Partnership - Cases.Batch 1. With Coment

[1] exercise of a profession.
Thus, in order to constitute a partnership, it must be

Republic of the Philippines established that (1) two or more persons bound themselves to contribute money,
SUPREME COURT property, or industry to a common fund, and (2) they intend to divide the profits
among themselves. The agreement need not be formally reduced into writing, since
SECOND DIVISION statute allows the oral constitution of a partnership, save in two instances: (1) when
immovable property or real rights are contributed, and (2) when the partnership has a
capital of three thousand pesos or more. In both cases, a public instrument is
G.R. No. 126881 October 3, 2000
required. An inventory to be signed by the parties and attached to the public
instrument is also indispensable to the validity of the partnership whenever
HEIRS OF TAN ENG KEE, petitioners, immovable property is contributed to the partnership.
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented Same; Same; Joint Ventures; “Partnership” and “Joint Venture,”
by its President TAN ENG LAY,respondents. Distinguished.—The trial court determined that Tan Eng Kee and Tan Eng Lay had
entered into a joint venture, which it said is akin to a particular partnership. A
Appeals; Evidence; Findings of facts of the Court of Appeals will not be particular partnership is distinguished from a joint adventure, to wit: (a) A joint
disturbed on appeal if such are supported by the evidence.—As a premise, we adventure (an American concept similar to our joint accounts ) is a sort of informal
reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not partnership, with no firm name and no legal personality. In a joint account, the
be disturbed on appeal if such are supported by the evidence. Our jurisdiction, it participating merchants can transact business under their own name, and can be
must be emphasized, does not include review of factual issues. individually liable therefor, (b) Usually, but not necessarily a joint adventure is
limited to a SINGLE TRANSACTION, although the business of pursuing to a
Same; Same; Exceptions.—Admitted exceptions have been recognized, successful termination may continue for a number of years; a partnership generally
though, and when present, may compel us to analyze the evidentiary basis on which relates to a continuing business of various transactions of a certain kind.
the lower court rendered judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are Same; Same; Same; Same; A joint venture may be likened to a particular
contradictory; (2) when the findings are grounded entirely on speculation, surmises, partnership; The legal concept of a joint venture is of common law origin and has no
or conjectures; (3) when the inference made by the Court of Appeals from its precise legal definition, but it has been generally understood to mean an
findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is grave organization formed for some temporary purpose.—A joint venture “presupposes
abuse of discretion in the appreciation of facts; (5) when the appellate court, in generally a parity of standing between the joint co-ventures or partners, in which
making its findings, goes beyond the issues of the case, and such findings are each party has an equal proprietary interest in the capital or property contributed, and
contrary to the admissions of both appellant and appellee; (6) when the judgment of where each party exercises equal rights in the conduct of the business.” Nonetheless,
the Court of Appeals is premised on a misapprehension of facts; (7) when the Court in Aurbach, et al. v. Sanitary Wares Manufacturing Corporation, et al., we expressed
of Appeals fails to notice certain relevant facts which, if properly considered, will the view that a joint venture may be likened to a particular partnership, thus: The
justify a different conclusion; (8) when the findings of fact are themselves legal concept of a joint venture is of common law origin. It has no precise legal
conflicting; (9) when the findings of fact are conclusions without citation of the definition, but it has been generally understood to mean an organization formed for
specific evidence on which they are based; and (10) when the findings of fact of the some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
Court of Appeals are premised on the absence of evidence but such findings are distinguishable from the partnership, since their elements are similar—community of
contradicted by the evidence on record. interest in the business, sharing of profits and losses, and a mutual right of control.
(Blackner v. McDermott, 176 F. 2d. 498 [1949]; Carboneau v. Peterson, 95 P.2d.,
Partnerships; Words and Phrases; In order to constitute a partnership, it must 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242
be established that (1) two or more persons bound themselves to contribute money, [1955]). The main distinction cited by most opinions in common law jurisdiction is
property or industry to a common fund, and (2) they intended to divide the profits that the partnership contemplates a general business with some degree of continuity,
among themselves.—The primordial issue here is whether Tan Eng Kee and Tan Eng while the joint venture is formed for the execution of a single transaction, and is thus
Lay were partners in Benguet Lumber. A contract of partnership is defined by law as of a temporary nature. (Tufts v. Mann, 116 Cal. App. 170, 2 P.2d. 500 [1931];
one where: x x x two or more persons bind themselves to contribute money, Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel, 266 Fed.
property, or industry to a common fund, with the intention of dividing the profits 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under
among themselves. Two or more persons may also form a partnership for the the Civil Code, a partnership may be particular or universal, and a particular
Partnership – Assignment No. 2 Page 1 of 42

partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It of Benguet Lumber, but in what capacity is unclear. We cannot discount the
would seem therefore that under Philippine law, a joint venture is a form of likelihood that as a member of the family, he occupied a niche above the rank-and-
partnership and should thus be governed by the law of partnerships. The Supreme file employees. He would have enjoyed liberties otherwise unavailable were he not
Court has however recognized a distinction between these two business forms, and kin, such as his residence in the Benguet Lumber Company compound. He would
has held that although a corporation cannot enter into a partnership contract, it may have moral, if not actual, superiority over his fellow employees, thereby entitling
however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. him to exercise powers of supervision. It may even be that among his duties is to
906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, place orders with suppliers. Again, the circumstances proffered by petitioners do not
Corporation Code 1981). 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
Same; Co-Ownership; A co-ownership or co-possession is not an indicium of as Benguet Lumber Company.
the existence of a partnership.—None of petitioners’ witnesses could suitably
account for the beginnings of Benguet Lumber Company, except perhaps for PETITION for review on certiorari of a decision of the Court of Appeals.
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 DE LEON, JR., J.:
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 In this petition for review on certiorari, petitioners pray for the reversal of the
between Peralta and his brother. Tan Eng Lay consistently testified that he had his Decision1 dated March 13, 1996 of the former Fifth Division 2 of the Court of
business and his brother had his, that it was only later on that his said brother, Tan Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:
Eng Kee, came to work for him. Be that as it may, co-ownership or copossession
(specifically here, of the G.I. sheets) is not an indicium of the existence of a
partnership. THE FOREGOING CONSIDERED, the appealed decision is hereby
set aside, and the complaint dismissed.
Same; The essence of a partnership is that the partners share in the profits
and losses; A demand for periodic accounting is evidence of a partnership.— The facts are:
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 Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo,
of a partnership is that the partners share in the profits and losses. Each has the right the common-law spouse of the decedent, joined by their children Teresita,
to demand an accounting as long as the partnership exists. We have allowed a Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein
scenario wherein “[i]f excellent relations exist among the partners at the start of the petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's
business and all the partners are more interested in seeing the firm grow rather than brother TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as
get immediate returns, a deferment of sharing in the profits is perfectly plausible.” Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for
But in the situation in the case at bar, the deferment, if any, had gone on too long to accounting, liquidation and winding up of the alleged partnership formed after
be plausible. A person is presumed to take ordinary care of his concerns, x x x A World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991,
demand for periodic accounting is evidence of a partnership. During his lifetime, Tan the petitioners filed an amended complaint 4 impleading private respondent
Eng Kee appeared never to have made any such demand for accounting from his herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay.
brother, Tang Eng Lay. The amended complaint was admitted by the trial court in its Order dated
May 3, 1991.5
Same; Where circumstances taken singly may be inadequate to prove the
intent to form a partnership, nevertheless, the collective effect of these circumstances The amended complaint principally alleged that after the second World War,
may be such as to support a finding of the existence of the parties’ intent.—In the Tan Eng Kee and Tan Eng Lay, pooling their resources and industry
instant case, we find private respondent’s arguments to be well-taken. Where together, entered into a partnership engaged in the business of selling
circumstances taken singly may be inadequate to prove the intent to form a lumber and hardware and construction supplies. They named their enterprise
partnership, nevertheless, the collective effect of these circumstances may be such as "Benguet Lumber" which they jointly managed until Tan Eng Kee's death.
to support a finding of the existence of the parties’ intent. Yet, in the case at bench, Petitioners herein averred that the business prospered due to the hard work
even the aforesaid circumstances when taken together are not persuasive indicia of a and thrift of the alleged partners. However, they claimed that in 1981, Tan
partnership. They only tend to show that Tan Eng Kee was involved in the operations Eng Lay and his children caused the conversion of the partnership "Benguet

Lumber" into a corporation called "Benguet Lumber Company." The h) Dismissing the counter-claim of the defendant for lack of merit.
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 SO ORDERED.
accounting of the partnership assets, and the dissolution, winding up and
liquidation thereof, and the equal division of the net assets of Benguet Private respondent sought relief before the Court of Appeals which, on March
Lumber. 13, 1996, rendered the assailed decision reversing the judgment of the trial
court. Petitioners' motion for reconsideration 7 was denied by the Court of
After trial, Regional Trial Court of Baguio City, Branch 7 rendered Appeals in a Resolution8 dated October 11, 1996.
judgment6 on April 12, 1995, to wit:
Hence, the present petition.
WHEREFORE, in view of all the foregoing, judgment is hereby
rendered: 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
a) Declaring that Benguet Lumber is a joint venture which is akin to a documents in a judicial proceeding. Petitioners complained that Exhibits "4"
particular partnership; 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
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are fake, based on the discrepancy in the signatures of Tan Eng Kee. They also
joint adventurers and/or partners in a business venture and/or filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie,
particular partnership called Benguet Lumber and as such should Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of
share in the profits and/or losses of the business venture or particular commercial documents by a private individual. On March 20, 1999, the
partnership; Municipal Trial Court of Baguio City, Branch 1, wherein the charges were
filed, rendered judgment9 dismissing the cases for insufficiency of evidence.
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 In their assignment of errors, petitioners claim that:
legal representatives of the deceased Tan Eng Kee have a legal right
to share in said assets; I
d) Declaring that all the rights and obligations of Tan Eng Kee as THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
joint adventurer and/or as partner in a particular partnership have THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN
descended to the plaintiffs who are his legal heirs. ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A)
THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
e) Ordering the defendant Tan Eng Lay and/or the President and/or LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO
General Manager of Benguet Lumber Company Inc. to render an CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO
accounting of all the assets of Benguet Lumber Company, Inc. so the AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE
plaintiffs know their proper share in the business; WAS NO TIME FIXED FOR THE DURATION OF THE
PARTNERSHIP (PAGE 13, DECISION).
f) Ordering the appointment of a receiver to preserve and/or
administer the assets of Benguet Lumber Company, Inc. until such II
time that said corporation is finally liquidated are directed to submit
the name of any person they want to be appointed as receiver failing THE HONORABLE COURT OF APPEALS ERRED IN RELYING
in which this Court will appoint the Branch Clerk of Court or another SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT
one who is qualified to act as such. TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
g) Denying the award of damages to the plaintiffs for lack of proof EMPLOYEE THEREOF.
except the expenses in filing the instant case.

III ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE
PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE
THAT THE FOLLOWING FACTS WHICH WERE DULY EXECUTION OF A PUBLIC INSTRUMENT CREATING A
SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES
BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY (PAGE 17, DECISION).
RECORDED BEFORE THE SECURITIES AND EXCHANGE
COMMISSION: As a premise, we reiterate the oft-repeated rule that findings of facts of the
Court of Appeals will not be disturbed on appeal if such are supported by the
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG evidence.10 Our jurisdiction, it must be emphasized, does not include review
LAY WERE ALL LIVING AT THE BENGUET LUMBER of factual issues. Thus:
COMPOUND;
Filing of petition with Supreme Court. — A party desiring to appeal by
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE certiorari from a judgment or final order or resolution of the Court of
COMMANDING THE EMPLOYEES OF BENGUET Appeals, the Sandiganbayan, the Regional Trial Court or other courts
LUMBER; whenever authorized by law, may file with the Supreme Court a
verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.11 [emphasis
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE
supplied]
SUPERVISING THE EMPLOYEES THEREIN;
Admitted exceptions have been recognized, though, and when present, may
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE
compel us to analyze the evidentiary basis on which the lower court rendered
ONES DETERMINING THE PRICES OF STOCKS TO BE
judgment. Review of factual issues is therefore warranted:
SOLD TO THE PUBLIC; AND
(1) when the factual findings of the Court of Appeals and the trial
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE
court are contradictory;
ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18,
DECISION).
(2) when the findings are grounded entirely on speculation, surmises,
or conjectures;
IV
(3) when the inference made by the Court of Appeals from its
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
findings of fact is manifestly mistaken, absurd, or impossible;
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 (4) when there is grave abuse of discretion in the appreciation of
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE facts;
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET
LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, (5) when the appellate court, in making its findings, goes beyond the
DECISION). issues of the case, and such findings are contrary to the admissions
of both appellant and appellee;
V
(6) when the judgment of the Court of Appeals is premised on a
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING misapprehension of facts;
THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN

(7) when the Court of Appeals fails to notice certain relevant facts It is obvious that there was no partnership whatsoever. Except for a firm
which, if properly considered, will justify a different conclusion; name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
(8) when the findings of fact are themselves conflicting; 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
(9) when the findings of fact are conclusions without citation of the
written account nor any memorandum for that matter and no license
specific evidence on which they are based; and
mentioning the existence of a partnership [citation omitted].
(10) when the findings of fact of the Court of Appeals are premised
Also, the exhibits support the establishment of only a proprietorship. The
on the absence of evidence but such findings are contradicted by the
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant
evidence on record.12
Lay as the only registered owner of the Benguet Lumber and Hardware.
His application for registration, effective 1954, in fact mentioned that his
In reversing the trial court, the Court of Appeals ruled, to wit: business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the
We note that the Court a quo over extended the issue because while the Benguet Lumber Company, on the basis of his SSS coverage effective
plaintiffs mentioned only the existence of a partnership, the Court in turn 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the
went beyond that by justifying the existence of a joint venture. years 1982 to 1983, Kee was similarly listed only as an employee;
precisely, he was on the payroll listing. In the Termination Notice, Exhibit
When mention is made of a joint venture, it would presuppose parity of "5", Lay was mentioned also as the proprietor.
standing between the parties, equal proprietary interest and the exercise
by the parties equally of the conduct of the business, thus: xxx xxx xxx
xxx xxx xxx We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may
be constituted in any form, but when an immovable is constituted, the
We have the admission that the father of the plaintiffs was not a partner execution of a public instrument becomes necessary. This is equally true
of the Benguet Lumber before the war. The appellees however argued if the capitalization exceeds P3,000.00, in which case a public instrument
that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire is also necessary, and which is to be recorded with the Securities and
stocks of the pre-war Benguet Lumber were confiscated if not burned by Exchange Commission. In this case at bar, we can easily assume that
the Japanese. After the war, because of the absence of capital to start a the business establishment, which from the language of the appellees,
lumber and hardware business, Lay and Kee pooled the proceeds of prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
their individual businesses earned from buying and selling military addition to the accumulation of real properties and to the fact that it is
supplies, so that the common fund would be enough to form a now a compound. The execution of a public instrument, on the other
partnership, both in the lumber and hardware business. That Lay and hand, was never established by the appellees.
Kee actually established the Benguet Lumber in Baguio City, was even
testified to by witnesses. Because of the pooling of resources, the post- And then in 1981, the business was incorporated and the incorporators
war Benguet Lumber was eventually established. That the father of the were only Lay and the members of his family. There is no proof either
plaintiffs and Lay were partners, is obvious from the fact that: (1) they that the capital assets of the partnership, assuming them to be in
conducted the affairs of the business during Kee's lifetime, jointly, (2) existence, were maliciously assigned or transferred by Lay, supposedly
they were the ones giving orders to the employees, (3) they were the to the corporation and since then have been treated as a part of the
ones preparing orders from the suppliers, (4) their families stayed latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the
together at the Benguet Lumber compound, and (5) all their children complaint.
were employed in the business in different capacities.
These are not evidences supporting the existence of a partnership:
xxx xxx xxx

1) That Kee was living in a bunk house just across the lumber store, and among themselves.15 The agreement need not be formally reduced into
then in a room in the bunk house in Trinidad, but within the compound of writing, since statute allows the oral constitution of a partnership, save in
the lumber establishment, as testified to by Tandoc; 2) that both Lay and two instances: (1) when immovable property or real rights are
Kee were seated on a table and were "commanding people" as testified contributed,16 and (2) when the partnership has a capital of three
to by the son, Elpidio Tan; 3) that both were supervising the laborers, as thousand pesos or more.17 In both cases, a public instrument is
testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly required.18 An inventory to be signed by the parties and attached to the
being told by Kee that the proceeds of the 80 pieces of the G.I. sheets public instrument is also indispensable to the validity of the partnership
were added to the business. whenever immovable property is contributed to the partnership. 19
Partnership presupposes the following elements [citation omitted]: 1) a The trial court determined that Tan Eng Kee and Tan Eng Lay had entered
contract, either oral or written. However, if it involves real property or into a joint venture, which it said is akin to a particular partnership. 20 A
where the capital is P3,000.00 or more, the execution of a contract is particular partnership is distinguished from a joint adventure, to wit:
necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and (a) A joint adventure (an American concept similar to our joint accounts)
interest, mentioning equality of the partners or one having a is a sort of informal partnership, with no firm name and no legal
proportionate share in the benefits; and 5) intention to divide the profits, personality. In a joint account, the participating merchants can transact
being the true test of the partnership. The intention to join in the business business under their own name, and can be individually liable therefor.
venture for the purpose of obtaining profits thereafter to be divided, must
be established. We cannot see these elements from the testimonial (b) Usually, but not necessarily a joint adventure is limited to a SINGLE
evidence of the appellees. TRANSACTION, although the business of pursuing to a successful
termination may continue for a number of years; a partnership generally
As can be seen, the appellate court disputed and differed from the trial court relates to a continuing business of various transactions of a certain
which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly kind.21
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 A joint venture "presupposes generally a parity of standing between the joint
brought to us under Rule 45, we cannot entertain inquiries relative to the co-ventures or partners, in which each party has an equal proprietary interest
correctness of the assessment of the evidence by the court a in the capital or property contributed, and where each party exercises equal
quo.13 Inasmuch as the Court of Appeals and the trial court had reached rights in the conduct of the business." 22 Nonetheless, in Aurbach, et. al. v.
conflicting conclusions, perforce we must examine the record to determine if Sanitary Wares Manufacturing Corporation, et. al., 23 we expressed the view
the reversal was justified. that a joint venture may be likened to a particular partnership, thus:
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were The legal concept of a joint venture is of common law origin. It has no
partners in Benguet Lumber. A contract of partnership is defined by law as precise legal definition, but it has been generally understood to mean an
one where: organization formed for some temporary purpose. (Gates v. Megargel,
266 Fed. 811 [1920]) It is hardly distinguishable from the partnership,
. . . two or more persons bind themselves to contribute money, property, or since their elements are similar — community of interest in the business,
industry to a common fund, with the intention of dividing the profits among sharing of profits and losses, and a mutual right of control. (Blackner v.
themselves. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289
Two or more persons may also form a partnership for the exercise of a P.2d. 242 [1955]). The main distinction cited by most opinions in
profession.14 common law jurisdiction is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed
Thus, in order to constitute a partnership, it must be established that (1) for the execution of a single transaction, and is thus of a temporary
two or more persons bound themselves to contribute money, property, or nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon
industry to a common fund, and (2) they intend to divide the profits v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed.

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

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

member of the family, he occupied a niche above the rank-and-file
employees. He would have enjoyed liberties otherwise unavailable were he
not kin, such as his residence in the Benguet Lumber Company compound.
He would have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It may even be that
among his duties is to place orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical nexus to the conclusion
desired; these are not inconsistent with the powers and duties of a manager,
even in a business organized and run as informally as Benguet Lumber
Company.
There being no partnership, it follows that there is no dissolution, winding up

or liquidation to speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of

the Court of Appeals is hereby AFFIRMED in toto. No pronouncement as to
costs.
SO ORDERED.

[5] (2nd case) the Civil Code as one where two or more persons bind themselves to contribute
Republic of the Philippines money, property, or industry to a common fund, with the intention of dividing the
SUPREME COURT profits among themselves.
Manila
Same; In civil cases, the party having the burden of proof must establish his
THIRD DIVISION case by a preponderance of evidence; Meaning of Preponderance of Evidence.—
Petitioners heavily rely on Jimmy’s testimony. But that testimony is just one piece of
G.R. No. 172690 March 3, 2010 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
HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners, evidence. “Preponderance of evidence” is the weight, credit, and value of the
vs. aggregate evidence on either side and is usually considered synonymous with the
JULIET VILLA LIM, Respondent. 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
DECISION 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.
Remedial Law; Appeals; When supported by substantial evidence, the findings
of fact of the Court of Appeals are conclusive and binding on the parties and are not PETITION for review on certiorari of a decision of the Court of Appeals.
reviewable by the Court; Exceptions.—The evaluation and calibration of the
evidence necessarily involves consideration of factual issues—an exercise that is not The facts are stated in the opinion of the Court.
appropriate for a petition for review on certiorari under Rule 45. This rule provides
that the parties may raise only questions of law, because the Supreme Court is not a NACHURA, J.:
trier of facts. Generally, we are not duty-bound to analyze again and weigh the
evidence introduced in and considered by the tribunals below. When supported by
Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the
substantial evidence, the findings of fact of the CA are conclusive and binding on the
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision 2 dated
parties and are not reviewable by this Court, unless the case falls under any of the
June 29, 2005, which reversed and set aside the decision 3 of the Regional
following recognized exceptions: (1) When the conclusion is a finding grounded
Trial Court (RTC) of Lucena City, dated April 12, 2004.
entirely on speculation, surmises and conjectures; (2) When the inference made is
manifestly mistaken, absurd or impossible; (3) Where there is a grave abuse of
discretion; (4) When the judgment is based on a misapprehension of facts; (5) When The facts of the case are as follows:
the findings of fact are conflicting; (6) When the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is contrary to the Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
admissions of both appellant and appellee; (7) When the findings are contrary to Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda,
those of the trial court; (8) When the findings of fact are conclusions without citation Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito
of specific evidence on which they are based; (9) When the facts set forth in the Lim (Elenito). They filed a Complaint 4 for Partition, Accounting and Damages
petition as well as in the petitioners’ main and reply briefs are not disputed by the against respondent Juliet Villa Lim (respondent), widow of the late Elfledo
respondents; and (10) When the findings of fact of the Court of Appeals are premised Lim (Elfledo), who was the eldest son of Jose and Cresencia.
on the supposed absence of evidence and contradicted by the evidence on record.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
Civil Law; Partnership; A Partnership exists when two or more persons agree Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his friends
to place their money, effects, labor and skill in lawful commerce or business with the Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership to
understanding that there shall be a proportionate sharing of the profits and losses engage in the trucking business. Initially, with a contribution of ₱50,000.00
among them; Definition of a Contract of Partnership.—A partnership exists when each, they purchased a truck to be used in the hauling and transport of
two or more persons agree to place their money, effects, labor, and skill in lawful lumber of the sawmill. Jose managed the operations of this trucking business
commerce or business, with the understanding that there shall be a proportionate until his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo,
sharing of the profits and losses among them. A contract of partnership is defined by and partners agreed to continue the business under the management of

Elfledo. The shares in the partnership profits and income that formed part of husband’s joint efforts and hard work, and without any participation or
the estate of Jose were held in trust by Elfledo, with petitioners' authority for contribution from petitioners or from Jose. Respondent submitted that these
Elfledo to use, purchase or acquire properties using said funds. 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.
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 Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision
a partner or an investor in the business and merely supervised the purchase in favor of petitioners, thus:
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 WHEREFORE, premises considered, judgment is hereby rendered:
all registered in Elfledo's name. Petitioners asseverated that it was also
through Elfledo’s management of the partnership that he was able to 1) Ordering the partition of the above-mentioned properties equally
purchase numerous real properties by using the profits derived therefrom, all between the plaintiffs and heirs of Jose Lim and the defendant Juliet
of which were registered in his name and that of respondent. In addition to Villa-Lim; and
the nine trucks, Elfledo also acquired five other motor vehicles.
2) Ordering the defendant to submit an accounting of all incomes,
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. profits and rentals received by her from said properties.
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 SO ORDERED.
properties, petitioners required respondent to submit an accounting of all
income, profits and rentals received from the estate of Elfledo, and to Aggrieved, respondent appealed to the CA.
surrender the administration thereof. Respondent refused; thus, the filing of
this case. On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted, petitioners filed
Respondent traversed petitioners' allegations and claimed that Elfledo was their Motion for Reconsideration,5 which the CA, however, denied in its
himself a partner of Norberto and Jimmy. Respondent also claimed that per Resolution6 dated May 8, 2006.
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 Hence, this Petition, raising the sole question, viz.:
Elfledo and respondent got married in 1981, the partnership only had one
truck; but through the efforts of Elfledo, the business flourished. Other than IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED
this trucking business, Elfledo, together with respondent, engaged in other BY THE PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS
business ventures. Thus, they were able to buy real properties and to put up BE GIVEN GREATER WEIGHT THAN THAT BY A FORMER PARTNER ON
their own car assembly and repair business. When Norberto was ambushed THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
and killed on July 16, 1993, the trucking business started to falter. When PARTNERSHIP?7
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.
In essence, petitioners argue that according to the testimony of Jimmy, the
Jimmy suggested that three out of the nine trucks be given to him as his
sole surviving partner, Elfledo was not a partner; and that he and Norberto
share, while the other three trucks be given to the heirs of Norberto.
entered into a partnership with Jose. Thus, the CA erred in not giving that
However, Norberto's wife, Paquita Uy, was not interested in the vehicles.
testimony greater weight than that of Cresencia, who was merely the spouse
Thus, she sold the same to respondent, who paid for them in installments.
of Jose and not a party to the partnership.8
Respondent also alleged that when Jose died in 1981, he left no known
Respondent counters that the issue raised by petitioners is not proper in a
assets, and the partnership with Jimmy and Norberto ceased upon his
petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
demise. Respondent also stressed that Jose left no properties that Elfledo
as it would entail the review, evaluation, calibration, and re-weighing of the
could have held in trust. Respondent maintained that all the properties
factual findings of the CA. Moreover, respondent invokes the rationale of the
involved in this case were purchased and acquired through her and her

CA decision that, in light of the admissions of Cresencia and Edison and the (10) When the findings of fact of the Court of Appeals are premised
testimony of respondent, the testimony of Jimmy was effectively refuted; on the supposed absence of evidence and contradicted by the
accordingly, the CA's reversal of the RTC's findings was fully justified. 9 evidence on record.11
We resolve first the procedural matter regarding the propriety of the instant We note, however, that the findings of fact of the RTC are contrary to those
Petition. of the CA. Thus, our review of such findings is warranted.
Verily, the evaluation and calibration of the evidence necessarily involves On the merits of the case, we find that the instant Petition is bereft of merit.
consideration of factual issues — an exercise that is not appropriate for a
petition for review on certiorari under Rule 45. This rule provides that the A partnership exists when two or more persons agree to place their money,
parties may raise only questions of law, because the Supreme Court is not a effects, labor, and skill in lawful commerce or business, with the
trier of facts. Generally, we are not duty-bound to analyze again and weigh understanding that there shall be a proportionate sharing of the profits and
the evidence introduced in and considered by the tribunals below. 10 When losses among them. A contract of partnership is defined by the Civil Code as
supported by substantial evidence, the findings of fact of the CA are one where two or more persons bind themselves to contribute money,
conclusive and binding on the parties and are not reviewable by this Court, property, or industry to a common fund, with the intention of dividing the
unless the case falls under any of the following recognized exceptions: profits among themselves.12
(1) When the conclusion is a finding grounded entirely on Undoubtedly, the best evidence would have been the contract of partnership
speculation, surmises and conjectures; or the articles of partnership. Unfortunately, there is none in this case,
because the alleged partnership was never formally organized. Nonetheless,
(2) When the inference made is manifestly mistaken, absurd or we are asked to determine who between Jose and Elfledo was the "partner"
impossible; in the trucking business.
(3) Where there is a grave abuse of discretion; 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
(4) When the judgment is based on a misapprehension of facts; 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.
(5) When the findings of fact are conflicting;
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one
(6) When the Court of Appeals, in making its findings, went beyond
piece of evidence against respondent. It must be considered and weighed
the issues of the case and the same is contrary to the admissions of
along with petitioners' other evidence vis-à-vis respondent's contrary
both appellant and appellee;
evidence. In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. "Preponderance of evidence" is
(7) When the findings are contrary to those of the trial court; the weight, credit, and value of the aggregate evidence on either side and is
usually considered synonymous with the term "greater weight of the
(8) When the findings of fact are conclusions without citation of evidence" or "greater weight of the credible evidence." "Preponderance of
specific evidence on which they are based; 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
(9) When the facts set forth in the petition as well as in the which is offered in opposition thereto. 13 Rule 133, Section 1 of the Rules of
petitioners' main and reply briefs are not disputed by the Court provides the guidelines in determining preponderance of evidence,
respondents; and 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 Applying the legal provision to the facts of this case, the following
evidence on the issues involved lies, the court may consider all the facts and circumstances tend to prove that Elfledo was himself the partner of Jimmy
circumstances of the case, the witnesses' manner of testifying, their and Norberto: 1) Cresencia testified that Jose gave Elfledo ₱50,000.00, as
intelligence, their means and opportunity of knowing the facts to which they share in the partnership, on a date that coincided with the payment of the
are testifying, the nature of the facts to which they testify, the probability or initial capital in the partnership; 15 (2) Elfledo ran the affairs of the partnership,
improbability of their testimony, their interest or want of interest, and also wielding absolute control, power and authority, without any intervention or
their personal credibility so far as the same may legitimately appear upon the opposition whatsoever from any of petitioners herein; 16 (3) all of the
trial. The court may also consider the number of witnesses, though the properties, particularly the nine trucks of the partnership, were registered in
preponderance is not necessarily with the greater number. 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
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is shares of the profits of the business; 17 and (5) none of the petitioners, as
enlightening. Therein, we cited Article 1769 of the Civil Code, which provides: heirs of Jose, the alleged partner, demanded periodic accounting from
Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng
Kee,18 a demand for periodic accounting is evidence of a partnership.
Art. 1769. In determining whether a partnership exists, these rules shall
apply:
Furthermore, petitioners failed to adduce any evidence to show that the real
and personal properties acquired and registered in the names of Elfledo and
(1) Except as provided by Article 1825, persons who are not partners
respondent formed part of the estate of Jose, having been derived from
as to each other are not partners as to third persons;
Jose's alleged partnership with Jimmy and Norberto. They failed to refute
respondent's claim that Elfledo and respondent engaged in other businesses.
(2) Co-ownership or co-possession does not of itself establish a Edison even admitted that Elfledo also sold Interwood lumber as a
partnership, whether such co-owners or co-possessors do or do not sideline.19 Petitioners could not offer any credible evidence other than their
share any profits made by the use of the property; bare assertions. Thus, we apply the basic rule of evidence that between
documentary and oral evidence, the former carries more weight. 20
(3) The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or Finally, we agree with the judicious findings of the CA, to wit:
common right or interest in any property from which the returns are
derived;
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
(4) The receipt by a person of a share of the profits of a business is a affairs from day one until this ceased operations upon his demise. The extent
prima facie evidence that he is a partner in the business, but no such of his control, administration and management of the partnership and its
inference shall be drawn if such profits were received in payment: 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
(a) As a debt by installments or otherwise; 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
(b) As wages of an employee or rent to a landlord; 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
(c) As an annuity to a widow or representative of a deceased and otherwise prosper. Even the appellant participated in the affairs of the
partner; partnership by acting as the bookkeeper sans salary.1avvphi1
(d) As interest on a loan, though the amount of payment vary It is notable too that Jose Lim died when the partnership was barely a year
with the profits of the business; 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
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or otherwise.

been dissolved and its assets liquidated. On the contrary, these were not
done but instead its operation continued under the helm of Elfledo and
without any participation from the heirs of Jose Lim.
Whatever properties appellant and her husband had acquired, this was
through their own concerted efforts and hard work. Elfledo did not limit
himself to the business of their partnership but engaged in other lines of
businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the
CA as they are amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of

Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against
petitioners.
SO ORDERED.

[3] (3rd case) Same; Agency; Words and Phrases; In an agency coupled with interest, it is
Republic of the Philippines the agency that cannot be revoked or withdrawn by the principal due to an interest
SUPREME COURT of a third party that depends upon it, or the mutual interest of both principal and
Manila agent.—There is no merit to petitioner’s claim that the prohibition in paragraph 5(c)
against withdrawal of advances should not be taken as an indication that it had
THIRD DIVISION entered into a partnership with Baguio Gold; that the stipulation only showed that
what the parties entered into was actually a contract of agency coupled with an
G.R. No. 148187 April 16, 2008 interest which is not revocable at will and not a partnership. In an agency coupled
with interest, it is the agency that cannot be revoked or withdrawn by the
principal due to an interest of a third party that depends upon it, or the mutual
PHILEX MINING CORPORATION, petitioner, interest of both principal and agent. In this case, the non-revocation or non-
vs. withdrawal under paragraph 5(c) applies to the advances made by petitioner who is
COMMISSIONER OF INTERNAL REVENUE, respondent. supposedly the agent and not the principal under the contract. Thus, it cannot be
inferred from the stipulation that the parties’ relation under the agreement is one of
DECISION agency coupled with an interest and not a partnership.
Partnership; Joint Ventures; Under a contract of partnership, two or more Same; Same; The essence of an agency, even one that is coupled with interest,
persons bind themselves to contribute money, property, or industry to a common is the agent’s ability to represent his principal and bring about business relations
fund, with the intention of dividing the profits among themselves; While a between the latter and third persons.—It should be stressed that the main object of
corporation, like petitioner, cannot generally enter into a contract of partnership the “Power of Attorney” was not to confer a power in favor of petitioner to contract
unless authorized by law or its charter, it has been held that it may enter into a joint with third persons on behalf of Baguio Gold but to create a business relationship
venture which is akin to a particular partnership.—An examination of the “Power of between petitioner and Baguio Gold, in which the former was to manage and operate
Attorney” reveals that a partnership or joint venture was indeed intended by the the latter’s mine through the parties’ mutual contribution of material resources and
parties. Under a contract of partnership, two or more persons bind themselves to industry. The essence of an agency, even one that is coupled with interest, is the
contribute money, property, or industry to a common fund, with the intention of agent’s ability to represent his principal and bring about business relations between
dividing the profits among themselves. While a corporation, like petitioner, cannot the latter and third persons. Where representation for and in behalf of the principal is
generally enter into a contract of partnership unless authorized by law or its charter, merely incidental or necessary for the proper discharge of one’s paramount
it has been held that it may enter into a joint venture which is akin to a particular undertaking under a contract, the latter may not necessarily be a contract of agency,
partnership: The legal concept of a joint venture is of common law origin. It has no but some other agreement depending on the ultimate undertaking of the parties. In
precise legal definition, but it has been generally understood to mean an organization this case, the totality of the circumstances and the stipulations in the parties’
formed for some temporary purpose. x x x It is in fact hardly distinguishable from agreement indubitably lead to the conclusion that a partnership was formed between
the partnership, since their elements are similar—community of interest in the petitioner and Baguio Gold.430
business, sharing of profits and losses, and a mutual right of control. x x x The main
distinction cited by most opinions in common law jurisdictions is that the partnership Same; Article 1769 (4) of the Civil Code explicitly provides that the “receipt
contemplates a general business with some degree of continuity, while the joint by a person of a share in the profits of a business is prima facie evidence that he is a
venture is formed for the execution of a single transaction, and is thus of a temporary partner in the business.”—Article 1769 (4) of the Civil Code explicitly provides that
nature. x x x This observation is not entirely accurate in this jurisdiction, since under the “receipt by a person of a share in the profits of a business is prima facie evidence
the Civil Code, a partnership may be particular or universal, and a particular that he is a partner in the business.” Petitioner asserts, however, that no such
partnership may have for its object a specific undertaking. x x x It would seem inference can be drawn against it since its share in the profits of the Sto Niño project
therefore that under Philippine law, a joint venture is a form of partnership and was in the nature of compensation or “wages of an employee,” under the exception
should be governed by the law of partnerships. The Supreme Court has however provided in Article 1769 (4) (b). On this score, the tax court correctly noted that
recognized a distinction between these two business forms, and has held that petitioner was not an employee of Baguio Gold who will be paid “wages” pursuant
although a corporation cannot enter into a partnership contract, it may however to an employer-employee relationship. To begin with, petitioner was the manager of
engage in a joint venture with others. x x x (Citations omitted) the project and had put substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation to profits, petitioner also
stood not to be remunerated in case the mine had no income. It is hard to believe that

petitioner would take the risk of not being paid at all for its services, if it were truly On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
just an ordinary employee. Consequently, we find that petitioner’s “compensation” entered into an agreement4 with Baguio Gold Mining Company ("Baguio
under paragraph 12 of the agreement actually constitutes its share in the net profits of Gold") for the former to manage and operate the latter’s mining claim, known
the partnership. Indeed, petitioner would not be entitled to an equal share in the as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The
income of the mine if it were just an employee of Baguio Gold. It is not surprising parties’ agreement was denominated as "Power of Attorney" and provided for
that petitioner was to receive a 50% share in the net profits, considering that the the following terms:
“Power of Attorney” also provided for an almost equal contribution of the parties to
the St. Nino mine. The “compensation” agreed upon only serves to reinforce the 4. Within three (3) years from date thereof, the PRINCIPAL (Baguio
notion that the parties’ relations were indeed of partners and not employer-employee. Gold) shall make available to the MANAGERS (Philex Mining) up to
ELEVEN MILLION PESOS (P11,000,000.00), in such amounts as
Same; Taxation; Bad Debt Deductions; Deductions for income tax purposes from time to time may be required by the MANAGERS within the said
partake of the nature of tax exemptions and are strictly construed against the 3-year period, for use in the MANAGEMENT of the STO. NINO
taxpayer, who must prove by convincing evidence that he is entitled to the deduction MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall
claimed.—The lower courts did not err in treating petitioner’s advances as be deemed, for internal audit purposes, as the owner’s account in the
investments in a partnership known as the Sto. Nino mine. The advances were not Sto. Nino PROJECT. Any part of any income of the PRINCIPAL from
“debts” of Baguio Gold to petitioner inasmuch as the latter was under no the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
unconditional obligation to return the same to the former under the “Power of shall be added to such owner’s account.
Attorney.” As for the amounts that petitioner paid as guarantor to Baguio Gold’s
creditors, we find no reason to depart from the tax court’s factual finding that Baguio 5. Whenever the MANAGERS shall deem it necessary and
Gold’s debts were not yet due and demandable at the time that petitioner paid the convenient in connection with the MANAGEMENT of the STO. NINO
same. Verily, petitioner pre-paid Baguio Gold’s outstanding loans to its bank MINE, they may transfer their own funds or property to the Sto. Nino
creditors and this conclusion is supported by the evidence on record. In sum, PROJECT, in accordance with the following arrangements:
petitioner cannot claim the advances as a bad debt deduction from its gross income.
Deductions for income tax purposes partake of the nature of tax exemptions and are
(a) The properties shall be appraised and, together with the
strictly construed against the taxpayer, who must prove by convincing evidence that
cash, shall be carried by the Sto. Nino PROJECT as a
he is entitled to the deduction claimed. In this case, petitioner failed to substantiate
special fund to be known as the MANAGERS’ account.
its assertion that the advances were subsisting debts of Baguio Gold that could be
deducted from its gross income. Consequently, it could not claim the advances as a
valid bad debt deduction. (b) The total of the MANAGERS’ account shall not exceed
P11,000,000.00, except with prior approval of the
PETITION for review on certiorari of the decision and resolution of the Court of PRINCIPAL; provided, however, that if the compensation of
Appeals. the MANAGERS as herein provided cannot be paid in cash
from the Sto. Nino PROJECT, the amount not so paid in
cash shall be added to the MANAGERS’ account.
(c) The cash and property shall not thereafter be withdrawn

YNARES-SANTIAGO, J.: from the Sto. Nino PROJECT until termination of this
Agency.
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the
Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision 2 of (d) The MANAGERS’ account shall not accrue interest.
the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the April Since it is the desire of the PRINCIPAL to extend to the
3, 2001 Resolution3 denying the motion for reconsideration. MANAGERS the benefit of subsequent appreciation of
property, upon a projected termination of this Agency, the
The facts of the case are as follows: ratio which the MANAGERS’ account has to the owner’s
account will be determined, and the corresponding
proportion of the entire assets of the STO. NINO MINE,

excluding the claims, shall be transferred to the agreement. However, the mine suffered continuing losses over the years
MANAGERS, except that such transferred assets shall not which resulted to petitioner’s withdrawal as manager of the mine on January
include mine development, roads, buildings, and similar 28, 1982 and in the eventual cessation of mine operations on February 20,
property which will be valueless, or of slight value, to the 1982.6
MANAGERS. The MANAGERS can, on the other hand,
require at their option that property originally transferred by Thereafter, on September 27, 1982, the parties executed a "Compromise
them to the Sto. Nino PROJECT be re-transferred to them. with Dation in Payment"7 wherein Baguio Gold admitted an indebtedness to
Until such assets are transferred to the MANAGERS, this petitioner in the amount of P179,394,000.00 and agreed to pay the same in
Agency shall remain subsisting. three segments by first assigning Baguio Gold’s tangible assets to petitioner,
transferring to the latter Baguio Gold’s equitable title in its Philodrill assets
xxxx and finally settling the remaining liability through properties that Baguio Gold
may acquire in the future.
12. The compensation of the MANAGER shall be fifty per cent (50%)
of the net profit of the Sto. Nino PROJECT before income tax. It is On December 31, 1982, the parties executed an "Amendment to
understood that the MANAGERS shall pay income tax on their Compromise with Dation in Payment"8 where the parties determined that
compensation, while the PRINCIPAL shall pay income tax on the net Baguio Gold’s indebtedness to petitioner actually amounted to
profit of the Sto. Nino PROJECT after deduction therefrom of the P259,137,245.00, which sum included liabilities of Baguio Gold to other
MANAGERS’ compensation. creditors that petitioner had assumed as guarantor. These liabilities pertained
to long-term loans amounting to US$11,000,000.00 contracted by Baguio
xxxx Gold from the Bank of America NT & SA and Citibank N.A. This time, Baguio
Gold undertook to pay petitioner in two segments by first assigning its
tangible assets for P127,838,051.00 and then transferring its equitable title in
16. The PRINCIPAL has current pecuniary obligation in favor of the
its Philodrill assets for P16,302,426.00. The parties then ascertained that
MANAGERS and, in the future, may incur other obligations in favor
Baguio Gold had a remaining outstanding indebtedness to petitioner in the
of the MANAGERS. This Power of Attorney has been executed as
amount of P114,996,768.00.
security for the payment and satisfaction of all such obligations of the
PRINCIPAL in favor of the MANAGERS and as a means to fulfill the
same. Therefore, this Agency shall be irrevocable while any Subsequently, petitioner wrote off in its 1982 books of account the remaining
obligation of the PRINCIPAL in favor of the MANAGERS is outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
outstanding, inclusive of the MANAGERS’ account. After all allowances and reserves that were set up in 1981 and P2,860,768.00 to the
obligations of the PRINCIPAL in favor of the MANAGERS have been 1982 operations.
paid and satisfied in full, this Agency shall be revocable by the
PRINCIPAL upon 36-month notice to the MANAGERS. In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of receivables
17. Notwithstanding any agreement or understanding between the from Baguio Gold against reserves and allowances." 9 However, the Bureau
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS of Internal Revenue (BIR) disallowed the amount as deduction for bad debt
may withdraw from this Agency by giving 6-month notice to the and assessed petitioner a deficiency income tax of P62,811,161.39.
PRINCIPAL. The MANAGERS shall not in any manner be held liable
to the PRINCIPAL by reason alone of such withdrawal. Paragraph Petitioner protested before the BIR arguing that the deduction must be
5(d) hereof shall be operative in case of the MANAGERS’ allowed since all requisites for a bad debt deduction were satisfied, to wit: (a)
withdrawal. there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was
x x x x5 determined to be worthless.
In the course of managing and operating the project, Philex Mining made Petitioner emphasized that the debt arose out of a valid management
advances of cash and property in accordance with paragraph 5 of the contract it entered into with Baguio Gold. The bad debt deduction

represented advances made by petitioner which, pursuant to the an investment, it could not be deducted as a bad debt from petitioner’s gross
management contract, formed part of Baguio Gold’s "pecuniary obligations" income.
to petitioner. It also included payments made by petitioner as guarantor of
Baguio Gold’s long-term loans which legally entitled petitioner to be The CTA likewise held that the amount paid by petitioner for the long-term
subrogated to the rights of the original creditor. loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in
Petitioner also asserted that due to Baguio Gold’s irreversible losses, it default since its loans were not yet due and demandable. What petitioner did
became evident that it would not be able to recover the advances and was to pre-pay the loans as evidenced by the notice sent by Bank of America
payments it had made in behalf of Baguio Gold. For a debt to be considered showing that it was merely demanding payment of the installment and
worthless, petitioner claimed that it was neither required to institute a judicial interests due. Moreover, Citibank imposed and collected a "pre-termination
action for collection against the debtor nor to sell or dispose of collateral penalty" for the pre-payment.
assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent
efforts to enforce collection and exhausted all reasonable means to collect. The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon denial
of its motion for reconsideration, 13petitioner took this recourse under Rule 45
On October 28, 1994, the BIR denied petitioner’s protest for lack of legal and of the Rules of Court, alleging that:
factual basis. It held that the alleged debt was not ascertained to be
worthless since Baguio Gold remained existing and had not filed a petition for I.
bankruptcy; and that the deduction did not consist of a valid and subsisting
debt considering that, under the management contract, petitioner was to be The Court of Appeals erred in construing that the advances made by
paid fifty percent (50%) of the project’s net profit. 10 Philex in the management of the Sto. Nino Mine pursuant to the
Power of Attorney partook of the nature of an investment rather than
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered a loan.
judgment, as follows:
II.
WHEREFORE, in view of the foregoing, the instant Petition for
Review is hereby DENIED for lack of merit. The assessment in The Court of Appeals erred in ruling that the 50%-50% sharing in the
question, viz: FAS-1-82-88-003067 for deficiency income tax in the net profits of the Sto. Nino Mine indicates that Philex is a partner of
amount of P62,811,161.39 is hereby AFFIRMED. Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex
ACCORDINGLY, petitioner Philex Mining Corporation is hereby and Baguio Gold to form a partnership.
ORDERED to PAY respondent Commissioner of Internal Revenue
the amount of P62,811,161.39, plus, 20% delinquency interest due III.
computed from February 10, 1995, which is the date after the 20-day
grace period given by the respondent within which petitioner has to
pay the deficiency amount x x x up to actual date of payment. The Court of Appeals erred in relying only on the Power of Attorney
and in completely disregarding the Compromise Agreement and the
Amended Compromise Agreement when it construed the nature of
SO ORDERED.11 the advances made by Philex.
The CTA rejected petitioner’s assertion that the advances it made for the Sto. IV.
Nino mine were in the nature of a loan. It instead characterized the advances
as petitioner’s investment in a partnership with Baguio Gold for the
development and exploitation of the Sto. Nino mine. The CTA held that the The Court of Appeals erred in refusing to delve upon the issue of the
"Power of Attorney" executed by petitioner and Baguio Gold was actually a propriety of the bad debts write-off.14
partnership agreement. Since the advanced amount partook of the nature of

Petitioner insists that in determining the nature of its business relationship of profits and losses, and a mutual right of control. x x x The main
with Baguio Gold, we should not only rely on the "Power of Attorney", but distinction cited by most opinions in common law jurisdictions is that
also on the subsequent "Compromise with Dation in Payment" and the partnership contemplates a general business with some degree
"Amended Compromise with Dation in Payment" that the parties executed in of continuity, while the joint venture is formed for the execution of a
1982. These documents, allegedly evinced the parties’ intent to treat the single transaction, and is thus of a temporary nature. x x x This
advances and payments as a loan and establish a creditor-debtor observation is not entirely accurate in this jurisdiction, since under
relationship between them. the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking.
The petition lacks merit. x x x It would seem therefore that under Philippine law, a joint
venture is a form of partnership and should be governed by the law
of partnerships. The Supreme Court has however recognized a
The lower courts correctly held that the "Power of Attorney" is the instrument
distinction between these two business forms, and has held that
that is material in determining the true nature of the business relationship
although a corporation cannot enter into a partnership contract, it
between petitioner and Baguio Gold. Before resort may be had to the two
may however engage in a joint venture with others. x x x (Citations
compromise agreements, the parties’ contractual intent must first be
omitted) 16
discovered from the expressed language of the primary contract under which
the parties’ business relations were founded. It should be noted that the
compromise agreements were mere collateral documents executed by the Perusal of the agreement denominated as the "Power of Attorney" indicates
parties pursuant to the termination of their business relationship created that the parties had intended to create a partnership and establish a common
under the "Power of Attorney". On the other hand, it is the latter which fund for the purpose. They also had a joint interest in the profits of the
established the juridical relation of the parties and defined the parameters of business as shown by a 50-50 sharing in the income of the mine.
their dealings with one another.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to
The execution of the two compromise agreements can hardly be considered contribute money, property and industry to the common fund known as the
as a subsequent or contemporaneous act that is reflective of the parties’ true Sto. Niño mine.17 In this regard, we note that there is a substantive
intent. The compromise agreements were executed eleven years after the equivalence in the respective contributions of the parties to the development
"Power of Attorney" and merely laid out a plan or procedure by which and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner could recover the advances and payments it made under the petitioner and Baguio Gold were to contribute equally to the joint venture
"Power of Attorney". The parties entered into the compromise agreements as assets under their respective accounts. Baguio Gold would
a consequence of the dissolution of their business relationship. It did not contribute P11M under its owner’s account plus any of its income that is left
define that relationship or indicate its real character. in the project, in addition to its actual mining claim. Meanwhile, petitioner’s
contribution would consist of its expertise in the management and operation
of mines, as well as the manager’s account which is comprised of P11M in
An examination of the "Power of Attorney" reveals that a partnership or joint
funds and property and petitioner’s "compensation" as manager that cannot
venture was indeed intended by the parties. Under a contract of partnership,
be paid in cash.
two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves.15 While a corporation, like petitioner, cannot generally enter into However, petitioner asserts that it could not have entered into a partnership
a contract of partnership unless authorized by law or its charter, it has been agreement with Baguio Gold because it did not "bind" itself to contribute
held that it may enter into a joint venture which is akin to a particular money or property to the project; that under paragraph 5 of the agreement, it
partnership: was only optional for petitioner to transfer funds or property to the Sto. Niño
project "(w)henever the MANAGERS shall deem it necessary and convenient
in connection with the MANAGEMENT of the STO. NIÑO MINE." 18
The legal concept of a joint venture is of common law origin. It has
no precise legal definition, but it has been generally understood to
mean an organization formed for some temporary purpose. x x x It is The wording of the parties’ agreement as to petitioner’s contribution to the
in fact hardly distinguishable from the partnership, since their common fund does not detract from the fact that petitioner transferred its
elements are similar – community of interest in the business, sharing funds and property to the project as specified in paragraph 5, thus rendering
effective the other stipulations of the contract, particularly paragraph 5(c)

which prohibits petitioner from withdrawing the advances until termination of First, it does not appear that Baguio Gold was unconditionally obligated to
the parties’ business relations. As can be seen, petitioner became bound by return the advances made by petitioner under the agreement. Paragraph 5
its contributions once the transfers were made. The contributions acquired an (d) thereof provides that upon termination of the parties’ business relations,
obligatory nature as soon as petitioner had chosen to exercise its option "the ratio which the MANAGER’S account has to the owner’s account will be
under paragraph 5. determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims" shall be transferred to
There is no merit to petitioner’s claim that the prohibition in paragraph 5(c) petitioner.22 As pointed out by the Court of Tax Appeals, petitioner was
against withdrawal of advances should not be taken as an indication that it merely entitled to a proportionate return of the mine’s assets upon dissolution
had entered into a partnership with Baguio Gold; that the stipulation only of the parties’ business relations. There was nothing in the agreement that
showed that what the parties entered into was actually a contract of agency would require Baguio Gold to make payments of the advances to petitioner
coupled with an interest which is not revocable at will and not a partnership. as would be recognized as an item of obligation or "accounts payable" for
Baguio Gold.
In an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends Thus, the tax court correctly concluded that the agreement provided for a
upon it, or the mutual interest of both principal and agent. 19 In this case, the distribution of assets of the Sto. Niño mine upon termination, a provision that
non-revocation or non-withdrawal under paragraph 5(c) applies to is more consistent with a partnership than a creditor-debtor relationship. It
the advances made by petitioner who is supposedly the agent and not the should be pointed out that in a contract of loan, a person who receives a loan
principal under the contract. Thus, it cannot be inferred from the stipulation or money or any fungible thing acquires ownership thereof and is bound to
that the parties’ relation under the agreement is one of agency coupled with pay the creditor an equal amount of the same kind and quality. 23 In this case,
an interest and not a partnership. however, there was no stipulation for Baguio Gold to actually repay petitioner
the cash and property that it had advanced, but only the return of an amount
pegged at a ratio which the manager’s account had to the owner’s account.
Neither can paragraph 16 of the agreement be taken as an indication that the
relationship of the parties was one of agency and not a partnership. Although
the said provision states that "this Agency shall be irrevocable while any In this connection, we find no contractual basis for the execution of the two
obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, compromise agreements in which Baguio Gold recognized a debt in favor of
inclusive of the MANAGERS’ account," it does not necessarily follow that the petitioner, which supposedly arose from the termination of their business
parties entered into an agency contract coupled with an interest that cannot relations over the Sto. Nino mine. The "Power of Attorney" clearly provides
be withdrawn by Baguio Gold. that petitioner would only be entitled to the return of a proportionate share of
the mine assets to be computed at a ratio that the manager’s account had to
the owner’s account. Except to provide a basis for claiming the advances as
It should be stressed that the main object of the "Power of Attorney" was not
a bad debt deduction, there is no reason for Baguio Gold to hold itself liable
to confer a power in favor of petitioner to contract with third persons on behalf
to petitioner under the compromise agreements, for any amount over and
of Baguio Gold but to create a business relationship between petitioner and
above the proportion agreed upon in the "Power of Attorney".
Baguio Gold, in which the former was to manage and operate the latter’s
mine through the parties’ mutual contribution of material resources and
industry. The essence of an agency, even one that is coupled with interest, is Next, the tax court correctly observed that it was unlikely for a business
the agent’s ability to represent his principal and bring about business corporation to lend hundreds of millions of pesos to another corporation with
relations between the latter and third persons. 20 Where representation for and neither security, or collateral, nor a specific deed evidencing the terms and
in behalf of the principal is merely incidental or necessary for the proper conditions of such loans. The parties also did not provide a specific maturity
discharge of one’s paramount undertaking under a contract, the latter may date for the advances to become due and demandable, and the manner of
not necessarily be a contract of agency, but some other agreement payment was unclear. All these point to the inevitable conclusion that the
depending on the ultimate undertaking of the parties. 21 advances were not loans but capital contributions to a partnership.
In this case, the totality of the circumstances and the stipulations in the The strongest indication that petitioner was a partner in the Sto Niño mine is
parties’ agreement indubitably lead to the conclusion that a partnership was the fact that it would receive 50% of the net profits as "compensation" under
formed between petitioner and Baguio Gold. paragraph 12 of the agreement. The entirety of the parties’ contractual

stipulations simply leads to no other conclusion than that petitioner’s were subsisting debts of Baguio Gold that could be deducted from its gross
"compensation" is actually its share in the income of the joint venture. income. Consequently, it could not claim the advances as a valid bad debt
deduction.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a
person of a share in the profits of a business is prima facie evidence that he WHEREFORE, the petition is DENIED. The decision of the Court of Appeals
is a partner in the business." Petitioner asserts, however, that no such in CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision
inference can be drawn against it since its share in the profits of the Sto Niño of the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED.
project was in the nature of compensation or "wages of an employee", under Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax
the exception provided in Article 1769 (4) (b).24 on its 1982 income in the amount of P62,811,161.31, with 20% delinquency
interest computed from February 10, 1995, which is the due date given for
On this score, the tax court correctly noted that petitioner was not an the payment of the deficiency income tax, up to the actual date of payment.
employee of Baguio Gold who will be paid "wages" pursuant to an employer-
employee relationship. To begin with, petitioner was the manager of the SO ORDERED.
project and had put substantial sums into the venture in order to ensure its
viability and profitability. By pegging its compensation to profits, petitioner
also stood not to be remunerated in case the mine had no income. It is hard
to believe that petitioner would take the risk of not being paid at all for its
services, if it were truly just an ordinary employee.
Consequently, we find that petitioner’s "compensation" under paragraph 12

of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in the
income of the mine if it were just an employee of Baguio Gold. 25 It is not
surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal
contribution of the parties to the St. Nino mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties’ relations were
indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioner’s advances as
investments in a partnership known as the Sto. Nino mine. The advances
were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the
"Power of Attorney". As for the amounts that petitioner paid as guarantor to
Baguio Gold’s creditors, we find no reason to depart from the tax court’s
factual finding that Baguio Gold’s debts were not yet due and demandable at
the time that petitioner paid the same. Verily, petitioner pre-paid Baguio
Gold’s outstanding loans to its bank creditors and this conclusion is
supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from
its gross income. Deductions for income tax purposes partake of the nature
of tax exemptions and are strictly construed against the taxpayer, who must
prove by convincing evidence that he is entitled to the deduction claimed. 27 In
this case, petitioner failed to substantiate its assertion that the advances

[4] (4th case) On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd.
Republic of the Philippines on two lots with areas of 1,124 and 963 square meters located at Greenhills,
SUPREME COURT San Juan, Rizal. The next day he transferred his rights to his four children,
Manila the petitioners, to enable them to build their residences. The company sold
the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44,
SECOND DIVISION Rollo). Presumably, the Torrens titles issued to them would show that they
were co-owners of the two lots.
G.R. No. L-68118 October 29, 1985
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
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and for the total sum of P313,050 (Exh. C and D). They derived from the sale a
REMEDIOS P. OBILLOS, brothers and sisters, petitioners total profit of P134,341.88 or P33,584 for each of them. They treated the
vs. profit as a capital gain and paid an income tax on one-half thereof or of
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX P16,792.
APPEALS, respondents.
In April, 1980, or one day before the expiration of the five-year prescriptive
Taxation; The dictum that the power to tax involves the power to destroy period, the Commissioner of Internal Revenue required the four petitioners to
should be obviated.—Toregard the petitioners as having formed a taxable unregistered pay corporate income tax on the total profit of P134,336 in addition to
partnership would result in oppressive taxation and confirm the dictum that the individual income tax on their shares thereof He assessed P37,018 as
power to tax involves the power to destroy. That eventuality should be obviated. corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as
42% accumulated interest, or a total of P71,074.56.
Same; Partnership; Co-ownership; Where the father sold his rights over two
parcels of land to his four children so they can build their residence, but the latter
Not only that. He considered the share of the profits of each petitioner in the
after one (1) year sold them and paid the capital gains, they should not be treated to
sum of P33,584 as a " taxable in full (not a mere capital gain of which ½ is
have formed an unregistered partnership and taxed corporate income tax on the sale
taxable) and required them to pay deficiency income taxes aggregating
and dividend income tax on their shares of the profit's from the sale.—Their original
P56,707.20 including the 50% fraud surcharge and the accumulated interest.
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 coownership. The Thus, the petitioners are being held liable for deficiency income taxes and
division of the profit was merely incidental to the dissolution of the co-ownership penalties totalling P127,781.76 on their profit of P134,336, in addition to the
which was in the nature of things a temporary state. It had to be terminated sooner or tax on capital gains already paid by them.
later.
The Commissioner acted on the theory that the four petitioners had formed
Same; Same; Same; Mere sharing of gross income from an isolated an unregistered partnership or joint venture within the meaning of sections
transaction does not establish a partnership.—Article 1769(3) of' the Civil Code 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas
provides that ''the sharing of gross returns does not of itself establish a partnership, Trans. Co., 102 Phil. 822).
whether or not the persons sharing them have a j oint or common right or interest in
any property from which the returns are derived". There must be an unmistakable The petitioners contested the assessments. Two Judges of the Tax Court
intention to form a partnership or joint venture. sustained the same. Judge Roaquin dissented. Hence, the instant appeal.
PETITION to review the judgment of the Court of Tax Appeals. 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
AQUINO, J.: allegedly contributed P178,708.12 to buy the two lots, resold the same and
divided the profit among themselves.
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.

To regard the petitioners as having formed a taxable unregistered Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67
partnership would result in oppressive taxation and confirm the dictum that Phil. 666, where 15 persons contributed small amounts to purchase a two-
the power to tax involves the power to destroy. That eventuality should be peso sweepstakes ticket with the agreement that they would divide the prize
obviated. The ticket won the third prize of P50,000. The 15 persons were held liable for
income tax as an unregistered partnership.
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 The instant case is distinguishable from the cases where the parties engaged
distinction between a co-ownership and a partnership. The petitioners were in joint ventures for profit. Thus, in Oña vs.
not engaged in any joint venture by reason of that isolated transaction.
** This view is supported by the following rulings of respondent
Their original purpose was to divide the lots for residential purposes. If later Commissioner:
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 Co-owership distinguished from partnership.—We find that the case
to dissolve the co-ownership. The division of the profit was merely incidental at bar is fundamentally similar to the De Leon case. Thus, like the De
to the dissolution of the co-ownership which was in the nature of things a Leon heirs, the Longa heirs inherited the 'hacienda' in question pro-
temporary state. It had to be terminated sooner or later. Castan Tobeñas indiviso from their deceased parents; they did not contribute or invest
says: additional ' capital to increase or expand the inherited properties;
they merely continued dedicating the property to the use to which it
Como establecer el deslinde entre la comunidad ordinaria o had been put by their forebears; they individually reported in their tax
copropiedad y la sociedad? returns their corresponding shares in the income and expenses of
the 'hacienda', and they continued for many years the status of co-
El criterio diferencial-segun la doctrina mas generalizada-esta: por ownership in order, as conceded by respondent, 'to preserve its (the
razon del origen, en que la sociedad presupone necesariamente la 'hacienda') value and to continue the existing contractual relations
convencion, mentras que la comunidad puede existir y existe with the Central Azucarera de Bais for milling purposes. Longa vs.
ordinariamente sin ela; y por razon del fin objecto, en que el objeto Aranas, CTA Case No. 653, July 31, 1963).
de la sociedad es obtener lucro, mientras que el de la indivision es
solo mantener en su integridad la cosa comun y favorecer su All co-ownerships are not deemed unregistered pratnership.—Co-
conservacion. Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership,
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en or a corporation, within the purview of the income tax law. To hold
la que se dice que si en nuestro Derecho positive se ofrecen a veces otherwise, would be to subject the income of all
dificultades al tratar de fijar la linea divisoria entre comunidad de co-ownerships of inherited properties to the tax on corporations,
bienes y contrato de sociedad, la moderna orientacion de la doctrina inasmuch as if a property does not produce an income at all, it is not
cientifica señala como nota fundamental de diferenciacion aparte del subject to any kind of income tax, whether the income tax on
origen de fuente de que surgen, no siempre uniforme, la finalidad individuals or the income tax on corporation. (De Leon vs. CI R, CTA
perseguida por los interesados: lucro comun partible en la sociedad, Case No. 738, September 11, 1961, cited in Arañas, 1977 Tax Code
y mera conservacion y aprovechamiento en la comunidad. (Derecho Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74,
Article 1769(3) of the Civil Code provides that "the sharing of gross returns where after an extrajudicial settlement the co-heirs used the inheritance or
does not of itself establish a partnership, whether or not the persons sharing the incomes derived therefrom as a common fund to produce profits for
them have a joint or common right or interest in any property from which the themselves, it was held that they were taxable as an unregistered
returns are derived". There must be an unmistakable intention to form a partnership.
partnership or joint venture.*

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24
SCRA 198, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the net
income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil.
140, where the three Evangelista sisters bought four pieces of real property
which they leased to various tenants and derived rentals therefrom. Clearly,
the petitioners in these two cases had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated was
whether the father donated the two lots to the petitioners and whether he
paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this
matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.
SO ORDERED.

person or against person of unsound mind; 4. His testimony refers to any matter
of fact which occurred before the death of such deceased person or before such
person became of unsound mind.”
[6] (6th case) Same; Same; Same; Same; When it is the executor or administrator or

THIRD DIVISION representatives of the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat
G.R. No. 143340 August 15, 2001 the counterclaim.—Two reasons forestall the application of the “Dead Man’s
Statute” to this case. First, petitioners filed a compulsory counterclaim against
respondent in their answer before the trial court, and with the filing of their
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
counterclaim, petitioners themselves effectively removed this case from the
vs.
ambit of the “Dead Man’s Statute.” Well entrenched is the rule that when it is the
LAMBERTO T. CHUA, respondent.
executor or administrator or representatives of the estate that sets up the
counterclaim, the plaintiff, herein respondent, may testify to occurrences before
Partnership; Contracts; A partnership may be constituted in any form, the death of the deceased to defeat the counterclaim. Moreover, as defendant in
except where immovable property or real rights are contributed thereto, in the counterclaim, respondent is not disqualified from testifying as to matters of
which case a public instrument shall be necessary.—A partnership may be fact occurring before the death of the deceased, said action not having been
constituted in any form, except where immovable property or real rights are brought against but by the estate or representatives of the deceased.
contributed thereto, in which case a public instrument shall be necessary. Hence,
based on the intention of the parties, as gathered from the facts and ascertained Same; Same; Words and Phrases; “Assignor” of a party means “assignor
from their language and conduct, a verbal contract of partnership may arise. The of a cause of action which has arisen, and not the assignor of a right assigned
essential points that must be proven to show that a partnership was agreed upon before any cause of action has arisen.”—The testimony of Josephine is not
are (1) mutual contribution to a common stock, and (2) a joint interest in the covered by the “Dead Man’s Statute” for the simple reason that she is not “a
profits. Understandably so, in view of the absence of a written contract of party or assignor of a party to a case or persons in whose behalf a case is
partnership between respondent and Jacinto, respondent resorted to the prosecuted.” Records show that respondent offered the testimony of Josephine to
introduction of documentary and testimonial evidence to prove said partnership. establish the existence of the partnership between respondent and Jacinto.
The crucial issue to settle then is whether or not the “Dead Man’s Statute” Petitioners’ insistence that Josephine is the alter ego of respondent does not make
applies to this case so as to render inadmissible respondent’s testimony and that her an assignor because the term “assignor” of a party means “assignor of a
of his witness, Josephine. cause of action which has arisen, and not the assignor of a right assigned before
any cause of action has arisen.” Plainly then, Josephine is merely a witness of
Same; Evidence; Dead Man’s Statute; Requirements; The “Dead Man’s respondent, the latter being the party plaintiff.
Statute” provides that if one party to the alleged transaction is precluded from
testifying by death, insanity, or other mental disabilities, the surviving party is Same; Dissolution; The Civil Code expressly provides that upon
not entitled to undue advantage of giving his own uncontradicted and dissolution, the partnership continues and its legal personality is retained until
unexplained account of the transaction.—The “Dead Man’s Statute” provides the complete winding up of its business culminating in its termination.—With
that if one party to the alleged transaction is precluded from testifying by death, regard to petitioners’ insistence that laches and/or prescription should have
insanity, or other mental disabilities, the surviving party is not entitled to the extinguished respondent’s claim, we agree with the trial court and the Court of
undue advantage of giving his own uncontradicted and unexplained account of Appeals that the action for accounting filed by respondent three (3) years after
the transaction. But before this rule can be successfully invoked to bar the Jacinto’s death was well within the prescribed period. The Civil Code provides
introduction of testimonial evidence, it is necessary that: “1. The witness is a that an action to enforce an oral contract prescribes in six (6) years while the
party or assignor of a party to a case or persons in whose behalf a case is right to demand an accounting for a partner’s interest as against the person
prosecuted. 2. The action is against an executor or administrator or other continuing the business accrues at the date of dissolution, in the absence of any
representative of a deceased person or a person of unsound mind; 3. The subject- contrary agreement. Considering that the death of a partner results in the
matter of the action is a claim or demand against the estate of such deceased dissolution of the partnership, in this case, it was after Jacinto’s death that

respondent as the surviving partner had the right to an account of his interest as Allegedly, from the time that Shellite opened for business on July 8, 1977,
against petitioners. It bears stressing that while Jacinto’s death dissolved the its business operation went quite well and was profitable. Respondent claimed
partnership, the dissolution did not immediately terminate the partnership. The that he could attest to the success of their business because of the volume of
Civil Code expressly provides that upon dissolution, the partnership continues orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell
and its legal personality is retained until the complete winding up of its business, Petroleum Corporation. While Jacinto furnished respondent with the
culminating in its termination. merchandise inventories, balance sheets and net worth of Shellite from 1977 to
1989, respondent however suspected that the amount indicated in these
PETITION for review on certiorari of a decision of the Court of Appeals. documents were understated and undervalued by Jacinto and Josephine for their
own selfish reasons and for tax avoidance.
GONZAGA-REYES, J.:
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner
Before us is a petition for review on certiorari under Rule 45 of the Rules Cecilia and particularly his daughter, petitioner Lilibeth, took over the
of Court of the Decision[1] of the Court of Appeals dated January 31, 2000 in the operations, control, custody, disposition and management of Shellite without
case entitled Lamberto T. Chua vs. respondents consent.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May Despite respondents repeated demands upon petitioners for accounting,
23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth inventory, appraisal, winding up and restitution of his net shares in the
Sunga Chan and Cecilia Sunga (hereafter collectively referred to as petitioners). partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued
the operations of Shellite, converting to her own use and advantage its properties.
The pertinent facts of this case are as follows:
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a of alibis and reasons to evade respondents demands, she disbursed out of the
complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia partnership funds the amount of P200,000.00 and partially paid the same to
Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the respondent. Petitioner Lilibeth allegedly informed respondent that the
deceased Jacinto L. Sunga (hereafter Jacinto), for Winding Up of Partnership P200,000.00 represented partial payment of the latters share in the partnership,
Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ with a promise that the former would make the complete inventory and winding
of Preliminary Attachment with the Regional Trial Court, Branch 11, Sindangan, up of the properties of the business establishment. Despite such commitment,
Zamboanga del Norte. petitioners allegedly failed to comply with their duty to account, and continued
to benefit from the assets and income of Shellite to the damage and prejudice of
Respondent alleged that in 1977, he verbally entered into a partnership with respondent.
Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in
Manila. For business convenience, respondent and Jacinto allegedly agreed to On December 19, 1992, petitioners filed a Motion to Dismiss on the ground
register the business name of their partnership, SHELLITE GAS APPLIANCE that the Securities and Exchange Commission (SEC) in Manila, not the Regional
CENTER (hereafter Shellite), under the name of Jacinto as a sole Trial Court in Zambaonga del Norte had jurisdiction over the action. Respondent
proprietorship. Respondent allegedly delivered his initial capital contribution of opposed the motion to dismiss.
P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his
counterpart contribution, with the intention that the profits would be equally On January 12, 1993, the trial court finding the complaint sufficient in form
divided between them. The partnership allegedly had Jacinto as manager, and substance denied the motion to dismiss.
assisted by Josephine Sy (hereafter Josephine), a sister of the wife of respondent,
Erlinda Sy. As compensation, Jacinto would receive a managers fee or On January 30, 1993, petitioners filed their Answer with Compulsory
remuneration of 10% of the gross profit and Josephine would receive 10% of the Counterclaims, contending that they are not liable for partnership shares,
net profits, in addition to her wages and other remuneration from the business. unreceived income/profits, interests, damages and attorneys fees, that respondent
does not have a cause of action against them, and that the trial court has no
jurisdiction over the nature of the action, the SEC being the agency that has

original and exclusive jurisdiction over the case. As counterclaim, petitioner (1) DIRECTING them to render an accounting in acceptable form under
sought attorneys fees and expenses of litigation. accounting procedures and standards of the properties, assets, income and profits
of the Shellite Gas Appliance Center since the time of death of Jacinto L. Sunga,
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on from whom they continued the business operations including all businesses
the ground that the claim for winding up of partnership affairs, accounting and derived from the Shellite Gas Appliance Center; submit an inventory, and
recovery of shares in partnership affairs, accounting and recovery of shares appraisal of all these properties, assets, income, profits, etc. to the Court and to
in partnership assets /properties should be dismissed and prosecuted against the plaintiff for approval or disapproval;
estate of deceased Jacinto in a probate or intestate proceeding.
(2) ORDERING them to return and restitute to the partnership any and all
On August 16, 1993, the trial court denied the second motion to dismiss for properties, assets, income and profits they misapplied and converted to their own
lack of merit. use and advantage that legally pertain to the plaintiff and account for the
properties mentioned in pars. A and B on pages 4-5 of this petition as basis;
On November 26, 1993, petitioners filed their Petition for Certiorari,
Prohibition and Mandamus with the Court of Appeals docketed as CA-G.R. SP (3) DIRECTING them to restitute and pay to the plaintiff shares and interest of
No. 32499 questioning the denial of the motion to dismiss. the plaintiff in the partnership of the listed properties, assets and good will (sic)
in schedules A, B and C, on pages 4-5 of the petition;
On November 29, 1993, petitioners filed with the trial court a Motion to
Suspend Pre-trial Conference. (4) ORDERING them to pay the plaintiff earned but unreceived income and
profits from the partnership from 1988 to may 30, 1992, when the plaintiff
On December 13, 1993, the trial court granted the motion to suspend pre- learned of the closure of the store the sum of P35,000.00 per month, with legal
trial conference. rate of interest until fully paid;
On November 15, 1994, the Court of Appeals denied the petition for lack of (5) ORDERING them to wind up the affairs of the partnership and terminate its
merit. business activities pursuant to law, after delivering to the plaintiff all the interest,
shares, participation and equity in the partnership, or the value thereof in money
On January 16, 1995, this Court denied the petition for review on certiorari or moneys worth, if the properties are not physically divisible;
filed by petitioner, as petitioners failed to show that a reversible error was
committed by the appellate court."[2] (6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and
in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral
On February 20, 1995, entry of judgment was made by the Clerk of Court and exemplary damages; and,
and the case was remanded to the trial court on April 26, 1995.
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys
On September 25, 1995, the trial court terminated the pre-trial conference (sic) and P25,00.00 as litigation expenses.
and set the hearing of the case on January 17, 1996. Respondent presented his
evidence while petitioners were considered to have waived their right to present NO special pronouncements as to COSTS.
evidence for their failure to attend the scheduled date for reception of evidence
despite notice. SO ORDERED.[3]
On October 7, 1997, the trial court rendered its Decision ruling for On October 28, 1997, petitioners filed a Notice of Appeal with the trial
respondent. The dispositive portion of the Decision reads: court, appealing the case to the Court of Appeals.
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against On January 31, 2000, the Court of Appeals dismissed the appeal. The
the defendants, as follows: dispositive portion of the Decision reads:

WHEREFORE, the instant appeal is dismissed. The appealed decision is We are not persuaded.
AFFIRMED in all respects.[4]
A partnership may be constituted in any form, except where immovable
On May 23, 2000, the Court of Appeals denied the motion for property or real rights are contributed thereto, in which case a public instrument
reconsideration filed by petitioner. shall be necessary.[6] Hence, based on the intention of the parties, as gathered
from the facts and ascertained from their language and conduct, a verbal contract
Hence, this petition wherein petitioner relies upon the following grounds: of partnership may arise.[7] The essential points that must be proven to show that
a partnership was agreed upon are (1) mutual contribution to a common stock,
1. The Court of Appeals erred in making a legal conclusion that there and (2) a joint interest in the profits. [8] Understandably so, in view of the absence
existed a partnership between respondent Lamberto T. Chua and of a written contract of partnership between respondent and Jacinto, respondent
the late Jacinto L. Sunga upon the latters invitation and offer and resorted to the introduction of documentary and testimonial evidence to prove
that upon his death the partnership assets and business were taken said partnership. The crucial issue to settle then is whether or not the Dead Mans
over by petitioners. Statute applies to this case so as to render inadmissible respondents testimony
and that of his witness, Josephine.
2. The Court of Appeals erred in making the legal conclusion that
laches and/or prescription did not apply in the instant case. The Dead Mans Statute provides that if one party to the alleged transaction
is precluded from testifying by death, insanity, or other mental disabilities, the
3. The Court of Appeals erred in making the legal conclusion that surviving party is not entitled to the undue advantage of giving his own
there was competent and credible evidence to warrant the finding uncontradicted and unexplained account of the transaction. [9] But before this rule
of a partnership, and assuming arguendo that indeed there was a can be successfully invoked to bar the introduction of testimonial evidence, it is
partnership, the finding of highly exaggerated amounts or values in necessary that:
the partnership assets and profits.[5]
1. The witness is a party or assignor of a party to a case or persons in
Petitioners question the correctness of the finding of the trial court and the whose behalf a case is prosecuted.
Court of Appeals that a partnership existed between respondent and Jacinto from
1977 until Jacintos death. In the absence of any written document to show such 2. The action is against an executor or administrator or other
partnership between respondent and Jacinto, petitioners argue that these courts representative of a deceased person or a person of unsound mind;
were proscribed from hearing the testimonies of respondent and his witness,
Josephine, to prove the alleged partnership three years after Jacintos death. To 3. The subject-matter of the action is a claim or demand against the
support this argument, petitioners invoke the Dead Mans Statute or Survivorship estate of such deceased person or against person of unsound mind;
Rule under Section 23, Rule 130 of the Rules of Court that provides:
4. His testimony refers to any matter of fact which occurred before the
SEC. 23. Disqualification by reason of death or insanity of adverse death of such deceased person or before such person became of
party.-- Parties or assignors of parties to a case, or persons in whose behalf a unsound mind.[10]
case is prosecuted, against an executor or administrator or other representative of
a deceased person, or against a person of unsound mind, upon a claim or demand Two reasons forestall the application of the Dead Mans Statute to this case.
against the estate of such deceased person, or against such person of unsound
mind, cannot testify as to any matter of fact occurring before the death of such First, petitioners filed a compulsory counterclaim[11] against respondent in
deceased person or before such person became of unsound mind. their answer before the trial court, and with the filing of their counterclaim,
petitioners themselves effectively removed this case from the ambit of the Dead
Petitioners thus implore this Court to rule that the testimonies of respondent and Mans Statute.[12] Well entrenched is the rule that when it is the executor or
his alter ego, Josephine, should not have been admitted to prove certain claims administrator or representatives of the estate that sets up the counterclaim, the
against a deceased person (Jacinto), now represented by petitioners. plaintiff, herein respondent, may testify to occurrences before the death of the
deceased to defeat the counterclaim. [13] Moreover, as defendant in the

counterclaim, respondent is not disqualified from testifying as to matters of fact petitioners failed to object to the admissibility of the evidence at the time that
occurring before the death of the deceased, said action not having been brought such evidence was offered.[19]
against but by the estate or representatives of the deceased.[14]
With regard to petitioners insistence that laches and/or prescription should
Second, the testimony of Josephine is not covered by the Dead Mans have extinguished respondents claim, we agree with the trial court and the Court
Statute for the simple reason that she is not a party or assignor of a party to a of Appeals that the action for accounting filed by respondent three (3) years after
case or persons in whose behalf a case is prosecuted.Records show that Jacintos death was well within the prescribed period. The Civil Code provides
respondent offered the testimony of Josephine to establish the existence of the that an action to enforce an oral contract prescribes in six (6) years [20] while the
partnership between respondent and Jacinto. Petitioners insistence that Josephine right to demand an accounting for a partners interest as against the person
is the alter ego of respondent does not make her an assignor because the term continuing the business accrues at the date of dissolution, in the absence of any
assignor of a party means assignor of a cause of action which has arisen, and not contrary agreement.[21] Considering that the death of a partner results in the
the assignor of a right assigned before any cause of action has arisen. [15] Plainly dissolution of the partnership[22], in this case, it was after Jacintos death that
then, Josephine is merely a witness of respondent, the latter being the party respondent as the surviving partner had the right to an account of his interest as
plaintiff. against petitioners. It bears stressing that while Jacintos death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The
We are not convinced by petitioners allegation that Josephines testimony Civil Code[23] expressly provides that upon dissolution, the partnership continues
lacks probative value because she was allegedly coerced by respondent, her and its legal personality is retained until the complete winding up of its business,
brother-in-law, to testify in his favor. Josephine merely declared in court that she culminating in its termination.[24]
was requested by respondent to testify and that if she were not requested to do so
she would not have testified. We fail to see how we can conclude from this In a desperate bid to cast doubt on the validity of the oral partnership
candid admission that Josephines testimony is involuntary when she did not in between respondent and Jacinto, petitioners maintain that said partnership that
any way categorically say that she was forced to be a witness of had an initial capital of P200,000.00 should have been registered with the
respondent. Also, the fact that Josephine is the sister of the wife of respondent Securities and Exchange Commission (SEC) since registration is mandated by
does not diminish the value of her testimony since relationship per se, without the Civil Code. True, Article 1772 of the Civil Code requires that partnerships
more, does not affect the credibility of witnesses.[16] with a capital of P3,000.00 or more must register with the SEC, however, this
registration requirement is not mandatory. Article 1768 of the Civil
Petitioners reliance alone on the Dead Mans Statute to defeat respondents Code[25] explicitly provides that the partnership retains its juridical personality
claim cannot prevail over the factual findings of the trial court and the Court of even if it fails to register. The failure to register the contract of partnership does
Appeals that a partnership was established between respondent and not invalidate the same as among the partners, so long as the contract has the
Jacinto. Based not only on the testimonial evidence, but the documentary essential requisites, because the main purpose of registration is to give notice to
evidence as well, the trial court and the Court of Appeals considered the third parties, and it can be assumed that the members themselves knew of the
evidence for respondent as sufficient to prove the formation of a partnership, contents of their contract.[26] In the case at bar, non-compliance with this
albeit an informal one. directory provision of the law will not invalidate the partnership considering that
the totality of the evidence proves that respondent and Jacinto indeed forged the
Notably, petitioners did not present any evidence in their favor during trial. partnership in question.
By the weight of judicial precedents, a factual matter like the finding of the
existence of a partnership between respondent and Jacinto cannot be inquired WHEREFORE, in view of the foregoing, the petition is DENIED and the
into by this Court on review. [17] This Court can no longer be tasked to go over the appealed decision is AFFIRMED.
proofs presented by the parties and analyze, assess and weigh them to ascertain if
the trial court and the appellate court were correct in according superior credit to SO ORDERED.
this or that piece of evidence of one party or the other. [18] It must be also pointed
out that petitioners failed to attend the presentation of evidence of
respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when

[7] (7th case) what momentarily suits their purpose. Parties cannot adopt inconsistent positions
Republic of the Philippines in regard to a contract and courts will not tolerate, much less approve, such
SUPREME COURT practice.
Manila
Same; Same; Sale; Consideration, more properly denominated as cause,
THIRD DIVISION can take different forms, such as the prestation or promise of a thing or service
by another.—Petitioners also contend that the Joint Venture Agreement is void
G.R. No. 134559 December 9, 1999 under Article 1422 of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
consideration for the sale was the expectation of profits from the subdivision
EMETERIA BARING, petitioners,
project. Its first stipulation states that petitioners did not actually receive payment
vs.
for the parcel of land sold to respondent. Consideration, more properly
COURT OF APPEALS and MANUEL TORRES, respondents.
denominated as cause, can take different forms, such as the prestation or promise
of a thing or service by another.
Civil Law; Contracts; Partnership; The contract manifested the intention
of the parties to form a partnership.—Under the above-quoted Agreement, PETITION for review on certiorari of a decision of the Court of Appeals.
petitioners would contribute property to the partnership in the form of land
which was to be developed into a subdivision; while respondent would give, in
PANGANIBAN, J.:
addition to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according to the
stipulated percentage. Clearly, the contract manifested the intention of the parties Courts may not extricate parties from the necessary consequences of their
to form a partnership. acts. That the terms of a contract turn out to be financially disadvantageous to
them will not relieve them of their obligations therein. The lack of an inventory
Same; Same; Same; Courts are not authorized to extricate parties from of real property will not ipso facto release the contracting partners from their
the necessary consequences of their acts, and the fact that the contractual respective obligations to each other arising from acts executed in accordance
stipulations may turn out to be financially disadvantageous will not relieve with their agreement.
parties thereto of their obligations.—Under Article 1315 of the Civil Code, The Case
contracts bind the parties not only to what has been expressly stipulated, but also
to all necessary consequences thereof. x x x It is undisputed that petitioners are The Petition for Review on Certiorari before us assails the March 5, 1998
educated and are thus presumed to have understood the terms of the contract they Decision[1] Second Division of the Court of Appeals [2] (CA) in CA-GR CV No.
voluntarily signed. If it was not in consonance with their expectations, they 42378 and its June 25, 1998 Resolution denying reconsideration. The assailed
should have objected to it and insisted on the provisions they wanted. Courts are Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in
not authorized to extricate parties from the necessary consequences of their acts, Civil Case No. R-21208, which disposed as follows:
and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations. They cannot WHEREFORE, for all the foregoing considerations, the Court, finding for the
now disavow the relationship formed from such agreement due to their supposed defendant and against the plaintiffs, orders the dismissal of the plaintiffs
misunderstanding of its terms. complaint. The counterclaims of the defendant are likewise ordered
dismissed. No pronouncement as to costs.[3]
Same; Same; Same; Parties cannot adopt inconsistent positions in regard
to a contract and courts will not tolerate, much less approve, such practice.— The Facts
Petitioners themselves invoke the allegedly void contract as basis for their claim
that respondent should pay them 60 percent of the value of the property. They Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into
cannot in one breath deny the contract and in another recognize it, depending on a "joint venture agreement" with Respondent Manuel Torres for the development

of a parcel of land into a subdivision.Pursuant to the contract, they executed a should be distributed equally,[7] the CA invoked Article 1797 of the Civil Code
Deed of Sale covering the said parcel of land in favor of respondent, who then which provides:
had it registered in his name. By mortgaging the property, respondent obtained
from Equitable Bank a loan of P40,000 which, under the Joint Venture Article 1797 - The losses and profits shall be distributed in conformity with the
Agreement, was to be used for the development of the subdivision. [4] All three of agreement. If only the share of each partner in the profits has been agreed upon,
them also agreed to share the proceeds from the sale of the subdivided lots. the share of each in the losses shall be in the same proportion.
The project did not push through, and the land was subsequently foreclosed
by the bank. The CA elucidated further:
According to petitioners, the project failed because of respondents lack of In the absence of stipulation, the share of each partner in the profits and losses
funds or means and skills. They add that respondent used the loan not for the shall be in proportion to what he may have contributed, but the industrial partner
development of the subdivision, but in furtherance of his own company, shall not be liable for the losses. As for the profits, the industrial partner shall
Universal Umbrella Company. receive such share as may be just and equitable under the circumstances. If
On the other hand, respondent alleged that he used the loan to implement besides his services he has contributed capital, he shall also receive a share in the
the Agreement. With the said amount, he was able to effect the survey and the profits in proportion to his capital.
subdivision of the lots. He secured the Lapu Lapu City Councils approval of the
subdivision project which he advertised in a local newspaper. He also caused the The Issue
construction of roads, curbs and gutters. Likewise, he entered into a contract with
Petitioners impute to the Court of Appeals the following error:
an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for a
total expense of P85,000. x x x [The] Court of Appeals erred in concluding that the transaction x x x
between the petitioners and respondent was that of a joint venture/partnership,
Respondent claimed that the subdivision project failed, however, because ignoring outright the provision of Article 1769, and other related provisions of
petitioners and their relatives had separately caused the annotations of adverse the Civil Code of the Philippines.[8]
claims on the title to the land, which eventually scared away prospective
buyers. Despite his requests, petitioners refused to cause the clearing of the The Courts Ruling
claims, thereby forcing him to give up on the project.[5]
The Petition is bereft of merit.
Subsequently, petitioners filed a criminal case for estafa against respondent
and his wife, who were however acquitted. Thereafter, they filed the present civil Main Issue: Existence of a Partnership
case which, upon respondent's motion, was later dismissed by the trial court in an
Order dated September 6, 1982. On appeal, however, the appellate court Petitioners deny having formed a partnership with respondent. They
remanded the case for further proceedings. Thereafter, the RTC issued its contend that the Joint Venture Agreement and the earlier Deed of Sale, both of
assailed Decision, which, as earlier stated, was affirmed by the CA. which were the bases of the appellate courts finding of a partnership, were void.
Hence, this Petition.[6] In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project. Because
Ruling of the Court of Appeals the agreement entitled them to receive 60 percent of the proceeds from the sale
of the subdivision lots, they pray that respondent pay them damages equivalent
In affirming the trial court, the Court of Appeals held that petitioners and
to 60 percent of the value of the property.[9]
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in the same The pertinent portions of the Joint Venture Agreement read as follows:
proportion as their share in the profits stipulated in the contract. Disagreeing with
the trial courts pronouncement that losses as well as profits in a joint venture KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th expenses will not be deducted from the sales after the development of the sub-
day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the division project.
FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND PARTY: FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40%
W I T N E S S E T H: for the FIRST PARTY, and additional profits or whatever income deriving from
the sales will be divided equally according to the x x x percentage [agreed upon]
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, by both parties.
this property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub- SIXTH: That the intended sub-division project of the property involved will start
divided by the FIRST PARTY; the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the SEVENTH: That the SECOND PARTIES, should be given an option to get back
execution of this contract for the property entrusted by the SECOND PARTY, the property mentioned provided the amount of TWENTY THOUSAND
for sub-division projects and development purposes; (P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY,
will be paid in full to the FIRST PARTY, including all necessary improvements
NOW THEREFORE, for and in consideration of the above covenants and spent by the FIRST PARTY, and the FIRST PARTY will be given a grace
promises herein contained the respective parties hereto do hereby stipulate and period to turnover the property mentioned above.
agree as follows:
That this AGREEMENT shall be binding and obligatory to the parties who
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated executed same freely and voluntarily for the uses and purposes therein stated. [10]
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE
HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, A reading of the terms embodied in the Agreement indubitably shows the
for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine existence of a partnership pursuant to Article 1767 of the Civil Code, which
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not provides:
actually receive the payment.
ART. 1767. By the contract of partnership two or more persons bind themselves
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, to contribute money, property, or industry to a common fund, with the intention
the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine of dividing the profits among themselves.
currency, for their personal obligations and this particular amount will serve as
an advance payment from the FIRST PARTY for the property mentioned to be Under the above-quoted Agreement, petitioners would contribute property
sub-divided and to be deducted from the sales. to the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the amount
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, needed for general expenses and other costs. Furthermore, the income from the
the interest and the principal amount involving the amount of TWENTY said project would be divided according to the stipulated percentage. Clearly, the
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division contract manifested the intention of the parties to form a partnership. [11]
project is terminated and ready for sale to any interested parties, and the amount
of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be It should be stressed that the parties implemented the
deducted accordingly. contract. Thus, petitioners transferred the title to the land to facilitate its use in
the name of the respondent. On the other hand, respondent caused the subject
land to be mortgaged, the proceeds of which were used for the survey and the
FOURTH: That all general expense[s] and all cost[s] involved in the sub-
subdivision of the land. As noted earlier, he developed the roads, the curbs and
division project should be paid by the FIRST PARTY, exclusively and all the

the gutters of the subdivision and entered into a contract to construct low-cost inscription in the Registry of Property, and their contribution cannot prejudice
housing units on the property. third persons. This will result in fraud to those who contract with the partnership
in the belief [in] the efficacy of the guaranty in which the immovables may
Respondents actions clearly belie petitioners contention that he made no consist. Thus, the contract is declared void by the law when no such inventory is
contribution to the partnership. Under Article 1767 of the Civil Code, a partner made. The case at bar does not involve third parties who may be prejudiced.
may contribute not only money or property, but also industry.
Second, petitioners themselves invoke the allegedly void contract as basis
Petitioners Bound by Terms of Contract for their claim that respondent should pay them 60 percent of the value of the
property.[13] They cannot in one breath deny the contract and in another recognize
Under Article 1315 of the Civil Code, contracts bind the parties not only to it, depending on what momentarily suits their purpose. Parties cannot adopt
what has been expressly stipulated, but also to all necessary consequences inconsistent positions in regard to a contract and courts will not tolerate, much
thereof, as follows: less approve, such practice.
ART. 1315. Contracts are perfected by mere consent, and from that moment the In short, the alleged nullity of the partnership will not prevent courts from
parties are bound not only to the fulfillment of what has been expressly considering the Joint Venture Agreement an ordinary contract from which the
stipulated but also to all the consequences which, according to their nature, may parties rights and obligations to each other may be inferred and enforced.
be in keeping with good faith, usage and law.
Partnership Agreement Not the Result of an Earlier Illegal Contract
It is undisputed that petitioners are educated and are thus presumed to have Petitioners also contend that the Joint Venture Agreement is void under
understood the terms of the contract they voluntarily signed. If it was not in Article 1422[14] of the Civil Code, because it is the direct result of an earlier
consonance with their expectations, they should have objected to it and insisted illegal contract, which was for the sale of the land without valid consideration.
on the provisions they wanted.
This argument is puerile. The Joint Venture Agreement clearly states that
Courts are not authorized to extricate parties from the necessary the consideration for the sale was the expectation of profits from the subdivision
consequences of their acts, and the fact that the contractual stipulations may turn project. Its first stipulation states that petitioners did not actually receive
out to be financially disadvantageous will not relieve parties thereto of their payment for the parcel of land sold to respondent. Consideration, more properly
obligations. They cannot now disavow the relationship formed from such denominated as cause, can take different forms, such as the prestation or promise
agreement due to their supposed misunderstanding of its terms. of a thing or service by another.[15]
Alleged Nullity of the Partnership Agreement In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision project,
Petitioners argue that the Joint Venture Agreement is void under Article for which the land was intended to be used. As explained by the trial court, the
1773 of the Civil Code, which provides: land was in effect given to the partnership as [petitioners] participation therein. x
x x There was therefore a consideration for the sale, the [petitioners] acting in the
ART. 1773. A contract of partnership is void, whenever immovable property is expectation that, should the venture come into fruition, they [would] get sixty
contributed thereto, if an inventory of said property is not made, signed by the percent of the net profits.
parties, and attached to the public instrument.
Liability of the Parties
They contend that since the parties did not make, sign or attach to the public
Claiming that respondent was solely responsible for the failure of the
instrument an inventory of the real property contributed, the partnership is void.
subdivision project, petitioners maintain that he should be made to pay damages
We clarify. First, Article 1773 was intended primarily to protect third equivalent to 60 percent of the value of the property, which was their share in the
persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited profits under the Joint Venture Agreement.
provision which is a complement of Article 1771, [12]the execution of a public
We are not persuaded. True, the Court of Appeals held that petitioners acts
instrument would be useless if there is no inventory of the property contributed,
were not the cause of the failure of the project. [16] But it also ruled that neither
because without its designation and description, they cannot be subject to

was respondent responsible therefor.[17] In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings
of the appellate court relieving him of fault. Verily, factual issues cannot be
resolved in a petition for review under Rule 45, as in this case. Petitioners have
not alleged, not to say shown, that their Petition constitutes one of the exceptions
to this doctrine.[18] Accordingly, we find no reversible error in the CA's ruling
that petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.

[8] (8TH Case) Internal Revenue Code merges registered general copartnerships with the
Republic of the Philippines personality of the individual partners for income tax purposes. But this rule is
SUPREME COURT exceptional in its disregard of a cardinal tenet of our partnership laws, and can
Manila not be extended by mere implication to limited partnerships.
EN BANC Same; Taxation; Change in membership does not remove partnership from

coverage of section 24.—The limited partnership is not a mere business conduit
G.R. No. L-25532 February 28, 1969 of the partner-spouses; it was organized for legitimate business purposes; it
conducted its own- dealings with its customers prior to appellee’s marriage, and
had been filing its own income tax returns as such independent entity. The
COMMISSIONER OF INTERNAL REVENUE, petitioner,
change in its membership, brought about by the marriage of the partners and
vs.
their subsequent acquisition of all interest therein. is no ground for withdrawing
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
the partnership from the coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the partners did not enter into
Partnership; Where respondent company in the case at bar is considered a matrimony and thereafter buy the interests of the remaining partner with the
particular partnership and not universal.—The respondent company was not a premeditated scheme or design to use the partnership as a business conduit to
universal partnership, but a particular one. As appears f rom Articles 1674 and dodge the to laws. Regularity, not otherwise, is presumed. The limited
1675 of the Spanish Civil Code of 1889 (law in force when firm organized in partnership is taxable on its income and to require that income to be included in
1947), a universal partnership requires either that the object of the association be the indiviual tax return of respondent is to overstretch the letter and intent of the
all the present property of the partners, as contributed by them to the common law.
fund, or else “all that the partners may acquire by their industry or work during
the existence of the partnership.” Respondent company was not such a universal Same; Same; Members and not firm are taxable in case of compañias
partnership, since the contributions of the partners were fixed sums of money colectivas.—In fact, it would even conflict with what it specifically provides in
and neither one of them was an industrial partner. It follows that respondent its Section 24: for the appellant’s stand results in equal treatment, taxwise, of a
company was not a partnership that spouses were forbidden to enter by Article general copartnership (compania colectiva) and a limited partnership, when the
1677 of the Civil Code of 1889. Nor could the subsequent marriage of the code plainly differentiates the two. Thus, the code taxes the latter on its income,
partners operate to dissolve it, such marriage not being one of the causes but not the former, because it is in the case of compañias colectivas that the
provided for that purpose either by the Spanish Civil Code or the Code of members, and not the firm, are taxable in their individual capacities for any
Commerce. dividend or share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris on the N.I.R.C., As
Same; Where marriage of partners does not make the company a single Amended, Vol. 1, pp. 88–89).
proprietorship.—The capital contributions of respondents-partners were
separately owned and contributed by them before their marriage; and after they Same; Same; Income of limited partnership forming part of the conjugal
were joined in wedlock, such contributions remained their respective separate partnership is not wholly correct.—That the income of the limited partnership is
property under the Spanish Civil Code. actually or constructively the income of the spouses and forms part of the
conjugal partnership of gains is not wholly correct. The fruits of the wife’s
Same; Partnership has distinct and separate personality from that of its paraphernal become conjugal only when no longer needed to defray ,the
partners; Section 24 of Internal Revenue Code is exception to the rule.—The expenses for the administration and preservation of the paraphernal capital of the
basic tenet of ,the Spanish and Philippine law is that the partnership has a wife. Then again, the appellant’s argument erroneously conf ines itself to the
juridical personality of its own, distinct and separate from that of its partners, the question of the legal personality of the limited partnership since the law taxes the
bypassing of the existence of the limited partnership as a taxpayer can only be income of ‘even joint accounts that have no personality of their own.
done by ignoring or disregarding clear statutory mandates and basic principles of (Agapito v.Molo, 59 Phil. 779; People’s Bank v. Register of Deeds of Manila, 60
our law. The limited partnership’s separate individuality makes it impossible to Phil. 167; V. Evangelista v.Collector of Internal Revenue, 102 Phil. 140;
equate its income with that of the component members. True, section 24 of the Collector v. Batangas Transportation Co., 102 Phil. 822.)

Same; Same; What is taxable is income of both spouses, not the conjugal Respondent Suter protested the assessment, and requested its
partnership.—Appellant is, likewise, mistaken in that it assumes that the cancellation and withdrawal, as not in accordance with law, but his request was
conjugal partnership of gains is a taxable unit, which it is not. What is taxable is denied. Unable to secure a reconsideration, he appealed to the Court of Tax
the “income of both spouses” (Section 45 [d]) in their individual capacities. Appeals, which court, after trial, rendered a decision, on 11 November 1965,
Though the amount of income (income of the conjugal partnernership vis-a- reversing that of the Commissioner of Internal Revenue.
vis the joint income of husband and wife) may be the same for a given taxable
year, their consequences would ,be different, as their contributions in the The present case is a petition for review, filed by the Commissioner of
business partnership are not .the same. Internal Revenue, of the tax court's aforesaid decision. It raises these issues:
Same; Same; Revenue code does not authorize consolidation of income of (a) Whether or not the corporate personality of the William J. Suter "Morcoin"
limited partnership and income of spouses.—The diff erence in tax rates between Co., Ltd. should be disregarded for income tax purposes, considering that
the income of the limited partnership being consolidated with, and when split respondent William J. Suter and his wife, Julia Spirig Suter actually formed a
from the income of the spouses, is not a justification for requiring consolidation; single taxable unit; and
the revenue code, as it presently stands, does not authorize it, and even bars it by
requiring the limited partnership .to pay tax on its own income.
(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the subsequent
PETITION for review of a decision of the Court of Tax Appeals.
sale to them by the remaining partner, Gustav Carlson, of his participation of
P2,000.00 in the partnership for a nominal amount of P1.00.
REYES, J.B.L., J.:
The theory of the petitioner, Commissioner of Internal Revenue, is that
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," the marriage of Suter and Spirig and their subsequent acquisition of the interests
was formed on 30 September 1947 by herein respondent William J. Suter as the of remaining partner Carlson in the partnership dissolved the limited partnership,
general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The and if they did not, the fiction of juridical personality of the partnership should
partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the be disregarded for income tax purposes because the spouses have exclusive
partnership. On 1 October 1947, the limited partnership was registered with the ownership and control of the business; consequently the income tax return of
Securities and Exchange Commission. The firm engaged, among other activities, respondent Suter for the years in question should have included his and his wife's
in the importation, marketing, distribution and operation of automatic individual incomes and that of the limited partnership, in accordance with
phonographs, radios, television sets and amusement machines, their parts and Section 45 (d) of the National Internal Revenue Code, which provides as
accessories. It had an office and held itself out as a limited partnership, handling follows:
and carrying merchandise, using invoices, bills and letterheads bearing its trade-
name, maintaining its own books of accounts and bank accounts, and had a quota
(d) Husband and wife. — In the case of married persons, whether
allocation with the Central Bank.
citizens, residents or non-residents, only one consolidated return for the
taxable year shall be filed by either spouse to cover the income of both
In 1948, however, general partner Suter and limited partner Spirig got spouses; ....
married and, thereafter, on 18 December 1948, limited partner Carlson sold his
share in the partnership to Suter and his wife. The sale was duly recorded with
In refutation of the foregoing, respondent Suter maintains, as the Court
the Securities and Exchange Commission on 20 December 1948.
of Tax Appeals held, that his marriage with limited partner Spirig and their
acquisition of Carlson's interests in the partnership in 1948 is not a ground for
The limited partnership had been filing its income tax returns as a dissolution of the partnership, either in the Code of Commerce or in the New
corporation, without objection by the herein petitioner, Commissioner of Internal Civil Code, and that since its juridical personality had not been affected and
Revenue, until in 1959 when the latter, in an assessment, consolidated the since, as a limited partnership, as contra distinguished from a duly registered
income of the firm and the individual incomes of the partners-spouses Suter and general partnership, it is taxable on its income similarly with corporations, Suter
Spirig resulting in a determination of a deficiency income tax against respondent
Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

was not bound to include in his individual return the income of the limited ningun precepto de nuestro Codigo los prohibe, y hay que estar a la
partnership. norma general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La jurisprudencia de la
We find the Commissioner's appeal unmeritorious. Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la
The thesis that the limited partnership, William J. Suter "Morcoin" Co., de 9 de marzo de 1943.
Ltd., has been dissolved by operation of law because of the marriage of the only
general partner, William J. Suter to the originally limited partner, Julia Spirig Nor could the subsequent marriage of the partners operate to dissolve it,
one year after the partnership was organized is rested by the appellant upon the such marriage not being one of the causes provided for that purpose either by the
opinion of now Senator Tolentino in Commentaries and Jurisprudence on Spanish Civil Code or the Code of Commerce.
Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows: The appellant's view, that by the marriage of both partners the company
became a single proprietorship, is equally erroneous. The capital contributions of
A husband and a wife may not enter into a contract partners William J. Suter and Julia Spirig were separately owned and contributed
of general copartnership, because under the Civil Code, which applies in by them before their marriage; and after they were joined in wedlock, such
the absence of express provision in the Code of Commerce, persons contributions remained their respective separate property under the Spanish Civil
prohibited from making donations to each other are prohibited from Code (Article 1396):
entering into universal partnerships. (2 Echaverri 196) It follows that the
marriage of partners necessarily brings about the dissolution of a pre- The following shall be the exclusive property of each spouse:
existing partnership. (1 Guy de Montella 58)
(a) That which is brought to the marriage as his or her own; ....
The petitioner-appellant has evidently failed to observe the fact that
William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but Thus, the individual interest of each consort in William J. Suter
a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil "Morcoin" Co., Ltd. did not become common property of both after their
Code, of 1889 (which was the law in force when the subject firm was organized marriage in 1948.
in 1947), a universal partnership requires either that the object of the association
be all the present property of the partners, as contributed by them to the It being a basic tenet of the Spanish and Philippine law that the
common fund, or else "all that the partners may acquire by their industry or partnership has a juridical personality of its own, distinct and separate from that
work during the existence of the partnership". William J. Suter "Morcoin" Co., of its partners (unlike American and English law that does not recognize such
Ltd. was not such a universal partnership, since the contributions of the partners separate juridical personality), the bypassing of the existence of the limited
were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by partnership as a taxpayer can only be done by ignoring or disregarding clear
Julia Spirig and neither one of them was an industrial partner. It follows that statutory mandates and basic principles of our law. The limited partnership's
William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were separate individuality makes it impossible to equate its income with that of the
forbidden to enter by Article 1677 of the Civil Code of 1889. component members. True, section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias colectivas) with the personality of
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, the individual partners for income tax purposes. But this rule is exceptional in its
in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says disregard of a cardinal tenet of our partnership laws, and can not be extended by
with regard to the prohibition contained in the aforesaid Article 1677: mere implication to limited partnerships.
Los conyuges, segun esto, no pueden celebrar entre si el contrato de The rulings cited by the petitioner (Collector of Internal Revenue vs.
sociedad universal, pero o podran constituir sociedad particular? University of the Visayas, L-13554, Resolution of 30 October 1964, and Koppel
Aunque el punto ha sido muy debatido, nos inclinamos a la tesis [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of
permisiva de los contratos de sociedad particular entre esposos, ya que legal personality of the corporations involved therein are not applicable to the

present case. In the cited cases, the corporations were already subject to tax when "income of both spouses" (Section 45 [d] in their individual capacities. Though
the fiction of their corporate personality was pierced; in the present case, to do so the amount of income (income of the conjugal partnership vis-a-vis the joint
would exempt the limited partnership from income taxation but would throw the income of husband and wife) may be the same for a given taxable year, their
tax burden upon the partners-spouses in their individual capacities. The consequences would be different, as their contributions in the business
corporations, in the cases cited, merely served as business conduits or alter partnership are not the same.
egos of the stockholders, a factor that justified a disregard of their corporate
personalities for tax purposes. This is not true in the present case. Here, the The difference in tax rates between the income of the limited partnership
limited partnership is not a mere business conduit of the partner-spouses; it was being consolidated with, and when split from the income of the spouses, is not a
organized for legitimate business purposes; it conducted its own dealings with its justification for requiring consolidation; the revenue code, as it presently stands,
customers prior to appellee's marriage, and had been filing its own income tax does not authorize it, and even bars it by requiring the limited partnership to pay
returns as such independent entity. The change in its membership, brought about tax on its own income.
by the marriage of the partners and their subsequent acquisition of all interest
therein, is no ground for withdrawing the partnership from the coverage of FOR THE FOREGOING REASONS, the decision under review is
Section 24 of the tax code, requiring it to pay income tax. As far as the records hereby affirmed. No costs.
show, the partners did not enter into matrimony and thereafter buy the interests
of the remaining partner with the premeditated scheme or design to use the
partnership as a business conduit to dodge the tax laws. Regularity, not
otherwise, is presumed.
As the limited partnership under consideration is taxable on its income,

to require that income to be included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the law. In fact, it would even
conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general
copartnership (compañia colectiva) and a limited partnership, when the code
plainly differentiates the two. Thus, the code taxes the latter on its income, but
not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As
Amended, Vol. 1, pp. 88-89).lawphi1.nêt
But it is argued that the income of the limited partnership is actually or

constructively the income of the spouses and forms part of the conjugal
partnership of gains. This is not wholly correct. As pointed out in Agapito vs.
Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil.
167, the fruits of the wife's parapherna become conjugal only when no longer
needed to defray the expenses for the administration and preservation of the
paraphernal capital of the wife. Then again, the appellant's argument erroneously
confines itself to the question of the legal personality of the limited partnership,
which is not essential to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no personality of their
own. 1 Appellant is, likewise, mistaken in that it assumes that the conjugal
partnership of gains is a taxable unit, which it is not. What is taxable is the

[9] (9thth case) away, bought a valuable piece of property with a view to the promotion of a
Republic of the Philippines suburban development, and as he expected that his absent former associate
SUPREME COURT would come into this deal and contribute some capital to the purchase and
Manila development of the property, he subjected a piece of mortgaged property owned
by them jointly to a second mortgage, to secure against loss a surety company
EN BANC which had been induced to sign a note with the active promoter to secure a loan
necessary to complete the first payment on the property purchased. After the
G.R. No. L-35469 March 17, 1932 second individual returned to Manila he consented for this second mortgage
(which had been executed under a sufficient power of attorney) to remain upon
the property until it was paid off, as was presently done. Held, that the use to
E. S. LYONS, plaintiff-appellant,
which the joint property was thus subjected did not create a trust in favor of the
vs.
second individual, with the effect of making him a co-partner in the ownership of
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
the property purchased as aforesaid.
deceased, defendant-appellee.
APPEAL from a judgment of the Court of First Instance of Manila.
1.PRINCIPAL AND AGENT; RATIFICATION OF ACT OF Concepcion, J.
AGENT; RIGHTS INCIDENT TO OWNERSHIP.—Where one of two
individuals who had been associated in certain real estate deals, owing a sum of
STREET, J.:
money to his associate, invested it in the shares of a new company promoted by
himself, and this action was ratified by the associate, to whom the shares were
accordingly issued, no legal or equitable rights, other than those ordinarily This action was institute in the Court of First Instance of the City of
incident to ownership, can be deduced from the transaction in favor of the owner Manila, by E. S. Lyons against C. W. Rosenstock, as executor of the estate of H.
thus acquiring such shares. W. Elser, deceased, consequent upon the taking of an appeal by the executor
from the allowance of the claim sued upon by the committee on claims in said
estate. The purpose of the action is to recover four hundred forty-six and two
2.ID.; AGENT'S LIABILITY FOR INTEREST ON, MONEY OF HIS
thirds shares of the stock of J. K. Pickering & Co., Ltd., together with the sum of
CONSTITUENT.—Under article 1724 of the Civil Code and article 264 of the
about P125,000, representing the dividends which accrued on said stock prior to
Code of Commerce, an agent is liable for interest on funds belonging to his
October 21, 1926, with lawful interest. Upon hearing the cause the trial court
principal (constituent) which have been applied by the agent to unauthorized
absolved the defendant executor from the complaint, and the plaintiff appealed.
uses.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident
3.EQUITY; TRUSTS; FOLLOWING TRUST FUNDS; WHEN CASE
of the City of Manila where he was engaged during the years with which we are
GOVERNED BY ORDINARY RULE OF CIVIL LIABILITY.—The doctrine
here concerned in buying, selling, and administering real estate. In several
developed in the courts of England and the United States relative to the pursuing
ventures which he had made in buying and selling property of this kind the
of trust funds is conversant with rights deducible from the application, by a
plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in
person in a trust relation with another, of specific property belonging to such
equal parts. In April, 1919, Lyons, whose regular vocation was that of a
other person to some unauthorized purpose. The fact that one of two coöwners
missionary, or missionary agent, of the Methodist Episcopal Church, went on
subjects their joint property to a contingent liability which results in no damage
leave to the United States and was gone for nearly a year and a half, returning on
does not create a trust in favor of the other, and the liability thereby incurred
September 21, 1920. On the eve of his departure Elser made a written statements
must be determined in conformity with the principles of the civil law properly
showing that Lyons was, at that time, half owner with Elser of three particular
applicable to the case.
pieces of real property. Concurrently with this act Lyons execute in favor of
Elser a general power of attorney empowering him to manage and dispose of
4.ID.; ID.; ID.; ID.; CASE AT BAR.—Where two individuals had been said properties at will and to represent Lyons fully and amply, to the mutual
jointly associated in various real estate deals, one of them, while the other was advantage of both. During the absence of Lyons two of the pieces of property

above referred to were sold by Elser, leaving in his hands a single piece of purchase, and added "have advised in my cable that you resign and I hope you
property located at 616-618 Carried Street, in the City of Manila, containing can do so immediately and will come and join me on the lines we have so often
about 282 square meters of land, with the improvements thereon. spoken about. . . . There is plenty of business for us all now and I believe we
have started something that will keep us going for some time." In one or more
In the spring of 1920 the attention of Elser was drawn to a piece of land, communications prior to this, Elser had sought to impress Lyons with the idea
containing about 1,500,000 square meters, near the City of Manila, and he that he should raise all the money he could for the purpose of giving the
discerned therein a fine opportunity for the promotion and development of a necessary assistance in future deals in real estate.
suburban improvement. This property, which will be herein referred to as the
San Juan Estate, was offered by its owners for P570,000. To afford a little time The enthusiasm of Elser did not communicate itself in any marked
for maturing his plans, Elser purchased an option on this property for P5,000, degree to Lyons, and found him averse from joining in the purchase of the San
and when this option was about to expire without his having been able to raise Juan Estate. In fact upon this visit of Lyons to the United States a grave doubt
the necessary funds, he paid P15,000 more for an extension of the option, with had arisen as to whether he would ever return to Manila, and it was only in the
the understanding in both cases that, in case the option should be exercised, the summer of 1920 that the board of missions of his church prevailed upon him to
amounts thus paid should be credited as part of the first payment. The amounts return to Manila and resume his position as managing treasurer and one of its
paid for this option and its extension were supplied by Elser entirely from his trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York
own funds. In the end he was able from his own means, and with the assistance thanking Elser for his offer to take Lyons into his new project and adding that
which he obtained from others, to acquire said estate. The amount required for from the standpoint of making money, he had passed up a good thing.
the first payment was P150,000, and as Elser had available only about P120,000,
including the P20,000 advanced upon the option, it was necessary to raise the One source of embarrassment which had operated on Lyson to bring
remainder by obtaining a loan for P50,000. This amount was finally obtained him to the resolution to stay out of this venture, was that the board of mission
from a Chinese merchant of the city named Uy Siuliong. This loan was secured was averse to his engaging in business activities other than those in which the
through Uy Cho Yee, a son of the lender; and in order to get the money it was church was concerned; and some of Lyons' missionary associates had apparently
necessary for Elser not only to give a personal note signed by himself and his been criticizing his independent commercial activities. This fact was dwelt upon
two associates in the projected enterprise, but also by the Fidelity & Surety in the letter above-mentioned. Upon receipt of this letter Elser was of course
Company. The money thus raised was delivered to Elser by Uy Siuliong on June informed that it would be out of the question to expect assistance from Lyons in
24, 1920. With this money and what he already had in bank Elser purchased the carrying out the San Juan project. No further efforts to this end were therefore
San Juan Estate on or about June 28, 1920. For the purpose of the further made by Elser.
development of the property a limited partnership had, about this time, been
organized by Elser and three associates, under the name of J. K. Pickering & When Elser was concluding the transaction for the purchase of the San
Company; and when the transfer of the property was effected the deed was made Juan Estate, his book showed that he was indebted to Lyons to the extent of,
directly to this company. As Elser was the principal capitalist in the enterprise he possibly, P11,669.72, which had accrued to Lyons from profits and earnings
received by far the greater number of the shares issued, his portion amount in the derived from other properties; and when the J. K. Pickering & Company was
beginning to 3,290 shares. organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated
to himself, as he then believed that Lyons would be one of his associates in the
While these negotiations were coming to a head, Elser contemplated and deal. It will be noted that the par value of these 200 shares was more than P8,000
hoped that Lyons might be induced to come in with him and supply part of the in excess of the amount which Elser in fact owed to Lyons; and when the latter
means necessary to carry the enterprise through. In this connection it appears that returned to the Philippine Islands, he accepted these shares and sold them for his
on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an own benefit. It seems to be supposed in the appellant's brief that the transfer of
offer for a big subdivision and that, if it should be acquired and Lyons would these shares to Lyons by Elser supplies some sort of basis for the present action,
come in, the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight or at least strengthens the considerations involved in a feature of the case to be
days before the first option expired, Elser cabled Lyons that he had bought the presently explained. This view is manifestly untenable, since the ratification of
San Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13), the transaction by Lyons and the appropriation by him of the shares which were
meaning that he should resign his position with the mission board in New York. issued to him leaves no ground whatever for treating the transaction as a source
On the same date he wrote Lyons a letter explaining some details of the of further equitable rights in Lyons. We should perhaps add that after Lyons'

return to the Philippine Islands he acted for a time as one of the members of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of
board of directors of the J. K. Pickering & Company, his qualification for this the indebtedness which Elser had owed to Lyons upon statement of account. The
office being derived precisely from the ownership of these shares. trial court found in effect that the excess value of these shares over Elser's actual
indebtedness was conceded by Elser to Lyons in consideration of the assistance
We now turn to the incident which supplies the main basis of this action. that had been derived from the mortgage placed upon Lyon's interest in the
It will be remembered that, when Elser obtained the loan of P50,000 to complete Carriedo property. Whether the agreement was reached exactly upon this precise
the amount needed for the first payment on the San Juan Estate, the lender, Uy line of thought is of little moment, but the relations of the parties had been such
Siuliong, insisted that he should procure the signature of the Fidelity & Surety that it was to be expected that Elser would be generous; and he could scarcely
Co. on the note to be given for said loan. But before signing the note with Elser have failed to take account of the use he had made of the joint property of the
and his associates, the Fidelity & Surety Co. insisted upon having security for the two.
liability thus assumed by it. To meet this requirements Elser mortgaged to the
Fidelity & Surety Co. the equity of redemption in the property owned by himself As the development of the San Juan Estate was a success from the start,
and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at Elser paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it
which time Elser expected that Lyons would come in on the purchase of the San was not due until more than five months later. It will thus be seen that the
Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, mortgaging of the Carriedo property never resulted in damage to Lyons to the
that the latter had determined not to come into this deal, Elser began to cast extent of a single cent; and although the court refused to allow the defendant to
around for means to relieve the Carriedo property of the encumbrance which he prove the Elser was solvent at this time in an amount much greater than the
had placed upon it. For this purpose, on September 9, 1920, he addressed a letter entire encumbrance placed upon the property, it is evident that the risk imposed
to the Fidelity & Surety Co., asking it to permit him to substitute a property upon Lyons was negligible. It is also plain that no money actually deriving from
owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the this mortgage was ever applied to the purchase of the San Juan Estate. What
J. K. Pickering & Company, in lieu of the Carriedo property, as security. The really happened was the Elser merely subjected the property to a contingent
Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, liability, and no actual liability ever resulted therefrom. The financing of the
Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. purchase of the San Juan Estate, apart from the modest financial participation of
H. del Pillar property and delivered the same, with 1,000 shares of J. K. his three associates in the San Juan deal, was the work of Elser accomplished
Pickering & Company, to said company. The latter thereupon in turn executed a entirely upon his own account.
cancellation of the mortgage on the Carriedo property and delivered it to Elser.
But notwithstanding the fact that these documents were executed and delivered, The case for the plaintiff supposes that, when Elser placed a mortgage
the new mortgage and the release of the old were never registered; and on for P50,000 upon the equity of redemption in the Carriedo property, Lyons, as
September 25, 1920, thereafter, Elser returned the cancellation of the mortgage half owner of said property, became, as it were, involuntarily the owner of an
on the Carriedo property and took back from the Fidelity & Surety Co. the new undivided interest in the property acquired partly by that money; and it is insisted
mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. for him that, in consideration of this fact, he is entitled to the four hundred forty-
K. Pickering & Company which he had delivered to it. six and two-thirds shares of J. K. Pickering & Company, with the earnings
thereon, as claimed in his complaint.
The explanation of this change of purpose is undoubtedly to be found in
the fact that Lyons had arrived in Manila on September 21, 1920, and shortly Lyons tells us that he did not know until after Elser's death that the
thereafter, in the course of a conversation with Elser told him to let the Carriedo money obtained from Uy Siuliong in the manner already explained had been
mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser used to held finance the purchase of the San Juan Estate. He seems to have
testified to the conversation in which Lyons used the words above quoted, and as supposed that the Carried property had been mortgaged to aid in putting through
that conversation supplies the most reasonable explanation of Elser's recession another deal, namely, the purchase of a property referred to in the
from his purpose of relieving the Carriedo property, the trial court was, in our correspondence as the "Ronquillo property"; and in this connection a letter of
opinion, well justified in accepting as a proven fact the consent of Lyons for the Elser of the latter part of May, 1920, can be quoted in which he uses this
mortgage to remain on the Carriedo property. This concession was not only language:
reasonable under the circumstances, in view of the abundant solvency of Elser,
but in view of the further fact that Elser had given to Lyons 200 shares of the

As stated in cablegram I have arranged for P50,000 loan on distorted into a proposition which would make Lyons a participant in this deal
Carriedo property. Will use part of the money for Ronquillo contrary to his express determination.
buy (P60,000) if the owner comes through.
It seems to be supposed that the doctrines of equity worked out in the
Other correspondence shows that Elser had apparently been trying to jurisprudence of England and the United States with reference to trust supply a
buy the Ronquillo property, and Lyons leads us to infer that he thought that the basis for this action. The doctrines referred to operate, however, only where
money obtained by mortgaging the Carriedo property had been used in the money belonging to one person is used by another for the acquisition of property
purchase of this property. It doubtedless appeared so to him in the retrospect, but which should belong to both; and it takes but little discernment to see that the
certain consideration show that he was inattentive to the contents of the quotation situation here involved is not one for the application of that doctrine, for no
from the letter above given. He had already been informed that, although Elser money belonging to Lyons or any partnership composed of Elser and Lyons was
was angling for the Ronquillo property, its price had gone up, thus introducing a in fact used by Elser in the purchase of the San Juan Estate. Of course, if any
doubt as to whether he could get it; and the quotation above given shows that the damage had been caused to Lyons by the placing of the mortgage upon the
intended use of the money obtained by mortgaging the Carriedo property was equity of redemption in the Carriedo property, Elser's estate would be liable for
that only part of the P50,000 thus obtained would be used in this way, if the deal such damage. But it is evident that Lyons was not prejudice by that act.
went through. Naturally, upon the arrival of Lyons in September, 1920, one of
his first inquiries would have been, if he did not know before, what was the The appellee insist that the trial court committed error in admitting the
status of the proposed trade for the Ronquillo property. testimony of Lyons upon matters that passed between him and Elser while the
latter was still alive. While the admission of this testimony was of questionable
Elser's widow and one of his clerks testified that about June 15, 1920, propriety, any error made by the trial court on this point was error without injury,
Elser cabled Lyons something to this effect;: "I have mortgaged the property on and the determination of the question is not necessary to this decision. We
Carriedo Street, secured by my personal note. You are amply protected. I wish therefore pass the point without further discussion.
you to join me in the San Juan Subdivision. Borrow all money you can." Lyons
says that no such cablegram was received by him, and we consider this point of The judgment appealed from will be affirmed, and it is so ordered, with
fact of little moment, since the proof shows that Lyons knew that the Carriedo costs against the appellant.
mortgage had been executed, and after his arrival in Manila he consented for the
mortgage to remain on the property until it was paid off, as shortly occurred. It
may well be that Lyons did not at first clearly understand all the ramifications of
the situation, but he knew enough, we think, to apprise him of the material
factors in the situation, and we concur in the conclusion of the trial court that
Elser did not act in bad faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant is, in
our opinion, untenable. If Elser had used any money actually belonging to Lyons
in this deal, he would under article 1724 of the Civil Code and article 264 of the
Code of Commerce, be obligated to pay interest upon the money so applied to
his own use. Under the law prevailing in this jurisdiction a trust does not
ordinarily attach with respect to property acquired by a person who uses money
belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer,
25 Phil., 641.). Of course, if an actual relation of partnership had existed in the
money used, the case might be difference; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is claimed, existed. But
there was clearly no general relation of partnership, under article 1678 of the
Civil Code. It is clear that Elser, in buying the San Juan Estate, was not acting
for any partnership composed of himself and Lyons, and the law cannot be

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[1] exercise of a profession.

Thus, in order to constitute a partnership, it must be

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There being no partnership, it follows that there is no dissolution, winding up

WHEREFORE, the petition is hereby denied, and the appealed decision of

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

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WHEREFORE, the instant Petition is DENIED. The assailed Court of

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(c) The cash and property shall not thereafter be withdrawn

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Consequently, we find that petitioner’s "compensation" under paragraph 12

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[6] (6th case) Same; Same; Same; Same; When it is the executor or administrator or

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EN BANC Same; Taxation; Change in membership does not remove partnership from

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As the limited partnership under consideration is taxable on its income,

But it is argued that the income of the limited partnership is actually or

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