G.R. No.

135813            October 25, 2001

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

PANGANIBAN, J.:

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

The Case

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

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

Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution ruled as
follows: 

"WHEREFORE, [respondents'] motion for reconsideration is GRANTED. Accordingly, the

court's decision dated November 28, 1997 is hereby MODIFIED in that the decision
appealed from is AFFIRMED in toto, with costs against [petitioner]."4

The October 9, 1998 Resolution denied "for lack of merit" petitioner's Motion for Reconsideration of
the August 17, 1998 Resolution.5

The Facts

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

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

"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman
of the Monte Maria Development Corporation6 (Monte Maria, for brevity), sought short-term
loans for members of the corporation. [Petitioner] and Gragera executed an agreement
providing funds for Monte Maria's members. Under the agreement, Monte Maria,
represented by Gragera, was entitled to P1.31 commission per thousand paid daily to
[petitioner] (Exh. 'A')x x x . Nieves kept the books as representative of [petitioner] while
[Respondent] Arsenio, husband of Nieves, acted as credit investigator.
"On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the 'Article of Agreement'
which formalized their earlier verbal arrangement.

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

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

"In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from
claiming their rightful share to the profits of the partnership.

"x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after
[petitioner] learned of Zabat's activities. Arsenio resigned from his job at the Asian
Development Bank to join the partnership.

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

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

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

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

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

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

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is
DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the
[Respondent] NIEVES S. REYES, the following:
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES
S. REYES in the profits of her joint venture with the
[petitioner].
39.2.2. Six(6) percent - As damages from August 3, 1987 until the
of P3,064,428.00 is fully paid.
P3,064,428.00
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the
[respondent] ARSENIO REYES, the following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the
[respondent] ARSENIO REYES in the profits of his
joint venture with the [petitioner].
39.3.2. Six(6) percent - As damages from August 3, 1987 until the
of P2,899,739.50 is fully paid.
P2,899,739.50
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered
to pay the [respondents]:
39.4.1. P50,000.00 - As attorney's fees; and
39.4.2. The cost of the suit."8

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latter's Motion for Reconsideration, however, the trial court's Decision was
reinstated in toto. Subsequently, petitioner's own Motion for Reconsideration was denied in the CA
Resolution of October 9, 1998.

The CA ruled that the following circumstances indicated the existence of a partnership among the
parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending business
and introduced him to Gragera; (2) Arsenio received "dividends" or "profit-shares" covering the
period July 15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract was executed after the
Agreement with Gragera and petitioner and thus showed the parties' intention to consider it as a
transaction of the partnership. In their common venture, petitioner invested capital while respondents
contributed industry or services, with the intention of sharing in the profits of the business.

The CA disbelieved petitioner's claim that Nieves had misappropriated a total of P200,000 which
was supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the
amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. "15-
15DDDDDDDDDD") to keep track of his collections.

Hence, this Petition.9

Issue

Petitioner asks this Court to rule on the following issues:10

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:

1. Holding that private respondents were partners/joint venturers and not employees of
Santos in connection with the agreement between Santos and Monte Maria/Gragera;

2. Affirming the findings of the trial court that the phrase 'Received by' on documents signed
by Nieves Reyes signified receipt of copies of the documents and not of the sums shown
thereon;

3. Affirming that the signature of Nieves Reyes on Exhibit 'E' was a forgery;

4. Finding that Exhibit 'H' [did] not establish receipt by Nieves Reyes of P200,000.00 for
delivery to Gragera;

5 Affirming the dismissal of Santos' [Second] Amended Complaint;

6. Affirming the decision of the trial court, upholding private respondents' counterclaim;

7. Denying Santos' motion for reconsideration dated September 11, 1998."

Succinctly put, the following were the issues raised by petitioner: (1) whether the parties' relationship
was one of partnership or of employer employee; (2) whether Nieves misappropriated the sums of
money allegedly entrusted to her for delivery to Gragera as his commissions; and (3) whether
respondents were entitled to the partnership profits as determined by the trial court.

The Court's Ruling

The Petition is partly meritorious.

First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves
introduced Gragera to Santos did not make her a partner. She was only a witness to the Agreement
between the two. Separate from the partnership between petitioner and Gragera was that which
existed among petitioner, Nieves and Zabat, a partnership that was dissolved when Zabat was
expelled.

On the other hand, both the CA and the trial court rejected petitioner's contentions and ruled that the
business relationship was one of partnership. We quote from the CA Decision, as follows:

"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself provided the

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

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

xxx           xxx           xxx

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

We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of dividing
the profits among themselves.12 The "Articles of Agreement" stipulated that the signatories shall
share the profits of the business in a 70-15-15 manner, with petitioner getting the lion's share.13 This
stipulation clearly proved the establishment of a partnership.

We find no cogent reason to disagree with the lower courts that the partnership continued lending
money to the members of the Monte Maria Community Development Group, Inc., which later on
changed its business name to Private Association for Community Development, Inc. (PACDI).
Nieves was not merely petitioner's employee. She discharged her bookkeeping duties in accordance
with paragraphs 2 and 3 of the Agreement, which states as follows:

"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening
of prospective borrowers, and shall x x x each be responsible in handling the collection of the
loan payments of the borrowers that they each solicited.
 "3. That the bookkeeping and daily balancing of account of the business operation shall be
handled by the SECOND PARTY."14

The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other
hand, 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") to Arsenio, we uphold the factual finding of both courts
that he replaced Zabat in the partnership.

Indeed, the partnership was established to engage in a money-lending business, despite the fact
that it was formalized only after the Memorandum of Agreement had been signed by petitioner and
Gragera. Contrary to petitioner's contention, there is no evidence to show that a different business
venture is referred to in this Agreement, which was executed on August 6, 1986, or about a month
after the Memorandum had been signed by petitioner and Gragera on July 14, 1986. The Agreement
itself attests to this fact:

"WHEREAS, the parties have decided to formalize the terms of their business relationship in
order that their respective interests may be properly defined and established for their mutual
benefit and understanding."15

Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera's
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by
Exhibit "B." (the "Schedule of Daily Payments"), which bears her signature under the words
"received by." For the period July 1986 to March 1987, Gragera should have earned a total
commission of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus, petitioner
infers that she misappropriated the difference of P1,214,296.10, which represented the unpaid
commissions. Exhibit "H." is an untitled tabulation which, according to him, shows that Gragera was
also entitled to a commission of P200,000, an amount that was never delivered by Nieves.16

On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves received for
delivery to Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to
come, and that such exhibits were insufficient proof that she had embezzled P200,000. Said the CA:

"The presentation of Exhibit "D" vaguely denominated as 'members ledger' does not clearly
establish that Nieves received amounts from Monte Maria's members. The document does
not clearly state what amounts the entries thereon represent. More importantly, Nieves made
the entries for the limited period of January 11, 1987 to February 17, 1987 only while the rest
were made by Gragera's own staff.

"Neither can we give probative value to Exhibit 'E' which allegedly shows acknowledgment of
the remittance of commissions to Verona Gonzales. The document is a private one and its
due execution and authenticity have not been duly proved as required in [S]ection 20, Rule
132 of the Rules of Court which states:

'SECTION 20. Proof of Private Document — Before any private document offered as

authentic is received in evidence, its due execution and authenticity must be proved
either:
 (a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the

maker.

'Any other private document need only be identified as that which it is claimed to be.'

"The court a quo even ruled that the signature thereon was a forgery, as it found that:

'x x x . But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a
forgery. The initial stroke of Exh. E-1 starts from up and goes downward. The initial
stroke of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, among others)
starts from below and goes upward. This difference in the start of the initial stroke of
the signatures Exhs. E-1 and of the genuine signatures lends credence to Nieves'
claim that the signature Exh. E-1 is a forgery.'

xxx           xxx           xxx

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

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

"Contrary to [petitioner's] assertion, Exhibit 'H' does not unequivocally establish that x x x
Nieves received P200,000.00 as commission for Gragera. As correctly stated by the court a
quo, the document showed a liquidation of P240.000 00 and not P200,000.00.

"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were made
by Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100%
payment of the loans, he took charge of the collections. As [petitioner's] representative,

Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to
enable [petitioner] to keep track of Gragera's operations. Gragera on the other hand devised
the schedule of daily payment (Exhs. 'B' and 'F') to record the projected gross daily
collections.

"As aptly observed by the court a quo:

'26.1. As between the versions of SANTOS and NIEVES on how the commissions of
GRAGERA [were] paid to him[,] that of NIEVES is more logical and practical and
therefore, more believable. SANTOS' version would have given rise to this
improbable situation: GRAGERA would collect the daily amortizations and then give
them to NIEVES; NIEVES would get GRAGERA's commissions from the
amortizations and then give such commission to GRAGERA."'17
 These findings are in harmony with the trial court's ruling, which we quote below:

"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received
P200,000.00 for delivery to GRAGERA. Exh. H shows under its sixth column 'ADDITIONAL
CASH' that the additional cash was P240,000.00. If Exh. H were the liquidation of the
P200,000.00 as alleged by SANTOS, then his claim is not true. This is so because it is a
liquidation of the sum of P240,000.00.

"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to
GRAGERA when he received the latter's letter complaining of its delayed release. Assuming
as true SANTOS' claim that he gave P200,000.00 to GRAGERA, there is no competent
evidence that NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give
it is the letter. But SANTOS did not even present the letter in evidence. He did not explain
why he did not.

"21.2. The evidence shows that all money transactions of the money-lending business of
SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did not
present any voucher or receipt covering the P200,000.00."18

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his
commissions before remitting his collections. Exhibits "B" and "F" are merely computations of what
Gragera should collect for the day; they do not show that Nieves received the amounts stated
therein. Neither is there sufficient proof that she misappropriated P200,000, because Exhibit "H."
does not indicate that such amount was received by her; in fact, it shows a different figure.

Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-
entrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial
court are binding and conclusive on the Supreme Court.19 Although there are exceptions to this rule,
petitioner has not satisfactorily shown that any of them is applicable to this issue.

Third Issue:
Accounting of Partnership

Petitioner refuses any liability for respondents' claims on the profits of the partnership. He maintains
that "both business propositions were flops," as his investments were "consumed and eaten up by
the commissions orchestrated to be due Gragera" — a situation that "could not have been rendered
possible without complicity between Nieves and Gragera."

Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid
payment of the demands of Nieves, because sometime in March 1987, she "signified to petitioner
that it was about time to get her share of the profits which had already accumulated to some P3
million." Respondents add that while the partnership has not declared dividends or liquidated its
earnings, the profits are already reflected on paper. To prove the counterclaim of Nieves, the
spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled P20,429,520 (Exhs.
"10" et seq. and "15" et seq.). Based on that income, her 15 percent share under the joint venture
amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus the P30,000 which was
already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").

The CA originally held that respondents' counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming
the trial court's ruling on the counterclaim, it held as follows:
 "We earlier ruled that there is still need for an accounting of the profits and losses of the
partnership before we can rule with certainty as to the respective shares of the partners.
Upon a further review of the records of this case, however, there appears to be sufficient
basis to determine the amount of shares of the parties and damages incurred by
[respondents]. The fact is that the court a quo already made such a determination [in its]
decision dated August 13, 1991 on the basis of the facts on record."20

The trial court's ruling alluded to above is quoted below:

"27. The defendants' counterclaim for the payment of their share in the profits of their joint
venture with SANTOS is supported by the evidence.

"27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement
(Exhs. 5, 5-A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I,
inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow
reports of which Exh. 3 is a sample. The originals of the daily cash flow reports (Exhs. 3 and
15 to 15-D(10) were given to SANTOS. The joint venture had a net profit of P20,429,520.00
(Exh. 10-I-1), from its operations from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had
a share of P3,064,428.00 (Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the profits.

"27.1.1 SANTOS never denied NIEVES' testimony that the money-lending business he was
engaged in netted a profit and that the originals of the daily case flow reports were furnished
to him. SANTOS however alleged that the money-lending operation of his joint venture with
NIEVES and ZABAT resulted in a loss of about half a million pesos to him. But such loss,
even if true, does not negate NIEVES' claim that overall, the joint venture among them —
SANTOS, NIEVES and ARSENIO — netted a profit. There is no reason for the Court to
doubt the veracity of [the testimony of] NIEVES.

"27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6,
6-A and 6-B) should be deducted from his total share."21

After a close examination of respondents' exhibits, we find reason to disagree with the CA. Exhibit
"10-I"22 shows that the partnership earned a "total income" of P20,429,520 for the period June 13,
1986 until April 19, 1987. This entry is derived from the sum of the amounts under the following
column headings: "2-Day Advance Collection," "Service Fee," "Notarial Fee," "Application Fee," "Net
Interest Income" and "Interest Income on Investment." Such entries represent the collections of the
money-lending business or its gross income. 

The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the
partnership. For instance, it did not factor in the "gross loan releases" representing the money
loaned to clients. Since the business is money-lending, such releases are comparable with the
inventory or supplies in other business enterprises.

Noticeably missing from the computation of the "total income" is the deduction of the weekly
allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. 23 show that Arsenio received
allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves,
from July 12, 1986 to March 27, 1987, in the total amount of P25,600. These allowances are
different from the profit already received by Arsenio. They represent expenses that should have
been deducted from the business profits. The point is that all expenses incurred by the money-
lending enterprise of the parties must first be deducted from the "total income" in order to arrive at
the "net profit" of the partnership. The share of each one of them should be based on this "net profit"
and not from the "gross income" or "total income" reflected in Exhibit "10-I," which the two courts
invariably referred to as "cash flow" sheets.

Similarly, Exhibits "15" et seq.,24 which are the "Daily Cashflow Reports," do not reflect the business
expenses incurred by the parties, because they show only the daily cash collections. Contrary to the
rulings of both the trial and the appellate courts, respondents' exhibits do not reflect
the complete financial condition of the money-lending business. The lower courts obviously labored
over a mistaken notion that Exhibit " 10-I-1" represented the "net profits" earned by the partnership.

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

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

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

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

SO ORDERED.
G.R. No. 126881             October 3, 2000

HEIRS OF TAN ENG KEE, petitioners, 

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

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision dated March
1 

13, 1996 of the former Fifth Division of the Court of Appeals in CA-G.R. CV No. 47937, the
2 

dispositive portion of which states: 

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

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint, docketed as Civil Case No. 1983-R in
3 

the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991,
the petitioners filed an amended complaint impleading private respondent herein BENGUET
4 

LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the
trial court in its Order dated May 3, 1991. 5 

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

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment on April 12, 1995, to wit:
6 

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

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

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business venture or particular
partnership;
 c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;

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

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

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

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

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

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

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners' motion for
reconsideration was denied by the Court of Appeals in a Resolution dated October 11, 1996.
7  8 

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and
Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of
payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on
the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment dismissing the
9 

cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

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

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

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

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

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING

FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:

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

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

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

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

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

IV

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

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

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

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

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

emphasized, does not include review of factual issues. Thus:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

xxx             xxx             xxx

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

xxx             xxx             xxx

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

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

xxx             xxx             xxx

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

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

These are not evidences supporting the existence of a partnership:

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

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

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

court had reached conflicting conclusions, perforce we must examine the record to determine if the
reversal was justified.

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

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

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

Thus, in order to constitute a partnership, it must be established that (1) two or more persons
bound themselves to contribute money, property, or industry to a common fund, and (2) they
intend to divide the profits among themselves. The agreement need not be formally reduced
15 

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
16 

has a capital of three thousand pesos or more. In both cases, a public instrument is
17 

required. An inventory to be signed by the parties and attached to the public instrument is
18 

also indispensable to the validity of the partnership whenever immovable property is

contributed to the partnership.19 

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

adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating
merchants can transact business under their own name, and can be individually liable
therefor.
 (b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of
years; a partnership generally relates to a continuing business of various transactions of a
certain kind.21 

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners,
in which each party has an equal proprietary interest in the capital or property contributed, and
where each party exercises equal rights in the conduct of the business." Nonetheless, in Aurbach,
22 

et. al. v. Sanitary Wares Manufacturing Corporation, et. al., we expressed the view that a joint
23 

venture may be likened to a particular partnership, thus:

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

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

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership. The
testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should
be noted that it is not with the number of witnesses wherein preponderance lies; the quality of their
24 

testimonies is to be considered. None of petitioners' witnesses could suitably account for the
beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife
was related to Matilde Abubo. He stated that when he met Tan Eng Kee after the liberation, the
25 
latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers. Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between
26 

Peralta and his brother. Tan Eng Lay consistently testified that he had his business and his brother
27 

had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as
it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership. 28 

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly
in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses. Each has the right to demand an accounting as long as the
29 

partnership exists. We have allowed a scenario wherein "[i]f excellent relations exist among the
30 

partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible." But in
31 

the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person
is presumed to take ordinary care of his concerns. As we explained in another case:
32 

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

supplied]

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

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

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

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

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

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

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property which the
returns are derived; 
 (4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:

(a) As a debt by installment or otherwise;

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

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

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

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

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

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

However, private respondent counters that: 

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

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

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

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

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

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties'
intent. Yet, in the case at bench, even the aforesaid circumstances when taken together are not
36 

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

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

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

SO ORDERED.
G.R. No. L-12541             August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants, 

vs.
YANG CHIAO SENG, defendant-appellee.

Punzalan, Yabut, Eusebio & Tiburcio for appellants.

Augusto Francisco and Julian T. Ocampo for appellee.

LABRADOR, J.:

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

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

Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to
December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for
the exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to
be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be
distributed among the partners in the same proportion as their capital contribution and the liability of
Mrs. Yulo, in case of loss, shall be limited to her capital contribution (Exh. "B").
In June , 1946, they executed a supplementary agreement, extending the partnership for a period of
three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided
between them at the rate of 50-50 and after December 31, 1950, the showhouse building shall
belong exclusively to the second party, Mrs. Yulo.

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

On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
business. Yang answered the letter saying that upon the advice of his counsel he had to suspend
the payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as
Mrs. Yulo has not paid to the lessors the rentals from August, 1949, he was retaining the rentals to
make good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").

In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on
May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang
Chiao Seng has refused to pay her share from December, 1949 to December, 1950; that after
December 31, 1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which,
plaintiff became the absolute owner of the building occupied by the Cine Astor; that the reasonable
rental that the defendant should pay therefor from January, 1951 is P5,000; that the defendant has
acted maliciously and refuses to pay the participation of the plaintiff in the profits of the business
amounting to P35,000 from November, 1949 to October, 1950, and that as a result of such bad faith
and malice on the part of the defendant, Mrs. Yulo has suffered damages in the amount of P160,000
and exemplary damages to the extent of P5,000. The prayer includes a demand for the payment of
the above sums plus the sum of P10,000 for the attorney's fees.

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

The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court
heard evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment
ordering the defendant to pay to the plaintiff P41,000 for her participation in the business up to
December, 1950; P5,000 as monthly rental for the use and occupation of the building from January
1, 1951 until defendant vacates the same, and P3,000 for the use and occupation of the lobby from
July 1, 1945 until defendant vacates the property. This decision, however, was set aside on a motion
for reconsideration. In said motion it is claimed that defendant failed to appear at the hearing
because of his honest belief that a joint petition for postponement filed by both parties, in view of a
possible amicable settlement, would be granted; that in view of the decision of the Court of Appeals
in two previous cases between the owners of the land and the plaintiff Rosario Yulo, the plaintiff has
no right to claim the alleged participation in the profit of the business, etc. The court, finding the
above motion, well-founded, set aside its decision and a new trial was held. After trial the court
rendered the decision making the following findings: that it is not true that a partnership was created
between the plaintiff and the defendant because defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any other amount; that the real agreement between the
plaintiff and the defendant is not of the partnership but one of the lease for the reason that under the
agreement the plaintiff did not share either in the profits or in the losses of the business as required
by Article 1769 of the Civil Code; and that the fact that plaintiff was granted a "guaranteed
participation" in the profits also belies the supposed existence of a partnership between them. It.
therefore, denied plaintiff's claim for damages or supposed participation in the profits.

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

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

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

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

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

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

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