) the selection and engagement of the employee; (b)
Cario Law Offices and Associates for private respondent. the payment of wages; (c) the power of dismissal; and (d) the employer's power to
control the employee's conduct. The most important element is the employer's control
SYNOPSIS
of the employee's conduct, not only as to the result of the work to be done, but also as
Respondent Sahot started working as a truck helper for petitioners' to the means and methods to accomplish it.
family-owned trucking business and later on became a truck driver of the same
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; NOT PRESENT
family business. Subsequently, petitioners dismissed Sahot from work due to his
IN CASE AT BAR. — Article 1767 of the Civil Code states that in a contract of
absences as he was suffering from various ailments. Sahot filed with the National
partnership two or more persons bind themselves to contribute money, property or
Labor Relations Commission (NLRC) NCR Arbitration Branch, a complaint for
industry to a common fund, with the intention of dividing the profits among themselves.
illegal dismissal. The NLRC, through the Labor Arbiter, ruled that there was no
Not one of these circumstances is present in this case. No written agreement exists to
illegal dismissal in Sahot's case. On appeal, the NLRC declared that Sahot was an
prove the partnership between the parties. Private respondent did not contribute
employee who did not abandon his job but his employment was terminated on
money, property or industry for the purpose of engaging in the supposed business.
account of his illness. Petitioners assailed the decision of the NLRC before the
There is no proof that he was receiving a share in the profits as a matter of course,
Court of Appeals (CA) which affirmed with modification the judgment of the NLRC.
Hence, the instant petition. during the period when the trucking business was under operation. Neither is there any
proof that he had actively participated in the management, administration and adoption
In denying the petition, the Supreme Court ruled that Sahot actually of policies of the business.
engaged in work as an employee. During the entire course of his employment, he
did not have the freedom to determine where he would go, what he would do, and 3. REMEDIAL LAW; EVIDENCE; CREDIBILITY; EXISTENCE OF EMPLOYER-
how he would do it. He merely followed instructions of petitioners and was content EMPLOYEE RELATIONSHIP IS A QUESTION OF FACT AND FINDINGS THEREON
to do so, as long as he was paid his wages. BY NLRC GENERALLY DESERVE RESPECT ON APPEAL WHEN SUPPORTED BY
SUBSTANTIAL EVIDENCE. — The existence of an employer-employee relationship is
The Court further ruled that in termination cases, the burden is upon the ultimately a question of fact and the findings thereon by the NLRC, as affirmed. by the
employer to show by substantial evidence that the termination was for lawful Court of Appeals, deserve not only respect but finality when supported by substantial
cause, and validly made. For an employee's dismissal to be valid, (a) the dismissal evidence. Substantial evidence is such amount of relevant evidence which a
must be for a valid cause, and (b) the employee must be afforded due process. reasonable mind might accept as adequate to justify a conclusion. HCETDS
Article 284 of the Labor Code authorizes an employer to terminate an employee
on the ground of disease and the requirement for a medical certificate under the 4. LABOR AND SOCIAL LEGISLATION; LABOR RELATIONS; TERMINATION OF
said provision cannot be dispensed with; otherwise, it would sanction the unilateral EMPLOYMENT; IN TERMINATION CASES, THE BURDEN IS UPON THE
and arbitrary determination by the employer of the gravity or extent of the EMPLOYER TO SHOW BY SUBSTANTIAL EVIDENCE THAT TERMINATION WAS
employee's illness and thus defeat the public policy in the protection of labor. In FOR LAWFUL CAUSE AND WAS VALIDLY MADE. — In termination cases, the burden
the case at bar, the employer clearly did not comply with the medical certificate is upon the employer to show by substantial evidence that the termination was for lawful
requirement before Sahot's dismissal was effected. Moreover, procedural due cause and validly made. Article 277(b) of the Labor Code puts the burden of proving
process was not observed in the separation of Sahot by the management of the that the dismissal of an employee was for a valid or authorized cause on the employer,
trucking company. The employer is required to furnish an employee with two without distinction whether the employer admits or does not admit the dismissal. For an
PAT 1

employee's dismissal to be valid, (a) the dismissal must be for a valid cause and (b) the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the
employee must be afforded due process. computation, after noting that his last monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. HICSaD
5. ID.; ID.; ID.; DISEASE AS A GROUND FOR TERMINATION; REQUISITES. —
Article 284 of the Labor Code authorizes an employer to terminate an employee on the
ground of disease, viz: "Art. 284, Disease as a ground for termination. — An employer
may terminate the services of an employee who has been found to be suffering from DECISION
any disease and whose continued employment is prohibited by law or prejudicial to his
health as well as the health of his co-employees: . . ." However, in order to validly
terminate employment on this ground, Book VI, Rule I, Section 8 of the Omnibus
Implementing Rules of the Labor Code requires: "Sec. 8. Disease as a ground for
QUISUMBING, J p:
dismissal. — Where the employee suffers from a disease and his continued
employment is prohibited by law or prejudicial to his health or to the health of his co-
employees, the employer shall not terminate his employment unless there is a This petition for review seeks the reversal of the decision 2 of the Court of Appeals
certification by competent public health authority that the disease is of such nature or dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the
at such a stage that it cannot be cured within a period of six (6) months even with proper decision 3 of the National Labor Relations Commission promulgated on June 20, 1996
medical treatment. If the disease or ailment can be cured within the period, the in NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the
employer shall not terminate the employee but shall ask the employee to take a leave. decision 4 of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.
The employer shall reinstate such employee to his former position immediately upon
the restoration of his normal health."
Culled from the records are the following facts of this case:
6. ID.; ID.; ID.; ID.; REQUIREMENT FOR A MEDICAL CERTIFICATE CANNOT BE
DISPENSED WITH. — As this Court stated in Triple Eight Integrated Services, Inc. vs. Sometime in 1958, private respondent Jaime Sahot 5 started working as a truck helper
NLRC, the requirement for a medical certificate under Article 284 of the Labor Code for petitioners' family-owned trucking business named Vicente Sy Trucking. In 1965, he
cannot be dispensed with; otherwise, it would sanction the unilateral and arbitrary became a truck driver of the same family business, renamed T. Paulino Trucking
determination by the employer of the gravity or extent of the employee's illness and Service, later 6B's Trucking Corporation in 1985, and thereafter known as SBT Trucking
thus defeat the public policy in the protection of labor. In the case at bar, the employer Corporation since 1994. Throughout all these changes in names and for 36 years,
clearly did not comply with the medical certificate requirement before Sahot's dismissal private respondent continuously served the trucking business of petitioners.
was effected.
In April 1994, Sahot was already 59 years old. He had been incurring absences as he
7. ID.; ID.; ID.; EMPLOYER IS REQUIRED TO FURNISH AN EMPLOYEE WITH TWO was suffering from various ailments. Particularly causing him pain was his left thigh,
WRITTEN NOTICES BEFORE THE LATTER IS DISMISSED; CASE AT BAR. — From which greatly affected the performance of his task as a driver. He inquired about his
the records, it clearly appears that procedural due process was not observed in the medical and retirement benefits with the Social Security System (SSS) on April 25,
separation of private respondent by the management of the trucking company. The 1994, but discovered that his premium payments had not been remitted by his
employer is required to furnish an employee with two written notices before the latter is employer.
dismissed: (1) the notice to apprise the employee of the particular acts or omissions for
which his dismissal is sought, which is the equivalent of a charge; and (2) the notice Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was
informing the employee of his dismissal, to be issued after the employee has been medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II
given reasonable opportunity to answer and to be heard on his defense. These, the (Annexes "G-5" and "G-3", pp. 48, 104, respectively), 6 HPM, UTI, Osteoarthritis
petitioners failed to do, even only for record purposes. What management did was to (Annex "G-4", p. 105), 7 and heart enlargement (Annex G, p. 107). 8 On said grounds,
threaten the employee with dismissal, then actually implement the threat when the Belen Paulino of the SBT Trucking Service management told him to file a formal request
occasion presented itself because of private respondent's painful left thigh. for extension of his leave. At the end of his week-long absence, Sahot applied for
extension of his leave for the whole month of June, 1994. It was at this time when
8. ID.; ID.; ID.; AN EMPLOYEE WHO IS TERMINATED BECAUSE OF DISEASE IS petitioners allegedly threatened to terminate his employment should he refuse to go
ENTITLED TO SEPARATION PAY EQUIVALENT TO AT LEAST ONE MONTH back to work.
SALARY OR TO ONE-HALF MONTH SALARY FOR EVERY YEAR OF SERVICE,
WHICHEVER IS GREATER; CASE AT BAR. — An employee who is terminated At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused
because of disease is entitled to "separation pay equivalent to at least one month salary to work. But he could not retire on pension because petitioners never paid his correct
or to one-half month salary for every year of service, whichever is greater . . . . Following SSS premiums. The fact remained he could no longer work as his left thigh hurt
the formula set in Art. 284 of the Labor Code, his separation pay was computed by the
PAT 1

abominably. Petitioners ended his dilemma. They carried out their threat and dismissed private respondent to P74,880, computed at the rate of P2,080 per year for 36 years of
him from work, effective June 30, 1994. He ended up sick, jobless and penniless. service from 1958 to 1994. It decreed:
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a WHEREFORE, the assailed decision is hereby AFFIRMED with
complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He MODIFICATION. SB Trucking Corporation is hereby directed to
prayed for the recovery of separation pay and attorneys fees against Vicente Sy and pay complainant Jaime Sahot the sum of SEVENTY-FOUR
Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as
6B's Trucking and SBT Trucking, herein petitioners. and for his separation pay. 10
For their part, petitioners admitted they had a trucking business in the 1950s but denied Hence, the instant petition anchored on the following contentions:
employing helpers and drivers. They contend that private respondent was not illegally
dismissed as a driver because he was in fact petitioners' industrial partner. They add I
that it was not until the year 1994, when SBT Trucking Corporation was established,
RESPONDENT COURT OF APPEALS IN PROMULGATING THE
and only then did respondent Sahot become an employee of the company, with a
QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION
monthly salary that reached P4,160.00 at the time of his separation. IcaHCS
THE DECISION OF NATIONAL LABOR RELATIONS
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT
and was not able to report for work for almost seven days. On June 1, 1994, Sahot AT NAUGHT ARTICLE 402 OF THE CIVIL CODE. 11
asked permission to extend his leave of absence until June 30, 1994. It appeared that
II
from the expiration of his leave, private respondent never reported back to work nor did
he file an extension of his leave. Instead, he filed the complaint for illegal dismissal RESPONDENT COURT OF APPEALS VIOLATED SUPREME
against the trucking company and its owners. COURT RULING THAT THE NATIONAL LABOR RELATIONS
COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE
Petitioners add that due to Sahot's refusal to work after the expiration of his authorized
LABOR ARBITER AS THE LATTER WAS IN A BETTER
leave of absence, he should be deemed to have voluntarily resigned from his work.
POSITION TO OBSERVE THE DEMEANOR AND
They contended that Sahot had all the time to extend his leave or at least inform
DEPORTMENT OF THE WITNESSES IN THE CASE OF
petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-76,
ASSOCIATION OF INDEPENDENT UNIONS IN THE
entitled "Manuelito Jimenez et al. vs. T. Paulino Trucking Service," as a defense in view
PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305
of the alleged similarity in the factual milieu and issues of said case to that of Sahot's,
SCRA 233). 12
hence they are in pari materia and Sahot's complaint ought also to be dismissed.
III
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled
that there was no illegal dismissal in Sahot's case. Private respondent had failed to PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY
report to work. Moreover, said the Labor Arbiter, petitioners and private respondent RESPONDENT SBT TRUCKING CORPORATION. 13
were industrial partners before January 1994. The Labor Arbiter concluded by ordering
petitioners to pay "financial assistance" of P15,000 to Sahot for having served the Three issues are to be resolved: (1) Whether or not an employer-employee relationship
company as a regular employee since January 1994 only. existed between petitioners and respondent Sahot; (2) Whether or not there was valid
dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.
On appeal, the National Labor Relations Commission modified the judgment of the
Labor Arbiter. It declared that private respondent was an employee, not an industrial Crucial to the resolution of this case is the determination of the first issue. Before a case
partner, since the start. Private respondent Sahot did not abandon his job but his for illegal dismissal can prosper, an employer-employee relationship must first be
employment was terminated on account of his illness, pursuant to Article 284 9 of the established. 14
Labor Code. Accordingly, the NLRC ordered petitioners to pay private respondent
separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found
years of service. that respondent Sahot was not an employee but was in fact, petitioners' industrial
partner. 15 It is contended that it was the Labor Arbiter who heard the case and had
Petitioners assailed the decision of the NLRC before the Court of Appeals. In its the opportunity to observe the demeanor and deportment of the parties. The same
decision dated February 29, 2000, the appellate court affirmed with modification the conclusion, aver petitioners, is supported by substantial evidence. 16 Moreover, it is
judgment of the NLRC. It held that private respondent was indeed an employee of argued that the findings of fact of the Labor Arbiter was wrongly overturned by the
petitioners since 1958. It also increased the amount of separation pay awarded to NLRC when the latter made the following pronouncement:
PAT 1

We agree with complainant that there was error committed by the On this point, we affirm the findings of the appellate court and the NLRC. Private
Labor Arbiter when he concluded that complainant was an respondent Jaime Sahot was not an industrial partner but an employee of petitioners
industrial partner prior to 1994. A computation of the age of from 1958 to 1994. The existence of an employer-employee relationship is ultimately a
complainant shows that he was only twenty-three (23) years when question of fact 23 and the findings thereon by the NLRC, as affirmed by the Court of
he started working with respondent as truck helper. How can we Appeals, deserve not only respect but finality when supported by substantial evidence.
entertain in our mind that a twenty-three (23) year old man, working Substantial evidence is such amount of relevant evidence which a reasonable mind
as a truck helper, be considered an industrial partner. Hence we might accept as adequate to justify a conclusion. 24
rule that complainant was only an employee, not a partner of
respondents from the time complainant started working for Time and again this Court has said that "if doubt exists between the evidence presented
respondent. 17 by the employer and the employee, the scales of justice must be tilted in favor of the
latter." 25 Here, we entertain no doubt. Private respondent since the beginning was an
Because the Court of Appeals also found that an employer-employee relationship employee of, not an industrial partner in, the trucking business.
existed, petitioners aver that the appellate court's decision gives an "imprimatur" to the
"illegal" finding and conclusion of the NLRC. Coming now to the second issue, was private respondent validly dismissed by
petitioners?
Private respondent, for his part, denies that he was ever an industrial partner of
petitioners. There was no written agreement, no proof that he received a share in Petitioners contend that it was private respondent who refused to go back to work. The
petitioners' profits, nor was there anything to show he had any participation with respect decision of the Labor Arbiter pointed out that during the conciliation proceedings,
to the running of the business. 18 petitioners requested respondent Sahot to report back for work. However, in the same
proceedings, Sahot stated that he was no longer fit to continue working, and instead
The elements to determine the existence of an employment relationship are: (a) the he demanded separation pay. Petitioners then retorted that if Sahot did not like to work
selection and engagement of the employee; (b) the payment of wages; (c) the power as a driver anymore, then he could be given a job that was less strenuous, such as
of dismissal; and (d) the employer's power to control the employee's conduct. The most working as a checker. However, Sahot declined that suggestion. Based on the
important element is the employer's control of the employee's conduct, not only as to foregoing recitals, petitioners assert that it is clear that Sahot was not dismissed but it
the result of the work to be done, but also as to the means and methods to accomplish was of his own volition that he did not report for work anymore.
it. 19
In his decision, the Labor Arbiter concluded that:
As found by the appellate court, petitioners owned and operated a trucking business
since the 1950s and by their own allegations, they determined private respondent's While it may be true that respondents insisted that complainant
wages and rest day. 20 Records of the case show that private respondent actually continue working with respondents despite his alleged illness,
engaged in work as an employee. During the entire course of his employment he did there is no direct evidence that will prove that complainant's illness
not have the freedom to determine where he would go, what he would do, and how he prevents or incapacitates him from performing the function of a
would do it. He merely followed instructions of petitioners and was content to do so, as driver. The fact remains that complainant suddenly stopped
long as he was paid his wages. Indeed, said the CA, private respondent had worked working due to boredom or otherwise when he refused to work as
as a truck helper and driver of petitioners not for his own pleasure but under the latter's a checker which certainly is a much less strenuous job than a
control. driver. 26

Article 1767 21 of the Civil Code states that in a contract of partnership two or more But dealing the Labor Arbiter a reversal on this score the NLRC, concurred in by the
persons bind themselves to contribute money, property or industry to a common fund, Court of Appeals, held that:
with the intention of dividing the profits among themselves. 22 Not one of these
While it was very obvious that complainant did not have any
circumstances is present in this case. No written agreement exists to prove the
intention to report back to work due to his illness which
partnership between the parties. Private respondent did not contribute money, property
incapacitated him to perform his job, such intention cannot be
or industry for the purpose of engaging in the supposed business. There is no proof
construed to be an abandonment. Instead, the same should have
that he was receiving a share in the profits as a matter of course, during the period
been considered as one of those falling under the just causes of
when the trucking business was under operation. Neither is there any proof that he had
terminating an employment. The insistence of respondent in
actively participated in the management, administration and adoption of policies of the
making complainant work did not change the scenario.
business. Thus, the NLRC and the CA did not err in reversing the finding of the Labor
Arbiter that private respondent was an industrial partner from 1958 to 1994. DaCTcA It is worthy to note that respondent is engaged in the trucking
business where physical strength is of utmost requirement (sic).
Complainant started working with respondent as truck helper at
PAT 1

age twenty-three (23), then as truck driver since 1965. Since the burden of proving the validity of the dismissal of the
Complainant was already fifty-nine (59) when the complaint was employee rests on the employer, the latter should likewise bear the
filed and suffering from various illness triggered by his work and burden of showing that the requisites for a valid dismissal due to a
age. disease have been complied with. In the absence of the required
certification by a competent public health authority, this Court has
xxx xxx xxx 27 ruled against the validity of the employee's dismissal. It is therefore
incumbent upon the private respondents to prove by the quantum
In termination cases, the burden is upon the employer to show by substantial evidence
of evidence required by law that petitioner was not dismissed, or if
that the termination was for lawful cause and validly made. 28 Article 277(b) of the
dismissed, that the dismissal was not illegal; otherwise, the
Labor Code puts the burden of proving that the dismissal of an employee was for a
dismissal would be unjustified. This Court will not sanction a
valid or authorized cause on the employer, without distinction whether the employer
dismissal premised on mere conjectures and suspicions, the
admits or does not admit the dismissal. 29 For an employee's dismissal to be valid, (a)
evidence must be substantial and not arbitrary and must be
the dismissal must be for a valid cause and (b) the employee must be afforded due
founded on clearly established facts sufficient to warrant his
process. 30
separation from work. 32
Article 284 of the Labor Code authorizes an employer to terminate an employee on the
In addition, we must likewise determine if the procedural aspect of due process had
ground of disease, viz:
been complied with by the employer.
Art. 284. Disease as a ground for termination. — An employer may
From the records, it clearly appears that procedural due process was not observed in
terminate the services of an employee who has been found to be
the separation of private respondent by the management of the trucking company. The
suffering from any disease and whose continued employment is
employer is required to furnish an employee with two written notices before the latter is
prohibited by law or prejudicial to his health as well as the health
dismissed: (1) the notice to apprise the employee of the particular acts or omissions for
of his co-employees: . . .
which his dismissal is sought, which is the equivalent of a charge; and (2) the notice
However, in order to validly terminate employment on this ground, Book VI, Rule I, informing the employee of his dismissal, to be issued after the employee has been
Section 8 of the Omnibus Implementing Rules of the Labor Code requires: given reasonable opportunity to answer and to be heard on his defense. 33 These, the
petitioners failed to do, even only for record purposes. What management did was to
Sec. 8. Disease as a ground for dismissal. — Where the employee threaten the employee with dismissal, then actually implement the threat when the
suffers from a disease and his continued employment is prohibited occasion presented itself because of private respondent's painful left thigh.
by law or prejudicial to his health or to the health of his co-
employees, the employer shall not terminate his employment All told, both the substantive and procedural aspects of due process were violated.
unless there is a certification by competent public health authority Clearly, therefore, Sahot's dismissal is tainted with invalidity.
that the disease is of such nature or at such a stage that it cannot
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot is entitled
be cured within a period of six (6) months even with proper medical
to separation pay. The law is clear on the matter. An employee who is terminated
treatment. If the disease or ailment can be cured within the period,
because of disease is entitled to "separation pay equivalent to at least one month salary
the employer shall not terminate the employee but shall ask the
or to one-half month salary for every year of service, whichever is greater . . .
employee to take a leave. The employer shall reinstate such
. 34 Following the formula set in Art. 284 of the Labor Code, his separation pay was
employee to his former position immediately upon the restoration
computed by the appellate court at P2,080 times 36 years (1958 to 1994) or P74,880.
of his normal health. (Italics supplied).
We agree with the computation, after noting that his last monthly salary was P4,160.00
As this Court stated in Triple Eight Integrated Services, Inc. vs. NLRC, 31 the so that one-half thereof is P2,080.00. Finding no reversible error nor grave abuse of
requirement for a medical certificate under Article 284 of the Labor Code cannot be discretion on the part of appellate court, we are constrained to sustain its decision. To
dispensed with; otherwise, it would sanction the unilateral and arbitrary determination avoid further delay in the payment due the separated worker, whose claim was filed
by the employer of the gravity or extent of the employee's illness and thus defeat the way back in 1994, this decision is immediately executory. Otherwise, six percent (6%)
public policy in the protection of labor. interest per annum should be charged thereon, for any delay, pursuant to provisions of
the Civil Code. CcSEIH
In the case at bar, the employer clearly did not comply with the medical certificate
requirement before Sahot's dismissal was effected. In the same case of Sevillana vs. I. WHEREFORE, the petition is DENIED and the decision of the Court of Appeals dated
T. (International) Corp., we ruled: February 29, 2000 is AFFIRMED. Petitioners must pay private respondent Jaime Sahot
his separation pay for 36 years of service at the rate of one-half monthly pay for every
PAT 1

year of service, amounting to P74,880.00, with interest of six per centum (6%) per CO., INC. — all assessed as "POOL OF MACHINERY
annum from finality of this decision until fully paid. INSURERS," petitioners, vs. COURT OF APPEALS, COURT OF
TAX APPEALS and COMMISSIONER OF INTERNAL
Costs against petitioners. REVENUE, respondents.
SO ORDERED.

||| (Sy v. Court of Appeals, G.R. No. 142293, [February 27, 2003], 446 PHIL 404-420) Angara Abello Concepcion Regala for petitioners.

SYNOPSIS

5. AFISCO vs. CA This is a Petition For Review on Certiorari assailing the Decision of the Court of Appeals
dismissing petitioners' appeal of the Decision of the Court of Tax Appeals which had
[G.R. No. 112675. January 25, 1999.] sustained petitioners' liability for deficiency income tax, interest and withholding tax.
Petitioners contended that the Court of Appeals erred in finding that the pool or clearing
house was an informal partnership, which was taxable as a corporation under the NIRC.
AFISCO INSURANCE CORPORATION; CCC INSURANCE Petitioners further claimed that the remittances of the pool to the ceding companies and
CORPORATION; CHARTER INSURANCE CO., INC.; CIBELES Munich are not dividends subject to tax. They insisted that taxing such remittances
INSURANCE CORPORATION; COMMONWEALTH contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and would be tantamount to
INSURANCE COMPANY; CONSOLIDATED INSURANCE CO., an illegal double taxation. Moreover, petitioners argued that since Munich was not a
INC.; DEVELOPMENT INSURANCE & SURETY signatory to the Pool Agreement, the remittances it received from the pool cannot be
CORPORATION; DOMESTIC INSURANCE COMPANY OF THE deemed dividends. However, even if such remittances were treated as dividends, they
PHILIPPINES; EASTERN ASSURANCE COMPANY & SURETY would have been exempt under the previously mentioned sections of the 1977 NIRC,as
CORP.; EMPIRE INSURANCE COMPANY; EQUITABLE well as Article 7 of paragraph 1 and Article 5 of the RP-West German Tax Treaty.
INSURANCE CORPORATION; FEDERAL INSURANCE Petitioners likewise contended that the Internal Revenue Commissioner was already
CORPORATION INC.; FGU INSURANCE CORPORATION; barred by prescription from making an assessment.
FIDELITY & SURETY COMPANY OF THE PHILS., INC.;
FILIPINO MERCHANTS' INSURANCE CO., INC.; In the present case, the ceding companies entered into a Pool Agreement or
GOVERNMENT SERVICE INSURANCE SYSTEM; MALAYAN association that would handle all the insurance businesses covered under their quota-
INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE CO., share reinsurance treaty and surplus reinsurance treaty with Munich. AScHCD
INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN
INSURANCE COMPANY; METRO-TAISHO INSURANCE Petitioner's allegation of double taxation is untenable. The pool is a taxable entity
CORPORATION; NEW ZEALAND INSURANCE CO., LTD.; distinct from the individual corporate entities of the ceding companies. The tax on its
PAN-MALAYAN INSURANCE CORPORATION; PARAMOUNT income is different from the tax on the dividends received by the said companies. The
INSURANCE CORPORATION; PEOPLE'S TRANS-EAST ASIA tax exemptions claimed by petitioners cannot be granted. The sections of the
INSURANCE CORPORATION; PERLA COMPANIA DE 1977 NIRC which petitioners cited are inapplicable, because these were not yet in effect
SEGUROS, INC.; PHILIPPINE BRITISH ASSURANCE CO., when the income was earned and when the subject information return for the year
INC.; PHILIPPINE FIRST INSURANCE CO., INC.; PIONEER ending 1975 was filed. Petitioners' claim that Munich is tax-exempt based on the RP-
INSURANCE & SURETY CORP.; PIONEER West German Tax Treaty is likewise unpersuasive, because the Internal Revenue
INTERCONTINENTAL INSURANCE CORPORATION; Commissioner assessed the pool for corporate taxes on the basis of the information
PROVIDENT INSURANCE COMPANY OF THE PHILIPPINES; return it had submitted for the year ending 1975, a taxable year when said treaty was
PYRAMID INSURANCE CO., INC.; RELIANCE SURETY & not yet in effect. Petitioners likewise failed to comply with the requirement of Section
INSURANCE COMPANY; RIZAL SURETY & INSURANCE 333 of the NIRC for the suspension of the prescriptive period. The Resolutions of the
COMPANY; SANPIRO INSURANCE CORPORATION; Court of Appeals are affirmed.
SEABOARD-EASTERN INSURANCE CO., INC.; SOLID
GUARANTY, INC.; SOUTH SEA SURETY & INSURANCE CO.,
INC.; STATE BONDING & INSURANCE CO., INC.; SUMMA SYLLABUS
INSURANCE CORPORATION; TABACALERA INSURANCE
PAT 1

1. REMEDIAL LAW; EVIDENCE; RULING OF THE COMMISSION OF INTERNAL no matter how created or organized, but not including duly registered general co-
REVENUE IS ACCORDED WEIGHT AND EVEN FINALITY IN THE ABSENCE OF partnership (compañias colectivas), general professional partnerships, private
SHOWING THAT IT IS PATENTLY WRONG. — The opinion or ruling of the educational institutions, and building and loan associations . . . ." Ineludibly, the
Commission of Internal Revenue, the agency tasked with the enforcement of tax laws, Philippine legislature included in the concept of corporations those entities that
is accorded much weight and even finality, when there is no showing that it is patently resembled them such as unregistered partnerships and associations. Parenthetically,
wrong, particularly in this case where the findings and conclusions of the internal the NLRC's inclusion of such entities in the tax on corporations was made even clearer
revenue commissioner were subsequently affirmed by the CTA, a specialized body by the Tax Reform Act of 1997, which amended the Tax Code.The Court of Appeals
created for the exclusive purpose of reviewing tax cases, and the Court of Appeals. did not err in applying Evangelista, which involved a partnership that engaged in a
Indeed, "[I]t has been the long standing policy and practice of this Court to respect the series of transactions spanning more than ten years, as in the case before us.
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 5. ID.; DOUBLE TAXATION; DEFINED; NO DOUBLE TAXATION IN CASE AT BAR.
problems and has necessarily developed an expertise on the subject, unless there has — Double taxation means taxing the same property twice when it should be taxed only
been an abuse or improvident exercise of its authority." TIAEac once. That is, ". . . taxing the same person twice by the same jurisdiction for the same
thing." In the instant case, the pool is a taxable entity distinct from the individual
2. CIVIL LAW; PARTNERSHIP; REQUISITES. — Article 1767 of the Civil Code corporate entities of the ceding companies. The tax on its income is obviously different
recognizes the creation of a contract of partnership when "two or more persons bind from the tax on the dividends received by the said companies. Clearly, there is no
themselves to contribute money, property, or industry to a common fund, with the double taxation here.
intention of dividing the profits among themselves." Its requisites are: "(1) mutual
contribution to a common stock, and (2) a joint interest in the profits." In other words, a 6. ID.; TAX EXEMPTION; GRANT THEREOF NOT JUSTIFIED IN CASE AT BAR;
partnership is formed when persons contract "to devote to a common purpose either REASONS. — The tax exemptions claimed by petitioners cannot be granted, since
money, property, or labor with the intention of dividing the profits between themselves." their entitlement thereto remains unproven and unsubstantiated. It is axiomatic in the
Meanwhile, an association implies associates who enter into a "joint enterprise . . . for law of taxation that taxes are the lifeblood of the nation. Hence, "exemptions therefrom
the transaction of business." are highly disfavored in law and he who claims tax exemption must be able to justify
his claim or right." Petitioners have failed to discharge this burden of proof. The sections
3. ID.; ID.; INSURANCE POOL IN CASE AT BAR DEEMED PARTNERSHIP OR of the 1977 NIRC which they cite are inapplicable, because these were not yet in effect
ASSOCIATION TAXABLE AS A CORPORATION UNDER SECTION 24 OF when the income was earned and when the subject information return for the year
THE NIRC. — In the case before us, the ceding companies entered into a Pool ending 1975 was filed. Referring to the 1975 version of the counterpart sections of
Agreement or an association that would handle all the insurance businesses covered the NIRC,the Court still cannot justify the exemptions claimed. Section 255 provides
under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich. that no tax shall ". . . be paid upon reinsurance by any company that has already paid
The following unmistakably indicates a partnership or an association covered by the tax . . . ." This cannot be applied to the present case because, as previously
Section 24 of the NIRC: (1) The pool has a common fund, consisting of money and discussed, the pool is a taxable entity distinct from the ceding companies; therefore,
other valuables that are deposited in the name and credit of the pool. This common the latter cannot individually claim the income tax paid by the former as their
fund pays for the administration and operation expenses of the pool. (2) The pool own. EDSAac
functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies. (3)
True, the pool itself is not a reinsurer and does not issue any insurance policy; however,
7. ID.; ID.; CANNOT BE CLAIMED BY NON-RESIDENT FOREIGN INSURANCE
its work is indispensable, beneficial and economically useful to the business of the
CORPORATION IN CASE AT BAR; REASONS; TAX EXEMPTION
ceding companies and Munich, because without it they would not have received their
CONSTRUED STRICTISSIMI JURIS. — Section 24 (b) (1) pertains to tax on foreign
premiums. The ceding companies share "in the business ceded to the pool" and in the
corporations; hence, it cannot be claimed by the ceding companies which are domestic
"expenses" according to a "Rules of Distribution" annexed to the Pool Agreement. Profit
corporations. Nor can Munich, a foreign corporation, be granted exemption based
motive or business is, therefore, the primordial reason for the pool's formation.
solely on this provision of the Tax Codebecause the same subsection specifically taxes
4. TAXATION; NIRC; SECTION 24 THEREOF, UNREGISTERED PARTNERSHIPS dividends, the type of remittances forwarded to it by the pool. Although not a signatory
AND ASSOCIATIONS ARE CONSIDERED AS CORPORATIONS FOR TAX to the Pool Agreement, Munich is patently an associate of the ceding companies in the
PURPOSES. — This Court rules that the Court of Appeals, in affirming the CTA which entity formed, pursuant to their reinsurance treaties which required the creation of said
had previously sustained the internal revenue commissioner, committed no reversible pool. Under its pool arrangement with the ceding companies, Munich shared in their
error. Section 24 of the NIRC,as worded in the year ending 1975, provides: "SEC. 24. income and loss. This is manifest from a reading of Articles 3 and 10 of the Quota-
Rate of tax on corporations. — (a) Tax on domestic corporations. — A tax is hereby Share Reinsurance Treaty and Articles 3 and 10 of the Surplus Reinsurance Treaty.
imposed upon the taxable net income received during each taxable year from all The foregoing interpretation of Section 24 (b) (1) is in line with the doctrine that a tax
sources by every corporation organized in, or existing under the laws of the Philippines,
PAT 1

exemption must be construed strictissimi juris, and the statutory exemption claimed These are the main questions raised in the Petition for Review on Certiorari before us,
must be expressed in a language too plain to be mistaken. assailing the October 11, 1993 Decision 1 of the Court of Appeals 2 in CA-GR SP
29502, which dismissed petitioners' appeal of the October 19, 1992 Decision 3 of the
8. ID.; ID.; BASED ON TAX TREATY NOT APPLICABLE IN CASE AT BAR; REASON. Court of Tax Appeals 4 (CTA) which had previously sustained petitioners' liability for
— The petitioners' claim that Munich is tax-exempt based on the RP-West German Tax deficiency income tax, interest and withholding tax. The Court of Appeals ruled:
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 "WHEREFORE, the petition is DISMISSED, with costs against
the year ending 1975, a taxable year when said treaty was not yet in effect. Although petitioners." 5
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. The petition also challenges the November 15, 1993 Court of Appeals (CA)
Resolution 6 denying reconsideration.
9. ID.; ASSESSMENT AND COLLECTION OF TAX; PRESCRIPTION; CHANGE IN
THE ADDRESS OF THE TAXPAYER WILL NOT TOLL THE RUNNING OF THE The Facts
PRESCRIPTIVE PERIOD UNLESS THE COMMISSIONER OF INTERNAL REVENUE The antecedent facts, 7 as found by the Court of Appeals, are as follows:
HAS BEEN INFORMED OF SAID CHANGE. — The CA and the CTA categorically
found that the prescriptive period was tolled under then Section 333 of "The petitioners are 41 non-life insurance corporations, organized
the NIRC,because "the taxpayer cannot be located at the address given in the and existing under the laws of the Philippines. Upon issuance by
information return filed and for which reason there was delay in sending the them of Erection, Machinery Breakdown, Boiler Explosion and
assessment." Indeed, whether the government's right to collect and assess the tax has Contractors' All Risk insurance policies, the petitioners on August
prescribed involves facts which have been ruled upon by the lower courts. It is 1, 1965 entered into a Quota Share Reinsurance Treaty and a
axiomatic that in the absence of a clear showing of palpable error or grave abuse of Surplus Reinsurance Treaty with the Munchener
discretion, as in this case, this Court must not overturn the factual findings of the CA Ruckversicherungs-Gesselschaft (hereafter called Munich), a non-
and the CTA. Furthermore, petitioners admitted in their Motion for Reconsideration resident foreign insurance corporation. The reinsurance treaties
before the Court of Appeals that the pool changed its address, for they stated that the required petitioners to form a [p]ool. Accordingly, a pool composed
pool's information return filed in 1980 indicated therein its "present address." The Court of the petitioners was formed on the same day.
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 "On April 14, 1976, the pool of machinery insurers submitted a
suspended only "if the taxpayer informs the Commissioner of Internal Revenue of any financial statement and filed an "Information Return of
change in the address." 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
DECISION
to the petitioners, respectively. These assessments were
protested by the petitioners through its auditors Sycip, Gorres,
Velayo and Co.
PANGANIBAN, J p: "On January 27, 1986, the Commissioner of Internal Revenue
denied the protest and ordered the petitioners, assessed as "Pool
Pursuant to "reinsurance treaties," a number of local insurance firms formed of Machinery Insurers," to pay deficiency income tax, interest, and
themselves into a "pool" in order to facilitate the handling of business contracted with a with[h]olding tax, itemized as follows:
nonresident foreign reinsurance company. May the "clearing house" or "insurance pool"
so formed be deemed a partnership or an association that is taxable as a corporation Net income per information return P3,737,370.00
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 government's right to assess and collect said tax Income tax due thereon P1,298,080.00
prescribed? cdasia
Add: 14% Int. fr. 4/15/76
The Case
to 4/15/79 545,193.60
PAT 1

–––––––––––– 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
TOTAL AMOUNT DUE & P1,843,273.60 cannot be located at the address given in the information return filed." Hence, this
COLLECTIBLE =========== Petition for Review before us. 9

Dividend paid to Munich The Issues


Before this Court, petitioners raise the following issues:
Reinsurance Company P3,728,412.00
"1. Whether or not the Clearing House, acting as a mere agent and
===========
performing strictly administrative functions, and which did not
35% withholding tax at source due thereon P1,304,944.20 insure or assume any risk in its own name, was a partnership or
association subject to tax as a corporation;
Add: 25% surcharge 326,236.05
"2. Whether or not the remittances to petitioners and MUNICHRE
14% interest from of their respective shares of reinsurance premiums, pertaining to
1/25/76 to 1/25/79 137,019.14 their individual and separate contracts of reinsurance, were
"dividends" subject to tax; and
Compromise
"3. Whether or not the respondent Commissioner's right to assess
penalty-non-filing of return 300.00 the Clearing House had already prescribed." 10
late payment 300.00 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
TOTAL AMOUNT DUE & P1,768,799.39 the taxes had not prescribed.
COLLECTIBLE =========== First Issue:
Dividend paid to Pool Members P655,636.00 Pool Taxable as a Corporation
=========== Petitioners contend that the Court of Appeals erred in finding that the pool or clearing
house was an informal partnership, which was taxable as a corporation under the NIRC.
10% withholding tax at
They point out that the reinsurance policies were written by them "individually and
source due thereon P65,563.60
separately," and that their liability was limited to the extent of their allocated share in
Add: 25% surcharge 16,390.90 the original risks 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
14% interest from the risk(s) arising from the original insurance among the signatories to the treaty or the
1/25/76 to 1/25/79 6,884.18 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
Compromise custody of funds, etc." 13
penalty-non-filing of return 300.00 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
late payment 300.00
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
TOTAL AMOUNT DUE & P89,438.68 from which it could have derived income for itself." 17
COLLECTIBLE ==========" 8 The Court is not persuaded. The opinion or ruling of the Commission of Internal
The CA ruled in the main that the pool of machinery insurers was a partnership taxable Revenue, the agency tasked with the enforcement of tax laws, is accorded much weight
as a corporation, and that the latter's collection of premiums on behalf of its members, and even finality, when there is no showing that it is patently wrong, 18 particularly in
PAT 1

this case where the findings and conclusions of the internal revenue commissioner and other energy operations pursuant to an operating or
were subsequently affirmed by the CTA, a specialized body created for the exclusive consortium agreement under a service contract without the
purpose of reviewing tax cases, and the Court of Appeals. 19 Indeed, 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. LLphil
"[I]t has been the long standing policy and practice of this Court to
respect the conclusions of quasi-judicial agencies, such as the xxx xxx xxx."
Court of Tax Appeals which, by the nature of its functions, is
dedicated exclusively to the study and consideration of tax Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that Section 24
problems and has necessarily developed an expertise on the covered these unregistered partnerships and even associations or joint accounts,
subject, unless there has been an abuse or improvident exercise which had no legal personalities apart from their individual members. 23 The Court of
of its authority." 20 Appeals astutely applied Evangelista: 24

This Court rules that the Court of Appeals, in affirming the CTA which had previously ". . . Accordingly, a pool of individual real property owners dealing
sustained the internal revenue commissioner, committed no reversible error. Section in real estate business was considered a corporation for purposes
24 of the NIRC,as worded in the year ending 1975, provides: of the tax in Sec. 24 of the Tax Code in Evangelista v. Collector of
Internal Revenue, supra. The Supreme Court said:
"SEC. 24. Rate of tax on corporations. — (a) Tax on domestic
corporations. — A tax is hereby imposed upon the taxable net 'The term 'partnership' includes a syndicate, group, pool,
income received during each taxable year from all sources by joint venture or other unincorporated organization,
every corporation organized in, or existing under the laws of the through or by means of which any business, financial
Philippines, no matter how created or organized, but not including operation, or venture is carried on . . . (8 Merten's Law of
duly registered general co-partnership (compañias colectivas), Federal Income Taxation, p. 562 Note 63)'"
general professional partnerships, private educational institutions,
and building and loan associations . . . ." Article 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
Ineludibly, the Philippine legislature included in the concept of corporations those common fund, with the intention of dividing the profits among themselves." 25 Its
entities that resembled them such as unregistered partnerships and associations. requisites are: "(1) mutual contribution to a common stock, and (2) a joint interest in the
Parenthetically, the NLRC's inclusion of such entities in the tax on corporations was profits." 26 In other words, a partnership is formed when persons contract "to devote to
made even clearer by the Tax Reform Act of 1997, 21 which amended the Tax a common purpose either money, property, or labor with the intention of dividing the
Code.Pertinent provisions of the new law read as follows: profits between themselves." 27 Meanwhile, an association implies associates who
enter into a "joint enterprise . . . for the transaction of business." 28
"SEC. 27. Rates of Income Tax on Domestic Corporations. —
In the case before us, the ceding companies entered into a Pool Agreement 29 or an
(A) In General. — Except as otherwise provided in this Code, an association 30 that would handle all the insurance businesses covered under their
income tax of thirty-five percent (35%) is hereby imposed upon the quota-share reinsurance treaty 31 and surplus reinsurance treaty 32 with Munich. The
taxable income derived during each taxable year from all sources following unmistakably indicates a partnership or an association covered by Section 24
within and without the Philippines by every corporation, as defined of the NIRC:
in Section 22 (B) of this Code, and taxable under this Title as a
corporation . . . ." (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
"SEC. 22. Definition. — When used in this Title: administration and operation expenses of the pool. 34
xxx xxx xxx (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
(B) The term 'corporation' shall include partnerships, no matter
companies. 35
how created or organized, joint-stock companies, joint accounts
(cuentas en participacion), associations, or insurance companies, (3) True, the pool itself is not a reinsurer and does not issue any insurance policy;
but does not include general professional partnerships [or] a joint however, its work is indispensable, beneficial and economically useful to the business
venture or consortium formed for the purpose of undertaking of the ceding companies and Munich, because without it they would not have received
construction projects or engaging in petroleum, coal, geothermal
PAT 1

their premiums. The ceding companies share "in the business ceded to the pool" and the income was earned and when the subject information return for the year ending
in the "expenses" according to a "Rules of Distribution" annexed to the Pool 1975 was filed.
Agreement. 36Profit motive or business is, therefore, the primordial reason for the
pool's formation. As aptly found by the CTA: 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
". . . The fact that the pool does not retain any profit or income does paid upon reinsurance by any company that has already paid the tax . . . ." This cannot
not obliterate an antecedent fact, that of the pool being used in the be applied to the present case because, as previously discussed, the pool is a taxable
transaction of business for profit. It is apparent, and petitioners entity distinct from the ceding companies; therefore, the latter cannot individually claim
admit, that their association or coaction was indispensable [to] the the income tax paid by the former as their own.
transaction of the business. . . If together they have conducted
business, profit must have been the object as, indeed, profit was On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign corporations; hence,
earned. Though the profit was apportioned among the members, it cannot be claimed by the ceding companies which are domestic corporations. Nor
this is only a matter of consequence, as it implies that profit actually can Munich, a foreign corporation, be granted exemption based solely on this provision
resulted." 37 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,
The petitioners' reliance on Pascual v. Commissioner 38 is misplaced, because the Munich is patently an associate of the ceding companies in the entity formed, pursuant
facts obtaining therein are not on all fours with the present case. In Pascual, there was to their reinsurance treaties which required the creation of said pool.
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 Under its pool arrangement with the ceding companies, Munich shared in their income
involved a partnership that engaged in a series of transactions spanning more than ten and loss. This is manifest from a reading of Articles 3 49 and 10 50 of the Quota-Share
years, as in the case before us. 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
Second Issues: exemption must be construed strictissimi juris, and the statutory exemption claimed
must be expressed in a language too plain to be mistaken. 53
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 taxing such remittances
Finally, the petitioners' claim that Munich is tax-exempt based on the RP-West German
contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and "would be tantamount to
Tax Treaty is likewise unpersuasive, because the internal revenue commissioner
an illegal double taxation, as it would result in taxing the same premium income twice
assessed the pool for corporate taxes on the basis of the information return it had
in the hands of the same taxpayer." 40 Moreover, petitioners argue that since Munich
submitted for the year ending 1975, a taxable year when said treaty was not yet in
was not a signatory to the Pool Agreement, the remittances it received from the pool
effect. 54 Although petitioners omitted in their pleadings the date of effectivity of the
cannot be deemed dividends. 41 They add that even if such remittances were treated
treaty, the Court takes judicial notice that it took effect only later, on December 14,
as dividends, they would have been exempt under the previously mentioned sections
1984. 55
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 Third Issue:
Petitioners are clutching at straws. Double taxation means taxing the same property Prescription
twice when it should be taxed only once. That is, ". . . taxing the same person twice by
Petitioners also argue that the government's right to assess and collect the subject tax
the same jurisdiction for the same thing." 46 In the instant case, the pool is a taxable
had prescribed. They claim that the subject information return was filed by the pool on
entity distinct from the individual corporate entities of the ceding companies. The tax on
April 14, 1976. On the basis of this return, the BIR telephoned petitioners on November
its income is obviously different from the tax on the dividends received by the said
11, 1981, to give them notice of its letter of assessment dated March 27, 1981. Thus,
companies. Clearly, there is no double taxation here.
the petitioners contend that the five-year statute of limitations then provided in
The tax exemptions claimed by petitioners cannot be granted, since their entitlement the NIRChad already lapsed, and that the internal revenue commissioner was already
thereto remains unproven and unsubstantiated. It is axiomatic in the law of taxation that barred by prescription from making an assessment. 56
taxes are the lifeblood of the nation. Hence, "exemptions therefrom are highly
We cannot sustain the petitioners. The CA and the CTA categorically found that the
disfavored in law and he who claims tax exemption must be able to justify his claim or
prescriptive period was tolled under then Section 333 of the NIRC,57 because " the
right." 47 Petitioners have failed to discharge this burden of proof. The sections of the
taxpayer cannot be located at the address given in the information return filed and for
1977 NIRCwhich they cite are inapplicable, because these were not yet in effect when
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
PAT 1

have been ruled upon by the lower courts. It is axiomatic that in the absence of a clear such. Hence, the present petition. Petitioner claimed that since his name did not appear
showing of palpable error or grave abuse of discretion, as in this case, this Court must on any of the contracts and since he never directly transacted with the respondent
not overturn the factual findings of the CA and the CTA. corporation, ergo, he cannot be held liable. cIaCTS

Furthermore, petitioners admitted in their Motion for Reconsideration before the Court The Supreme Court denied the petition. The Court ruled that having reaped the benefits
of Appeals that the pool changed its address, for they stated that the pool's information of the contract entered into by Chua and Yao, with whom he had an existing
return filed in 1980 indicated therein its "present address." The Court finds that this falls relationship, petitioner Lim is deemed a part of said association and is covered by the
short of the requirement of Section 333 of the NIRC for the suspension of the doctrine of corporation by estoppel. The Court also ruled that under the principle of
prescriptive period. The law clearly states that the said period will be suspended only estoppel, those acting on behalf of a corporation and those benefited by it, knowing it
"if the taxpayer informs the Commissioner of Internal Revenue of any change in the to be without valid existence, are held liable as general partners.
address."

WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals dated
SYLLABUS
October 11, 1993 and November 15, 1993 are hereby AFFIRMED. Costs against
petitioners. cdasia
1. CIVIL LAW; PARTNERSHIP; AGREEMENT THAT ANY LOSS OR PROFIT FROM
SO ORDERED.
THE SALE AND OPERATION OF THE BOATS WOULD BE DIVIDED EQUALLY
||| (Afisco Insurance Corp. v. Court of Appeals, G.R. No. 112675, [January 25, 1999], AMONG THEM SHOWS THAT THE PARTIES HAD INDEED FORMED A
361 PHIL 671-691) PARTNERSHIP. — 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
6. Lim Tong Lim vs. Phil. Fishing Gear 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
[G.R. No. 136448. November 3, 1999.] 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
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR 1767. The contribution to such fund need not be cash or fixed assets; it could be an
INDUSTRIES, INC., respondent. 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
Roberto A. Abad for petitioner. 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
Benjamin S. Benito & Associates for private respondent. 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
SYNOPSIS 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
Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest Fishing would be divided among them.
Corporation for the purchase of fishing nets from respondent Philippine Fishing Gear
Industries, Inc. Chua and Yao claimed that they were engaged in business venture with 2. ID.; ID.; COMPROMISE AGREEMENT OF THE PARTIES NOT THE SOLE BASIS
petitioner Lim Tong Lim, who, however, was not a signatory to the contract. The buyers OF PARTNERSHIP. — Petitioner argues that the appellate court's sole basis for
failed to pay the fishing nets. Respondent filed a collection against Chua, Yao and assuming the existence of a partnership was the Compromise Agreement. He also
petitioner Lim in their capacities as general partners because it turned out that Ocean claims that the settlement was entered into only to end the dispute among them, but
Quest Fishing Corporation is a non-existent corporation. The trial court issued a Writ of not to adjudicate their preexisting rights and obligations. His arguments are
Preliminary Attachment, which the sheriff enforced by attaching the fishing nets. The baseless. The Agreement was but an embodiment of the relationship extant among the
trial court rendered its decision ruling that respondent was entitled to the Writ of parties prior to its execution. A proper adjudication of claimants' rights mandates that
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay courts must review and thoroughly appraise all relevant facts. Both lower courts have
respondent. Lim appealed to the Court of Appeals, but the appellate court affirmed the done so and have found, correctly, a preexisting partnership among the parties. In
decision of the trial court that petitioner Lim is a partner and may thus be held liable as implying that the lower courts have decided on the basis of one piece of document
PAT 1

alone, petitioner fails to appreciate that the CA and the RTC delved into the history of bought and used in the fishing venture they agreed upon. Hence, the issuance of the
the document and explored all the possible consequential combinations in harmony Writ to assure the payment of the price stipulated in the invoices is proper. Besides, by
with law, logic and fairness. Verily, the two lower courts' factual findings mentioned specific agreement, ownership of the nets remained with Respondent Philippine
above nullified petitioner's argument that the existence of a partnership was based only Fishing Gear, until full payment thereof.
on the Compromise Agreement.
VITUG, J., concurring:
3. ID.; ID.; PETITIONER WAS A PARTNER, NOT A LESSOR. — Verily, as found by
1. CIVIL LAW; PARTNERSHIP; EXTENT OF LIABILITY OF PARTNERS IN A
the lower courts, petitioner entered into a business agreement with Chua and Yao, in
GENERAL PARTNERSHIP. — When a person by his act or deed represents himself.
which debts were undertaken in order to finance the acquisition and the upgrading of
as a partner in an existing partnership or with one or more persons not actual partners,
the vessels which would be used in their fishing business. The sale of the boats, as
he is deemed an agent of such persons consenting to such representation and in the
well as the division among the three of the balance remaining after the payment of their
same manner, if he were a partner, with respect to persons who rely upon the
loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not
representation. The association formed by Chua, Yao and Lim, should be, as it has
his own property but an asset of the partnership. It is not uncommon to register the
been deemed, a de facto partnership with all the consequent obligations for the purpose
properties acquired from a loan in the name of the person the lender trusts, who in this
of enforcing the rights of third persons. The liability of general partners (in a general
case is the petitioner himself. After all, he is the brother of the creditor, Jesus Lim. We
partnership as so opposed to a limited partnership) is laid down in Article 1816 which
stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property
posits that all partners shall be liable pro rata beyond the partnership assets for all the
to pay a debt he did not incur, if the relationship among the three of them was merely
contracts which may have been entered into in its name, under its signature, and by a
that of lessor-lessee, instead of partners.
person authorized to act for the partnership.
4. MERCANTILE LAW; PRIVATE CORPORATIONS; HAVING REAPED THE
2. ID.; ID.; ID.; INSTANCES WHEN THE PARTNERS CAN BE HELD SOLIDARILY
BENEFITS OF THE CONTRACT ENTERED INTO BY PERSONS WITH WHOM HE
LIABLE WITH THE PARTNERSHIP. — This rule is to be construed along with other
PREVIOUSLY HAD AN EXISTING RELATIONSHIP, PETITIONER IS DEEMED TO
provisions of the Civil Code which postulate that the partners can be
BE PART OF SAID ASSOCIATION AND IS COVERED BY THE DOCTRINE OF
held solidarily liable with the partnership specifically in these instances. — (1) where,
CORPORATION BY ESTOPPEL. — There is no dispute that the respondent, Philippine
by any wrongful act or omission of any partner acting in the ordinary course of the
Fishing Gear Industries, is entitled to be paid for the nets it sold. The only question here
business of the partnership or with the authority of his co-partners, loss or injury is
is whether petitioner should be held jointly liable with Chua and Yao. Petitioner contests
caused to any person, not being a partner in the partnership, or any penalty is incurred,
such liability, insisting that only those who dealt in the name of the ostensible
the partnership is liable therefor to the same extent as the partner so acting or omitting
corporation should be held liable. Since his name does not appear on any of the
to act; (2) where one partner acting within the scope of his apparent authority receives
contracts and since he never directly transacted with the respondent corporation, ergo,
money or property of a third person and misapplies it; and (3) where the partnership in
he cannot be held liable. Unquestionably, petitioner benefited from the use of the nets
the course of its business receives money or property of a third person and the money
found inside F/B Lourdes, the boat which has earlier been proven to be an asset of the
or property so received is misapplied by any partner while it is in the custody of the
partnership. He in fact questions the attachment of the nets, because the Writ has
partnership — consistently with the rules on the nature of civil liability in delicts and
effectively stopped his use of the fishing vessel. It is difficult to disagree with the RTC
quasi-delicts.
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 DECISION
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.
5. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; ISSUE OF PANGANIBAN, J p:
VALIDITY THEREOF, MOOT AND ACADEMIC. — Petitioner claims that the Writ of
Attachment was improperly issued against the nets. We agree with the Court of Appeals A partnership may be deemed to exist among parties who agree to borrow money to
that this issue is now moot and academic. As previously discussed, F/B Lourdes was pursue a business and to divide the profits or losses that may arise therefrom, even if
an asset of the partnership and that it was placed in the name of petitioner, only to it is shown that they have not contributed any capital of their own to a "common fund."
assure payment of the debt he and his partners owed. The nets and the floats were Their contribution may be in the form of credit or industry, not necessarily cash or fixed
specifically manufactured and tailor-made according to their own design, and were assets. Being partners, they are all liable for debts incurred by or on behalf of the
PAT 1

partnership. The liability for a contract entered into on behalf of an unincorporated of P532,045.00 and P68,000.00, respectively, or for the total
association or ostensible corporation may lie in a person who may not have directly amount of P600,045.00, this Court noted that these items were
transacted on its behalf, but reaped benefits from that contract. cda attached to guarantee any judgment that may be rendered in favor
of the plaintiff but, upon agreement of the parties, and, to avoid
The Case further deterioration of the nets during the pendency of this case,
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November it was ordered sold at public auction for not less than P900,000.00
26, 1998 Decision of the Court of Appeals in CA-GR CV 41477, 1which disposed as for which the plaintiff was the sole and winning bidder. The
follows: proceeds of the sale paid for by plaintiff was deposited in court. In
effect, the amount of P900,000.00 replaced the attached property
"WHEREFORE, [there being] no reversible error in the appealed as a guaranty for any judgment that plaintiff may be able to secure
decision, the same is hereby affirmed." 2 in this case with the ownership and possession of the nets and
floats awarded and delivered by the sheriff to plaintiff as the
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was highest bidder in the public auction sale. It has also been noted
affirmed by the CA, reads as follows: that ownership of the nets [was] retained by the plaintiff until full
"WHEREFORE, the Court rules: payment [was] made as stipulated in the invoices; hence, in effect,
the plaintiff attached its own properties. It [was] for this reason also
1. That plaintiff is entitled to the writ of preliminary attachment that this Court earlier ordered the attachment bond filed by plaintiff
issued by this Court on September 20, 1990; cdphil 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
2. That defendants are jointly liable to plaintiff for the following bond in favor of defendants.
amounts, subject to the modifications as hereinafter made by
reason of the special and unique facts and circumstances and the "From the foregoing, it would appear therefore that whatever
proceedings that transpired during the trial of this case; 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
a. P532,045.00 representing [the] unpaid purchase price of the the attached nets and floats. Considering, however, that the total
fishing nets covered by the Agreement plus P68,000.00 judgment obligation as computed above would amount to only
representing the unpaid price of the floats not covered by said P840,216.92, it would be inequitable, unfair and unjust to award
Agreement; 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
b. 12% interest per annum counted from date of plaintiff's invoices
P900,000.00 aside from the fact that they are not the owners of
and computed on their respective amounts as follows:
the nets and floats. For this reason, the defendants are hereby
i. Accrued interest of P73,221.00 on Invoice No. 14407 for relieved from any and all liabilities arising from the monetary
P385,377.80 dated February 9, 1990; judgment obligation enumerated above and for plaintiff to retain
possession and ownership of the nets and floats and for the
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for reimbursement of the P900,000.00 deposited by it with the Clerk
P146,868.00 dated February 13, 1990; of Court.

iii. Accrued interest of P12,920.00 on Invoice No. 14426 for SO ORDERED." 3 cdasia
P68,000.00 dated February 19, 1990;
The Facts
c. P50,000.00 as and for attorney's fees, plus P8,500.00
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
representing P500.00 per appearance in court;
into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes
d. P65,000.00 representing P5,000.00 monthly rental for storage from the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that
charges on the nets counted from September 20, 1990 (date of they were engaged in a business venture with Petitioner Lim Tong Lim, who however
attachment) to September 12, 1991 (date of auction sale); cdasia 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
e. Cost of suit.
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
"With respect to the joint liability of defendants for the principal respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with
obligation or for the unpaid price of nets and floats in the amount a prayer for a writ of preliminary attachment. The suit was brought against the three in
PAT 1

their capacities as general partners, on the allegation that "Ocean Quest Fishing Ruling of the Court of Appeals
Corporation" was a nonexistent corporation as shown by a Certification from the
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in
Securities and Exchange Commission. 5 On September 20, 1990, the lower court
a fishing business and may thus be held liable as such for the fishing nets and floats
issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
purchased by and for the use of the partnership. The appellate court ruled:
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila. LLpr "The evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability
undertaking, that is for commercial fishing . . . . Obviously, the
and requesting a reasonable time within which to pay. He also turned over to
ultimate undertaking of the defendants was to divide the profits
respondent some of the nets which were in his possession. Peter Yao filed an Answer,
among themselves which is what a partnership essentially is . . . .
after which he was deemed to have waived his right to cross-examine witnesses and
By a contract of partnership, two or more persons bind themselves
to present evidence on his behalf, because of his failure to appear in subsequent
to contribute money, property or industry to a common fund with
hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim and
the intention of dividing the profits among themselves (Article
Crossclaim and moved for the lifting of the Writ of Attachment. 6 The trial court
1767, New Civil Code)." 13 cdtai
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 Hence, petitioner brought this recourse before this Court. 14
deposited with the said court the sales proceeds of P900,000. 7
The Issues
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 In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision
Lim, as general partners, were jointly liable to pay respondent. 8 on the following grounds:

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on "I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON
the testimonies of the witnesses presented and (2) on a Compromise Agreement A COMPROMISE AGREEMENT THAT CHUA, YAO
executed by the three 9 in Civil Case No. 1492-MN which Chua and Yao had brought AND PETITIONER LIM ENTERED INTO IN A
against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of SEPARATE CASE, THAT A PARTNERSHIP
commercial documents; (b) a reformation of contracts; (c) a declaration of ownership AGREEMENT EXISTED AMONG THEM.
of fishing boats; (d) an injunction and (e) damages. 10 The Compromise Agreement "II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE
provided: cdll WAS ACTING FOR OCEAN QUEST FISHING
"a) That the parties plaintiffs & Lim Tong Lim agree to have the CORPORATION WHEN HE BOUGHT THE NETS FROM
four (4) vessels sold in the amount of P5,750,000.00 PHILIPPINE FISHING, THE COURT OF APPEALS WAS
including the fishing net. This P5,750,000.00 shall be UNJUSTIFIED IN IMPUTING LIABILITY TO
applied as full payment for P3,250,000.00 in favor of JL PETITIONER LIM AS WELL.
Holdings Corporation and/or Lim Tong Lim;

"b) If the four (4) vessel[s] and the fishing net will be sold at a higher "III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE
price than P5,750,000.00 whatever will be the excess will AND ATTACHMENT OF PETITIONER LIM'S GOODS."
be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua;
1/3 Peter Yao; In determining whether petitioner may be held liable for the fishing nets and floats
purchased from respondent, the Court must resolve this key issue: whether by their
"c) If the proceeds of the sale the vessels will be less than acts, Lim, Chua and Yao could be deemed to have entered into a partnership. cdasia
P5,750,000.00 whatever the deficiency shall be
shouldered and paid to JL Holding Corporation by 1/3 Lim This Court's Ruling
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao." 11
The Petition is devoid of merit.
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 First and Second Issues:
the profit and loss. 12 Existence of a Partnership
and Petitioner's Liability
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
PAT 1

In arguing that he should not be held liable for the equipment purchased from Gear, in behalf of "Ocean Quest Fishing Corporation," their
respondent, petitioner controverts the CA finding that a partnership existed between purported business name.
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 (8) That subsequently, Civil Case No. 1492-MN was filed in the
the purchase of the nets, alleging that the negotiations were conducted by Chua and Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against
Yao only, and that he has not even met the representatives of the respondent company. Lim Tong Lim for (a) declaration of nullity of commercial
Petitioner further argues that he was a lessor, not a partner, of Chua and Yao, for the documents; (b) reformation of contracts; (c) declaration of
"Contract of Lease" dated February 1, 1990, showed that he had merely leased to the ownership of fishing boats; (4) injunction; and (e) damages.
two the main asset of the purported partnership — the fishing boat F/B Lourdes. The
(9) That the case was amicably settled through a Compromise
lease was for six months, with a monthly rental of P37,500 plus 25 percent of the gross
Agreement executed between the parties-litigants the terms of
catch of the boat.
which are already enumerated above.
We are not persuaded by the arguments of petitioner. The facts as found by the two
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
lower courts clearly showed that there existed a partnership among Chua, Yao and
decided to engage in a fishing business, which they started by buying boats worth
him, pursuant to Article 1767 of the Civil Code which provides:
P3.35 million, financed by a loan secured from Jesus Lim who was petitioner's brother.
"ARTICLE 1767. By the contract of partnership, two or more In their Compromise Agreement, they subsequently revealed their intention to pay the
persons bind themselves to contribute money, property, or industry loan with the proceeds of the sale of the boats, and to divide equally among them the
to a common fund, with the intention of dividing the profits among excess or loss. These boats, the purchase and the repair of which were financed with
themselves." llcd 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
Specifically, both lower courts ruled that a partnership among the three existed based credit or industry. That the parties agreed that any loss or profit from the sale and
on the following factual findings: 15 operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership.
(1) That Petitioner Lim Tong Lim requested Peter Yao who was
engaged in commercial fishing to join him, while Antonio Chua was Moreover, it is clear that the partnership extended not only to the purchase of the boat,
already Yao's partner; 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
(2) That after convening for a few times, Lim Chua, and Yao inconceivable for Lim to involve himself so much in buying the boat but not in the
verbally agreed to acquire two fishing boats, the FB Lourdes and acquisition of the aforesaid equipment, without which the business could not have
the FB Nelson for the sum of P3.35 million; proceeded. cdtai
(3) That they borrowed P3.25 million from Jesus Lim, brother of Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao,
Petitioner Lim Tong Lim, to finance the venture. 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
(4) That they bought the boats from CMF Fishing Corporation,
the sales and operations thereof would be divided among them.
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 We stress that under Rule 45, a petition for review like the present case should involve
extended by Jesus Lim; 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
(5) That Lim, Chua and Yao agreed that the refurbishing, re-
one of the exceptions to the rule. 16 In assailing the factual findings of the two lower
equipping, repairing, dry docking and other expenses for the boats
courts, petitioner effectively goes beyond the bounds of a petition for review under Rule
would be shouldered by Chua and Yao;
45.
(6) That because of the "unavailability of funds," Jesus Lim again
Compromise Agreement
extended a loan to the partnership in the amount of P1 million
Not the Sole Basis of Partnership
secured by a check, because of which, Yao and Chua entrusted
the ownership papers of two other boats, Chua's FB Lady Anne Petitioner argues that the appellate court's sole basis for assuming the existence of a
Mel and Yao's FB Tracy to Lim Tong Lim. cdtai 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
(7) That in pursuance of the business agreement, Peter Yao and
Antonio Chua bought nets from Respondent Philippine Fishing
PAT 1

rights and obligations. His arguments are baseless. The Agreement was but an when any such ostensible corporation is sued on any transaction
embodiment of the relationship extant among the parties prior to its execution. 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
A proper adjudication of claimants' rights mandates that courts must review and corporate personality.
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 "One who assumes an obligation to an ostensible corporation as
have decided on the basis of one piece of document alone, petitioner fails to appreciate such, cannot resist performance thereof on the ground that there
that the CA and the RTC delved into the history of the document and explored all the was in fact no corporation." LibLex
possible consequential combinations in harmony with law, logic and fairness. Verily,
the two lower courts' factual findings mentioned above nullified petitioner's argument Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party
that the existence of a partnership was based only on the Compromise may be estopped from denying its corporate existence. "The reason behind this
Agreement. LLphil 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
Petitioner Was a Partner, as provided by law; it cannot create agents or confer authority on another to act in its
Not a Lessor 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
We are not convinced by petitioner's argument that he was merely the lessor of the
person who acts as an agent without authority or without a principal is himself regarded
boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly
as the principal, possessed of all the right and subject to all the liabilities of a principal,
finds support in the Contract of Lease and the registration papers showing that he was
a person acting or purporting to act on behalf of a corporation which has no valid
the owner of the boats, including F/B Lourdes where the nets were found.
existence assumes such privileges and obligations and becomes personally liable for
His allegation defies logic. In effect, he would like this Court to believe that he contracts entered into or for other acts performed as such agent." 17
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 The doctrine of corporation by estoppel may apply to the alleged corporation and to a
partnership among all three. 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
Verily, as found by the lower courts, petitioner entered into a business agreement with
against it by a third person who relied in good faith on such representation. It cannot
Chua and Yao, in which debts were undertaken in order to finance the acquisition and
allege lack of personality to be sued to evade its responsibility for a contract it entered
the upgrading of the vessels which would be used in their fishing business. The sale of
into and by virtue of which it received advantages and benefits.
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 On the other hand, a third party who, knowing an association to be unincorporated,
name, was not his own property but an asset of the partnership. It is not uncommon to nonetheless treated it as a corporation and received benefits from it, may be barred
register the properties acquired from a loan in the name of the person the lender trusts, from denying its corporate existence in a suit brought against the alleged corporation.
who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus In such case, all those who benefited from the transaction made by the ostensible
Lim. prLL corporation, despite knowledge of its legal defects, may be held liable for contracts they
impliedly assented to or took advantage of. cdrep
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 There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled
merely that of lessor-lessee, instead of partners. 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
Corporation by Estoppel
only those who dealt in the name of the ostensible corporation should be held liable.
Petitioner argues that under the doctrine of corporation by estoppel, liability can be Since his name does not appear on any of the contracts and since he never directly
imputed only to Chua and Yao, and not to him. Again, we disagree. transacted with the respondent corporation, ergo, he cannot be held liable.
Section 21 of the Corporation Code of the Philippines provides: 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
"Sec. 21. Corporation by estoppel. — All persons who assume to questions the attachment of the nets, because the Writ has effectively stopped his use
act as a corporation knowing it to be without authority to do so shall of the fishing vessel.
be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided however, That
PAT 1

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to JOSE GATCHALIAN, ET AL., plaintiffs-appellants, vs. THE
form a corporation. Although it was never legally formed for unknown reasons, this fact COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
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 Guillermo B. Reyes for appellants.
liable as general partners.
Solicitor-General Tuason for appellee.
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 SYLLABUS
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 prLL
1. PARTNERSHIP OF A CIVIL NATURE; COMMUNITY OF PROPERTY;
"A litigation is not a game of technicalities in which one, more
SWEEPSTAKES; INCOME TAX. — According to the stipulated facts the plaintiffs
deeply schooled and skilled in the subtle art of movement and
organized a partnership of a civil nature because each of them put up money to
position, entraps and destroys the other. It is, rather, a contest in
buy a sweepstakes ticket for the sole purpose of dividing equally the prize which
which each contending party fully and fairly lays before the court
they may win, as they did in fact in the amount of P60,000 (article 166C, Civil
the facts in issue and then, brushing aside as wholly trivial and
Code). The partnership was not only formed, but upon the organization thereon
indecisive all imperfections of form and technicalities of procedure,
and the winning of the prize, J. G. personally appeared in the office of the Philippine
asks that justice be done upon the merits. Lawsuits, unlike duels,
Charity Sweepstakes, in his capacity as co-partner, as such collected the prize,
are not to be won by a rapier's thrust. Technicality, when it deserts
the office issued the check for P60,000 in favor of J. G. and company, and the said
its proper office as an aid to justice and becomes its great
partner, in the same capacity, collected the check. All these circumstances repel
hindrance and chief enemy, deserves scant consideration from
the idea that the plaintiffs organized and formed a community of property only.
courts. There should be no vested rights in technicalities."
2. ID.; ID.; ID.; ID. — Having organized and constituted a partnership of
Third Issue: a civil nature, the said entity is the one bound to pay the income tax which the
Validity of Attachment defendant collected under the aforesaid section 10 (a) of Act No. 2833, as
amended by section 2 of Act No. 3761. There is no merit in plaintiffs' contention
Finally, petitioner claims that the Writ of Attachment was improperly issued against the that the tax should be prorated among them and paid individually, resulting in their
nets. We agree with the Court of Appeals that this issue is now moot and academic. As exemption from the tax.
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 DECISION
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 IMPERIAL, J p:
against petitioner. Cdpr
The plaintiff brought this action to recover from the defendant Collector of
SO ORDERED. Internal Revenue the sum of P1,863.44, with legal interest thereon, which they
paid under protest by way of income tax. They appealed from the decision
||| (Lim Tong Lim v. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, rendered in the case on October 23, 1936 by the Court of First Instance of the City
[November 3, 1999], 376 PHIL 76-95) of Manila, which dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of
7. Gatchalian vs. CIR facts:
"Come now the parties to the above-mentioned case,
[G.R. No. 45425. April 29, 1939.] through their respective undersigned attorneys, and hereby agree
PAT 1

to respectfully submit to this Honorable Court the case upon the return was signed by Jose Gatchalian, a copy of which return is
following statement of facts: enclosed as Exhibit A and made a part hereof;
"1. That plaintiffs are all residents of the municipality of "6. That on January 8, 1935, the defendant made an
Pulilan, Bulacan, and that defendant is the Collector of Internal assessment against Jose Gatchalian & Company requesting the
Revenue of the Philippines; payment of the sum of P1,499.94 to the deputy provincial treasurer
of Pulilan, Bulacan, giving to said Jose Gatchalian & Company
"2. That prior to December 15, 1934 plaintiffs, in order to
until January 20, 1935 within which to pay the said amount of
enable them to purchase one sweepstakes ticket valued at two
P1,499.94, a copy of which letter marked Exhibit B is inclosed and
pesos (P2), subscribed and paid therefor the amounts as follows:
made a part hereof;
"7. That on January 20, 1935, the plaintiffs, through their
1. Jose Gatchalian P0.18 attorney, sent to defendant a reply, a copy of which marked Exhibit
2. Gregoria Cristobal .18 C is attached and made a part hereof, requesting exemption from
3. Saturnina Silva .08 the payment of the income tax to which reply there were enclosed
4. Guillermo Tapia .13 fifteen (15) separate individual income tax returns filed separately
5. Jesus Legaspi .15 by each one of the plaintiffs, copies of which returns are attached
6. Jose Silva .07 and marked Exhibits D-1 to D-15, respectively, in order of their
7. Tomasa Mercado .08 names listed in the caption of this case and made parts hereof; a
8. Julio Gatchalian .18 statement of sale signed by Jose Gatchalian showing the amounts
9. Emiliana Santiago .18 put up by each of the plaintiffs to cover up the cost price of P2 of
10. Maria C. Legaspi .16 said ticket, copy of which statement is attached and marked as
11. Francisco Cabral .13 Exhibit E and made a part hereof; and a copy of the affidavit signed
12. Gonzalo Javier .14 by Jose Gatchalian dated December 29, 1934 is attached and
13. Maria Santiago .17 marked Exhibit F and made part hereof;
14. Buenaventura Guzman .13 "8. That the defendant in his letter dated January 28,
15. Mariano Santos .14 1935, a copy of which marked Exhibit G is enclosed, denied
—— plaintiffs' request of January 20, 1935, for exemption from the
Total 2.00 payment of tax and reiterated his demand for the payment of the
sum of P1,499.94 as income tax and gave plaintiffs until February
10, 1935 within which to pay the said tax;
"3. That immediately thereafter but prior to December 16,
1934, plaintiffs purchased, in the ordinary course of business, from "9. That in view of the failure of the plaintiffs to pay the
one of the duly authorized agents of the National Charity amount of tax demanded by the defendant, notwithstanding
Sweepstakes Office one ticket bearing No. 178637 for the sum of subsequent demand made by defendant upon the plaintiffs
two pesos (P2) and that the said ticket was registered in the name through their attorney on March 23, 1935, a copy of which marked
of Jose Gatchalian and Company; Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant
of distraint and levy against the property of the plaintiffs, a copy of
"4. That as a result of the drawing of the sweepstakes on
which warrant marked Exhibit I is enclosed and made a part
December 15, 1934, the above-mentioned ticket bearing No.
hereof;
178637 won one of the third prizes in the amount of P50,000 and
that the corresponding check covering the above-mentioned prize "10. That to avoid embarrassment arising from the
of P50,000 was drawn by the National Charity Sweepstakes Office embargo of the property of the plaintiffs, the said plaintiffs on June
in favor of Jose Gatchalian & Company against the Philippine 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus
National Bank, which check was cashed during the latter part of Legaspi, paid under protest the sum of P601.51 as part of the tax
December, 1934 by Jose Gatchalian & Company; and penalties to the municipal treasurer of Pulilan, Bulacan, as
evidenced by official receipt No. 7454879 which is attached and
"5 That on December 29, 1934, Jose Gatchalian was
marked Exhibit J and made a part hereof, and requested
required by income tax examiner Alfredo David to file the
defendant that plaintiffs be allowed to pay under protest the
corresponding income tax return covering the prize won by Jose
balance of the tax and penalties by monthly installments;
Gatchalian & Company and that on December 29, 1934, the said
PAT 1

"11. That plaintiffs' request to pay the balance of the tax "To whom it my concern:
and penalties was granted by defendant subject to the condition
"I, Jose Gatchalian, a resident of Pulilan, Bulacan,
that plaintiffs file the usual bond secured by two solvent persons to
married, of age, hereby certify, that on the 11th day of August,
guarantee prompt payment of each installments as it becomes
1934, I sold parts of my share on ticket No. 178637 to the persons
due;
and for the amount indicated below and the part of my share
"12. That on July 16, 1935, plaintiff filed a bond, a copy remaining is also shown to wit:
of which marked Exhibit K is inclosed and made a part hereof, to
guarantee the payment of the balance of the alleged tax liability by
monthly installments at the rate of P118.70 a month, the first Purchaser Amount Address
payment under protest to be effected on or before July 31, 1935;
"13. That on July 16, 1935 the said plaintiffs formally 1. Mariano Santos P0.14 Pulilan, Bulacan.
protested against the payment of the sum of P602.51, a copy of 2. Buenaventura Guzman .13 Do.
which protest is attached and marked Exhibit L but that defendant 3. Maria Santiago .17 Do.
in his letter dated August 1, 1936 overruled the protest and denied 4. Gonzalo Javier .14 Do.
the request for refund of the plaintiffs; 5. Francisco Cabral .13 Do.
6. Maria C. Legaspi .16 Do.
"14. That, in view of the failure of the plaintiffs to pay the 7. Emiliana Santiago .13 Do.
monthly installments in accordance with the terms and conditions 8. Julio Gatchalian .13 Do.
of the bond filed by them, the defendant in his letter dated July 23, 9. Jose Silva .07 Do.
1935, copy of which is attached and marked Exhibit M, ordered the 10. Tomasa Mercado .08 Do.
municipal treasurer of Pulilan, Bulacan to execute within five days 11. Jesus Legaspi .16 Do.
the warrant of distraint and levy issued against the plaintiffs on 12. Guillermo Tapia .18 Do.
March 13, 1935; 13. Saturnina Silva .08 Do.
"15. That in order to avoid annoyance and 14. Gregoria Cristobal .18 Do.
embarrassment arising from the levy of their property, the plaintiffs 15. Jose Gatchalian .18 Do.
on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, ——
Maria Santiago and Emiliano Santiago, paid under protest to the 2.00
municipal treasurer of Pulilan, Bulacan. the sum of P1,260.93 Total cost of said ticket; and that, therefore, the persons named
representing the unpaid balance of the income tax and penalties above are entitled to the parts of whatever prize that might be won
demanded by defendant as evidenced by income tax receipt No. by said ticket.
35811 which is attached and marked Exhibit N and made a part
"Pulilan, Bulacan, P. I.
hereof; and that on September 3, 1936, the plaintiffs formally
protested to the defendant against the payment of said amount (Sgd.) "JOSE
and requested the refund thereof, copy of which is attached and GATCHALIAN"
marked Exhibit O and made part hereof; but that on September 4,
And a summary of Exhibits D-1 to D-15 inserted in the bill of exceptions
1936, the defendant overruled the protest and denied the refund as follows:
thereof; copy of which is attached and marked Exhibit P and made
a part hereof; and "RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX
RETURNS FOR 1934 ALL DATED JANUARY 19, 1935
"16. That plaintiffs demanded upon defendant the refund
SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.
of the total sum of one thousand eight hundred and sixty-three
pesos and forty-four centavos (P1,863.44) paid under protest by
them but that defendant refused and still refuses to refund ,the said
amount notwithstanding the plaintiffs' demands. Exhibit Purchase Price Net
Name No. Price won Expenses prize
"17. The parties hereto reserve the right to present other
and additional evidence if necessary." 1. Jose Gatchalian D-1 P0.18 P4,425 P480 3,945
Exhibit E referred to in the stipulation is of the following tenor: 2. Gregoria Cristobal D-2 .18 4,575 2,000 2,575
3. Saturnina Silva D-3 .08 1,875 360 1,515
PAT 1

4. Guillermo Tapia D-4 .13 3,325 360 2,965 "The gain derived or loss sustained from the sale or other
5. Jesus Legaspi by Maria disposition by a corporation, joint-stock company, partnership, joint
Cristobal D-5 .15 3,825 720 3,105 account (cuenta en participacion), association, or insurance
6. Jose Silva D-6 .08 1,875 360 1,615 company, or property, real, personal, or mixed, shall be
7. Tomasa Mercado D-7 .07 1,875 360 1,515 ascertained in accordance with subsections (c) and (d) of section
8. Julio Gatchalian by Bea two of Act Numbered Two thousand eight hundred and thirty-three,
triz Guzman D-8 .13 3,150 240 2,910 as amended by Act Numbered Twenty-nine hundred and twenty-
9. Emiliana Santiago D-9 .13 3,325 360 2,966 six.
10. Maria C. Legaspi D-10 .16 4,100 960 3,140
"The foregoing tax rate shall apply to the net income
11. Francisco Cabral D-11 .13 3,325 360 2965
received by every taxable corporation, joint-stock company,
12. Gonzalo Javier D-12 .14 3,325 360 2,965
partnership, joint account (cuenta en participacion), associations
13. Maria Santiago D-13 .17 4,350 360 3,990
or insurance company in the calendar year nineteen hundred and
14. Buenaventura Guzman D-14 .13 3,325 360 2,965
twenty and in each year thereafter."
15. Mariano Santos D-15 .14 3,325 360 2,965
—— ——— —— —— There is no doubt that if the plaintiffs merely formed a community of
2.00 50,000" property the latter is exempt from the payment of income tax under the law. But
according to the stipulated facts the plaintiffs organized a partnership of a civil
nature because each of them put up money to buy a sweepstakes ticket for the
sole purpose of dividing equally the prize which they may win, as they did in fact
in the amount of P50,000 (article 1665, Civil Code). The partnership was not only
The legal questions raised in plaintiffs-appellants' five assigned errors
formed, but upon the organization thereof and the winning of the prize, Jose
may properly be reduced to the two following: (1) Whether the plaintiffs formed a
Gatchalian personally appeared in the office of the Philippine Charity
partnership, or merely a community of property without a personality of its own; in
Sweepstakes, in his capacity as co-partner, as such collected the prize, the office
the first case it is admitted that the partnership thus formed is liable for the payment
issued the check for P50,000 in favor of Jose Gatchalian and company, and the
of income tax, whereas if there was merely a community of property, they are
said partner. in the same capacity, collected the said check. All these
exempt from such payment; and (2) whether they should pay the tax collectively
circumstances repel the idea that the plaintiffs organized and formed a community
or whether the latter should be prorated among them and paid individually.
of property only.
The Collector of Internal Revenue collected the tax under section 10 of
Having organized and constituted a partnership of a civil nature, the said
Act No. 2833, as last amended by section 2 of Act No. 3761, reading as follows:
entity is the one bound to pay the income tax which the defendant collected under
"SEC. 10. (a) There shall be levied, assessed, collected, the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No.
and paid annually upon the total net income received in the 3761. There is no merit in plaintiffs' contention that the tax should be prorated
preceding calendar year from all sources by every corporation, among them and paid individually, resulting in their exemption from the tax.
joint-stock company, partnership, joint account (cuenta en
In view of the foregoing, the appealed decision is affirmed, with the costs
participacion), association or insurance company, organized in the
of this instance to the plaintiff. appellants. So ordered.
Philippine Islands, no matter how created or organized, but not
including duly registered general co-partnerships (compañias ||| (Gatchalian v. Collector of Internal Revenue, G.R. No. 45425, [April 29, 1939], 67
colectivas), a tax of three per centum upon such income; and a like PHIL 666-674)
tax shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding calendar year from
all sources within the Philippine Islands by every corporation, joint- 8. Santos vs. Sps. Reyes
stock company, partnership, joint account (cuenta en
participacion), association, or insurance company organized, [G.R. No. 135813. October 25, 2001.]
authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided, FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and
however, That nothing in this section shall be construed as NIEVES REYES, respondents.
permitting the taxation of the income derived from dividends or net
profits on which the normal tax has been paid.
Pacifico M. Lontok and Arcangelita M. Romilla-Lontok for petitioner.
PAT 1

Benito P. Fabie for private respondents. establishment of a partnership. . . . Nieves was not merely petitioner's employee. She
discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the
Agreement . . . . The "Second Party" named in the Agreement was none other than
SYNOPSIS Nieves Reyes. On the other hand, Arsenio's duties as credit investigator are subsumed
under the phrase "screening of prospective borrowers." Because of this Agreement and
the disbursement of monthly "allowances" and "profit shares" or "dividends" (Exh. "6")
On June 13, 1986, petitioner Fernando Santos, respondent Nieves Reyes and Meliton to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the
Zabat launched a lending business venture. It was agreed that the petitioner as partnership. Indeed, the partnership was established to engage in a money-lending
financier will receive 70% of the profit while Nieves and Zabat as industrial partner will business, despite the fact that it was formalized only after the Memorandum of
receive 15% each. Later, it was discovered that Zabat engaged in the same lending Agreement had been signed by petitioner and Gragera. Contrary to petitioner's
business in competition with their partnership, thus, he was expelled from the contention, there is no evidence to show that a different business venture is referred to
partnership. Arsenio, Nieves' husband, replaced Zabat. On June 5, 1987, petitioner in this Agreement, which was executed on August 6, 1986, or about a month after the
filed a complaint for recovery of sum of money claiming that Spouses Arsenio and Memorandum had been signed by petitioner and Gragera on July 14, 1986.
Nieves Reyes in their capacities as employees misappropriated funds intended for
Cesar Gragera. In their answer, spouses Reyes asserted that they were partners and 3. REMEDIAL LAW; EVIDENCE; CREDIBILITY OF WITNESSES; FACTUAL
not mere employees of petitioner. The complaint was filed to preempt and prevent them FINDINGS OF THE COURT OF APPEALS AFFIRMING THOSE OF THE TRIAL
from claiming their rightful share to the profits of the partnership. After trial, the court a COURT ARE BINDING AND CONCLUSIVE ON THE SUPREME COURT. — Petitioner
quo ruled in favor of spouses Reyes. It further ruled that petitioner failed to prove that has utterly failed to demonstrate why a review of these factual findings is warranted.
he had entrusted any money to Nieves. Thus, it granted spouses Reyes' counterclaim Well-entrenched is the basic rule that factual findings of the Court of Appeals affirming
for their share in the partnership and for damages. On appeal, the decision of the trial those of the trial court are binding and conclusive on the Supreme Court. Although there
court was affirmed by the Court of Appeals (CA). Hence, this petition for review. are exceptions to this rule, petitioner has not satisfactorily shown that any of them is
applicable to this issue.
The Court ruled that by the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the 4. ID.; ID.; ID.; ID.; THE RULE MAY BE RELAXED WHEN THE ISSUE INVOLVES
intention of dividing the profits among themselves. The "Articles of Agreement" THE EVALUATION OF EXHIBITS OR DOCUMENTS THAT ARE ATTACHED TO THE
stipulated that the signatories shall share the profits of the business in a 70-15-15 CASE RECORDS. — The trial court has the advantage of observing the witnesses
manner, with petitioner getting the lion's share. This stipulation clearly proved the while they are testifying, an opportunity not available to appellate courts. Thus, its
establishment of a partnership. However, after a close examination of respondent's assessment of the credibility of witnesses and their testimonies are accorded great
exhibits, the Court found a reason to disagree with the CA. Exhibit "10-I" showed that weight, even finality, when supported by substantial evidence; more so when such
the partnership earned a "total income" of P20,429,520 for the period June 13, 1986 assessment is affirmed by the CA. But when the issue involves the evaluation of
until April 19, 1987. It did not consider the expenses sustained by the partnership. The exhibits or documents that are attached to the case records, as in the third issue, the
point is that all expenses incurred by the money-lending enterprise of the parties must rule may be relaxed. Under that situation, this Court has a similar opportunity to inspect,
first be deducted from the "total income" in order to arrive at the "net profit." Contrary examine and evaluate those records, independently of the lower courts. Hence, we
to the rulings of both the trial and the appellate courts, respondents' exhibits did not deem the award of the partnership share, as computed by the trial court and adopted
reflect the complete financial condition of the money-lending business. The lower courts by the CA, to be incomplete and not binding on this Court.
obviously labored over a mistaken notion that Exhibit "10-I-1" represented the "net
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; TOTAL INCOME;
profits" earned by the partnership.
ELUCIDATED. — Exhibit "10-I" shows that the partnership earned a "total income" of
P20,429,520 for the period June 13, 1986 until April 19, 1987. This entry is derived from
the sum of the amounts under the following column headings: "2-Day Advance
SYLLABUS Collection," "Service Fee," "Notarial Fee," "Application Fee," "Net Interest Income" and
"Interest Income on Investment." Such entries represent the collections of the money-
lending business or its gross income. The "total income" shown on Exhibit "10-I" did not
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; DEFINED. — By
consider the expenses sustained by the partnership. For instance, it did not factor in
the contract of partnership, two or more persons bind themselves to contribute money,
the "gross loan releases" representing the money loaned to clients. Since the business
property or industry to a common fund, with the intention of dividing the profits among
is money-lending, such releases are comparable with the inventory or supplies in other
themselves.
business enterprises.
2. ID.; ID.; ID.; ESTABLISHED IN CASE AT BAR. — The "Articles of Agreement"
6. ID.; ID.; ID.; SHARE OF EACH PARTNER SHOULD BE BASED ON THE NET
stipulated that the signatories shall share the profits of the business in a 70-15-15
PROFIT. — Noticeably missing from the computation of the "total income" is the
manner, with petitioner getting the lion's share. This stipulation clearly proved the
PAT 1

deduction of the weekly allowance disbursed to respondents. Exhibits "I" et seq. and 1997 is hereby MODIFIED in that the decision appealed from is
"J" et seq. show that Arsenio received allowances from July 19, 1986 to March 27, 1987 AFFIRMED in toto, with costs against [petitioner]." 4
in the aggregate amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987
in the total amount of P25,600. These allowances are different from the profit already The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for
received by Arsenio. They represent expenses that should have been deducted from Reconsideration of the August 17, 1998 Resolution. 5
the business profits. The point is that all expenses incurred by the money-lending
The Facts
enterprise of the parties must first be deducted from the "total income" in order to arrive
at the "net profit" of the partnership. The share of each one of them should be based The events that led to this case are summarized by the CA as follows:
on this "net profit" and not from the "gross income" or "total income" reflected in Exhibit
"10-I," which the two courts invariably referred to as "cash flow" sheets. "Sometime in June, 1986, [Petitioner] Fernando Santos and
[Respondent] Nieves Reyes were introduced to each other by one
7. ID.; ID.; ID.; ID.; INDUSTRIAL PARTNER'S SHARE MUST COME FROM THE NET Meliton Zabat regarding a lending business venture proposed by
PROFITS; INDUSTRIAL PARTNER DOES NOT SHARE IN THE LOSSES IF LATTER Nieves. It was verbally agreed that [petitioner would] act as
EXCEEDS THE INCOME. — For the purpose of determining the profit that should go financier while [Nieves] and Zabat [would] take charge of
to an industrial partner (who shares in the profits but is not liable for the losses), the solicitation of members and collection of loan payments. The
gross income from all the transactions carried on by the firm must be added together, venture was launched on June 13, 1986, with the understanding
and from this sum must be subtracted the expenses or the losses sustained in the that [petitioner] would receive 70% of the profits while . . . Nieves
business. Only in the difference representing the net profits does the industrial partner and Zabat would earn 15% each.
share. But if, on the contrary, the losses exceed the income, the industrial partner does
not share in the losses. DEcTCa
"In July, 1986, . . . Nieves introduced Cesar Gragera to [petitioner].
Gragera, as chairman of the Monte Maria Development
Corporation 6(Monte Maria, for brevity), sought short-term loans
DECISION for members of the corporation. [Petitioner] and Gragera executed
an agreement providing funds for Monte Maria's members. Under
the agreement, Monte Maria, represented by Gragera, was entitled
to P1.31 commission per thousand paid daily to [petitioner] (Exh.
PANGANIBAN, J p: 'A'). . . . Nieves kept the books as representative of [petitioner]
while [Respondent] Arsenio, husband of Nieves, acted as credit
As a general rule, the factual findings of the Court of Appeals affirming those of the trial investigator.
court are binding on the Supreme Court. However, there are several exceptions to this
principle. In the present case, we find occasion to apply both the rule and one of the "On August 6, 1986, [petitioner], . . . [Nieves] and Zabat executed
exceptions. the 'Article of Agreement' which formalized their earlier verbal
arrangement.
The Case
"[Petitioner] and [Nieves] later discovered that their partner Zabat
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 engaged in the same lending business in competition with their
Decision, 1 as well as the August 17, 1998 and the October 9, 1998 partnership[.] Zabat was thereby expelled from the partnership.
Resolutions, 2 issued by the Court of Appeals (CA) in CA-GR CV No. 34742. The The operations with Monte Maria continued.
Assailed Decision disposed as follows:
"On June 5, 1987, [petitioner] filed a complaint for recovery of sum
"WHEREFORE, the decision appealed from is AFFIRMED save of money and damages. [Petitioner] charged [respondents],
as for the counterclaim which is hereby DISMISSED. Costs allegedly in their capacities as employees of [petitioner], with
against [petitioner]." 3 having misappropriated funds intended for Gragera for the period
July 8, 1986 up to March 31, 1987. Upon Gragera's complaint that
Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution
his commissions were inadequately remitted, [petitioner] entrusted
ruled as follows:
P200,000.00 to . . . Nieves to be given to Gragera. . . . Nieves
"WHEREFORE, [respondents'] motion for reconsideration is allegedly failed to account for the amount. [Petitioner] asserted that
GRANTED. Accordingly, the court's decision dated November 28, after examination of the records, he found that of the total amount
of P4,623,201.90 entrusted to [respondents], only P3,068,133.20
PAT 1

was remitted to Gragera, thereby leaving the balance of Ruling of the Trial Court
P1,555,065.70 unaccounted for.
In its August 13, 1991 Decision, the trial court held that respondents were partners, not
"In their answer, [respondents] asserted that they were partners mere employees, of petitioner. It further ruled that Gragera was only a commission
and not mere employees of [petitioner]. The complaint, they agent of petitioner, not his partner. Petitioner moreover failed to prove that he had
alleged, was filed to preempt and prevent them from claiming their entrusted any money to Nieves. Thus, respondents' counterclaim for their share in the
rightful share to the profits of the partnership. partnership and for damages was granted. The trial court disposed as follows:

". . . Arsenio alleged that he was enticed by [petitioner] to take the "39. WHEREFORE, the Court hereby renders judgment as follows:
place of Zabat after [petitioner] learned of Zabat's activities.
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989
Arsenio resigned from his job at the Asian Development Bank to
is DISMISSED.
join the partnership.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay
"For her part, . . . Nieves claimed that she participated in the
the [Respondent] NIEVES S. REYES, the following:
business as a partner, as the lending activity with Monte Maria
originated from her initiative. Except for the limited period of July 39.2.1 P3,064,428.00 — The 15 percent share of the
8, 1986 through August 20, 1986, she did not handle sums [respondent] NIEVES S. REYES
intended for Gragera. Collections were turned over to Gragera in the profits of her joint venture
because he guaranteed 100% payment of all sums loaned by with the [petitioner].
Monte Maria. Entries she made on worksheets were based on this
assumptive 100% collection of all loans. The loan releases were 39.2.2. Six (6) percent of — As damages from August 3,
made less Gragera's agreed commission. Because of this
arrangement, she neither received payments from borrowers nor P3,064,428.00 1987 until the P3,064,428.00
remitted any amount to Gragera. Her job was merely to make is fully paid.
worksheets (Exhs. '15' to '15-DDDDDDDDDD') to convey to
[petitioner] how much he would earn if all the sums guaranteed by 39.2.3. P50,000.00 — As moral damages
Gragera were collected.
39.2.4. P10,000.00 — As exemplary damages
"[Petitioner] on the other hand insisted that [respondents] were his
mere employees and not partners with respect to the agreement 39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay
with Gragera. He claimed that after he discovered Zabat's the [respondent] ARSENIO REYES, the following:
activities, he ceased infusing funds, thereby causing the
39.3.1. P2,899,739.50 — The balance of the 15 percent
extinguishment of the partnership. The agreement with Gragera
share of the [respondent]
was a distinct partnership [from] that of [respondent] and Zabat.
ARSENIO REYES in the profits
[Petitioner] asserted that [respondents] were hired as salaried
of his joint venture with the
employees with respect to the partnership between [petitioner] and
[petitioner].
Gragera.
39.3.2. Six (6) percent of — As damages from August 3,
"[Petitioner] further asserted that in Nieves' capacity as
bookkeeper, she received all payments from which Nieves P2,899,739.50 1987 until the P2,899,739.50 is
deducted Gragera's commission. The commission would then be fully paid.
remitted to Gragera. She likewise determined loan releases.
39.3.3. P25,000.00 — As moral damages
"During the pre-trial, the parties narrowed the issues to the
following points: whether [respondents] were employees or 39.3.4. P10,000.00 — As exemplary damages
partners of [petitioner], whether [petitioner] entrusted money to
[respondents] for delivery to Gragera, whether the P1,555,068.70 39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay
claimed under the complaint was actually remitted to Gragera and the [respondents]:
whether [respondents] were entitled to their counterclaim for share
39.4.1. P50,000.00 — As attorney's fees; and
in the profits." 7
PAT 1

39.4.2 The cost of the suit." 8 7. Denying Santos' motion for reconsideration dated September
11, 1998."
Ruling of the Court of Appeals
Succinctly put, the following were the issues raised by petitioner: (1) whether the
On appeal, the Decision of the trial court was upheld, and the counterclaim of
parties' relationship was one of partnership or of employer-employee; (2) whether
respondents was dismissed. Upon the latter's Motion for Reconsideration, however, the
Nieves misappropriated the sums of money allegedly entrusted to her for delivery to
trial court's Decision was reinstated in toto. Subsequently, petitioner's own Motion for
Gragera as his commissions; and (3) whether respondents were entitled to the
Reconsideration was denied in the CA Resolution of October 9, 1998.
partnership profits as determined by the trial court.
The CA ruled that the following circumstances indicated the existence of a partnership
The Court's Ruling
among the parties: (1) it was Nieves who broached to petitioner the idea of starting a
money-lending business and introduced him to Gragera; (2) Arsenio received The Petition is partly meritorious.
"dividends" or "profit-shares" covering the period July 15 to August 7, 1986 (Exh. "6");
and (3) the partnership contract was executed after the Agreement with Gragera and First Issue:
petitioner and thus showed the parties' intention to consider it as a transaction of the Business Relationship
partnership. In their common venture, petitioner invested capital while respondents
contributed industry or services, with the intention of sharing in the profits of the Petitioner maintains that he employed the services of respondent spouses in the
business. money-lending venture with Gragera, with Nieves as bookkeeper and Arsenio as credit
investigator. That Nieves introduced Gragera to Santos did not make her a partner. She
The CA disbelieved petitioner's claim that Nieves had misappropriated a total of was only a witness to the Agreement between the two. Separate from the partnership
P200,000 which was supposed to be delivered to Gragera to cover unpaid between petitioner and Gragera was that which existed among petitioner, Nieves and
commissions. It was his task to collect the amounts due, while hers was merely to Zabat, a partnership that was dissolved when Zabat was expelled.
prepare the daily cash flow reports (Exhs. "15-15DDDDDDDDDD") to keep track of his
collections. On the other hand, both the CA and the trial court rejected petitioner's contentions and
ruled that the business relationship was one of partnership. We quote from the CA
Hence, this Petition. 9 Decision, as follows:

Issue "[Respondents] were industrial partners of [petitioner]. . . . Nieves


herself provided the initiative in the lending activities with Monte
Petitioner asks this Court to rule on the following issues: 10
Maria. In consonance with the agreement between appellant,
"Whether or not Respondent Court of Appeals acted with grave Nieves and Zabat (later replaced by Arsenio), [respondents]
abuse of discretion tantamount to excess or lack of jurisdiction in: contributed industry to the common fund with the intention of
sharing in the profits of the partnership. [Respondents] provided
1. Holding that private respondents were partners/joint venturers services without which the partnership would not have [had] the
and not employees of Santos in connection with the agreement wherewithal to carry on the purpose for which it was organized and
between Santos and Monte Maria/Gragera; as such [were] considered industrial partners (Evangelista v. Abad
Santos, 51 SCRA 416 [1973]).
2. Affirming the findings of the trial court that the phrase 'Received
by' on documents signed by Nieves Reyes signified receipt of
copies of the documents and not of the sums shown thereon;
"While concededly, the partnership between [petitioner,] Nieves
3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was and Zabat was technically dissolved by the expulsion of Zabat
a forgery; therefrom, the remaining partners simply continued the business
of the partnership without undergoing the procedure relative to
4. Finding that Exhibit 'H' [did] not establish receipt by Nieves dissolution. Instead, they invited Arsenio to participate as a partner
Reyes of P200,000.00 for delivery to Gragera; in their operations. There was therefore, no intent to dissolve the
5 Affirming the dismissal of Santos' [Second] Amended Complaint; earlier partnership. The partnership between [petitioner,] Nieves
and Arsenio simply took over and continued the business of the
6. Affirming the decision of the trial court, upholding private former partnership with Zabat, one of the incidents of which was
respondents' counterclaim; the lending operations with Monte Maria.
xxx xxx xxx
PAT 1

"Gragera and [petitioner] were not partners. The money-lending Second Issue:
activities undertaken with Monte Maria was done in pursuit of the
No Proof of Misappropriation of
business for which the partnership between [petitioner], Nieves
Gragera's Unpaid Commission
and Zabat (later Arsenio) was organized. Gragera who
represented Monte Maria was merely paid commissions in Petitioner faults the CA finding that Nieves did not misappropriate money intended for
exchange for the collection of loans. The commissions were fixed Gragera's commission. According to him, Gragera remitted his daily collection to
on gross returns, regardless of the expenses incurred in the Nieves. This is shown by Exhibit "B" (the "Schedule of Daily Payments"), which bears
operation of the business. The sharing of gross returns does not in her signature under the words "received by." For the period July 1986 to March 1987,
itself establish a partnership." 11 Gragera should have earned a total commission of P4,282,429.30. However, only
P3,068,133.20 was received by him. Thus, petitioner infers that she misappropriated
We agree with both courts on this point. By the contract of partnership, two or more the difference of P1,214,296.10, which represented the unpaid commissions. Exhibit
persons bind themselves to contribute money, property or industry to a common fund, "H" is an untitled tabulation which, according to him, shows that Gragera was also
with the intention of dividing the profits among themselves. 12 The "Articles of entitled to a commission of P200,000, an amount that was never delivered by
Agreement" stipulated that the signatories shall share the profits of the business in a Nieves. 16
70-15-15 manner, with petitioner getting the lion's share. 13 This stipulation clearly
proved the establishment of a partnership. On this point, the CA ruled that Exhibits "B", "F", "E" and "H" did not show that Nieves
received for delivery to Gragera any amount from which the P1,214,296.10 unpaid
We find no cogent reason to disagree with the lower courts that the partnership commission was supposed to come, and that such exhibits were insufficient proof that
continued lending money to the members of the Monte Maria Community Development she had embezzled P200,000. Said the CA:
Group, Inc., which later on changed its business name to Private Association for
Community Development, Inc. (PACDI). Nieves was not merely petitioner's employee. "The presentation of Exhibit "D" vaguely denominated as
She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the 'members ledger' does not clearly establish that Nieves received
Agreement, which states as follows: amounts from Monte Maria's members. The document does not
clearly state what amounts the entries thereon represent. More
"2. That the SECOND PARTY and THIRD PARTY shall handle the importantly, Nieves made the entries for the limited period of
solicitation and screening of prospective borrowers, and shall . . . January 11, 1987 to February 17, 1987 only while the rest were
each be responsible in handling the collection of the loan made by Gragera's own staff.
payments of the borrowers that they each solicited.
"Neither can we give probative value to Exhibit 'E' which allegedly
"3. That the bookkeeping and daily balancing of account of the shows acknowledgment of the remittance of commissions to
business operation shall be handled by the SECOND PARTY." 14 Verona Gonzales. The document is a private one and its due
execution and authenticity have not been duly proved as required
The "Second Party" named in the Agreement was none other than Nieves Reyes. On
in [S]ection 20, Rule 132 of the Rules of Court which states:
the other hand, Arsenio's duties as credit investigator are subsumed under the phrase
"screening of prospective borrowers." Because of this Agreement and the 'SECTION 20. Proof of Private
disbursement of monthly "allowances" and "profit shares" or "dividends" (Exh. "6") to Document — Before any private document
Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the offered as authentic is received in evidence, its
partnership. due execution and authenticity must be proved
either:
Indeed, the partnership was established to engage in a money-lending business,
despite the fact that it was formalized only after the Memorandum of Agreement had (a) By anyone who saw the document executed
been signed by petitioner and Gragera. Contrary to petitioner's contention, there is no or written; or
evidence to show that a different business venture is referred to in this Agreement,
which was executed on August 6, 1986, or about a month after the Memorandum had (b) By evidence of the genuineness of the
been signed by petitioner and Gragera on July 14, 1986. The Agreement itself attests signature or handwriting of the maker.
to this fact:
'Any other private document need only be identified as
"WHEREAS, the parties have decided to formalize the terms of that which it is claimed to be.'
their business relationship in order that their respective interests
may be properly defined and established for their mutual benefit "The court a quo even ruled that the signature thereon was a
and understanding." 15 forgery, as it found that:
PAT 1

'. . . . But NIEVES denied that Exh. E-1 is her signature; collect the daily amortizations and then give them to
she claimed that it is a forgery. The initial stroke of Exh. NIEVES; NIEVES would get GRAGERA's commissions
E-1 starts from up and goes downward. The initial stroke from the amortizations and then give such commission to
of the genuine signatures of NIEVES (Exhs. A-3, B-1, F- GRAGERA.'" 17
1, among others) starts from below and goes upward.
This difference in the start of the initial stroke of the These findings are in harmony with the trial court's ruling, which we quote below:
signatures Exhs. E-1 and of the genuine signatures lends
"21. Exh. H does not prove that SANTOS gave to NIEVES and the
credence to Nieves' claim that the signature Exh. E-1 is a
latter received P200,000.00 for delivery to GRAGERA. Exh. H
forgery.'
shows under its sixth column 'ADDITIONAL CASH' that the
xxx xxx xxx additional cash was P240,000.00. If Exh. H were the liquidation of
the P200,000.00 as alleged by SANTOS, then his claim is not true.
"Nieves' testimony that the schedules of daily payment (Exhs. 'B' This is so because it is a liquidation of the sum of P240,000.00.
and 'F') were based on the predetermined 100% collection as
guaranteed by Gragera is credible and clearly in accord with the "21.1. SANTOS claimed that he learned of NIEVES' failure to give
evidence. A perusal of Exhs. "B" and "F" as well as Exhs. '15' to the P200,000.00 to GRAGERA when he received the latter's letter
15-DDDDDDDDDD' reveal that the entries were indeed based on complaining of its delayed release. Assuming as true SANTOS'
the 100% assumptive collection guaranteed by Gragera. Thus, the claim that he gave P200,000.00 to GRAGERA, there is no
total amount recorded on Exh. 'B' is exactly the number of competent evidence that NIEVES did not give it to GRAGERA. The
borrowers multiplied by the projected collection of P150.00 per only proof that NIEVES did not give it is the letter. But SANTOS
borrower. This holds true for Exh. 'F'. did not even present the letter in evidence. He did not explain why
he did not.
"Corollarily, Nieves' explanation that the documents were pro
forma and that she signed them not to signify that she collected "21.2. The evidence shows that all money transactions of the
the amounts but that she received the documents themselves is money-lending business of SANTOS were covered by petty cash
more believable than [petitioner's] assertion that she actually vouchers. It is therefore strange why SANTOS did not present any
handled the amounts. voucher or receipt covering the P200,000.00." 18

"Contrary to [petitioner's] assertion, Exhibit 'H' does not In sum, the lower courts found it unbelievable that Nieves had embezzled
unequivocally establish that . . . Nieves received P200,000.00 as P1,555,068.70 from the partnership. She did not remit P1,214,296.10 to Gragera,
commission for Gragera. As correctly stated by the court a quo, because he had deducted his commissions before remitting his collections. Exhibits "B"
the document showed a liquidation of P240,000.00 and not and "F" are merely computations of what Gragera should collect for the day; they do
P200,000.00. not show that Nieves received the amounts stated therein. Neither is there sufficient
proof that she misappropriated P200,000, because Exhibit "H" does not indicate that
"Accordingly, we find Nieves' testimony that after August 20, 1986, such amount was received by her; in fact, it shows a different figure.
all collections were made by Gragera believable and worthy of
credence. Since Gragera guaranteed a daily 100% payment of the
loans, he took charge of the collections. As [petitioner's]
Petitioner has utterly failed to demonstrate why a review of these factual findings is
representative, Nieves merely prepared the daily cash flow reports
warranted. Well-entrenched is the basic rule that factual findings of the Court of Appeals
(Exh. '15' to '15 DDDDDDDDDD') to enable [petitioner] to keep
affirming those of the trial court are binding and conclusive on the Supreme
track of Gragera's operations. Gragera on the other hand devised
Court. 19 Although there are exceptions to this rule, petitioner has not satisfactorily
the schedule of daily payment (Exhs. 'B' and 'F') to record the
shown that any of them is applicable to this issue.
projected gross daily collections.
Third Issue:
"As aptly observed by the court a quo:
Accounting of Partnership
'26.1. As between the versions of SANTOS and NIEVES
on how the commissions of GRAGERA [were] paid to Petitioner refuses any liability for respondents' claims on the profits of the partnership.
him[,] that of NIEVES is more logical and practical and He maintains that "both business propositions were flops," as his investments were
therefore, more believable. SANTOS' version would have "consumed and eaten up by the commissions orchestrated to be due Gragera" — a
given rise to this improbable situation: GRAGERA would
PAT 1

situation that "could not have been rendered possible without complicity between half a million pesos to him. But such loss, even if true, does not
Nieves and Gragera." negate NIEVES' claim that overall, the joint venture among them
— SANTOS, NIEVES and ARSENIO — netted a profit. There is
Respondent spouses, on the other hand, postulate that petitioner instituted the action no reason for the Court to doubt the veracity of [the testimony of]
below to avoid payment of the demands of Nieves, because sometime in March 1987, NIEVES.
she "signified to petitioner that it was about time to get her share of the profits which
had already accumulated to some P3 million." Respondents add that while the "27.2 The P26,260.50 which ARSENIO received as part of his
partnership has not declared dividends or liquidated its earnings, the profits are already share in the profits (Exhs. 6, 6-A and 6-B) should be deducted from
reflected on paper. To prove the counterclaim of Nieves, the spouses show that from his total share." 21
June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs. "10" et seq.
and "15" et seq.). Based on that income, her 15 percent share under the joint venture After a close examination of respondents' exhibits, we find reason to disagree with the
amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus the P30,000 CA. Exhibit "10-I" 22 shows that the partnership earned a "total income" of P20,429,520
which was already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B"). for the period June 13, 1986 until April 19, 1987. This entry is derived from the sum of
the amounts under the following column headings: "2-Day Advance Collection,"
The CA originally held that respondents' counterclaim was premature, pending an "Service Fee," "Notarial Fee," "Application Fee," "Net Interest Income" and "Interest
accounting of the partnership. However, in its assailed Resolution of August 17, 1998, Income on Investment." Such entries represent the collections of the money-lending
it turned volte face. Affirming the trial court's ruling on the counterclaim, it held as business or its gross income. SEACTH
follows:
The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by
"We earlier ruled that there is still need for an accounting of the the partnership. For instance, it did not factor in the "gross loan releases" representing
the money loaned to clients. Since the business is money-lending, such releases are
profits and losses of the partnership before we can rule with
certainty as to the respective shares of the partners. Upon a further comparable with the inventory or supplies in other business enterprises.
review of the records of this case, however, there appears to be Noticeably missing from the computation of the "total income" is the deduction of the
sufficient basis to determine the amount of shares of the parties weekly allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. 23 show
and damages incurred by [respondents]. The fact is that the court a that Arsenio received allowances from July 19, 1986 to March 27, 1987 in the aggregate
quo already made such a determination [in its] decision dated amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987 in the total
August 13, 1991 on the basis of the facts on record." 20 amount of P25,600. These allowances are different from the profit already received by
Arsenio. They represent expenses that should have been deducted from the business
The trial court's ruling alluded to above is quoted below:
profits. The point is that all expenses incurred by the money-lending enterprise of the
"27. The defendants' counterclaim for the payment of their share parties must first be deducted from the "total income" in order to arrive at the "net profit"
in the profits of their joint venture with SANTOS is supported by of the partnership. The share of each one of them should be based on this "net profit"
the evidence. and not from the "gross income" or "total income" reflected in Exhibit "10-I," which the
two courts invariably referred to as "cash flow" sheets.
"27.1. NIEVES testified that: Her claim to a share in the profits is
based on the agreement (Exhs. 5, 5-A and 5-B). The profits are Similarly, Exhibits "15" et seq., 24 which are the "Daily Cashflow Reports," do not reflect
shown in the working papers (Exhs. 10 to 10-I, inclusive) which the business expenses incurred by the parties, because they show only the daily cash
she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily collections. Contrary to the rulings of both the trial and the appellate courts,
cash flow reports of which Exh. 3 is a sample. The originals of the respondents' exhibits do not reflect the complete financial condition of the money-
daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to lending business. The lower courts obviously labored over a mistaken notion that
SANTOS. The joint venture had a net profit of P20,429,520.00 Exhibit "10-I-1" represented the "net profits" earned by the partnership.
(Exh. 10-I-1), from its operations from June 13, 1986 to April 19,
For the purpose of determining the profit that should go to an industrial partner (who
1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits. shares in the profits but is not liable for the losses), the gross income from all the
transactions carried on by the firm must be added together, and from this sum must be
"27.1.1 SANTOS never denied NIEVES' testimony that the money- subtracted the expenses or the losses sustained in the business. Only in the difference
lending business he was engaged in netted a profit and that the representing the net profits does the industrial partner share. But if, on the contrary, the
originals of the daily case flow reports were furnished to him. losses exceed the income, the industrial partner does not share in the losses. 25
SANTOS however alleged that the money-lending operation of his
When the judgment of the CA is premised on a misapprehension of facts or a failure to
joint venture with NIEVES and ZABAT resulted in a loss of about
notice certain relevant facts that would otherwise justify a different conclusion, as in this
PAT 1

particular issue, a review of its factual findings may be conducted, as an exception to
the general rule applied to the first two issues. 26
The trial court has the advantage of observing the witnesses while they are testifying,
an opportunity not available to appellate courts. Thus, its assessment of the credibility
of witnesses and their testimonies are accorded great weight, even finality, when
supported by substantial evidence; more so when such assessment is affirmed by the
CA. But when the issue involves the evaluation of exhibits or documents that are
attached to the case records, as in the third issue, the rule may be relaxed. Under that
situation, this Court has a similar opportunity to inspect, examine and evaluate those
records, independently of the lower courts. Hence, we deem the award of the
partnership share, as computed by the trial court and adopted by the CA, to be
incomplete and not binding on this Court.

WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997
Decision is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and
October 9, 1998 are REVERSED and SET ASIDE. No costs.
SO ORDERED.

||| (Santos v. Sps. Reyes, G.R. No. 135813, [October 25, 2001], 420 PHIL 313-332)

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