HEIRS OF TAN ENG KEE VS. CA, 341 SCRA 740

HEIRS OF TAN ENG KEE VS. CA, 341 SCRA 740

(citing Evangelista vs Collector of Internal Revenuw, 54 O.G. 996

 DE LEON, JR., J .:

G.R. No. 126881. October 3, 2000

Parties:

HEIRS OF TAN ENG KEE, petitioners 

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

Nature: PETITION for review on certiorari of a decision of the Court of Appeals.

Keyword: Partnership, Joint venture

Facts:

Following the death of Tan Eng Kee, the HEIRS OF TAN ENG KEE (Matilde Abube, the common-law spouse & their children) filed suit against the decedent’s brother TAN ENG LAY. The complaint in the Baguio RTC was for the accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 1991, the petitioner HEIRS filed an amended complaint impleading BENGUET LUMBER COMPANY (BLC), as represented by Tan Eng Lay.

                The amended complaint alleged that after the war, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies. They named their enterprise Benguet Lumber” which they jointly managed until Tan Eng Kee’s death. Petitioner HEIRS averred that the business prospered due to the hard work and thrift of the alleged partners.

However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership “Benguet Lumber” into a corporation called “Benguet Lumber Company.” The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

RTC: declared that: (1) Benguet Lumber is a JOINT VENTURE which is akin to particular partnership; (2) that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture and/or particular its and/or losses of the business venture or particular partnership; (3) that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co., Inc. and as such the heirs or legal representative of the deceased Tan Eng Kee have a legal right to share in said assets; (4) that all the rights and obligations of Tan Eng Kee as joint adventurers and/or as partner in a particular partnership have descended to the plaintiffs who are his legal heirs; (5) ordered Defendant to render accounting of all the assets of Benguet Lumber Company, Inc.; (6) Denied the award of damages; (7) denied the counter-claim of the defendants for lack of merit.

CA: reversed the judgment of the trial court.

As a side-bar to the proceedings, petitioners filed Criminal Case against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a private individual.

MTC: dismissed the cases for insufficiency of evidence

Issue:  WHETHER OR NOT THE LATE TAN ENG KEE WAS A PARTNER OR AN EMPLOYEE OF HIS BROTHER TAN ENG LAY

Held: We conclude that Tan Eng Kee was only an employee, not a partner.

Ratio:

A contract of partnership is defined by law as one where:

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

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

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves.¹⁵ The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed,¹⁶ and (2) when the partnership has a capital of three thousand pesos or more.

In both cases, a public instrument is 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 immovable property is contributed to the partnership.¹⁹

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

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

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

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

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

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

The essence of a partnership is that the partners share in the profits and losses.²⁹ Each has the right to demand an accounting as long as the partnership exists.³⁰ 

A demand for periodic accounting is evidence of a partnership.³⁴ During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

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

Ruling: 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.

Same Same:

Partnerships; Words and Phrases; In order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property or industry to a common fund, and (2) they intended to divide the profits among themselves.—

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where: x x x two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves. The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed, and (2) when the partnership has a capital of three thousand pesos or more. In both cases, a public instrument is required. An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership.

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

Same; Same; Same; Same; A joint venture may be likened to a particular partnership; The legal concept of a joint venture is of common law origin and has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose.—A joint venture “presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the conduct of the business.” Nonetheless, in Aurbach, et al. v. Sanitary Wares Manufacturing Corporation, et al., we expressed the view that a joint venture may be likened to a particular partnership, thus: The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are similar—community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498 [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann, 116 Cal. App. 170, 2 P.2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Same; Co-Ownership; A co-ownership or co-possession is not an indicium of the existence of a partnership.—None of petitioners’ witnesses could suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo. He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother. Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or copossession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.

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.—Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses. Each has the right to demand an accounting as long as the partnership exists. We have allowed a scenario wherein “[i]f excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible.” But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his concerns, x x x A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

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