G.R. No.

L-68118 October 29, 1985

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

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

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

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

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

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

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

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

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

HELD:

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

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

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider
them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners
were not engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build
their residences on the lots because of the high cost of construction, then they had no choice but to resell the
same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-
ownership which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan
Tobeñas says:

How to establish the demarcation between the ordinary community or co-ownership and society?
 The differential criterion-according to the most generalized doctrine-is: by reason of the origin, in which society
necessarily presupposes the convention, while the community can exist and ordinarily exists without it; and by
reason of the objective purpose, in which the purpose of the company is to obtain profit, while that of the
indivision is only to maintain the common thing in its integrity and favor its conservation.

A reflection of this criterion is the sentence of October 15, 1940, in which it is said that if in our positive law there
are sometimes difficulties when trying to set the dividing line between community property and partnership
contract, the modern orientation of the scientific doctrine points out as a fundamental note of differentiation
apart from the origin of the source from which they arise, not always uniform, the purpose pursued by the
interested parties: shared profit in society, and mere conservation and use in the community.

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

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

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

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

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

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who own properties which
produce income should not automatically be considered partners of an unregistered partnership, or a
corporation, within the purview of the income tax law. To hold otherwise, would be to subject the income
of all co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of income tax, whether the income tax on individuals
or the income tax on corporation.

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

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son
purchased a lot and building, entrusted the administration of the building to an administrator and divided equally
the net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three
Evangelista sisters bought four pieces of real property which they leased to various tenants and derived rentals
therefrom. Clearly, the petitioners in these two cases had formed an unregistered partnership.

In the instant case, what the Commissioner should have investigated was whether the father donated the two
lots to the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this
matter. It might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.
 G.R. Nos. L-24020-21           July 29, 1968

FLORENCIO REYES and ANGEL REYES vs. COMMISSIONER OF INTERNAL REVENUE and HON. COURT
OF TAX APPEALS

Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of P46,647.00
as income tax, surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to
P37,528.00. This assessment sought to be reconsidered unsuccessfully was the subject of an appeal to
respondent Court of Tax Appeals. Thereafter, another assessment was made against petitioners, this time for
back income taxes plus surcharge and compromise in the total sum of P25,973.75, covering the years 1955 and
1956. There being a failure on their part to have such assessments reconsidered, the matter was likewise taken
to the respondent Court of Tax Appeals. The two cases 1 involving as they did identical issues and ultimately
traceable to facts similar in character were heard jointly with only one decision being rendered.

In that joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to 1954 was reduced
to P37,128.00 and for the years 1955 and 1956, to P20,619.00 as income tax due "from the partnership formed"
by petitioners.2 The reduction was due to the elimination of surcharge, the failure to file the income tax return
being accepted as due to petitioners honest belief that no such liability was incurred as well as the compromise
penalties for such failure to file. 3 A reconsideration of the aforesaid decision was sought and denied by
respondent Court of Tax Appeals. Hence this petition for review.

The facts as found by respondent Court of Tax Appeals, which being supported by substantial evidence, must
be respected follow:

"On October 31, 1950, petitioners, father and son, purchased a lot and building, known as the Gibbs Building,
situated at 671 Dasmariñas Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving
a balance of P460,000.00, representing the mortgage obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed by the vendees. The initial payment of P375,000.00 was
shared equally by petitioners. At the time of the purchase, the building was leased to various tenants, whose
rights under the lease contracts with the original owners, the purchasers, petitioners herein, agreed to respect.
The administration of the building was entrusted to an administrator who collected the rents; kept its books and
records and rendered statements of accounts to the owners; negotiated leases; made necessary repairs and
disbursed payments, whenever necessary, after approval by the owners; and performed such other functions
necessary for the conservation and preservation of the building. Petitioners divided equally the income of
operation and maintenance. The gross income from rentals of the building amounted to about P90,000.00
annually."5

From the above facts, the respondent Court of Tax Appeals applying the appropriate provisions of the National
Internal Revenue Code, the first of which imposes an income tax on corporations "organized in, or existing under
the laws of the Philippines, no matter how created or organized but not including duly registered general co-
partnerships (companias colectivas), ...," a term, which according to the second provision cited, includes
partnerships "no matter how created or organized, ...," and applying the leading case of Evangelista v. Collector
of Internal Revenue, sustained the action of respondent Commissioner of Internal Revenue, but reduced the tax
liability of petitioners, as previously noted.

Petitioners maintain the view that the Evangelista ruling does not apply; for them, the situation is dissimilar.
Consequently they allege that the reliance by respondent Court of Tax Appeals was unwarranted and the
decision should be set aside. If their interpretation of the authoritative doctrine therein set forth commands
assent, then clearly what respondent Court of Tax Appeals did fails to find shelter in the law. That is the crux of
the matter. A perusal of the Evangelista decision is therefore unavoidable.

As noted in the opinion of the Court, penned by the present Chief Justice, the issue was whether petitioners are
subject to the tax on corporations provided for in section 24 of Commonwealth Act No. 466, otherwise known as
the National Internal Revenue Code, ..."

After referring to another section of the National Internal Revenue Code, which explicitly provides that the term
corporation "includes partnerships" and then to Article 1767 of the Civil Code of the Philippines, defining what a
contract of partnership is, the opinion goes on to state that "the essential elements of a partnership are two,
namely:
 (a) an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties.

The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did,
contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as
they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that
their purpose was to engage in real estate transactions for monetary gain and then divide the same among
themselves.

In support of the above conclusion, reference was made to the following circumstances, namely, the common
fund being created purposely not something already found in existence, the investment of the same not merely
in one transaction but in a series of transactions; the lots thus acquired not being devoted to residential purposes
or to other personal uses of petitioners in that case; such properties having been under the management of one
person with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts and
to endorse notes and checks; the above conditions having existed for more than 10 years since the acquisition
of the above properties; and no testimony having been introduced as to the purpose "in creating the set up
already adverted to, or on the causes for its continued existence." The conclusion that emerged had all the
imprint of inevitability. Thus: "Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein."

It may be said that there could be a differentiation made between the circumstances above detailed and those
existing in the present case. It does not suffice though to preclude the applicability of the Evangelista decision.
Petitioners could harp on these being only one transaction. They could stress that an affidavit of one of them
found in the Bureau of Internal Revenue records would indicate that their intention was to house in the building
acquired by them the respective enterprises, coupled with a plan of effecting a division in 10 years. It is a little
surprising then that while the purchase was made on October 31, 1950 and their brief as petitioners filed on
October 20, 1965, almost 15 years later, there was no allegation that such division as between them was in fact
made. Moreover, the facts as found and as submitted in the brief made clear that the building in question
continued to be leased by other parties with petitioners dividing "equally the income ... after deducting the
expenses of operation and maintenance ..." 13 Differences of such slight significance do not call for a different
ruling.

It is obvious that petitioners' effort to avoid the controlling force of the Evangelista ruling cannot be deemed
successful. Respondent Court of Tax Appeals acted correctly. It yielded to the command of an authoritative
decision; it recognized its binding character. There is clearly no merit to the second error assigned by petitioners,
who would deny its applicability to their situation.

The first alleged error committed by respondent Court of Tax Appeals in holding that petitioners, in acquiring the
Gibbs Building, established a partnership subject to income tax as a corporation under the National Internal
Revenue Code is likewise untenable. In their discussion in their brief of this alleged error, stress is laid on their
being co-owners and not partners. Such an allegation was likewise made in the Evangelista case.

This is the way it was disposed of in the opinion of the present Chief Justice: "This pretense was correctly
rejected by the Court of Tax Appeals." 14 Then came the explanation why: "To begin with, the tax in question is
one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When
our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said
Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of
the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered
general partnerships", which constitute precisely one of the most typical forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in
any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that
one could be deemed constituted for purposes of the tax on corporations.

Again, pursuant to said section 84(b), the term "corporation" includes, among others, "joint accounts, (cuentas
en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its
members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as above stated, "duly registered general
copartnerships" — which are possessed of the aforementioned personality - have been expressly excluded by
law (sections 24 and 84[b]) from the connotation of the term "corporation"." 15 The opinion went on to summarize
the matter aptly: "For purposes of the tax on corporations, our National Internal Revenue Code, include these
partnerships — with the exception only of duly registered general co-partnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations." 16

In the light of the above, it cannot be said that the respondent Court of Tax Appeals decided the matter
incorrectly. There is no warrant for the assertion that it failed to apply the settled law to uncontroverted facts. Its
decision cannot be successfully assailed. Moreover, an observation made in Alhambra Cigar & Cigarette
Manufacturing Co. v. Commissioner of Internal Revenue, is well-worth recalling. Thus: "Nor as a matter of
principle is it advisable for this Court to set aside the conclusion reached by an agency such as the Court of Tax
Appeals which is, by the very nature of its functions, dedicated exclusively to the study and consideration of tax
problems and has necessarily developed an expertise on the subject, unless, as did not happen here, there has
been an abuse or improvident exercise of its authority."

WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners "to pay the sums of P37,128.00 as
income tax due from the partnership formed by herein petitioners for the years 1951 to 1954 and P20,619.00 for the years
1955 and 1956 within thirty days from the date this decision becomes final, plus the corresponding surcharge and interest in
case of delinquency," is affirmed. With costs against petitioners.

G.R. No. L-35840             March 31, 1933

FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & Co., INC., J.M. MENZI and P.C.
SCHLOBOHM, defendants. MENZI & CO., appellant.

FIRST CAUSE OF ACTION

Plaintiff alleged:

i. That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%)
of the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and
therefore believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant
P.C. Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi &
Co., Inc.;

ii. That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager,
J.M. Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to
engage in the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit
A, attached to the original complaint as a part thereof, and likewise made a part of the amended
complaint, as if it were here copied verbatim;

iii. That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture
prepared fertilizers, the former superintending the work of actual preparation, and the latter, through
defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account
entitled "FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of
the partnership business were supposed to be kept; the plaintiff had no participation in the making of
these entries, which were wholly in the defendants' charge, under whose orders every entry was
made;

iv. That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged
to render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the
plaintiff had no intervention in the preparation of these yearly balances, nor was he permitted to have
any access to the books of account; and when the balance sheets were shown him, he, believing in
good faith that they contained the true statement of the partnership business, and relying upon the
good faith of the defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and
signed them, the last balance sheet having been rendered in the year 1926

v. That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the
plaintiff was kept in ignorance of the defendants' acts relating to the management of the partnership
funds, and the keeping of accounts, until he was informed and so believes and alleges, that the
defendants had conspired to conceal from him the true status of the business, and to his damage
and prejudice made false entries in the books of account and in the yearly balance sheets, the exact
 nature and amount of which it is impossible to ascertain, even after the examination of the books of
the business, due to the defendants' refusal to furnish all the books and data required for the
purpose, and the constant obstacles they have placed in the way of the examination of the books of
account and vouchers;

vi. That when the plaintiff received the information mentioned in the preceding paragraph, he demanded
that the defendants permit him to examine the books and vouchers of the business, which were in
their possession, in order to ascertain the truth of the alleged false entries in the books and balance
sheets submitted for his approval, but the defendants refused, and did not consent to the
examination until after the original complaint was filed in this case; but up to this time they have
refused to furnish all the books, data, and vouchers necessary for a complete and accurate
examination of all the partnership's accounts; and

vii. That as a result of the partial examination of the books of account of the business, the plaintiff has,
through his accountants, discovered that the defendants, conspiring and confederating together,
presented to the plaintiff during the period covered by the partnership contract false and incorrect
accounts,

(a) For having included therein undue interest;

(b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid
and were in fact paid by the defendant Menzi & Co., Inc.;

(c) For having collected from the partnership the income tax which should have been paid for its
own account by Menzi & Co., Inc.;

(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase
of materials for the manufacture of fertilizers;

(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from
the sale of fertilizers belonging to the partnership and bought with its own funds; and

(f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon
materials for fertilizer bought abroad, no entries of said rebates having been made on the books to
the credit of the partnership.

Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:

1. To prohibit the defendants, each and every one of them, from destroying and concealing the books
and papers of the partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;

2. To summon each and every defendant to appear and give a true account of all facts relating to the
partnership between the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and
transaction connected with the business of said partnership from the beginning to April 27, 1927, and a
true statement of all merchandise of whatever description, purchased for said partnership, and of all the
expenditures and sale of every kind, together with the true amount thereof, besides the sums received
by the partnership from every source together with their exact nature, and a true and complete account
of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;

3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to
1926, both inclusive;

4. To order the defendants to give a true statement of all receipts and disbursements of the partnership
during the period of its existence, besides granting the plaintiff any other remedy that the court may
deem just and equitable.

Defendants denied all the allegations of the amended complaint, except the formal allegations as to the parties,
and as a special defense to the first cause of action alleged:

1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise
business in the Philippine Islands since its organization in October, 1921, including the importation and
sale of all kinds of goods, wares, and merchandise, and especially simple fertilizer and fertilizer
ingredients, and as a part of that business, it has been engaged since its organization in the manufacture
and sale of prepared fertilizers for agricultural purposes, and has used for that purpose trade-marks
belonging to it;

2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an
employment agreement with the plaintiff, who represented that he had had much experience in the
mixing of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers
in its fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a
compensation of 50 per cent of the net profits which it might derive from the sale of the fertilizers
prepared by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and
received the compensation agreed upon for his services; that on the said 27th of April, 1922, the said
Menzi & Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is
marked Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed
that the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated,
should be for a definite period of five years from that date and under the other terms and conditions
stated therein, but with the understanding and agreement that the said Francisco Bastida should receive
as compensation for his said services only 35 per cent of the net profits derived from the sale of the
fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as
provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do
anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the
ingredients in the manufacture of the same, and on or about the month of December, 1922, the
defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did
assume the full management and direction of said business;

3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept
in the regular books of its general business, in the ordinary course thereof, up to June 30, 1923, and that
after that time and during the remainder of the period of said agreement, for the purpose of convenience
in determining the amount of compensation due to the plaintiff under his agreement, separate books of
account for its said fertilizer business were duly, kept in the name of 'Menzi & Co., Inc., Fertilizer', and
used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida and
the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said
business due to the said plaintiff as compensation for his services under said agreement would be made
as of December 31st, instead of June 30th, of each year, during the period of said agreement; that the
accounts of the business of its said fertilizer department, as recorded in its said books, and the vouchers
and records supporting the same, for each year of said business have been duly audited by Messrs.
White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the
end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit
and loss account and balance sheet, showing the status of said business and the share of the net profits
pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing
and profit and the loss account and balance sheet for each year of the business of its said fertilizer
department up to and including the year 1926, had been prepared by the said auditors and certified by
them, they were shown to and examined by the plaintiff, and duly accepted, and approved by him, with
full knowledge of their contents, and as evidence of such approval, he signed his name on each of them,
as shown on the copies of said manufacturing and profit and loss account and balance sheet for each
year up to and including the year 1926, which are attached to the record of this case, and which are
hereby referred to and made a part of this amended answer, and in accordance therewith, the said
plaintiff has actually received the portion of the net profits of its said business for those years pertaining
to him for his services under said agreement; that at no time during the course of said fertilizer business
and the liquidation thereof has the plaintiff been in any way denied access to the books and records
pertaining thereto, but on the contrary, said books and records have been subject to his inspection and
examination at any time during business hours, and even since the commencement of this action, the
plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going over and examining
said books and records for months and the defendant, Menzi & Co. Inc., through its officers, have turned
over to said plaintiff and his accountant the books and records of said business and even furnished them
suitable accommodations in its own office to examine the same;

4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not under any conditions renew his said agreement or continue his said
employment with it after its expiration, and after the termination of said agreement of April 27, 1927, the
said Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the accounts of the
business of its said fertilizer department for the four months of 1927 covered by plaintiff's agreement and
prepare a manufacturing and profit and loss account and balance sheet of said business showing the
status of said business at the termination of said agreement, a copy of which was shown to and
 explained to the plaintiff; that at that time there were accounts receivable to be collected for business
covered by said agreement of over P100,000, and there was guano, ashes, fine tobacco and other
fertilizer ingredients on hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or
valued by the parties, before the net profits of said business for the period of the agreement could be
determined; that Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of
the other properties for the purpose of determining the profits of said business for that period, and to pay
to the plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to
accept, and being disgruntled because the said Menzi & Co., Inc., would not continue him in its service,
the said plaintiff commenced this action, including therein not only Menzi & Co. Inc., but also it managers
J.M. Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious allegations
against the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts
receivable and disposing of the stocks on hand, and there is still on hand old stock of approximately
P25,000, which it has been unable to dispose of up to this time; that as soon as possible a final
liquidation and amounting of the net profits of the business covered by said agreement for the last four
months thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that
the plaintiff has been informed from time to time as to the status of the disposition of such properties,
and he and his auditors have fully examined the books and records of said business in relation thereto.

SECOND CAUSE OF ACTION

As a second cause of action plaintiff alleged:

I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were
furnished by the defendants disclosed the fact that said defendants had charged to "purchases" of the
business, undue interest, the amount of which the plaintiff is unable to determine, as he has never had at
his disposal the books and vouchers necessary for that purpose, and especially, owning to the fact that
the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its own
cash book, but that its funds were maliciously included in the private funds of the defendant entity,
neither was there a separate BANK ACCOUNT of the partnership, such account being included in the
defendant's bank account.

III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the
partnership between himself and the defendant Menzi & Co., Inc., has been defrauded by the
defendants by way of interest in an amount of approximately P184,432.51, of which 35 per cent, or
P64,551.38, belongs to the plaintiff exclusively.

Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally to pay him the sum
of P64,551.38, or any amount which may finally appear to be due and owing from the defendants to the plaintiff upon this
ground, with legal interest from the filing of the original complaint until payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;

2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi &
Co., Inc., only undertook and agreed to facilitate financial aid in carrying on the said fertilizer business,
as it had been doing before the plaintiff was employed under the said agreement; that the said
defendant, Menzi & Co., Inc., in the course of the said business of its fertilizer department, opened
letters of credit through the banks of Manila, accepted and paid drafts drawn upon it under said letters of
credit, and obtained loans and advances of moneys for the purchase of materials to be used in mixing
and manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all,
such business enterprises, and that such payments of interest as were actually made on such drafts,
loans and advances during the period of the said employment agreement constituted legitimate
expenses of said business under said agreement.

THIRD CAUSE OF ACTION

As third cause of action, plaintiff alleged:

 I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C.
Schlobohm, nor the defendant Menzi & Co., Inc., had a right to collect for itself or themselves any
amount whatsoever by way of salary for services rendered to the partnership between the plaintiff and
the defendant, inasmuch as such services were compensated with the 65% of the net profits of the
business constituting their share.

III. That the plaintiff has, on his on account and with his own money, paid all the employees he has
placed in the service of the partnership, having expended for their account, during the period of the
contract, over P88,000, without ever having made any claim upon the defendants for this sum because it
was included in the compensation of 35 per cent which he was to receive in accordance with the contract
Exhibit A.

IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and
excessive salaries for themselves, have made the partnership, or the fertilizer business, pay the salaries
of a number of the employees of the defendant Menzi & Co., Inc.

V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership
funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff.

Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and severally to the plaintiff
the amount of P15,372, with legal interest from the date of the filing of the original complaint until the date of payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special
defense the first cause of action in this amended answer;

2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its
said fertilizer business, in which the plaintiff was to receive 35 percent of the net profits as compensation
for this services, as hereinbefore alleged, from on or about January 1, 1923, when its other departments
had special experienced Europeans in charge thereof, who received not only salaries but also a
percentage of the net profits of such departments; that its said fertilizer business, after its manager took
charge of it, became very successful, and owing to the large volume of business transacted, said
business required great deal of time and attention, and actually consumed at least one-half of the time of
the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co.,
furnished office space, stationery and other incidentals, for said business, and had its employees
perform the duties of cashiers, accountants, clerks, messengers, etc., for the same, and for that reason
the said Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business, which
pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional
part of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the
several departments of the business of Menzi & Co., Inc., that each and every year from and after 1922,
a just proportion of said overhead expenses were charged to said fertilizer departments and entered on
the books thereof, with the knowledge and consent of the plaintiff, and included in the auditors' reports,
which were examined, accepted and approved by him, and he is now estopped from saying that such
expenses were not legitimate and just expenses of said business.

FOURTH CAUSE OF ACTION

As fourth cause of action, the plaintiff alleged:

I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.

II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C. Schlobohm, has
paid, with the funds of the partnership between the defendant entity and the plaintiff, the income tax due
from said defendant entity for the fertilizer business, thereby defrauding the partnership in the amount of
P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60.

III. That the plaintiff has, during the period of the contract, paid with his own money the income tax
corresponding to his share which consists in 35 per cent of the profits of the fertilizer business,
 expending about P5,000 without ever having made any claim for reimbursement against the partnership,
inasmuch as it has always been understood among the partners that each of them would pay his own
income tax.

Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff the sum of P3,362.60,
with legal interest from the date of the filing of the original complaint until its payment.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;

2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the
Government of the Philippine Islands each year during the period of the agreement, Exhibit A, of the
income of its whole business, including its fertilizer department; that the proportional share of such
income taxes found to be due on the business of the fertilizer department was charged as a proper and
legitimate expense of that department, in the same manner as was done in the other departments of its
business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was
required to make his own return under the Income Tax Law and to pay his own income taxes, instead of
having them paid at the source, as might be done under the law, so that he would be entitled to the
personal exemptions allowed by the law; that the income taxes paid by the said Menzi & Co., Inc.,
pertaining to the business, were duly entered on the books of that department, and included in the
auditors' reports hereinbefore referred to, which reports were examined, accepted and approved by the
plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are
not a legitimate expense of said business.

FIFTH CAUSE OF ACTION

As fifth cause of action, plaintiff alleged:

I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the
period of the contract Exhibit A, from foreign firms selling fertilizing material, a secret commission
equivalent to 5 per cent of the total value of the purchases of fertilizing material made by the partnership
constituted between the plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent commission
was not entered by the defendants in the books of the business, to the credit and benefit of the
partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi
Co., Inc., which appropriated it to itself.

III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff
cannot be determined, because the entries referring to these items do not appear in the partnership
books, although the plaintiff believes and alleges that they do appear in the private books of the
defendant Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the demands made
therefore by the auditors and the lawyers of the plaintiff.

IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership
during the first four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission
collected by the defendant Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent belongs exclusively to the plaintiff.

Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff the amount of
P44,581.52, or the exact amount owed upon this ground, after both parties have adduced their evidence upon the point.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;

2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and
has now what is called a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B.,
 of Berlin, which is a manufacturer of potash, by virtue of which said Menzi & Co., Inc., was to receive for
its propaganda work in advertising and bringing about sales of its potash a commission of 5 per cent on
all orders of potash received by it from the Philippine Islands; that during the period of said agreement,
Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the
agent of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent
commission, amounting in all to P2,222.32 for the propaganda work which it did for said firm in the
Philippine Islands; that said commissioners were not in any sense discounts on the purchase price of
said potash, and have no relation to the fertilizer business of which the plaintiff was to receive a share of
the net profits for his services, and consequently were not credited to that department;

3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of
commissions, which were received from the United Supply Co., of San Francisco, in the total of sum
$66.51, which through oversight, were not credited on the books of the fertilizer department of Menzi &
Co., Inc., but due allowance has now been given to the department for such item.

SIXTH CAUSE OF ACTION

As sixth cause of action, plaintiff alleged:

I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.

II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C.
Schlobohm and their assistants, has tampered with the books of the business making fictitious transfers
in favor of the defendant Menzi & Co., Inc., of merchandise belonging to the partnership, purchased with
the latter's money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third persons,
thereby appropriating to itself the profits obtained from such resale.

III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the
real amount obtained from such sales can only be ascertained from the examination of the private books
of the defendant entity, which the latter has refused to permit notwithstanding the demand made for the
purpose by the auditors and the lawyers of the plaintiff, and no basis of computation can be established,
even approximately, to ascertain the extent of the fraud sustained by the plaintiff in this respect, by
merely examining the partnership books.

Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement
as to all the profits received from the sale to third persons of the fertilizers pertaining to the partnership, and the profits they
have appropriated, ordering them jointly and severally to pay 35 per cent of the net amount, with legal interest from the filing
of the original complaint until the payment thereof.

Defendant alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:

2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co.,
Inc., had the right to import into the Philippine Islands in the course of its fertilizer business and sell fro its
exclusive account and benefit simple fertilizer ingredients; that the only materials imported by it and sold
during the period of said agreement were simple fertilizer ingredients, which had nothing whatever to do
with the business of mixed fertilizers, of which the plaintiff was to receive a share of the net profits as a
part of his compensation.

SEVENTH CAUSE OF ACTION

As seventh cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account of
the partnership constituted between itself and the plaintiff, and with the latter's money, purchased from a
several foreign firms various simple fertilizing material for the use of the partnership.
 III. That in the paid invoices for such purchases there are charged, besides the cost price of the
merchandise, other amounts for freight, insurance, duty, etc., some of which were not entirely thus spent
and were later credited by the selling firms to the defendant Menzi & Co., Inc.

IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and
P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of fertilizing material, for
rebates upon freight, insurance, duty, etc., charged in the invoice but not all expended, did not enter
them upon the books to the credit of the partnership constituted between the defendant and the plaintiff,
but entered or had them entered to the credit on Menzi & Co., Inc., thereby defrauding the plaintiff of 35
per cent of the value of such reductions.

V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without an
examination of the private books of Menzi & Co., Inc., which the latter has refused to permit
notwithstanding the demand to this effect made upon them by the auditors and the lawyers of the
plaintiff.

Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement
as to the total amount of such rebates, and to sentence the defendants to pay the plaintiff jointly and severally 35 per cent of
the net amount.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer:

2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc.,
received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business
in the profits of which the plaintiff was interested, by way of refunds of German Export Taxes, in the total
sum of P1,402.54; that all of department as received, but it has just recently been discovered that
through error an additional sum of P216.22 was credited to said department, which does not pertain to
said business in the profits of which the plaintiff is interested.

EIGHT CAUSE OF ACTION

As to eighth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.

II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint,
the defendant Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said
defendant and the plaintiff, entered into a contract with the Compañia General de Tabacos de Filipinas
for the sale of said entity of three thousand tons of fertilizers of the trade mark "Corona No. 1", at the rate
of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they were delivered, according to
information received by the plaintiff, during the months of November and December, 1927, and January,
February, March, and April, 1928.

III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff
estimates at P90,000, Philippine currency, belongs to the fertilizer business constituted between the
plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff.

IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the
defendants have not rendered a true accounting of the profits obtained by the business during the last
four months thereof, as the purposed balance submitted to the plaintiff was incorrect with regard to the
inventory of merchandise, transportation equipment, and the value of the trade marks, for which reason
such proposed balance did not represent the true status of the business of the partnership on April 30,
1927.

V. That the proposed balance submitted to the plaintiff with reference to the partnership operations
during the last four months of its existence, was likewise incorrect, inasmuch as it did not include the
profit realized or to be realized from the contract entered into with the Compañia General de Tabacos de
 Filipinas, notwithstanding the fact that this contract was negotiated during the existence of the
partnership, and while the defendant Menzi & Co., Inc., was the manager thereof.

VI. That the defendant entity now contends that the contract entered into with the Compañia General de
Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35
per cent of the profits produced thereby.

Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed account of the
business during the last four months of the existence of the partnership, i. e., from January 1, 1927 to April 27, 1927, and to
sentence them likewise to pay the plaintiff 35 per cent of the net profits.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;

2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compañia
General de Tabacos Filipinas on April 21, 1927, was taken by it in the regular course of its fertilizer
business, and was to be manufactured and delivered in December, 1927, and up to April, 1928; that the
employment agreement of the plaintiff expired by its own terms on April 27, 1927, and he has not been in
any way in the service of the defendant, Menzi & Co., Inc., since that time, and he cannot possibly have
any interest in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the
expiration of his contract for any service rendered to it.

NINTH CAUSE OF ACTION

As ninth cause of action, plaintiff alleged:

I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the
Bureau of Commerce and Industry the trade marks "CORONA NO. 1", CORONA NO. 2", "ARADO", and
"HOZ", the plaintiff and the defendant having by their efforts succeeded in making them favorably known
in the market.

III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business
a prosperous concern to such an extent that the profits obtained from the business during the five years
it has existed, amount to approximately P1,000,000, Philippine currency.

IV. That the value of the good will and the trade marks of a business of this nature amounts to at least
P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000.

V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and in
spite of the plaintiff's insistent opposition, has assumed the charge of liquidating the fertilizing business,
without having rendered a monthly account of the state of the liquidation, as required by law, thereby
causing the plaintiff damages.

VI. That the damages sustained by the plaintiff, as well as the amount of his share in the remaining
property of the plaintiff, and may only be truly and correctly ascertained by compelling the defendants J.
M. Menzi and P. C. Schlobohm to declare under oath and explain to the court in detail the sums obtained
from the sale of the remaining merchandise, after the expiration of the partnership contract.

VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the
good-will and trade marks belonging to the partnership, as well as its transportation equipment and other
machinery, thereby indicating its intention to retain such good-will, trade marks, transportation equipment
and machinery, for the manufacture of fertilizers, by virtue of which the defendant is bound to pay the
plaintiff 35 per cent of the value of said property.

VIII. That the true value of the transportation equipment and machinery employed in the preparation of
the fertilizers amounts of P20,000, 35 per cent of which amount to P7,000.
 IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed
account of the state of the liquidation of the partnership business, but said defendants has ignored such
demands, so that the plaintiff does not, and this date, know whether the liquidation of the business has
been finished, or what the status of it is at present.

Wherefore, the plaintiff prays the Honorable Court:

1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the status of
business in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants to pay the plaintiff
jointly and severally 35 per cent of the net amount.

2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35 per cent of
the value of the goodwill and the trade marks of the fertilizer business;

3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per cent of the
value of the transportation equipment and machinery of the business; and

4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this Honorable
Court may deem just and equitable.

Defendants alleged:

1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special
defense to the first cause of action in this amended answer;

2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains
exclusively to it, and the plaintiff can have no interest therein of any nature under his said employment
agreement; that the trade-marks mentioned by the plaintiff in his amended complaint, as a part of such
good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from
and since its organization, and the plaintiff can have no rights to or interest therein under his said
employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi
& Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and
reasonable compensation for its use has been allowed to said business; that the machinery pertaining to
the said fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum of
P20,000 was collected from the Insurance Company, and the plaintiff has been given credit for 35 per
cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed by it, and
the costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it
taken into consideration in arriving at the net profits due to him under his said employment agreement.

The dispositive part of the decision of the trial court is as follows:

Wherefore, let judgment be entered:

(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general regular
commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C to C-8, is
not estopped from questioning the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P 60,385.67 with
legal interest from the date of the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41, with
legal interest from the date of the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum of
P6,578.38 with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business, until
paid;
(j  ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20 with
legal interest from the date of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business accruing
from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance shown in
 Exhibits 51 and 51-A, after deducting the item of P2,410 for income tax, and any other sum charged for
interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A, to pay
the plaintiff the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.

It appears from the evidence that the defendants corporation was organized in 1921 for purpose of importing
and selling general merchandise, including fertilizers and fertilizer ingredients. It appears through John Bordman
and the Menzi-Bordman Co. the good-will, trade-marks, business, and other assets of the old German firm of
Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks and trade-marks. Behn, Meyer & Co.,
Ltd., had owned and carried on this fertilizer business from 1910 until that firm was taken over the Alien Property
Custodian in 1917. Among the trade-marks thus acquired by the appellant were those known as the "ARADO",
"HOZ", and "CORONA". They were registered in the Bureau of Commerce and Industry in the name of Menzi &
Co. The trade marks "ARADO" and "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed
fertilizers, and the trade mark "CORONA" had been used in its other business. The "HOZ" trade-mark was used
by John Bordman and the Menzi-Bordman Co. in the continuation of the fertilizer business that had belonged to
Behn, Meyer & Co., Ltd.

The business of Menzi & Co., Inc., was divided into several different departments, each of which was in charge
of a manager, who received a fixed salary and a percentage of the profits. The corporation had to borrow money
or obtain credits from time to time and to pay interest thereon. The amount paid for interest was charged against
the department concerned, and the interest charges were taken into account in determining the net profits of
each department. The practice of the corporation was to debit or credit each department with interest at the bank
rate on its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in accordance with this
practice under the "Sundries Department" until July, 1923, and after that as a separate department.

In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to see
Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a written contract
with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he could obtain other
contracts, including one from the Calamba Sugar Estates for 450 tons, but the he did not have the money to buy
the ingredients to fill the order and carry on the on the business. He offered to assign to Menzi & Co., Inc., his
contract with the Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain
other orders for fifty per cent of the net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general
manager of Menzi & Co., accepted plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the
Sugar Centrals Agency, and the defendant corporation proceeded to fill the order. Plaintiff supervised the mixing
of the fertilizer.

On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit B:

Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It ordered
ingredients from the United States and other countries, and the interest on the drafts for the purchase of these
materials was changed to the business as a part of the cost of the materials. The mixed fertilizers were sold by
Menzi & Co., Inc., between January 19 and April 1, 1922 under its "CORONA" brand. Menzi & Co., Inc., had
only one bank account for its whole business. The fertilizer business had no separate capital. A fertilizer account
was opened in the general ledger, and interest at the rate charged by the Bank of the Philippine Islands was
debited or credited to that account on the daily balances of the fertilizer business. This was in accordance with
appellant's established practice, to which the plaintiff assented.

On or about April 24, 1922 the net profits of the business carried on under the oral agreement were determined
by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent and salaries and
wages, and the other expenses of said business, and the plaintiff was paid some twenty thousand pesos in full
satisfaction of his share of the profits.

Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant corporation
April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the basis of the present
action.

The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically the
same manner as it was prior thereto. The intervention of the plaintiff was limited to supervising the mixing of the
fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry in the
name of Menzi & Co., Inc., and the fees were paid by that company. They were not changed to the fertilizer
business, in which the plaintiff was interested. Only the fees for registering the formulas in the Bureau of Science
were charged to the fertilizer business, and the total amount thereof was credited to this business in the final
liquidation on April 27, 1927.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps to
tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other countries.
This contract is rendered to in the record as the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff,
paying the salaries of his employees, and other expenses in performing his contract.

White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the
end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer business. These
statements were delivered to the plaintiff for examination, and after he had had an opportunity of verifying them
he approved them without objection and returned them to Menzi & Co., Inc.

Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer business the
following amounts:

1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73
1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62
1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56
1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03
1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98

Total . . . . . . . . . . . . . . . . . . . . P196,483.92

To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927, amounting to
P34,766.87, making a total of P231,250.79.

Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that the
contract for his services would not be renewed.

When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand
materials and ingredients and two Ford trucks of the book value of approximately P75,000, and accounts
receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the net profits could
be finally determined, it was necessary to dispose of the materials and equipment, collect the outstanding
accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss statement for the period from
January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept it, and filed the present
action.

Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed to the
plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the defendant
corporation had been unable to dispose of, be sold at public or private sale, or divided between the parties. The
plaintiff refused to agree to this. The defendant corporation then applied to the trial court for an order for the sale
of the remaining property at public auction, but apparently the court did not act on the petition.

The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business was
completed in December, 1928 and a final balance sheet and a profit and loss statement were submitted to the
plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the whole period of the contract
in question were reaudited by White, Page & Co.., certain errors of bookkeeping were discovered by them. After
making the corrections they found the balance due the plaintiff to be P21,633.20.

Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers of Menzi
& Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was
obliged to furnish free of charge all the capital the partnership should need. He naturally reached very different
conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After considering the evidence and the
arguments of counsel, we are unanimously of the opinion that under the facts of this case the relationship
established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net profits of the fertilizer
business of Menzi & Co., Inc., in compensation for his services of supervising the mixing of the fertilizers.
Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified
the finding that it was a contract of copartnership. Exhibit A, as appears from the statement of facts, was in effect
a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant
corporation for one-half of the net profits derived by the corporation from certain fertilizer contracts. Plaintiff was
paid his share of the profits from those transactions after Menzi & Co., Inc., had deducted the same items of
expense which he now protests. Plaintiff never made any objection to defendant's manner of keeping the
accounts or to the charges. The business was continued in the same manner under the written agreement,
Exhibit A, and for four years the plaintiff never made any objection. On the contrary he approved and signed
every year the balance sheet and the profit and loss statement. It was only when plaintiff's contract was about to
expire and the defendant corporation had notified him that it would not renew it that the plaintiff began to make
objections.

The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by
which two or more persons obligate themselves to place in a common fund any property, industry, or any of
these things, in order to obtain profit, shall be commercial, no matter what its class may be, provided it has been
established in accordance with the provisions of this Code; but in the case at bar there was no common fund,
that is, a fund belonging to the parties as joint owners or partners. The business belonged to Menzi & Co., Inc.
The plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small
percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his services.
Menzi & Co., Inc., was to advanced him P300 a month on account of his participation in the profits. It will be
noted that no provision was made for reimbursing Menzi & Co., Inc., in case there should be no net profits at the
end of the year. It is now well settled that the old rule that sharing profits as profits made one a partner is
overthrown.

It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners.
Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph of Exhibit A
the phrase "en sociedad con" is used in providing that defendant corporation not engage in the business of
prepared fertilizers except in association with the plaintiff (en sociedad con). The fact is that en sociedad con as
there used merely means en reunion con or in association with, and does not carry the meaning of "in
partnership with".

The trial judge found that the defendant corporation had not always regarded the contract in question as an
employment agreement, because in its answer to the original complaint it stated that before the expiration of
Exhibit A it notified the plaintiff that it would not continue associated with him in said business. The trial judge
concluded that the phrase "associated with", used by the defendant corporation, indicated that it regarded the
contract, Exhibit A, as an agreement of copartnership.

In the first place, the complaint and answer having been superseded by the amended complaint and the answer
thereto, and the answer to the original complaint not having been presented in evidence as an exhibit, the trial
court was not authorized to take it into account. "Where amended pleadings have been filed, allegations in the
original pleadings are held admissible, but in such case the original pleadings can have no effect, unless
formally offered in evidence."

In the second place, although the word "associated" may be related etymologically to the Spanish word "socio",
meaning partner, it does not in its common acceptation imply any partnership relation.

The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay to the
plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month on account of his
share of the profits, and to grant him permission during 1923 to absent himself from the Philippines for not more
than one year are utterly incompatible with the claim that it was the intention of the parties to form a
copartnership. Various other reasons for holding that the parties were not partners are advanced in appellant's
brief. We do not deem it necessary to discuss them here. We merely wish to add that in the Vastago contract,
Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the owners of the fertilizer business in question.

As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges and
erroneously disallowed, and this would true even if the parties had been partners. Although Menzi & Co., Inc.,
agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any
fixed sum as capital or to defray at its own expense the cost of securing the necessary credit. Some of the
contentions of the plaintiff and his expert witness Thompson are so obviously without merit as not to merit
serious consideration. For instance, they objected to the interest charges on draft for materials purchased
abroad. Their contention is that the corporation should have furnished the money to purchase these materials for
cash, overlooking the fact that the interest was added to the cost price, and that the plaintiff was not prejudiced
by the practice complained of. It was also urged, and this seems to us the height of absurdity, that the defendant
corporation should have furnished free of charge such financial assistance as would have made it unnecessary
to discount customers' notes, thereby enabling the business to reap the interest. In other words, the defendant
corporation should have enabled the fertilizer department to do business on a credit instead of a cash basis.

The charges now complained of, as we have already stated, are the same as those made under the verbal
agreement, upon the termination of which the parties made a settlement; the charges in question were
acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision of this court in
the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point.

A portion of the syllabus of that case reads as follows:

1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. — Acts done by the

parties to a contract in the course of its performance are admissible in evidence upon the question of its
meaning, as being their own contemporaneous interpretation of its terms.

2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. — In an action upon a contract containing
a provision a doubtful application it appeared that under a similar prior contract the parties had, upon the
termination of said contract, adjusted their rights and made a settlement in which the doubtful clause had
been given effect in conformity with the interpretation placed thereon by one of the parties. Held: That
this action of the parties under the prior contract could properly be considered upon the question of the
interpretation of the same clause in the later contract.

3. ID.; ID.; ACQUIESCENCE. — Where one of the parties to a contract acquiesces in the interpretation
placed by the other upon a provision of doubtful application, the party so acquiescing is bound by such
interpretation.

4. ID.; ID.; ILLUSTRATION. — One of the parties to a contract, being aware at the time of the execution
thereof that the other placed a certain interpretation upon a provision of doubtful application,
nevertheless proceeded, without raising any question upon the point, to perform the services which he
was bound to render under the contract. Upon the termination of the contract by mutual consent a
question was raised as to the proper interpretation of the doubtful provision.  Held: That the party raising
such question had acquiesced in the interpretation placed upon the contract by the other party and was
bound thereby.

The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by Menzi &
Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is not justified by the
evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiff's contract with the defendant
corporation expired. Plaintiff tried to get the Tabacalera contract for himself. When this contract was filled,
plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to participate in the profits derived
therefrom.

Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the
fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or
P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of the accountant,
Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and Menzi & Co., Inc., were
partners; but even if they had been partners there would have been no good-will to dispose of.

The defendant corporation had a fertilizer business before it entered into any agreement with the plaintiff;
plaintiff's agreement was for a fixed period, five years, and during that time the business was carried on in the
name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of plaintiff's contract Menzi
& Co., Inc., continued its fertilizer business, as it had a perfect right to do. There was really nothing to which any
good-will could attach. Plaintiff maintains, however, that the trade-marks used in the fertilizer business during the
time that he was connected with it acquired great value, and that they have been appropriated by the appellant
to its own use. That seems to be the only basis of the alleged good-will, to which a fabulous valuation was given.
As we have seen, the trade- marks were not new. They had been used by Behn, Meyer & Co. in its business for
other goods and one of them for fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name;
only the expense of registering the formulas in the Bureau of Science was charged to the business in which the
plaintiff was interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had
no interest therein on the expiration of his contract.

The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence that
said balance is correct.

For the foregoing reasons, the decision appealed from is modified and the defendant corporation is sentenced to pay the
plaintiff twenty-one thousand, six hundred and thirty-three pesos and twenty centavos (P21,633.20), with legal interest
thereon from the date of the filing of the complaint on June 17, 1927, without a special finding as to costs.
 G.R. No. 126881             October 3, 2000

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

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the
decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as
herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on
February 19, 1990. The complaint, 3 docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City
was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan
Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended complaint 4 impleading private
respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint
was admitted by the trial court in its Order dated May 3, 1991. 5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay,
pooling their resources and industry together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they
jointly managed until Tan Eng 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 6 on April 12, 1995, to wit:

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.

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

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

In their assignment of errors, petitioners claim that:

I. 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

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

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

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

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:

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 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.

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

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.

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

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

These are not evidences supporting the existence of a partnership:

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

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

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

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A
contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the
intention of dividing the profits among themselves.

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

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

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

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

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

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which
each party has an equal proprietary interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business." 22 Nonetheless, in Aurbach, et. al. v. Sanitary Wares
Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may be likened to a particular
partnership, thus:

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. 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. 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. 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.

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 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
latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers.
Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his
brother. https://lawphil.net/judjuris/juri2000/oct2000/gr_126881_2000.html - fnt27 Tan Eng Lay consistently
testified that he had his business and his brother had his, that it was only later on that his said brother, Tan Eng
Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I.
sheets) is not an indicium of the existence of a partnership.

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 partnership exists. 30 We have
allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the business and all
the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible." But in the situation in the case at bar, the deferment, if any, had gone
on too long to be plausible. A person is presumed to take ordinary care of his concerns. As we explained in
another case:

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

A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee appeared never
to have made any such demand for accounting from his brother, Tang Eng Lay.

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

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

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

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

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

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

(a) As a debt by installment or otherwise;

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

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

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

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

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

However, private respondent counters that:

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

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

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

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

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

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

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of.
Hence, the petition must fail.
 G.R. No. 127405            September 20, 2001

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

On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our
Decision dated October 4, 2000. They maintain that there was no partnership between petitioner Belo, on the
one hand, and respondent Nenita A. Anay, on the other hand; and that the latter being merely an employee of
petitioner Tocao.

After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as
guarantor of Geminesse Enterprise. This was categorically affirmed by respondent's own witness, Elizabeth
Bantilan, during her cross-examination. Furthermore, Bantilan testified that it was Peter Lo who was the
company's financier. Thus:

Q     -    You mentioned a while ago the name William Belo. Now, what is the role of William Belo with
Geminesse Enterprise?
A     -    William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.
Q     -    What do you mean by guarantor?
A     -    He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us.
We can borrow money from him.
Q     -    You mentioned a certain Peter Lo. Who is this Peter Lo?
A     -    Peter Lo is based in Singapore.
Q     -    What is the role of Peter Lo in the Geminesse Enterprise?
A     -    He is the one fixing our orders that open the L/C.
Q     -    You mean Peter Lo is the financier?
A     -    Yes, he is the financier.
Q     -    And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?
A     -    Yes, sir

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be recalled that the
business relationship created between petitioner Tocao and respondent Anay was an informal partnership,
which was not even recorded with the Securities and Exchange Commission. As such, it was understandable
that Belo, who was after all petitioner Tocao's good friend and confidante, would occasionally participate in the
affairs of the business, although never in a formal or official capacity. Again, respondent's witness, Elizabeth
Bantilan, confirmed that petitioner Belo's presence in Geminesse Enterprise's meetings was merely as guarantor
of the company and to help petitioner Tocao.

Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business
enterprise. Respondent herself professed lack of knowledge that petitioner Belo received any share in the net
income of the partnership. On the other hand, petitioner Tocao declared that petitioner Belo was not entitled to
any share in the profits of Geminesse Enterprise. 6 With no participation in the profits, petitioner Belo cannot be
deemed a partner since the essence of a partnership is that the partners share in the profits and losses.

Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no
cause of action against him and her complaint against him should accordingly be dismissed.

As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to
account for stocks of Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for
damages should be barred to that extent. We do not agree. Given the circumstances surrounding private
respondent's sudden ouster from the partnership by petitioner Tocao, her act of withholding whatever stocks
were in her possession and control was justified, if only to serve as security for her claims against the
partnership. However, while we do not agree that the same renders private respondent in bad faith and should
bar her claim for damages, we find that the said sum of P208,250.00 should be deducted from whatever amount
is finally adjudged in her favor on the basis of the formal account of the partnership affairs to be submitted to the
Regional Trial Court.

WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The
Regional Trial Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as against
petitioner William T. Belo only. The sum of P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao
shall be held liable to pay respondent after the normal accounting of the partnership affairs.
 G.R. No. L-12541             August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO vs. YANG CHIAO SENG

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.

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.

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 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.

G.R. No. L-9996           October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA vs. THE

COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS

This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of
the Court of Tax Appeals, the dispositive part of which reads:

FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax and
the residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the
same in the total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is
hereby dismissed with costs against petitioners.

It appears from the stipulation submitted by the parties:

1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together with
their personal monies was used by them for the purpose of buying real properties,.

2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq.
m. including improvements thereon from the sum of P100,000.00; this property has an assessed value of
P57,517.00 as of 1948;

3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate
area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an assessed
value of P82,255.00 as of 1948;

4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as
of 1948;

5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34. This property has an assessed value of P59,140.00 as of 1948;

6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to
'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor;
in default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc.,
for and in their behalf, and to endorse and deposit all notes and checks for them;

7. That after having bought the above-mentioned real properties the petitioners had the same rented or
leases to various tenants;
 8. That from the month of March, 1945 up to an including December, 1945, the total amount collected as
rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving
them a net rental income of P5,948.33;

9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount
was deducted in the sum of P16,288.27 for expenses thereby leaving them a net rental income of
P7,498.13;

10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was
deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35.

It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment
of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-
1949, computed, according to assessment made by said officer, as follows:

INCOME TAXES

1945 14.84

1946 1,144.71

1947 10.34

1948 1,912.30

1949 1,575.90

Total including surcharge and compromise P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946 P37.50

1947 150.00

1948 150.00

1949 150.00

Total including penalty P527.00

RESIDENCE TAXES OF CORPORATION

1945 P38.75

1946 38.75

1947 38.75

1948 38.75

1949 38.75

Total including surcharge P193.75

TOTAL TAXES DUE P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954,
whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the
respondent contained in his letter of demand dated September 24, 1954" be reversed, and that they be absolved
from the payment of the taxes in question, with costs against the respondent.

After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and
a petition for reconsideration and new trial having been subsequently denied, the case is now before Us for
review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms "corporation" and "partnership," as used in section 24 and 84 of said
Code, the pertinent parts of which read:

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

SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-
stock companies, joint accounts (cuentas en participacion), associations or insurance companies, but
does not include duly registered general copartnerships. (compañias colectivas).

Article 1767 of the Civil Code of the Philippines provides:

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

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

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

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

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

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

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

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued existence. They did not even try to offer an
explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in
petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.

Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts
performed by them, a legal entity, with a personality independent of that of its members, did not come into
existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense was
correctly rejected by the Court of Tax Appeals.

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and
different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities
subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily
"partnerships", in the technical sense of the term.

Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise,
as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the
standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could
be deemed constituted for purposes of the tax on corporations.

Again, pursuant to said section 84(b), the term "corporation" includes, among other, joint accounts, (cuentas en
participation)" and "associations," none of which has a legal personality of its own, independent of that of its
members.

Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of
the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" —  which
are possessed of the aforementioned personality — have been expressly excluded by law (sections 24 and 84
[b] from the connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the
effect that their liability in connection with the leasing of the lots above referred to, under the management of one
person — even if true, on which we express no opinion — tends to increase the similarity between the nature of
their venture and that corporations, and is, therefore, an additional argument in favor of the imposition of said tax
on corporations.

Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships".
By specific provisions of said laws, such "corporations" include "associations, joint-stock companies and
insurance companies." However, the term "association" is not used in the aforementioned laws.

. . . in any narrow or technical sense. It includes any organization, created for the transaction of designed
affairs, or the attainment of some object, which like a corporation, continues notwithstanding that its
members or participants change, and the affairs of which, like corporate affairs, are conducted by a
single individual, a committee, a board, or some other group, acting in a representative capacity. It is
immaterial whether such organization is created by an agreement, a declaration of trust, a statute, or
otherwise. It includes a voluntary association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange operating through an attorney in fact, a partnership
association, and any other type of organization (by whatever name known) which is not, within the
meaning of the Code, a trust or an estate, or a partnership.

Similarly, the American Law.

. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only a
partnership as known at common law but, as well, a syndicate, group, pool, joint venture or other
unincorporated organizations which carries on any business financial operation, or venture, and which is
not, within the meaning of the Code, a trust, estate, or a corporation. . .

The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated
organization, through or by means of which any business, financial operation, or venture is carried
on, . . ..
For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships —
with the exception only of duly registered general co-partnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned and are subject to the income tax for corporations.

As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in part:

Entities liable to residence tax.-Every corporation, no matter how created or organized, whether
domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual
residence tax of five pesos and an annual additional tax which in no case, shall exceed one thousand
pesos, in accordance with the following schedule: . . .

The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account
(cuentas en participacion), association or insurance company, no matter how created or organized.

Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our National
Internal Revenue Code (commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the
day immediately after the approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with substantially the same meaning.
Consequently, petitioners are subject, also, to the residence tax for corporations.

Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for
a period of over twelve years, and that the yearly gross rentals of said properties from June 1945 to 1948 ranged
from P9,599 to P17,453. Thus, they are subject to the tax provided in section 193 (q) of our National Internal
Revenue Code, for "real estate dealers," inasmuch as, pursuant to section 194 (s) thereof:

'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging,  leasing,
or renting property or his own account as principal and holding himself out as a full or part time dealer in
real estate or as an owner of rental property or properties rented or offered to rent for an aggregate
amount of three thousand pesos or more a year. . .

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the petitioners herein.

G.R. No. L-19342 May 25, 1972

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ
B. OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR. vs. THE COMMISSIONER OF INTERNAL REVENUE

Julia Buñales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oña and her five
children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of
her estate. Later, Lorenzo T. Oña the surviving spouse was appointed administrator of the estate of said
deceased. On April 14, 1949, the administrator submitted the project of partition, which was approved by the
Court on May 16, 1949. Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oña,
were still minors when the project of partition was approved, Lorenzo T. Oña, their father and administrator of
the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of Manila for appointment as
guardian of said minors. On November 14, 1949, the Court appointed him guardian of the persons and property
of the aforenamed minors

The project of partition shows that the heirs have undivided one-half (1/2) interest in ten parcels of land with a
total assessed value of P87,860.00, six houses with a total assessed value of P17,590.00 and an undetermined
amount to be collected from the War Damage Commission. Later, they received from said Commission the
amount of P50,000.00, more or less. This amount was not divided among them but was used in the rehabilitation
of properties owned by them in common. Of the ten parcels of land aforementioned, two were acquired after the
death of the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00

The project of partition also shows that the estate shares equally with Lorenzo T. Oña, the administrator thereof,
in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court.
Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the
properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oña who used
said properties in business by leasing or selling them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and
investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the
following year-end balances:

Y Invest Lan Buil

e ment d ding
a
r

  Accou Acc Acc

nt oun oun
t t

1949 — P87,860.00 P17,590.00

1950 P24,657.65 128,566.72 96,076.26

1951 51,301.31 120,349.28 110,605.11

1952 67,927.52 87,065.28 152,674.39

1953 61,258.27 84,925.68 161,463.83

1954 63,623.37 99,001.20 167,962.04

1955 100,786.00 120,249.78 169,262.52

1956 175,028.68 135,714.68 169,262.52

From said investments and properties petitioners derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals and interests. The said incomes are recorded in
the books of account kept by Lorenzo T. Oña where the corresponding shares of the petitioners in the net
income for the year are also known. Every year, petitioners returned for income tax purposes their shares in the
net income derived from said properties and securities and/or from transactions involving them. However,
petitioners did not actually receive their shares in the yearly income. The income was always left in the hands of
Lorenzo T. Oña who, as heretofore pointed out, invested them in real properties and securities.

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners
formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24,
in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. Petitioners protested
against the assessment and asked for reconsideration of the ruling of respondent that they have formed an
unregistered partnership. Finding no merit in petitioners' request, respondent denied it.

The original assessment was as follows:

1955

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.00

25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the Supreme
Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned
assessment refers solely to the income tax proper for the years 1955 and 1956 and the "Compromise for non-
filing," the latter item obviously referring to the compromise in lieu of the criminal liability for failure of petitioners
to file the corporate income tax returns for said years.

Petitioners pose for our resolution the following questions:

(1) Under the facts found by the Court of Tax Appeals, should petitioners be considered as co-owners of the
properties inherited by them from the deceased Julia Buñales and the profits derived from transactions
involving the same, or, must they be deemed to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal Revenue Code?

(2) Assuming they have formed an unregistered partnership, should this not be only in the sense that they
invested as a common fund the profits earned by the properties owned by them in common and the
loans granted to them upon the security of the said properties, with the result that as far as their
respective shares in the inheritance are concerned, the total income thereof should be considered as
that of co-owners and not of the unregistered partnership?

(3) Assuming again that they are taxable as an unregistered partnership, should not the various amounts
already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the
deficiency corporate taxes, herein involved, assessed against such unregistered partnership by the
respondent Commissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in
interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as
early as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance
since those dates admittedly under the administration or management of the head of the family, the widower and
father Lorenzo T. Oña, the assessment in question refers to the later years 1955 and 1956. We believe this point
to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of
Internal Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is nothing in the record indicating
that an earlier assessment had already been made. Such being the case, and We see no reason how it could be
otherwise, it is easily understandable why petitioners' position that they are co-owners and not unregistered co-
partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find
comfort in the fact that they were not similarly assessed earlier by the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant
to the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oña
who used said properties in business by leasing or selling them and investing the income derived therefrom and
the proceed from the sales thereof in real properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building
account" in 1956. And all these became possible because, admittedly, petitioners never actually received any
share of the income or profits from Lorenzo T. Oña and instead, they allowed him to continue using said shares
as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of
their respective shares of the profits of their common business as reported by the said Lorenzo T. Oña.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding
the properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of
the said properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo
T. Oña, in the purchase and sale of corporate securities. It is likewise admitted that all the profits from these
ventures were divided among petitioners proportionately in accordance with their respective shares in the
inheritance.

In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes
from their respective shares of the inheritance but even the inherited properties themselves to be used by
Lorenzo T. Oña as a common fund in undertaking several transactions or in business, with the intention of
deriving profit to be shared by them proportionally, such act was tantamonut to actually contributing such
incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of
the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-
owners rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned.
Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly
to all the heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily
follow that such status as co-owners continues until the inheritance is actually and physically distributed among
the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they might decide
to continue holding said shares under the common management of the administrator or executor or of anyone
chosen by them and engage in business on that basis. Withal, if this were to be allowed, it would be the easiest
thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National
Internal Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the
appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not something
they found already in existence" and that "it was not a property inherited by them  pro indiviso," but it is certainly
far fetched to argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is
not actually divided, there can be no unregistered co-partnership.

As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into
an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are
used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the
inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by
the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of
such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes
thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other
heirs, and, accordingly he becomes liable individually for all taxes in connection therewith. If after such partition,
he allows his share to be held in common with his co-heirs under a single management to be used with the
intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or
instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed. This
is exactly what happened to petitioners in this case.

In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The
sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have
a joint or common right or interest in any property from which the returns are derived," and, for that matter, on
any other provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly
differentiated the concept of partnerships under the Civil Code from that of unregistered partnerships which are
considered as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice
Roberto Concepcion, now Chief Justice, elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which
are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly registered general partnerships," which constitute
precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This
qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard
forms, or in confirmity with the usual requirements of the law on partnerships, in order that one could be
deemed constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term
"corporation" includes, among others, "joint accounts,(cuentas en participacion)" and "associations", none of
which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker
could not have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-partnerships" — which are possessed of the
aforementioned personality — have been expressly excluded by law (sections 24 and 84[b]) from the
connotation of the term "corporation." ....

Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes not only a partnership
as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated
organization which carries on any business, financial operation, or venture, and which is not, within the
meaning of the Code, a trust, estate, or a corporation. ... .
 The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization,
through or by means of which any business, financial operation, or venture is carried on. ...

For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships —
with the exception only of duly registered general copartnerships — within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as
said Code is concerned, and are subject to the income tax for corporations.

We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos.
L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by
appellants therein.

As regards the second question raised by petitioners about the segregation, for the purposes of the corporate
taxes in question, of their inherited properties from those acquired by them subsequently, We consider as
justified the following ratiocination of the Tax Court in denying their motion for reconsideration:

In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding
should be limited to the business engaged in apart from the properties inherited by petitioners. In other
words, the taxable income of the partnership should be limited to the income derived from the acquisition
and sale of real properties and corporate securities and should not include the income derived from the
inherited properties. It is admitted that the inherited properties and the income derived therefrom were used
in the business of buying and selling other real properties and corporate securities. Accordingly, the
partnership income must include not only the income derived from the purchase and sale of other properties
but also the income of the inherited properties.

Besides, as already observed earlier, the income derived from inherited properties may be considered as
individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at least,
partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to
be used in making profits, it is but proper that the income of such shares should be considered as the part of the
taxable income of an unregistered partnership. This, We hold, is the clear intent of the law.

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the
aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court.
Pertinently, the court ruled this wise:

In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an
unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners in
their individual income tax returns reported their shares of the profits of the unregistered partnership. We
think it only fair and equitable that the various amounts paid by the individual petitioners as income tax on
their respective shares of the unregistered partnership should be deducted from the deficiency income tax
found by this Honorable Court against the unregistered partnership.

In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by
the amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct;
rather, it should be the other way around. The partnership profits distributable to the partners (petitioners
herein) should be reduced by the amounts of income tax assessed against the partnership. Consequently,
each of the petitioners in his individual capacity overpaid his income tax for the years in question, but the
income tax due from the partnership has been correctly assessed. Since the individual income tax liabilities
of petitioners are not in issue in this proceeding, it is not proper for the Court to pass upon the same.

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as
individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to
sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and,
worse, considering the time that has lapsed since they paid their individual income taxes, they may already be
barred by prescription from recovering their overpayments in a separate action. We do not agree.

As We see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has
paid the wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of
course, such taxpayer has the right to be reimbursed what he has erroneously paid, but the law is very clear that
the claim and action for such reimbursement are subject to the bar of prescription. And since the period for the
recovery of the excess income taxes in the case of herein petitioners has already lapsed, it would not seem right
to virtually disregard prescription merely upon the ground that the reason for the delay is precisely because the
taxpayers failed to make the proper return and payment of the corporate taxes legally due from them. In
principle, it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above
suspicion in their conduct vis-a-vis their tax obligation to the State.

G.R. No. 172690               March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM vs. JULIET VILLA LIM

Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad (Cresencia); and
their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito
Lim (Elenito). They filed a Complaint4 for Partition, Accounting and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon.
Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a
partnership to engage in the trucking business. Initially, with a contribution of ₱50,000.00 each, they purchased
a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed the operations of this
trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners
agreed to continue the business under the management of Elfledo. The shares in the partnership profits and
income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to
use, purchase or acquire properties using said funds.

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

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

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and
Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in 1980, Jose gave Elfledo
₱50,000.00 as the latter's capital in an informal partnership with Jimmy and Norberto. When Elfledo and
respondent got married in 1981, the partnership only had one truck; but through the efforts of Elfledo, the
business flourished. Other than this trucking business, Elfledo, together with respondent, engaged in other
business ventures. Thus, they were able to buy real properties and to put up their own car assembly and repair
business. When Norberto was ambushed and killed on July 16, 1993, the trucking business started to falter.
When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy and to the heirs of
Norberto, as she could no longer run the business. Jimmy suggested that three out of the nine trucks be given to
him as his share, while the other three trucks be given to the heirs of Norberto. However, Norberto's wife,
Paquita Uy, was not interested in the vehicles. Thus, she sold the same to respondent, who paid for them in
installments.

Respondent also alleged that when Jose died in 1981, he left no known assets, and the partnership with Jimmy
and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could
have held in trust. Respondent maintained that all the properties involved in this case were purchased and
acquired through her and her husband’s joint efforts and hard work, and without any participation or contribution
from petitioners or from Jose. Respondent submitted that these are conjugal partnership properties; and thus,
she had the right to refuse to render an accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the plaintiffs and heirs of Jose Lim and
the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals received by her from said
properties.

On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners' complaint for lack
of merit. Undaunted, petitioners filed their Motion for Reconsideration, 5 which the CA, however, denied in its
Resolution6 dated May 8, 2006.

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

IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN THE
TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER
PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE PARTNERSHIP?

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

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

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

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

A careful review of the records persuades us to affirm the CA decision. The evidence presented by petitioners
falls short of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all
the properties acquired by Elfledo and respondent form part of the estate of Jose, having been derived from the
alleged partnership.

Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against
respondent. It must be considered and weighed along with petitioners' other evidence vis-à-vis respondent's
contrary evidence. In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. "Preponderance of evidence" is the weight, credit, and value of the aggregate
evidence on either side and is usually considered synonymous with the term "greater weight of the evidence" or
"greater weight of the credible evidence." "Preponderance of evidence" is a phrase that, in the last analysis,
means probability of the truth. It is evidence that is more convincing to the court as worthy of belief than that
which is offered in opposition thereto. 13 Rule 133, Section 1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:

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

At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is enlightening. Therein, we cited Article
1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:

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

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

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

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

(a) As a debt by installments or otherwise;

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

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

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

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

Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto:

1) Cresencia testified that Jose gave Elfledo ₱50,000.00, as share in the partnership, on a date that
coincided with the payment of the initial capital in the partnership;

2) Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any
intervention or opposition whatsoever from any of petitioners herein;

3) All of the properties, particularly the nine trucks of the partnership, were registered in the name of
Elfledo;

4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what
he actually received were shares of the profits of the business; and

5) None of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee, a demand for periodic accounting is
evidence of a partnership.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired
and registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived
from Jose's alleged partnership with Jimmy and Norberto. They failed to refute respondent's claim that Elfledo
and respondent engaged in other businesses. Edison even admitted that Elfledo also sold Interwood lumber as
a sideline.19 Petitioners could not offer any credible evidence other than their bare assertions. Thus, we apply the
basic rule of evidence that between documentary and oral evidence, the former carries more weight. 20

Finally, we agree with the judicious findings of the CA, to wit:

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

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

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