Dan Fue Leung vs. Intermediate Appellate Court

A contribution of money to a common fund with the intention of sharing in the profits constitutes a partnership under Article 1767 of the Civil Code, regardless of whether the complaint uses the term "financial assistance" rather than "partnership," and the right to demand an accounting of partnership interests does not prescribe until the partnership is dissolved.

Dan Fue Leung operated Sun Wah Panciteria, a restaurant located at Florentino Torres Street, Sta. Cruz, Manila, registered as a single proprietorship under his name. Leung Yiu claimed to have contributed ₱4,000.00 to the restaurant's establishment in October 1955 in exchange for a 22% share of annual profits. The dispute centered on whether this contribution created a partnership despite the business being registered as a sole proprietorship and despite the complaint's use of the phrase "financial assistance" rather than "partnership."

Sun Wah Panciteria, a restaurant located at Florentino Torres Street, Sta. Cruz, Manila, was established sometime in October 1955. It was registered as a single proprietorship, with all licenses and permits issued in favor of Dan Fue Leung as sole proprietor. Leung Yiu claimed that at the time the restaurant began operations, he contributed ₱4,000.00 to its establishment as his share in a partnership, entitling him to twenty-two percent (22%) of the annual profits. This contribution was evidenced by a receipt written in Chinese characters (Exhibit "A"), which the petitioner acknowledged by affixing his signature. The trial court commissioned an interpreter, Ms. Florence Yap, to translate the receipt into English, and she certified and testified that the translation was correct to the best of her knowledge. Leung Yiu identified the signature on the receipt as the petitioner's, having been affixed in his presence. Witnesses So Sia and Antonio Ah Heng corroborated this testimony, both stating they were present when the petitioner signed the receipt. So Sia further testified that he himself had received a similar receipt (Exhibit "D") evidencing his own ₱4,000.00 investment in the same venture.

On orders of the trial court, the PC Crime Laboratory examined the signatures on Exhibits "A" and "D" and compared them with the petitioner's signatures on pay envelopes of restaurant employees Antonio Ah Heng and Maria Wong (Exhibits "H", "H-1" to "H-24"). The laboratory's findings (Exhibit "J") confirmed that the signatures on both receipts were indeed those of the petitioner. Additionally, Leung Yiu received ₱12,000.00 from the petitioner via Equitable Banking Corporation Check No. 13389470-B, representing profits from the restaurant's operations for the year 1974. Bank witnesses Teodulo Diaz of China Banking Corporation and Elvira Rana of Equitable Banking Corporation testified that the check was deposited to and credited to Leung Yiu's savings account, drawn by the petitioner, and debited against his own account.

The petitioner denied having received any contribution from Leung Yiu and contested the genuineness of the receipts. He testified that he used his own savings—slightly over ₱2,000.00 accumulated from his salaries as an employee at Camp Stotsenberg in Clark Field and later as a waiter at the Toho Restaurant—as capital for the restaurant. He presented various government licenses and permits to show that Sun Wah Panciteria was and remained a single proprietorship solely owned by him. He also denied having issued the receipt (Exhibit "G") and the check for ₱12,000.00 (Exhibit "B").

The trial court gave credence to the private respondent's evidence and ruled in his favor. After the private respondent filed a motion for reconsideration seeking specification of the net profit amount, the trial court rendered an amended decision ordering the petitioner to pay 22% of the net profit of ₱8,000.00 per day from the time of judicial demand, plus ₱5,000.00 in attorney's fees and costs. The petitioner appealed to the Intermediate Appellate Court, which modified the award but ultimately affirmed the lower court's amended decision in toto, fixing the date of judicial demand as July 13, 1978. The trial court found that the restaurant, located in the heart of Chinatown, grossed approximately ₱7,000.00 per day on regular days and over ₱10,000.00 on paydays, based on the unrebutted testimony of the restaurant's cashier, Mrs. Sarah L. Licup. The petitioner's counsel waived cross-examination on the matter of income and, despite promises and a subpoena duces tecum, never produced the restaurant's books of accounts.

• Improper Cause of Action: Petitioner argued that the complaint alleged only "financial assistance" and did not claim that the private respondent was a partner, making it error for the lower courts to grant a relief not called for by the complaint and to construe "financial assistance" as a partner's capital contribution.
• Inadmissibility of Handwriting Evidence: Petitioner contended that the PC Crime Laboratory Report (Exhibit "J") should not have been given probative value because the alleged standards or specimens used for comparison (Exhibits "H", "H-1" to "H-24") were never testified to by any witness, and no witness identified the handwriting in those standards as belonging to the petitioner.
• Prescription: Petitioner argued that the action had prescribed under Article 1144 of the Civil Code, since the receipt was dated October 1, 1955 and the complaint was filed only on July 13, 1978—after twenty-two years, nine months, and twelve days—with no written demands having been made in the interim, and no written acknowledgment of the debt interrupting prescription under Article 1155.
• Excessive Monetary Awards: Petitioner assailed the appellate court's monetary awards as excessive, unconscionable, and beyond the claim embodied in the complaint and the testimonial evidence presented.

• Partnership Established: Respondent maintained that his contribution of ₱4,000.00 to the common fund, with the understanding that he would receive 22% of the annual profits, satisfied the requisites of a partnership under Article 1767 of the Civil Code, notwithstanding the use of the term "financial assistance" in the complaint.
• Admissibility of Handwriting Evidence: Respondent argued that the petitioner had failed to interpose any objection when the pay envelopes were presented for marking, failed to oppose the motion for laboratory examination despite due notice, and offered no explanation for his silence, thus warranting admission of the PC Crime Laboratory Report.
• No Prescription: Respondent contended that as a partner, his right to an accounting accrued upon dissolution of the partnership and did not prescribe during the existence of the partnership, pursuant to Articles 1806, 1807, 1809, and 1842 of the Civil Code.

• Cause of Action: Whether the complaint, which used the term "financial assistance," sufficiently stated a cause of action for partnership so as to entitle the private respondent to a share in the profits.
• Admissibility of Handwriting Evidence: Whether the PC Crime Laboratory Report (Exhibit "J") was admissible despite the petitioner's contention that the standard specimens were never identified by any witness.
• Prescription: Whether the private respondent's action to recover his share in the partnership profits had prescribed under Articles 1144 and 1155 of the Civil Code.
• Monetary Awards: Whether the monetary awards granted by the appellate court were excessive, unconscionable, and beyond the claim in the complaint.

• Cause of Action: Yes. The allegations in the complaint—that the respondent contributed ₱4,000.00 in exchange for 22% of annual profits—constituted a partnership under Article 1767 of the Civil Code, and the nature of the action is determined by the facts alleged, not by the label used.
• Admissibility of Handwriting Evidence: Yes. The PC Crime Laboratory Report was admissible because the petitioner failed to object when the standard specimens were presented and failed to oppose the motion for their examination despite due notice.
• Prescription: No. The right to demand an accounting of partnership interests does not prescribe until the partnership is dissolved; prescription begins to run only upon dissolution and final accounting.
• Monetary Awards: No. The awards were supported by substantial evidence, including the unrebutted testimony of the restaurant's cashier and the petitioner's deliberate failure to produce the restaurant's books despite a subpoena duces tecum.

• Cause of Action: The complaint alleged that the respondent delivered ₱4,000.00 to the petitioner with the understanding that he would receive 22% of the annual profits from the operation of Sun Wah Panciteria. These facts satisfy the two requisites of a partnership under Article 1767: (1) two or more persons bind themselves to contribute money, property, or industry to a common fund, and (2) intention to divide the profits among themselves. The term "financial assistance" in the complaint did not alter the nature of the action, because the nature of an action is determined by the facts alleged constituting the cause of action, not by the designation used. The appellate court correctly observed that "financial assistance" in its ordinary meaning connotes an ex gratia dole out without expectation of return, a circumstance not present here since the complaint explicitly stated that the respondent would receive 22% of profits in return.

• Admissibility of Handwriting Evidence: The records showed that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented for marking, the petitioner interposed no objection. Neither did the petitioner file any opposition to the private respondent's motion to have these exhibits and the two receipts examined by the PC Crime Laboratory, despite due notice. No explanation was offered for this silence. Under these circumstances, the Court found no reason to reject Exhibit "J," and the records sufficiently established the existence of a partnership.

• Prescription: The petitioner relied on Article 1144 (ten-year prescriptive period for actions upon a written contract) and Article 1155 (interruption of prescription by written extra-judicial demand or written acknowledgment of debt). However, the applicable provision is Article 1842, which states that the right to an account of a partner's interest accrues at the date of dissolution in the absence of any agreement to the contrary. Articles 1806, 1807, and 1809 establish that the right to demand an accounting exists as long as the partnership exists. A partner shares not only in profits but also in losses, and if partners defer profit-sharing to allow the business to grow, it would be incorrect to state that a partner's rights are irretrievably lost if not asserted within ten years from the start of operations. The respondent's cause of action was premised on the petitioner's failure to give him the agreed profits—in effect, a demand for an accounting of his partnership interest. Prescription begins to run only upon dissolution of the partnership when the final accounting is done.

• Monetary Awards: The cashier of Sun Wah Panciteria, Mrs. Sarah L. Licup, testified without rebuttal that the restaurant grossed approximately ₱7,000.00 per day on regular days and over ₱10,000.00 on paydays, excluding catering services. The petitioner's counsel waived cross-examination on income and, despite promising to produce the restaurant's books of accounts and despite a subpoena duces tecum, never produced them. The trial court warned that failure to produce the books would constitute a waiver, invoking the principle that evidence willfully suppressed would be adverse if produced. There was more than substantial evidence to support the factual findings of both lower courts, and no basis in the records to modify or set aside those findings. The Court further decreed dissolution of the partnership under Article 1831 of the Civil Code, since the petitioner's conduct—willfully and persistently breaching the partnership agreement by denying the respondent's partnership interest—made continuation of the business in partnership inequitable.

• Nature of Action Determined by Facts Alleged — The nature of an action filed in court is determined by the facts alleged in the complaint as constituting the cause of action, not by the designation or label used by the pleader. Applied here to hold that the complaint's use of "financial assistance" did not preclude a finding of partnership, since the facts alleged—contribution of money in exchange for a share of profits—constituted a partnership under Article 1767.

• Requisites of Partnership (Article 1767) — A partnership exists when two requisites are present: (1) two or more persons bind themselves to contribute money, property, or industry to a common fund, and (2) intention on the part of the partners to divide the profits among themselves. Both were satisfied by the respondent's ₱4,000.00 contribution and the agreed 22% profit share.

• Prescription of Right to Accounting — The right to demand an accounting of partnership interests does not prescribe during the existence of the partnership; prescription begins to run only upon dissolution when the final accounting is done. This doctrine flows from Articles 1806, 1807, 1809, and 1842 of the Civil Code, read in conjunction with Articles 1144 and 1155.

• Suppression of Evidence — Evidence willfully suppressed would be adverse if produced. Applied here where the petitioner, despite a subpoena duces tecum and repeated opportunities, failed to produce the restaurant's books of accounts, leading the trial court to treat the non-production as a waiver.

• Judicial Dissolution of Partnership (Article 1831) — A court shall decree dissolution whenever a partner has been guilty of conduct tending to affect prejudicially the carrying on of the business, or has willfully or persistently committed a breach of the partnership agreement, or when other circumstances render a dissolution equitable. Applied here to order dissolution because the petitioner's persistent denial of the respondent's partnership interest made continuation of the partnership inequitable.

• "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." — This is the Court's quotation of Article 1767 of the Civil Code, the provision central to the finding that a partnership existed between the parties despite the business being registered as a single proprietorship.

• "The nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." — This passage articulates the controlling doctrine on the determination of the nature of an action, which the Court applied to hold that the use of "financial assistance" in the complaint did not preclude a partnership cause of action.

• "It would be incorrect to state that if a partner does not assert his rights anytime within ten years from the start of operations, such rights are irretrievably lost." — This statement captures the Court's rejection of the petitioner's prescription argument, anchoring the rule that a partner's right to an accounting does not prescribe during the partnership's existence.

• "Evidence willfully suppressed would be adverse if produced." — This principle, invoked by the trial court and cited with approval, underpins the Court's refusal to disturb the lower courts' factual findings on income, given the petitioner's deliberate failure to produce the restaurant's books.

• De Tavera vs. Philippine Tuberculosis Society, Inc., 113 SCRA 243 — Cited as authority for the doctrine that the nature of an action is determined by the facts alleged in the complaint constituting the cause of action. Followed.
• Alger Electric, Inc. vs. Court of Appeals, 135 SCRA 37 — Cited alongside De Tavera for the same doctrine on determination of the nature of an action. Followed.
• Yulo vs. Yang Chiao Cheng, 106 Phil. 110 — Cited for the two requisites of a partnership under Article 1767 of the Civil Code. Followed.

• Article 1767, Civil Code — Defines a partnership as a contract whereby 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. Applied to hold that the respondent's ₱4,000.00 contribution in exchange for 22% of profits constituted a partnership.
• Article 1144, Civil Code — Prescribes a ten-year period for actions upon a written contract, upon an obligation created by law, and upon a judgment. The petitioner invoked this provision, but the Court held it inapplicable to a partner's right to accounting during the partnership's existence.
• Article 1155, Civil Code — Provides that prescription is interrupted by filing before the court, written extra-judicial demand by the creditor, or written acknowledgment of the debt by the debtor. The petitioner invoked this provision, but the Court found it inapplicable given that prescription had not yet begun to run.
• Article 1842, Civil Code — Provides that the right to an account of a partner's interest accrues at the date of dissolution, in the absence of any agreement to the contrary. Applied as the controlling provision on when a partner's right to accounting accrues.
• Articles 1806, 1807, 1809, Civil Code — Establish that the right to demand an accounting exists as long as the partnership exists. Applied to hold that prescription begins to run only upon dissolution.
• Article 1831, Civil Code — Authorizes judicial dissolution of a partnership when a partner's conduct prejudicially affects the business, when a partner willfully or persistently breaches the partnership agreement, or when other circumstances render dissolution equitable. Applied to order the dissolution of the partnership between the parties.
• Section 5(e), Rule 131, Rules of Court — Relates to the evidentiary consequence of willful suppression of evidence. Invoked by the trial court when the petitioner failed to produce the restaurant's books of accounts.

Fernan, C.J. (Chairman), Feliciano, Bidin, and Cortes, JJ., concurred.