[G.R. No. 135813. October 25, 2001.

FERNANDO SANTOS, Petitioner, v. Spouses ARSENIO and NIEVES

DECISION

PANGANIBAN, J.:

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

The Case

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

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

Resolving respondent’s Motion for Reconsideration, the August 17, 1998 Resolution ruled as
follows:chanrob1es virtua1 1aw 1ibrary

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

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

The Facts

The events that led to this case are summarized by the CA as follows:jgc:chanrobles.com.ph

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

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

"On August 6, 1986, [petitioner], . . . [Nieves] and Zabat executed the ‘Article of Agreement’
which formalized their earlier verbal arrangement.

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

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

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

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

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

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

" [Petitioner] further asserted that in Nieves’ capacity as bookkeeper, she received all payments
from which Nieves deducted Gragera’s commission. The commission would then be remitted to
Gragera. She likewise determined loan releases.
"During the pre-trial, the parties narrowed the issues to the following points: whether
[respondents] were employees or partners of [petitioner], whether [petitioner] entrusted money
to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed under the
complaint was actually remitted to Gragera and whether [respondents] were entitled to their
counterclaim for share in the profits." 7

Ruling of the Trial Court

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

"39. WHEREFORE, the Court hereby renders judgment as follows:chanrob1es virtual 1aw
library

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.

39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S.
REYES, the following:chanrob1es virtual 1aw library

39.2.1. P3,064,428.00 - The 15 percent share of the

[respondent] NIEVES S. REYES

in the profits of her joint venture

with the [petitioner].

39.2.2. Six(6) percent of - As damages from August 3,

P3,064,428.00 1987 until the P3,064,428.00

is fully paid.

39.2.3. P50,000.00 - As moral damages

39.2.4. P10,000.00 - As exemplary damages

39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO
REYES, the following:chanrob1es virtual 1aw library

39.3.1. P2,899,739.50 - The balance of the 15 percent

share of the [respondent]

ARSENIO REYES in the profits

of his joint venture with the

39.3.2. Six(6) percent of - As damages from August 3,

P2,899,739.50 1987 until the P2,899,739.50 is

fully paid.

39.3.3. P25,000.00 - As moral damages

39.3.4. P10,000.00 - As exemplary damages

39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:chanrob1es

39.4.1. P50,000.00 - As attorney’s fees; and

39.4.2. The cost of the suit." 8

Ruling of the Court of Appeals

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

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

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

Hence, this Petition. 9

Issue

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

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount
to excess or lack of jurisdiction in:chanrob1es virtual 1aw library
1. Holding that private respondents were partners/joint venturers and not employees of Santos
in connection with the agreement between Santos and Monte Maria/Gragera;

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

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

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

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

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

7. Denying Santos’ motion for reconsideration dated September 11, 1998."cralaw virtua1aw
library

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

The Court’s Ruling

The Petition is partly meritorious.

First Issue:chanrob1es virtual 1aw library

Business Relationship

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

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

" [Respondents] were industrial partners of [petitioner]. . . . Nieves herself provided the initiative
in the lending activities with Monte Maria. In consonance with the agreement between appellant,
Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the common
fund with the intention of sharing in the profits of the partnership. [Respondents] provided
services without which the partnership would not have [had] the wherewithal to carry on the
purpose for which it was organized and as such [were] considered industrial partners
(Evangelista v. Abad Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the
business of the partnership without undergoing the procedure relative to dissolution. Instead,
they invited Arsenio to participate as a partner in their operations. There was therefore, no intent
to dissolve the earlier partnership. The partnership between [petitioner,] Nieves and Arsenio
simply took over and continued the business of the former partnership with Zabat, one of the
incidents of which was the lending operations with Monte Maria.

x       x       x

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

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

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

"2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall . . . each be responsible in handling the collection of the loan
payments of the borrowers that they each solicited.

"3. That the bookkeeping and daily balancing of account of the business operation shall be
handled by the SECOND PARTY." 14

The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other
hand, Arsenio’s duties as credit investigator are subsumed under the phrase "screening of
prospective borrowers." Because of this Agreement and the disbursement of monthly
"allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual
finding of both courts that he replaced Zabat in the partnership.

Indeed, the partnership was established to engage in a money-lending business, despite the
fact that it was formalized only after the Memorandum of Agreement had been signed by
petitioner and Gragera. Contrary to petitioner’s contention, there is no evidence to show that a
different business venture is referred to in this Agreement, which was executed on August 6,
1986, or about a month after the Memorandum had been signed by petitioner and Gragera on
July 14, 1986. The Agreement itself attests to this fact:jgc:chanrobles.com.ph
"WHEREAS, the parties have decided to formalize the terms of their business relationship in
order that their respective interests may be properly defined and established for their mutual
benefit and understanding." 15

Second Issue:chanrob1es virtual 1aw library

No Proof of Misappropriation of

Gragera’s Unpaid Commission

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

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

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

"Neither can we give probative value to Exhibit ‘E’ which allegedly shows acknowledgment of
the remittance of commissions to Verona Gonzales. The document is a private one and its due
execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of
the Rules of Court which states:chanrob1es virtual 1aw library

‘SECTION 20. Proof of Private Document — Before any private document offered as authentic
is received in evidence, its due execution and authenticity must be proved either:chanrob1es
virtual 1aw library

(a) By anyone who saw the document executed or written; or

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

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

"The court a quo even ruled that the signature thereon was a forgery, as it found
that:chanrob1es virtual 1aw library

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

x       x       x

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

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

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

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

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

"As aptly observed by the court a quo:chanrob1es virtual 1aw library

‘26.1. As between the versions of SANTOS and NIEVES on how the commissions of
GRAGERA [were] paid to him[,] that of NIEVES is more logical and practical and therefore,
more believable. SANTOS’ version would have given rise to this improbable situation:
GRAGERA would collect the daily amortizations and then give them to NIEVES; NIEVES would
get GRAGERA’s commissions from the amortizations and then give such commission to
GRAGERA." ‘ 17

These findings are in harmony with the trial court’s ruling, which we quote
below:jgc:chanrobles.com.ph

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

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

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

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

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

Third Issue:chanrob1es virtual 1aw library

Accounting of Partnership

Petitioner refuses any liability for respondents’ claims on the profits of the partnership. He
maintains that "both business propositions were flops," as his investments were "consumed and
eaten up by the commissions orchestrated to be due Gragera" — a situation that "could not
have been rendered possible without complicity between Nieves and Gragera."cralaw virtua1aw
library

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

The CA originally held that respondents’ counterclaim was premature, pending an accounting of
the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.
Affirming the trial court’s ruling on the counterclaim, it held as follows:jgc:chanrobles.com.ph

"We earlier ruled that there is still need for an accounting of the profits and losses of the
partnership before we can rule with certainty as to the respective shares of the partners. Upon a
further review of the records of this case, however, there appears to be sufficient basis to
determine the amount of shares of the parties and damages incurred by [respondents]. The fact
is that the court a quo already made such a determination [in its] decision dated August 13,
1991 on the basis of the facts on record." 20

The trial court’s ruling alluded to above is quoted below:jgc:chanrobles.com.ph

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

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

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

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

After a close examination of respondents’ exhibits, we find reason to disagree with the CA.
Exhibit "10-I" 22 shows that the partnership earned a "total income" of P20,429,520 for the
period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts
under the following column headings: "2-Day Advance Collection," "Service Fee," "Notarial
Fee," "Application Fee," "Net Interest Income" and "Interest Income on Investment." Such
entries represent the collections of the money-lending business or its gross income.chanrob1es
virtua1 1aw 1ibrary

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

Noticeably missing from the computation of the "total income" is the deduction of the weekly
allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. 23 show that Arsenio
received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;
and Nieves, from July 12, 1986 to March 27, 1987, in the total amount of P25,600. These
allowances are different from the profit already received by Arsenio. They represent expenses
that should have been deducted from the business profits. The point is that all expenses
incurred by the money-lending enterprise of the parties must first be deducted from the "total
income" in order to arrive at the "net profit" of the partnership. The share of each one of them
should be based on this "net profit" and not from the "gross income" or "total income" reflected
in Exhibit "10-I," which the two courts invariably referred to as "cash flow" sheets.
Similarly, Exhibits "15" et seq., 24 which are the "Daily Cashflow Reports," do not reflect the
business expenses incurred by the parties, because they show only the daily cash collections.
Contrary to the rulings of both the trial and the appellate courts, respondents’ exhibits do not
reflect the complete financial condition of the money-lending business. The lower courts
obviously labored over a mistaken notion that Exhibit" 10-I-1" represented the "net profits"
earned by the partnership.

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

When the judgment of the CA is premised on a misapprehension of facts or a failure to notice

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

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

SO ORDERED.