partnership and agency case digests

BUSORG CASE DIGESTS Atty. Charlie Mendoza

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BATCH 1

TOCAO V. COURT OF APPEALS

342 SCRA 20 (2000)

Facts:

Petitioner William T. Bello introduced private respondent Nenita Anay to petitioner Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo acted the capitalist, Tocao as president and general manager, and Anay as head of the marketing department (considering her experience and established relationship with West Bend Company,c a manufacturer of kitchen wares in Wisconsin, U.S.A) and later, vice-president for sales. The parties agreed further that Anay would be entitled to:

(1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for her demonstration services.

The same was not reduced to writing on the strength of Belos assurances.

Later, Anay was able to secure the distributorship of cookware products from the West Bend Company. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name. Anay attended distributor/dealer meetings with West Bend Company with the consent of Tocao.

Due to Anays excellent job performance she was given a plaque of appreciation. Also, in a memo signed by Belo, Anay was given 37% commission for her personal sales "up Dec 31/87, apart from the 10% share in profits.

On October 9, 1987, Anay learned that Marjorie Tocao terminated her as vice-president of Geminesse Enterprise. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. Belo did not answer.

Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed a complaint for sum of money with damages against Tocao and Belo before the RTC of Makati. She prayed that she be paid (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was illegally dismissed to

determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend cookware sets before her dismissal.

However, Tocao and Belo asserted that the alleged agreement was not reduced to writing nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied the existence of a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Belo also contended that he merely acted as a guarantor of Tocao and denied contributing capital. Tocao, on the other hand, denied that they agreed on a ten percent (10%) commission on the net profits.

Both trial court and court of appeals ruled that a business partnership existed and ordered the defendants to pay.

Issue: Whether or not a partnership existed YES

Ratio:

To be considered a juridical personality, a partnership must fulfill these requisites: (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. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one.

Private respondent Anay contributed her expertise in the business of distributorship of cookware to the partnership and hence, under the law, she was the industrial or managing partner.

Petitioner Belo had an proprietary interest. He presided over meetings regarding matters affecting the operation of the business. Moreover, his having authorized in writing giving Anay 37% of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. This is inconsistent with his claim that he merely acted as a guarantor. If indeed he was, he should have presented documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a capitalist in the partnership. She claimed that she herself financed the business.

The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private respondent. First, Anay had a voice in the management of the affairs of the cookware distributorship and second, Tocao admitted that Anay, like her, received only commissions and transportation and representation allowances and not a fixed salary. If Anay was an employee, it is difficult to believe that they recieve the same income.

Also, the fact that they operated under the name of Geminesse


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Enterprise, a sole proprietorship, is of no moment. Said business name was used only for practical reasons - it was utilized as the common name for petitioner Tocaos various business activities, which included the distributorship of cookware.

The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner.

Petitioners Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.

The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. Petitioners are ordered to pay Anays 10% share in the profits, after accounting, 5% overriding commission for the 150 cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioner, overriding commission on the total production, as well as moral and exemplary damages, and attorneys fees

JM TUAZON and CO v. BOLANOS

95 PHIL 106

Facts:

This is an action to recover possession of registered land situated in Barrio Tatalon, Quezon City. The complaint of plaintiff JM Tuason & Co Inc was amended 3 times with respect to the extent and description of the land sough to be recovered. Originally, the land sought to be recovered was said to be more or less 13 hectares, but it was later amended to 6 hectares, after the defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied by him. The second amendment is that the portion of the said land was covered in another TCT and the 3rd amendment was made after the defendant' surveyor and a witness, Quirino Feria testified that the land occupied by the defendant was about 13 hectares.

Defendant raised the defense of prescription and title thru "open, continuous, exclusive and public and notorious possession of land in dispute. He also alleged that the registration of the land was obtained by plaintiff's predecessor through fraud or error.

The lower court rendered judgment in favor of the plaintiff and ordered the defendant to restore possession of the land to the plaintiff, as well as to pay corresponding rent from January 1940 until he vacates the land. On appeal defendant raised a number of assignments or errors in the decision, one of which is that the trial court erred in not dismissing the case on the ground that the case was not brought by the real party in interest.

Issue: Whether or not the lower court erred in not dismissing the case on the ground that it was not brought by the real party in interest? NO

Ratio:

What the Rules of Court require is that an action be broughtin the name of, but not necessarily by, the real party in interest. In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in the name of the plaintiff. That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that "though a corporation has no power to enter into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by its charter."

AGUILA, JR. v. COURT OF APPEALS 316 SCRA 246

(1999)

Facts:

Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Felicidad S. Vda. de Abrogar (private respondent) and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of Agreement which provided that A.C. Aguila & Sons, Co. shall buy the property from private respondent for P200,000 subject to an option to repurchase for P230,000 (valid for 90 days), etc. On the same day, the parties likewise executed a deed of absolute sale, dated June 11, 1991, wherein private respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons, Co., represented by petitioner, for P200,000,00. In a special power of attorney dated the same day, April 18, 1991, private respondent authorized petitioner


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to cause the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed to redeem the subject property as provided in the Memorandum of Agreement. Private respondent failed to redeem the property. Pursuant to the special power of attorney mentioned above, petitioner caused the cancellation of TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt of the letter and surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the appropriate action in court. Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. MeTC, Marikina, MM (April 3, 1992): Ruled in favor of A.C. Aguila & Sons, Co. Private respondent appealed to RTC Pasig, CA, and then SC but she still lost. Private respondent then filed a petition for declaration of nullity of a deed of sale filed by Felicidad S. Vda. de Abrogar against Alfredo N. Aguila, Jr. She alleged that the signature of her husband on the deed of sale was a forgery because he was already dead when the deed was supposed to have been executed on June 11, 1991.

RTC,Marikina,MM(April11,1995):Dismissed. CA(November29,1990):Reversed ruling of the RTC. Hence, this petition for review on certiorari.

Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which this case should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the complaint for declaration of nullity of a deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale and not an equitable mortgage as held by the appellate court.

Issue: Whether the real party in interest is A.C. Aguila & Co. and not petitioner. YES

Ratio:

Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate and distinct from that of each of the partners." The partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was executed between private respondent, with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers or agents, which should be impleaded in any litigation involving property registered in its name. A violation of this

rule will result in the dismissal of the complaint.

HEIRS OF TAN ENG KEE v. COURT OF APPEALS 341 SCRA 740 (2000)

Facts:

The heirs of Tan Eng Kee filed a suit against the decedents brother Tan Eng Lay. The complaint alleged that after the Second World War, the brothers, pooling their resources and industry together, entered into a partnership engaged in the selling of lumber and hardware and construction supplies. They named their enterprise Benguet Lumber which they jointly managed until Tan Kees death. Petitioners 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, and winding up of the alleged partnership formed after the World War II between Tan Eng Kee and Tan Eng Lay. The Regional Trial court found that Benguet Lumber is a joint venture which is akin to a particular partnership, and declared that the assets of Benguet Lumber are the same assets turned over to Benguet lumber Co. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in the said assets. The Court of Appeals reversed the judgment of the Trial Court.

Issue: Whether or not a partnership existed between Tan Eng Kee and Tan Eng Lay- NO

Ratio:

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 best evidence of the partnerships existence 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. 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.

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. A


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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.

This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. Exhibits 4 to 4-U in fact shows that Tan Eng Kee received sums as wages of an employee.In connection therewith, Article 1769 of the Civil Code provides:

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

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

(b) As wages of an employee or rent to a landlord; (b) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

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

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

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.

PASCUAL vs. COMMISSIONER OF INTERNAL REVENUE

166 SCRA 560 (1988)

Facts:

On June 22, 1965, petitioners Mariano Pascual and Renato Dragon bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought another three (3) parcels of land from Juan Roque.

The first two parcels of land were sold by petitioners in 1968 to Marenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19, 1970.

Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.

However, in a letter of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970. Petitioners protested the said assessment asserting that they had availed of tax amnesties way back in 1974.

Respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under the National Internal Revenue Code.

Issue: Whether or not respondent is correct in its presumptive determination that petitioners formed an unregistered partnership thus subject to corporate income tax. NO

Ratio:

There is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. In Evangelista, there was a series of transactions where petitioners purchased twenty-four (24) lots


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showing that the purpose was not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present. Reliance of the lower court to the case of Evangelista v. Collector is untenable. In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property.There is no adequate basis to support the proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and sold the same a few years thereafter did not thereby make them partners.

LORENZO T. OA v. THE COMMISSIONER OF

INTERNAL REVENUE

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

Facts:

Julia Bunales died on March 23, 1944, leaving as heirs her surviving spouse. Lorenzo T. Oa and her five children. Lorenzo T. Oa, the surviving spouse was appointed administrator of the estate of said deceased. A partition was thereafter approved by the Court. The Court also appointed Lorenzo, upon petition to the CFI of Manila, to be appointed guardian of the persons and property of Luz, Virginia and Lorenzo, Jr., who were minors at the time.

Although the project of partition was approved by the Court on May 16, 1949. no attempt was made to divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners properties and investments gradually increased from P105,450.00 in 1949 to P480.005.20 in 1956. However, petitioners did not actually receive their shares in the yearly income. The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and securities.

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. The defense of petitioners revolved mainly in the contention that they are co-owners of the properties inherited from Julia Buales and the profits derived therefrom rather than having formed a partnership.

Issue: Whether or not it was proper to consider petitioners as

an unregistered partnership. YES

Ratio:

The first thing that has struck the Court is that whereas petitioners predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under the administration or management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co- owners, not liable to corporate tax, and it was only from 1955 that he considered them as having formed an unregistered partnership.

Under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities, as a result of which said properties and investments steadily increased yearly from P87,860.00 in land account and P17,590.00 in building account in 1949 to P175,028.68 in investment account, P135,714.68 in land account and P169,262.52 in building account in 1956. And all these became possible because, admittedly, petitioners never actually received any they allowed him to continue using said shares as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamount to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the abovementioned provisions of the Tax Code.

GATCHALIAN v. COLLECTOR OF INTERNAL REVENUE 67 Phil. 666 (1939)

Facts:


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Plaintiffs (15 persons), in order to enable them to purchase one sweepstakes ticket valued at two pesos (P2), subscribed and paid each varied amounts aggregating 2 pesos. The said ticket was registered in the name of Jose Gatchalian and Company . The above-mentioned ticket bearing No. 178637 won one of the third prizes in the amount of 50, 000. Jose Gatchalian was required by income tax examiner Alfredo David to file the corresponding income tax return covering the prize won by Jose Gatchalian & Company. The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by section 2 of Act No. 3761, reading as follows:

"SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company, partnership, joint account (cuenta en participacin), association or insurance company, organized in the Philippine Islands, no matter how created or organized, but not including duly registered general copartnerships (compaias colectivas), a tax of three per centum upon such income;

Issue: Whether or not the plaintiffs formed a partnership, or merely a community of property without a personality of its own; in the first case it is admitted that the partnership thus formed is liable for the payment of income tax, whereas if there was merely a community of property, they are exempt from such payment.

Ratio:

There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax under the law. But according to the stipulated facts the plaintiffs organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippine Charity Sweepstakes, in his capacity as co-partner, as such collected the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and formed a community of property only. Having organized and constituted a partnership of a civil nature, the 'said entity is the one bound to pay the income tax which the defendant collected.

OBILLOS, JR. v. COMMISSIONER OF INTERNAL REVENUE 139 SCRA 436 (1985)

Facts:

On 2 March 1973, Jose Obillos, Sr. completed payment to Ortigas & Co Ltd. on two lots located at Greenhills, San Juan, Rizal. The next day, he transferred his rights to his four

children (petitioners) to enable them to build their residences. The company sold the two lots to petitioners, and the torrens title issued to them show that they were co-owners of the two lots. In 1974, petitioners resold the lots to Walled City Securities Corporation and Olga Cruz and divided among themselves the profit. They treated the profit as capital gain and paid an income tax on one-half thereof. In 1980, or a day before the expiration of the five-year prescriptive period, the CIR required the petitioners to pay corporate income tax on the total profit, in addition to individual income tax on their shares thereof. A total of Php 127,781.76 was ordered to be paid by the petitioners, including the corporate income tax, 50% fraud surcharge, accumulated interest, income taxes and distributive dividend. Such was ordered by the Commissioner, acting on the theory that the four petitioners had formed an unregistered partnership or joint venture.

Issue:

Whether or not the petitioners formed an unregistered partnership by the act of selling the two lots, of which they were co-owners. NO

Ratio:

It is wrong to consider petitioners as having formed a partnership under Article 1767 of the Civil Code simply because they allegedly contributed money to buy the two lots, resold the same and divided the profit among themselves. They were co-owners, pure and simple. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

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

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

Evangelista, et al. v. CIR, GR No. L-9996, October 15,

1957 Facts: Herein petitioners seek a review of CTAs decision holding them liable for income tax, real estate dealers tax and residence tax. As stipulated, petitioners borrowed from their father a certain sum for the purpose of buying real properties. Within February 1943 to April 1994, they have bought parcels


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of land from different persons, the management of said properties was charged to their brother Simeon evidenced by a document. These properties were then leased or rented to various tenants. On September 1954, CIR demanded the payment of income tax on corporations, real estate dealers fixed tax, and corporation residence tax to which the petitioners seek to be absolved from such payment. Issue: Whether petitioners are subject to the tax on corporations. Ruling: The Court ruled that with respect to the tax on corporations, the issue hinges on the meaning of the terms corporation and partnership as used in Section 24 (provides that a tax shall be levied on every corporation no matter how created or organized except general co-partnerships) and 84 (provides that the term corporation includes among others, partnership) of the NIRC. Pursuant to Article 1767, NCC (provides for the concept of partnership), its essential elements are: (a) an agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. It is of the opinion of the Court that the first element is undoubtedly present for petitioners have agreed to, and did, contribute money and property to a common fund. As to the second element, the Court fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves as indicated by the following circumstances: 1. The common fund was not something they found already in existence nor a property inherited by them pro indiviso. It was created purposely, jointly borrowing a substantial portion thereof in order to establish said common fund; 2. They invested the same not merely in one transaction, but in a series of transactions. The number of lots acquired and transactions undertake is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain; 3. Said properties were not devoted to residential purposes, or to other personal uses, of petitioners but were leased separately to several persons; 4. They were under the management of one person where the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit; 5. Existed for more than ten years, or, to be exact, over fifteen years, since the first property was acquired, and over twelve years, since Simeon Evangelista became the manager; 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. The collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein.

Also, petitioners argument that their being mere co-owners did not create a separate legal entity was rejected because, according to the Court, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When the NIRC includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. The qualifying expression found in Section 24 and 84(b) clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. For purposes of the tax on corporations, NIRC includes these partnerships - with the exception only of duly registered general co partnerships - within the purview of the term "corporation." It is, therefore, clear that petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations.

As regards the residence of tax for corporations (Section 2 of CA No. 465), it is analogous to that of section 24 and 84 (b) of the NIRC. It is apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations. Finally, on the issues of being liable for real estate dealers tax, they are also liable for the same because the records show that they have habitually engaged in leasing said properties whose yearly gross rentals exceeds P3,000.00 a year.

AFISCO v. COURT OF APPEALS 302 SCRA 1 (1999)

Facts:

The petitioners are 41 non-life insurance corporations, organized and existing under the laws of the Philippines, entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversi-cherungs-Gesselschaft (hereafter called Munich), a non-resident foreign insurance corporation. The reinsurance treaties required petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners was formed on the same day.

The pool of machinery insurers submitted a financial statement and filed an Information Return of Organization Exempt from Income Tax for the year ending in 1975, on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60, and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners, respectively. These assessments were protested by the petitioners.

On January 27, 1986, the Commissioner of Internal Revenue denied the protest and ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiency income tax,


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interest, and with[h]olding tax.

The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a corporation, and that the latters collection of premiums on behalf of its members, the ceding companies, was taxable income.

Issue: Whether or not the Clearing House, acting as a mere agent and performing strictly administrative functions, and which did not insure or assume any risk in its own name, was a partnership or association subject to tax as a corporation YES

Ratio:

Article 1767 of the Civil Code recognizes the creation of a contract of partnership when 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. Its requisites are: (1) mutual contribution to a common stock, and (2) a joint interest in the profits. In other words, a partnership is formed when persons contract to devote to a common purpose either money, property, or labor with the intention of dividing the profits between themselves. Meanwhile, an association implies associates who enter into a joint enterprise x x x for the transaction of business.

In the case before us, the ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota- share reinsurance treaty and surplus reinsurance treaty with Munich. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC: (1) The pool has a common fund, consisting of money and other valuables that are deposited in the name and credit of the pool. This common fund pays for the administration and operation expenses of the pool. (2) The pool functions through an executive board, which resembles the board of directors of a corporation, composed of one representative for each of the ceding companies. (3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its work is indispensable, beneficial and economically useful to the business of the ceding companies and Munich, because without it they would not have received their premiums. The ceding companies share in the business ceded to the pool and in the expenses according to a Rules of Distribution annexed to the Pool Agreement. Profit motive or business is, therefore, the primordial reason for the pools formation.

TORRES v. COURT OF APPEALS G.R. No. 134559 December 9, 1999

Facts:

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into 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 Deed of Sale covering the said parcel of land in favor of respondent, who then 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 Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank

Issue: Whether or not there was a contract of partnership YES

Ratio:

Under the Agreement, 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 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 to form a partnership.

Petitioners also contend that the Joint Venture Agreement is void 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 consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.

LIM TONG LIM v. PHILIPPINE FISHING GEAR

INDUSTRIES

G.R. No. 136448. November 3, 1999

Facts:

Antonio Chua and Peter Yao entered into a contract for the purchase of fishing nets from the Philippine Fishing Gear Industries. They claimed that they were engeged in a business venture with petitioner Lim Tong Lim. The buyers however failed to pay for the nets and the floats. Private respondent filed a collection suit against Yao, Chua an Lim Tong Lim with preliminary attachment. Trial court rendered its decision in favor of Phil. Fishing Gear and that Chua, Yao and Lim, as general partners were jointly liable to pay respondents. It based its decision on a compromise agreement wherein joint liability was presumed from the equal distribution of the profit and loss. The Court of Appeals affirmed. Hence, this petition.

Issue: Whether or not, by their acts, Lim, Chua and Yao could be deemed to have entered into a partnership. YES

Ratio:


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There is a partnership between Lim, Chua and Yao. Petitioner Lim requested Yao who was engaged in commercial fishing to join him, while Antonio Chua was already Yaos partner. The three verbally agreed to acquire two fishing boats, FB Lourdes and FB Nelson for the sum of 3.35 million. They also borrowed 3.25 million from Jesus Lim, brother of petitioner Lim Tong Lim. They purchased the boats and later the nets and floats, which constituted the main asets of the partnership and they agreed to divide tha proceeds form the sale and operation thereof. The sale of the boats as well as the division among the three of the balance remaining after the payment of their loans prove that F/B Lourdes was not his own property but an asset of the partnership. Although the corporation was never legally formed for unknown reasons, this fact alone does not preclude the liabilities of the three as contracting parties in representation of it. Under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as general partners. Having reaped the benefits of the contract entered into by persons with whom he previously had an existing relationship he is deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel.

AGAD v. MABOLO and AGAD CO.

23 SCRA 1223 (1968)

Facts:

Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners in a fishpond business to which they contributed P1000 each. As managing partner, Mabato yearly rendered the accounts of the operations of the partnership. However, for the years 1957-1963, defendant failed to render the accounts despite repeated demands. Petitioner filed a complaint against Mabato to which a copy of the public instrument evidencing their partnership is attached. Aside from the share of profits (P14,000) and attorneys fees (P1000), petitioner prayed for the dissolution of the partnership and winding up of its affairs.

Mabato denied the existence of the partnership alleging that Agad failed to pay his P1000 contribution. He then filed a motion to dismiss on the ground of lack of cause of action. The lower court dismissed the complaint finding a failure to state a cause of action predicated upon the theory that the contract of partnership is null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto.

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said property is not made, signed by the parties; and attached to the public instrument.

Issue: Whether or not immovable property or real rights have been contributed to the partnership. NO

Ratio:

Based on the copy of the public instrument attached in the complaint, the partnership was established to operate a fishpond", and not to "engage in a fishpond business. Thus, Mabatos contention that it is really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership is without merit. Their contributions were limited to P1000 each and neither a fishpond nor a real right thereto was contributed to the partnership. Therefore, Article 1773 of the Civil Code finds no application in the case at bar. Case remanded to the lower court for further proceedings.

Benjamin Yu v. National Labor Relations Commission &

Jade Mountain Products Co. Ltd., Willy Co, Rhodora Bendal, Lea Bendal, Chiu

Shian Jeng and Chen Ho-Fu Facts: Yu ex-Assistant General Manager of the marble quarrying and export business operated by a registered partnership called Jade Mountain Products Co. Ltd. partnership was originally organized with Bendals as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang as limited partners; partnership business consisted of exploiting a marble deposit in Bulacan Yu, as Ass is tan t Genera l Manager, had a month ly sa lary of 4000. Yu, however, ac tua l ly r e c e i v e d o n l y h a l f o f h i s s t i p u l a t e d s a l a r y , s i n c e h e h a d a c c e p t e d t h e p r o m i s e o f t h e par tners tha t the balance would be pa id when the f i rm sha l l have secured addi t ional opera t ing funds f rom abroad . Yu ac tua l ly managed the opera t ions and f inances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firms products. general partners Bendals sold and transferred their interests in the partnership to Co and Emmanuel Zapanta par tnersh ip was cons t i tu ted so le ly by Co and Zapanta ; i t cont inued to use the o ld f i rm name of Jade Mountain Yu dismissed by the new partners Issues: 1 . W O N t h e p a r t n e r s h i p w h i c h h a d h i r e d Yu a s A s s t . G e n . M a n a g e r h a d b e e n extinguished and replaced by a new partnership composed of Co and Zapanta; 2. if indeed a new partnership had come into existence, WON Yu could nonetheless assert his rights under his employment contract with the old partnership as against the new partnership Held: 1. Yes. Changes in the membership of the partnership resulted in the dissolution of the old partnership which had hired Yu and the emergence of a new partnership composed of Co and Zapanta.


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Legal bases: A r t . 1 8 2 8 . T h e d i s s o l u t i o n o f a p a r t n e r s h i p i s t h e c h a n g e i n t h e r e l a t i o n o f t h e p a r t n e r s c a u s e d b y a n y p a r t n e r c e a s i n g t o b e a s s o c i a t e d i n t h e c a r r y i n g o n a s distinguished from the winding up of the business. Art. 1830. Dissolution is caused: (1) without violation of the agreement between the partners; (b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; (2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; N o w i n d i n g u p o f a f f a i r s i n t h i s c a s e a s c o n t e m p l a t e d i n A r t 1 8 2 9 : o n d i s s o l u t i o n t h e partnership is not terminated, but continues until the winding up of partnership affairs is completed t h e n e w p a r t n e r s h i p s i m p l y t o o k o v e r t h e b u s i n e s s e n t e r p r i s e o w n e d b y t h e o l d p a r t n e r s h i p , a n d c o n t i n u e d u s i n g t h e o l d n a m e o f J a d e M o u n t a i n P r o d u c t s C o m p a n y Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise 2. Yes. the new partnership is liable for the debts of the old partnership Legal basis: Art. 1840 (see codal)

ROJAS V. MAGLANA December 10, 1990

Paras, C.J. Raeses, Roberto Miguel

SUMMARY: Maglana and Rojas executed their articles of co-partnership called EDE. It had an indefinite term, was registered with the SEC, and had a Timer License. Later, Agustin Pahamitang became an industrial partner and another articles of co-partnership was executed. The term of the second co-partnership was fixed to 30 years. After some time, the three executed a conditional sale of interest in the partnership where Magalana and Rojas shall purchase the interest, share, and participation of Pahamotang. It was agreed that, after payment of such including the loan secured by Pahamotang, the two shall become owners of all equipment contributed by Pahamotang. The two continued the partnership without any written agreement or reconstitution of the articles of partnership. Subsequently, Rojas entered into a contarct with CMS Estate. Maglana reminded him of his contribution to the capital investments and his duties to the partnership. Rojas said he would not be able to comply. Maglana told Rojas that the latter is only

entitled to 20% of the profits, which was the sharing from 1957-1959 without dispute. Rojas took funds from the partnership which was more than his share. Maglana notified Rojas that he had dissolved the partnership. Rojas filed an action against Magallana. The CFI ruled that the partnership of the two after Pahamotang left was one de facto and at will. The SC said that it was not, considering that the first partnership was never dissolved. With regard to the issue of unilateral dissolution, the SC held that Maglana had the power to do so. DOCTRINE: Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners.

FACTS: Maglana and Rojas executed their Articles of Co-partnership called Eastcoast Development Enterpises (EDE) which had an indefinite term of existence and was registered with the SEC and had a Timber License. One of the EDEs purposes was to apply or secure timber and/or private forest lands and to operate, develop and promote such forests rights and concessions. Maglana shall manage the business affairs while Rojas shall be the logging superintendent. All profits and losses shall be divided share and share alike between them. Later on, the two availed the services of Agustin Pahamotang as industrial partner and executed another articles of co-partnership with the latter. The purpose of this second partnership was to hold and secure renewal of timber license and the term of which was fixed to 30 years. Still later on, the three executed a conditional sale of interest in the partnership wherein Maglana and Rojas shall purchase the interest, share and participation in the partnership of Pahamotang. It was also agreed that after payment of such including amount of loan secured by Pahamotang in favor of the partnership, the two shall become owners of all equipment contributed by Pahamotang. After this, the two continued the partnership without any written agreement or reconstitution of their articles of partnership. Subsequently, Rojas entered into a management contract with CMS Estate Inc. Maglana wrote him regarding his contribution to the capital investments as well as his duties as logging superintendent. Rojas replied that he will not be able to comply with both. Maglana then told Rojas that the latters share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute. Rojas took


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funds from the partnership more than his contribution. Maglana notified Rojas that he dissolved the partnership. Rojas filed an action against Maglana for the recovery of properties and accounting of the partnership and damages. CFI RULING:

1. The partnership of Maglana and Rojas after Pahamotang retired is one of de facto and at will; the sharing of profits and losses is on the basis of actual contributions;

2. there is no evidence these properties were acquired by the partnership funds thus it should not belong to it;

3. neither is entitled to damages; the letter of Maglana in effect dissolved the partnership;

4. sale of forest concession is valid and binding and should be considered as Maglanas contribution;

5. Rojas must pay or turn over to the partnership the profits he received from CMS and pay his personal account to the partnership;

6. Maglana must be paid 85k which he shouldve received but was not paid to him and must be considered as his contribution

ACTION AND PRAYER: N/A ISSUE:

1. WON the partnership carried on after the second partnership was a de facto partnership and at will.

2. WON Magalana may unilaterally dissolve the partnership.

HELD:

1. No. 2. Yes.

RATIO:

1. There was no intention to dissolve the first partnership upon the constitution of the second as everything else was the same except for the fact that they took in an industrial partner: they pursued the same purposes, the capital contributions call for the same amounts, all subsequent renewals of Timber License were secured in favor of the first partnership, all businesses were carried out under the registered articles. To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership.

On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Maglana even reminded Rojas of his obligation to contribute either in cash or in equipment, to the capital investment of the

partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership.

2. As there are only two parties when Maglana notified

Rojas that he dissolved the partnership, it is in effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners. But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose.

According to the Commissioners report, Rojas is not entitled to any profits as he failed to give the amount he had undertaken to contribute thus, had become a debtor of the partnership. Maglana cannot be liable for damages as Rojas abandoned the partnership thru his acts and also took funds in an amount more than his contribution

DISPOSITIVE: PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects. TACAO v CA William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to form a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao also contributed some cash and she shall also act as president and general manager; and Anay shall be in charge of marketing. Belo and Tocao specifically asked Anay because of her experience and connections as a marketer. They agreed further that Anay shall receive the following:

1. 10% share of annual net profits


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2. 6% overriding commission for weekly sales 3. 30% of sales Anay will make herself 4. 2% share for her demo services They operated under the name Geminesse Enterprise, this name was however registered as a sole proprietorship with the Bureau of Domestic Trade under Tocao. The joint venture agreement was not reduced to writing because Anay trusted Belos assurances.

The venture succeeded under Anays marketing prowess.

But then the relationship between Anay and Tocao soured. One day, Tocao advised one of the branch managers that Anay was no longer a part of the company. Anay then demanded that the company be audited and her shares be given to her.

ISSUE: Whether or not there is a partnership.

HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in any form. The fact that it was registered as a sole proprietorship is of no moment for such registration was only for the companys trade name.

Anay was not even an employee because when they ventured into the agreement, they explicitly agreed to profit sharing this is even though Anay was receiving commissions because this is only incidental to her efforts as a head marketer.

The Supreme Court also noted that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits realized from the appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled.

An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve the partnership.

Tocaos unilateral exclusion of Anay from the partnership is shown by her memo to the Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.

SANTOS VS REYES 368 SCRA 261

FACTS:

- Petitioner Fernando Santos, Respondent Nieves Reyes and

Meliton Zabat started a lending Business venture together proposed by Nieves. It was agreed on the Articles of Agreement that petitioner will get 70% of the profits and Nieves and Zabat would earn 15% each.

- Nievas introduced Gragera (chairman of Monte Maria Development Corporation) to petitioner, and sought short term loans for its members and with an agreement that Monte Maria will be entitled to P1.31 commission per thousand paid daily. Nieves acted as bookkeeper while her husband Arsenio acted as credit investigator.

- Gragera complained that his commissions were inadequately remitted. This prompt petitioner to file a complaint against respondent allegedly in their capacities as employees of petitioner, with having misappropriated funds.

ISSUE: Whether or not the business relationship between petitioner and respondent was one of partnership

HELD

YES

Nieves herself provided the initiative in the lending activities with Monte Maria.

- The fact that in their Articles of Agreement, the parties agreed to divide the profits of a lending business in a 70-15-15, manner, with petitioner getting the lions share proved the establishment of a partnership, even when the other parties to the agreement were given separate compensation as bookkeeper and creditor investigator.

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. (Art. 1767 NCC)

MORAN JR. v. COURT OF APPEALS 133 SCRA 88 (1984)

Facts:

Moran and Pecson agreed to contribute P15 000 each for the purpose of printing 95 000 posters of the delegates to the then 1971 Constitutional Commission. It was further agreed that Pecson will receive a commission of P 1000 a month and that the partnership is to be liquidated on December 15, 1971.

Pecson partially fulfilled his obligation when he issued P10k in favor of the partnership. He gave the P10k to Moran as the managing partner. Moran however did not add anything and, instead, he only used P4k out of the P10k in printing 2,000 posters. He only printed 2,000 posters. All the posters were sold for a total of P10k.

Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of Appeals affirmed the decision but modified the same as it ordered Moran to pay P47.5k for


13

unrealized profit; P8k for Pecsons monthly commissions; P7k as return of investment because the venture never took off; plus interest.

Issue: Whether or not the Court of Appeals erred in holding Moran liable to respondent Pecson in the sum of P47,500 as the supposed expected profits due him.

Ratio:

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The award of speculative damages has no basis in fact and law.

The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code. In this case, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.

There is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent

Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits

Bastida vs Menzi

Facts: Bastida offered to assign to Menzi & Co. his contract with Phil Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other orders for 50 % of the net profit that Menzi & Co., Inc., might derive therefrom. J. M. Menzi (gen. manager of Menzi & Co.) accepted the offer. The agreement between the parties was verbal and was confirmed by the letter of Menzi to the plaintiff on January 10, 1922. Pursuant to the verbal agreement, the defendant corporation on April 27, 1922 entered into a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action. Still, the fertilizer business as carried on in the same manner as it was prior to the written contract, but the net profit that the plaintiff herein shall get would only be 35%. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in the bodegas of Menzi. Prior to the expiration of the contract (April 27, 1927), the manager of Menzi notified the plaintiff that the contract for his services would not be renewed. Subsequently, when the contract

expired, Menzi proceeded to liquidate the fertilizer business in question. The plaintiff refused to agree to this. It argued, among others, that the written contract entered into by the parties is a contract of general regular commercial partnership, wherein Menzi was the capitalist and the plaintiff the industrial partner.

Issue: Is the relationship between the petitioner and Menzi that of partners?

Held: The relationship established between the parties was not that of partners, but that of employer and employee, whereby the plaintiff was to receive 35% of the net profits of the fertilizer business of Menzi in compensation for his services for supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. The written contract was, in fact, a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for onehalf of the net profits derived by the corporation form certain fertilizer contracts. According to Art. 116 of the Code of Commerce, articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter what it class may be, provided it has been established in accordance with the provisions of the Code. However in this case, there was no common fund. The business belonged to Menzi & Co. The plaintiff was working for Menzi, and instead of receiving a fixed salary, he was to receive 35% of the net profits as compensation for his services. The phrase in the written contract en sociedad con, which is used as a basis of the plaintiff to prove partnership in this case, merely means en reunion con or in association with. It is also important to note that although Menzi agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary credit.

Estanislao, Jr. v. Court of Appeals

G.R. No. L-49982 April 27, 1988 Facts: Petitioner and private respondents are brothers and sisters who are co-owners of certain lots which were then being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL. They agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. It was agreed that petitioner would apply for the dealership. Respondent Remedios helped in managing the business with petitioner. Later the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso


14

that said agreement cancels and supersedes the Joint Affidavit executed by the co-owners. For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but therafter petitioner failed to render subsequent accounting. Private respondents filed a complaint in the Court of First Instance of Rizal against petitioner praying among others that the latter be ordered: (1) to execute a public document embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code; (2) to render a formal accounting of the business operation up to the time the order is issued and that the same be subject to proper audit; (3) to pay the plaintiffs their lawful shares and participation in the net profits of the business. The trial court dismissed the complaint. Private respondents moved for reconsideration. The dismissal was set aside and the trial court rendered in their favor. Petitioner appealed, the appellate court affirmed in toto the decision of the trial court and denied the subsequent motion for reconsideration. Hence, this petition for certiorari. Petitioner argued that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated. Issue(s): Whether or not a partnership exists between members of the same family arising from their joint ownership of certain properties Held: We find no merit in [petitioners] argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of petitioner. Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the business. Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their common business (aming negosyo). Respondent Remedios assisted in the running of the business. There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the

intention of dividing the profits among themselves. The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products. VICENTE SY, TRINIDAD PAULINO, 6BS TRUCKING

CORPORATION, and SBT[1] TRUCKING CORPORATION, petitioners, vs. HON. COURT OF

APPEALS and JAIME SAHOT, respondents.

This petition for review seeks the reversal of the decision[2] of the Court of Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with modification the decision[3] of the National Labor Relations Commission promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners also pray for the reinstatement of the decision[4] of the Labor Arbiter in NLRC NCR Case No. 00-09-06717-94.

Culled from the records are the following facts of this case:

Sometime in 1958, private respondent Jaime Sahot[5] started working as a truck helper for petitioners family-owned trucking business named Vicente Sy Trucking. In 1965, he became a truck driver of the same family business, renamed T. Paulino Trucking Service, later 6Bs Trucking Corporation in 1985, and thereafter known as SBT Trucking Corporation since 1994. Throughout all these changes in names and for 36 years, private respondent continuously served the trucking business of petitioners.

In April 1994, Sahot was already 59 years old. He had been incurring absences as he was suffering from various ailments. Particularly causing him pain was his left thigh, which greatly affected the performance of his task as a driver. He inquired about his medical and retirement benefits with the Social Security System (SSS) on April 25, 1994, but discovered that his premium payments had not been remitted by his employer.

Sahot had filed a week-long leave sometime in May 1994. On May 27th, he was medically examined and treated for EOR, presleyopia, hypertensive retinopathy G II (Annexes G-5 and G-3, pp. 48, 104, respectively),[6] HPM, UTI, Osteoarthritis (Annex G-4, p. 105),[7] and heart enlargement (Annex G, p. 107).[8] On said grounds, Belen Paulino of the SBT Trucking Service management told him to file a formal request for extension of his leave. At the end of his week-long absence, Sahot applied for extension of his leave for the whole month of June, 1994. It was at this time when petitioners allegedly threatened to terminate his employment should he refuse to go back to work.

At this point, Sahot found himself in a dilemma. He was facing dismissal if he refused to work, But he could not retire on pension because petitioners never paid his correct SSS premiums. The fact remained he could no longer work as his left thigh hurt abominably. Petitioners ended his dilemma.


15

They carried out their threat and dismissed him from work, effective June 30, 1994. He ended up sick, jobless and penniless.

On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch, a complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-06717-94. He prayed for the recovery of separation pay and attorneys fees against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy Trucking, T. Paulino Trucking Service, 6Bs Trucking and SBT Trucking, herein petitioners.

For their part, petitioners admitted they had a trucking business in the 1950s but denied employing helpers and drivers. They contend that private respondent was not illegally dismissed as a driver because he was in fact petitioners industrial partner. They add that it was not until the year 1994, when SBT Trucking Corporation was established, and only then did respondent Sahot become an employee of the company, with a monthly salary that reached P4,160.00 at the time of his separation.

Petitioners further claimed that sometime prior to June 1, 1994, Sahot went on leave and was not able to report for work for almost seven days. On June 1, 1994, Sahot asked permission to extend his leave of absence until June 30, 1994. It appeared that from the expiration of his leave, private respondent never reported back to work nor did he file an extension of his leave. Instead, he filed the complaint for illegal dismissal against the trucking company and its owners.

Petitioners add that due to Sahots refusal to work after the expiration of his authorized leave of absence, he should be deemed to have voluntarily resigned from his work. They contended that Sahot had all the time to extend his leave or at least inform petitioners of his health condition. Lastly, they cited NLRC Case No. RE-4997-76, entitled Manuelito Jimenez et al. vs. T. Paulino Trucking Service, as a defense in view of the alleged similarity in the factual milieu and issues of said case to that of Sahots, hence they are in pari material and Sahots complaint ought also to be dismissed.

The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente Santos, ruled that there was no illegal dismissal in Sahots case. Private respondent had failed to report to work. Moreover, said the Labor Arbiter, petitioners and private respondent were industrial partners before January 1994. The Labor Arbiter concluded by ordering petitioners to pay financial assistance of P15,000 to Sahot for having served the company as a regular employee since January 1994 only.

On appeal, the National Labor Relations Commission modified the judgment of the Labor Arbiter. It declared that private respondent was an employee, not an industrial partner, since the start. Private respondent Sahot did not abandon his job but his employment was terminated on account of his illness, pursuant to Article 284[9] of the Labor Code. Accordingly, the NLRC ordered petitioners to pay private respondent separation pay in the amount of P60,320.00, at the rate of P2,080.00 per year for 29 years of service.

Petitioners assailed the decision of the NLRC before the Court of Appeals. In its decision dated February 29, 2000, the appellate court affirmed with modification the judgment of the NLRC. It held that private respondent was indeed an employee of petitioners since 1958. It also increased the amount of separation pay awarded to private respondent to P74,880, computed at the rate of P2,080 per year for 36 years of service from 1958 to 1994. It decreed:

WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION. SB Trucking Corporation is hereby directed to pay complainant Jaime Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY (P74,880.00) PESOS as and for his separation pay.[10]

Hence, the instant petition anchored on the following contentions:

I

RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED] DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH LAW AND PUT AT NAUGHT ARTICLE 402 OF THE CIVIL CODE.[11]

II

RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS NATIONAL CAPITAL REGION (305 SCRA 233).[12]

III

PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING CORPORATION.[13]

Three issues are to be resolved: (1) Whether or not an employer-employee relationship existed between petitioners and respondent Sahot; (2) Whether or not there was valid dismissal; and (3) Whether or not respondent Sahot is entitled to separation pay.

Crucial to the resolution of this case is the determination of the first issue. Before a case for illegal dismissal can prosper, an employer-employee relationship must first be established.[14]

Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos which found that respondent Sahot was not an employee but was in fact, petitioners industrial partner.[15] It is contended that it was the Labor Arbiter who


16

heard the case and had the opportunity to observe the demeanor and deportment of the parties. The same conclusion, aver petitioners, is supported by substantial evidence.[16] Moreover, it is argued that the findings of fact of the Labor Arbiter was wrongly overturned by the NLRC when the latter made the following pronouncement:

We agree with complainant that there was error committed by the Labor Arbiter when he concluded that complainant was an industrial partner prior to 1994. A computation of the age of complainant shows that he was only twenty-three (23) years when he started working with respondent as truck helper. How can we entertain in our mind that a twenty-three (23) year old man, working as a truck helper, be considered an industrial partner. Hence we rule that complainant was only an employee, not a partner of respondents from the time complainant started working for respondent.[17]

Because the Court of Appeals also found that an employer-employee relationship existed, petitioners aver that the appellate courts decision gives an imprimatur to the illegal finding and conclusion of the NLRC.

Private respondent, for his part, denies that he was ever an industrial partner of petitioners. There was no written agreement, no proof that he received a share in petitioners profits, nor was there anything to show he had any participation with respect to the running of the business.[18]

The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employers power to control the employees conduct. The most important element is the employers control of the employees conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.[19]

As found by the appellate court, petitioners owned and operated a trucking business since the 1950s and by their own allegations, they determined private respondents wages and rest day.[20] Records of the case show that private respondent actually engaged in work as an employee. During the entire course of his employment he did not have the freedom to determine where he would go, what he would do, and how he would do it. He merely followed instructions of petitioners and was content to do so, as long as he was paid his wages. Indeed, said the CA, private respondent had worked as a truck helper and driver of petitioners not for his own pleasure but under the latters control.

Article 1767[21] of the Civil Code states that in a 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.[22] Not one of these circumstances is present in this case. No written agreement exists to prove the partnership between the parties. Private respondent did not contribute money, property or industry for the purpose of engaging in the supposed business. There is no proof that he was receiving a share in the profits as a matter of course

partnership and agency case digests

Documents

petitioner tocao

consent of tocao

guarantor of tocao

unpaid overriding commission

commission o

west bend company

private respondent nenita

west bend cookware sets