partnetrship digest set 1 updated

Agency, Trusts, Partnerships and Joint Ventures Case Digests | Atty. Joaquin Obieta | 2014

Ayson Dagdag Dela Cruz De Mesa Ledesma Lim Millan Miranda Molaer Pacamarra Rivera Rubinos Santos So Chan Sorongon Tamondong Torcuator Velena Yogue

Partnership Digests SET 1

Contents: Cases from EUFEMIA EVANGELISTA ET AL. VS. COLLECTOR OF REVENUE, until MORA v. MATIC



1. EUFEMIA EVANGELISTA ET AL. VS. COLLECTOR OF REVENUE

Formation of a Partnership CASE:

Petitioners were sentenced by the Court of Tax Appeals to pay taxes for corporations from 1945 to 1948. Petitioners challenge the said decision alleging that they are not subject to the tax on corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, wherein partnerships are also covered. They allege that their activities do not constitute a partnership but rather they are merely co-owners. The Supreme Court Held that the series of acts made petitioners undeniably constitute a partnership, hence they are liable to pay the said taxes. Petition is dismissed and the decision of the Court if tax Appeals affirmed.

FACTS:

• This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of the Court of Tax Appeals.

• The petitioners stipulated the following: - That the petitioners borrowed from their father the sum

of P59,1400.00;

- That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00;

- That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00;

- That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including improvements thereon for P108,825.00.

- That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements thereon for P237,234.34.

- That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them;

- That after having bought the above-mentioned real properties the petitioners had the same rented or leases to various tenants.

• On September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949.

• The letter of demand was delivered to petitioners which prompted them to file the instant action in the Court of Tax Appeals. Petitioners challenge the said decision alleging that they are not subject to the tax on corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, wherein partnerships are also covered. They allege that their activities do not constitute a partnership but rather they are merely co-owners.

• The Court affirmed the said letter and denied the motion for reconsideration, hence the present petition.

ISSUES:

• Whether or not the petitioners formed a partnership thus making them liable for tax on corporations under section 24 of Commonwealth Act No. 466.

HELD:

• YES, petitioners formed a partnership.



• Article 1767 of the Civil Code of the Philippines provides: "By the contract of partnership two or more persons bind themselves to contribute money, properly, or industry to a common fund, with the intention of dividing the profits among themselves."

• Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry

to a common fund; and (b) intent to divide the profits among the contracting parties.

• The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and property to a common fund.

• The issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances surrounding the case, the court is fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves, because:

- Said common fund was not something they found already in existence. It was not property inherited by them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund.

- They invested the same, not merely not merely in one transaction, but in a series of transactions.

- The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties were leased separately to several persons.

- The properties have been under the management of one person, namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks.

• Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein.

• Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by them, a legal entity, with a personality independent of that of its members, did not come into existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals.

Final Verdict: Petition is dismissed, the decision of the Court of Tax Appeals is affirmed.



2. LAGUNA TRANSPORTATION CO. V. SSS (Where a corporation was formed by, and consisted of members of a partnership, such corporation is presumed to have assumed partnership debts, and is prima facie liable therefor.) CASE: Petitioner Laguna Transportation Co., Inc. filed with the CFI of Laguna a petition praying that an order be issued by the court declaring that it is not bound to register as a member of respondent SSS, and therefore not obliged to pay to the latter the contributions required under the Social Security Act. The corporation started out as a partnership, and later converted it into a corporate entity by registering its articles of incorporation with the Securities and Exchange Commission, but nevertheless continued the nature of the business. The Court held that there was no transfer of interest, but a mere change in the form of the organization. As a rule, Courts will look into the substance and not the form. The corporation is presumed to have assumed partnership debts, and is prima facie

liable. FACTS:

Gonzalo Mercado, Artemio Mercado, Florentina Mata and

Dominador vera Cruz, commenced the operation of its

business as a common carries on April 1, 1949.

o They later converted the partnership into a corporate

entity, by registering its artiecles of incorporation

with the SEC on June 20, 1956.

o The firm name “Laguna Transportation Company”

was not altered, except with the addition of the word

“Inc.” to indicate that they were duly incorporated

under existing laws.

January 24 1958 (The SS Act was implemented): Laguna

Transpo Inc. filed with the CFI of Laguna a petition praying

that an order be issued by the court sating that they are not

bound to register as a member of SSS, and not bound to

pay.

o The lower Court declared that petitioner was an

employer engaged in business as a common carrier

which had been in operation for at least two years

prior to the enactment of the Social Securities Act

o Section 9 of the Social Security Act, in part,

provides:

"SEC. 9. Compulsory Coverage.—

Coverage in the System shall be

compulsory upon all employees between the ages of sixteen and sixty years, inclusive, if they have been for at least six months in the service of an employer who is a member of the System. Provided,That the Commission may not compel any employer to become a member of the System unless he shall have been in operation for at least two years* * *." (Italics supplied.)

ISSUE: 1. WON petitioner acquired a new independent juridical entity

when it was incorporated, and thus not included in the Social

Security Act

HELD+RATIO: 1. NO. Laguna Transpo Inc. did not acquire a new juridical

entity when it changed itself from an unregistered

partnership to a corporation.

a. To adopt petitioner's argument would defeat, rather

than promote, the ends for which the Social

Security Act was enacted.

i. An employer could easily circumvent the

statute by simply changing his form of

organization every other year, and then

claim exemption from contribution to the

System as required, on the theory that, as

a new entity, it has not been in

operation for a period of at least 2 years.



ii. The door to fraudulent circumvention of the

statute would, thereby, be opened.

iii. Finally, the weight of authority supports the

view that where a corporation was formed

by, and consisted of members of a

partnership whose business and property

was conveyed and transferred to the

corporation for the purpose of continuing

its business, in payment for which corporate

capital stock was issued, such corporation is

presumed to have assumed partnership

debts, and is prima facie liable

FINAL VERDICT: Petition denied, with costs against petitioner-appellant.

3. TUAZON v. BOLANOS Art. 1768: Partnership as a juridical person

CASE: Plaintiff (Tuazon) filed this action to recover possession of 13

hectares of registered land situated in Tatalon, Quezon City. Plaintiff was represented by JM Tuazon&Co. Inc. through Gregorio Araneta, who acts as the managing partner for plaintiff. The defendant questioned personality of Araneta not being a real party in interest.

The SC ruled for the plaintiff. There is nothing against one corporation being represented by another person, natural or juridical, in a suit in court, for the true rule is that "although 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."

FACTS:

Plaintiff (Tuazon) filed this action to recover possession of 13 hectares of registered land situated in Tatalon, Quezon City. The land is registered under the plaintiff‟s name under a Transfer Certificate Title.

o Plaintiff was represented by JM Tuazon&Co. Inc. through Gregorio Araneta, who acts as the managing partner for plaintiff.

In his answer, defendant (Bolanos) set up prescription and title in himself thru “open, continuous, exclusive and public and notorious possession (of the land in dispute) under claim of ownership, adverse to the entire world by defendant and his predecessors in interest.”

Lower Court: Rendered judgment for plaintiff, declaring defendant to be without any right to the land in question and ordering him to restore possession to plaintiff and to pay the latter a monthly rent until he vacates the land.

ISSUES:

1. W/N the trial court erred in not dismissing the case on the ground that the case was not brought by the real party in interest.



HELD & RATIO: 1. NO, the trial court did not err. There is nothing to the

contention that the present action is not brought by the real party in interest, that is, by JM Tuason&Co Inc.

Main point: Corporation as a party may be represented by another person, natural or juridical.

o Defendant‟s contention: 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.

o Rule: "although 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."

o SC: There is nothing in the record to indicate that the venture in which plaintiff is represented by Greogorio Araneta Inc. as “its managing partner” is not in line with the corporate business of either of them.

Minor point: The practice is for an attorney-at-law to bring the action, that is, to file the complaint, in the name of the plaintiff.

o Section 2, Rule 2. of the Rules of Court requires that an “action be brought in the name of, but not necessarily by, the real property interest.”

o SC: That practice appears to have been followed in this case, since the complaint is signed by the law firm of Araneta & Araneta, "counsel for plaintiff" and commences with the statement "Comes now plaintiff, through its undersigned counsel."

FINAL VERDICT: Judgment appealed from is affirmed with cost against the appellant.

Additional information:

Minor issue 1: The plaintiff‟s complaint was amended three times, amending the size of the land from 13 to 6 to 13 hectares. The SC said: “Where the facts shown entitled plaintiff to relief other than that asked for, no amendment to the complaint is necessary, especially where defendant has himself raised the point on which recovery is based, and the appellate court may treat the pleading as amended to conform to the evidence, although the pleadings were not actually amended.”

Minor issue 2: Defendant alleges fraud, error and lack of notice on the registration of the disputed land. The Court held that the “as the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914, the decree of registration can no longer be impugned on the ground of fraud, error or lack of notice to defendant, as more than one year has already elapsed ex rom the issuance and entry of the decree.



4. WOODHOUSE v. HALILI A party cannot be compelled by the court to execute a contract to

form a partnership (Contract to form a partnership is an obligation to do)

CASE: Woodhouse and Halili entered into an agreement to form a partnership for the bottling and distribution of Mission softdrinks in the Philippines wherein the former will act as an industrial partner or manager and would secure the exclusive franchise of the beverage brand and the latter will act as a capitalist. Halili was lured to give a huge chunk of the net profit (30%) to Woodhouse because Woodhouse‟s ability to get the franchise. Woodhouse later filed a compaint against Halili asking for the execution of the partnership papers, the accounting of profits and his shares thereon, and P200,000 for damages when Halili refused to give Woodhouse‟s allowances, the withrawal of the use of a car, and Halili‟s refusal to carry out the partnership papers after the attainment of the P50,000 increase in sales. The main contention in this instant case is whether or not the court may compel a party (Halili) to carry out or execute partnership papers (or to execute a contract to form a partnership) The Court ruled that NO, Halili may not be compelled to carry out or execute partnership papers. Under the Spanish Code, in a contract to form a partnership, each party (like Halili) has an obligation to do (not to give). The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. The execution of a contract to form a partnership falls within what Spanish commentators call a very personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of violence to do so.

FACTS:

Woodhouse and Halili entered into a written agreement stipulating the following:

o Organize a partnership for the bottling and distribution of Mission softdrinks

Designations/Roles in the Partnership

WOODHOUSE HALILI

act as industrial partner or manager

act as a capitalist, furnishing the necessary capital

Atttend to the operation and development of the bottling plant

Decide matters of general policy regarding the business

Secure the Mission Soft Drinks franchise for and behalf of the proposed partnership

Receive 30% of the net profits Receive 70% of the net profits

Woodhouse had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing its name, that he had interested a prominent financier (Halili) in the business, who was willing to invest half a million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him, that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transferred to the corporation

Woodhouse was given “a 30 days” option on exclusive bottling and distribution of the beverages

Formal negotiations between the parties together with their respective lawyers began on November 27, 1947. Woodhouse‟s lawyers had prepared a draft of agreement before the meeting. However, it was not satisfactory because a partnership, not a corporation, was desired.

The contract, prepared by Halili‟s lawyer, was finally signed by Woodhouse on December 3, 1947.

A franchise agreement was entered into with Mission Dry Corporation and/or Halili and and Woodhouse. Pursuant to this, Halili was granted the exclusive right, license, and authority to produce, bottle, distribute, and sell Mission beverages in the Philippines.

Woodhouse reported for duty in January 1948. But operations started on the first week of February 1948.



Received by Woodhouse from the partnership on account of profit: (1) P2000 and the use of a car (January as an advance); (2) P2000 (February); (3) P1,000 (March)

o The car was withdrawn on March 9, 1948

Woodhouse demanded the execution of the partnership papers when the bottling plant began with the operations to no avail.

o Halili promised to do so after the sales of the product had been increased to P50,000

o However, despite of the attainment of increased sales, Halili did not execute the partnership papers and even refused to give Woodhouse‟s allowances.

Woodhouse filed a complaint against Halili praying for the following:

o the execution of the contract of partnership o an accounting of the profits o his 30% share in profits o P200,000 for damages

Halili alleges the following in his Answer: o Halili‟s consent to the partnership agreement was

secured by the representation of Woodhouse that he was the owner (or about to become the owner) of the exclusive bottling franchise which later turned out to be false. Woodhouse did not secure the franchise. Such was instead given to Halili himself.

o Woodhouse failed to carry out his undertakings. o Woodhouse agreed to contribute the exclusive

franchise to the partnership but failed to do so. o Halili also claimed for P200,000 for damages

The CFI ruled that the execution of the contract of partnership could not be enforced upon the parties. It also held that the defense of fraud was not proved. It ordered Halili to:

o Render an accounting of the profits o Pay Woodhouse 15% of the profits

Deciding on whether or not the false representation ir fraud of Woodhouse, if it existed, annuls the agreement to form the partnership, the trial court declared that it is highly improbable that Halili was never shown the letter granting Woodhouse the franchise. It further ruled that fraud is never

presumed and must be proved. Considering that both parties were represented by their attorneys, and if any part got the worse part of the bargain, such fact will not invalidate the agreement.

ISSUE: Whether or not the court may compel a party against his will to carry out an agreement or execute the partnership papers (or to execute a contract to form a partnership) HELD & RATIO: NO, Halili may not be compelled by the court against his will to carry out the agreement nor execute the partnership papers PARTNERSHIP

The trial court correctly concluded that Halili cannot be forced to carry out or execute partnership papers.

o Under the Spanish Civil Code, in a contract to form a partnership, each party (like Halili) has an obligation to do (not to give).

o The law recognizes the individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. The execution of a contract to form a partnership falls within what Spanish commentators call a very personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of violence to do so.

The Court disproved Woodhouse‟s claim that their the partnership was already a fait accompli from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intended that the execution of the agreement to form a partnership was to be carried out at a later date.

o They expressly agreed that they shall form a partnership. As a matter of fact, from the time that the franchise from the Mission Dry Corporation was obtained in California, Woodhouse himself had been demanding



that Halili comply with the agreement. And Woodhouse‟s present action seeks the enforcement of this agreement.

Other doctrines: FALSE REPRESENTATION

The parol evidence proves that Woodhouse indeed falsely represented himself to have been a grantee of the exclusive franchise. Moreover, Woodhouse‟s agreement to the reduction of his own share (from 30% to 15% in the net profits) when Halili learned that Woodhouse did not own an exclusive franchise, only clarifies the latter‟s false representation.

The Court declared that the fact that the principal consideration, the main cause that induced Halili to enter into the partnership agreement with Woodhouse, was the ability of Woodhouse to get the exclusive franchise to bottle and distribute for Halili or for the partnership. Halili would not have entered into the agreement to form a partnership had he known of Woodhouse‟s false pretenses.

o Although such false representation did not vitiate Halili‟s consent, Woodhouse‟s lies led Halili to give him a large chunk of the profit share.

FINAL VERDICT: Woodhouse‟s 15% share of the net profits shall continue to be paid while Halili uses the franchise from the Mission Dry Corporation. With the modification above indicated, the judgment appealed from is hereby affirmed.

5. EVANGELISTA AND CO. VS ABAD SANTOS Venue in Criminal Cases is Jurisdictional (see syllabus for topic)

CASE: Petitioners here are capitalist partners for the company Evangelista & Co. They claim that Estrella is not an industrial partner, and that the Articles of Partnership fail to show the intent that Estrella is not a partner until the company loan secured by her property is paid and that Estrella is only entitled to 30% of the income. Furthermore she cannot was in violation of the partnership as a judge in that she cannot do any other profession with a conflict-of interest. The court held that Estrella is a partner proven by the documents she submitted and that her being a judge is no reason to deprive her of the partnership since there is clearly no conflict of interest and when the partnership was incorporated they knew that Estrella was a judge already.

FACTS:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad Santos, as industrial partner.

The amended Articles provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

Petitioners claim that the Amended Articles of Co-partnership did not express the true agreement of the parties, which was that the plaintiff was not an industrial partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to be based on the profits which might be realized by the partnership only



until full payment of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged her property as security.

ISSUES:

Whether Estrella is an industrial partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants

HELD & RATIO: YES, Estrella is an industrial partner with the right to demand for a formal accounting and to receive her share in the net profit that may result from such an accounting

2. Exhibits of documents indubitably show the appellee is an industrial partner of appellant company. Petitioners are virtually estopped from attempting to detract from the probative force of the said exhibits because they all bear the imprint of their knowledge and consent, and there is no credible showing that they ever protested against or opposed their contents prior of the filing of their answer to Estrella‟s complaint.

3. Petitioner‟s also give argument that given that Estrella was a judge she could not give her time and effort as an industrial partner. It is a fact that even before the Amended Articles of Partnership the petitioners already knew that Estrella was a judge

ART. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.'

o This article applies in order to prevent a conflict of interest with a partner. In this case, there is no conflict of interest with Estrella‟s work as a judge and as an industrial partner in the corporation.

FINAL VERDICT: Petition Denied



6. MORAN, JR. vs. CA Art. 1767-1783 (under the syllabus) but

discusses Arts. 1786 and 1788

CASE: Pecson and Moran entered into a partnership for the purpose of printing 95,000 posters featuring the delegates to the 1971 Constitutional Convention. Under their agreement, each of them will invest P15,000, Moran will supervise the work and that Pecson will receive a commission of P1,000 a month for 8 months. Pecson contributed P10,000 and another P7,000 as his investment for the Voice of the Veteran or Delegate Magazine (another project). Moran on the other hand failed to give his contribution but instead issued a promissory note (PN) in favor of Pecson for P20,000. Out of 95,000 posters originally planned, only 2,000 copies were produced. Pecson filed with the CFI of Manila an action for the recovery of sums of money under their partnership agreement and under the PN. The CA ordered Moran to pay to Pecson P47,500 expected profits, P8,000 commission, P7,000 as return of investment for the Veterans Project and interests thereon. Petitioner Moran appealed from this decision. The issue in this case is whether or not the CA erred in holding Moran liable for the said amounts. (a) For the expected profits, the Court held that the award has no basis in fact and law. Being a contract of partnership, each partner must share in the profits and losses of the venture (I think this is the doctrine related to Sec. 1767). 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. (b) The agreement does not state the basis of the commission. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the commission. (c) There is no basis to return the investment. The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed and the failure should not be borne by the managing partner alone. The SC instead ordered Moran to pay Pecson the amount of his unused contribution and ½ share in the net profit of the partnership.

FACTS:

Pecson and Moran entered into an agreement for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention) whereby:

both would contribute P15,000 each Moran will supervise the work Pecson would receive a commission of P l,000 a

month for 8 months

Pecson gave Moran P10,000 as his contribution, P4,000 of which was used for the printing of the posters. He also gave an additional P7,000 as his investment for the Voice of the Veteran or Delegate Magazine.

Moran failed to give his full contribution.

Moran executed in favor of Pecson a promissory note in the amount of P20,000 payable in two equal installments.

Out of 95,000 posters originally planned, only 2,000 copies were produced.

Pecson filed with the CFI of Manila an action for the recovery of sums of money under their partnership agreement and under the PN.

The CA ordered Moran to pay to Pecson the following: (a) P47,500 (the amount that could have accrued to Pecson under their agreement); (b) P8,000, (the commission for eight months); (c) P7,000 (as a return of Pecson's investment for the Veteran's Project); (d) Legal interest on (a), (b) and (c)

Moran appealed from the award. Hence this petition. ISSUE:

2. Whether or not the CA erred in holding Moran liable for the amounts awarded to Pecson.

HELD & RATIO: 4. YES.

a.) P47,500.00 as Pecson‟s share in the unrealized profits of the partnership



The award of speculative damages has no basis in fact and law.

o 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.

o In this case, however, there was mutual breach. Pecson failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. Moran 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 dispute that the agreement between the petitioner and the private respondent is a contract of partnership. 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).

o 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. It is a rare business venture guaranteed to give 100% profits.

o The failure of the Commission on Elections to proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. Moran merely used his best business judgment and felt that

it would be a losing venture to go on with the printing of the agreed 95,000 copies of the posters.

b.) P8,000 commission

Pecson's supposed commission has no justifiable basis in law.

o The partnership agreement does not state the basis of the commission. The payment of the commission could only have been predicated on relatively extravagant profits.

o The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission.

c.) P7,000.00 as a supposed return of investment

The return of investment has no basis for it would be error to state that the project never took place.

o The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed.

o There are risks in any business venture and the failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best business judgment, which seems to be true in this case.

FINAL VERDICT: Moran is liable to Pecson for the following amounts:

1. P6,000.00 representing the amount of the private respondent's contribution to the partnership but which remained unused (P10,000 contribution – P4,000 cost of printing of posters)



2. P3,000.00 representing one half (1/2) of the net profits gained by the partnership (P6,000 / 2) Sales P10,000 (2,000 copies sold for P5 each) Printing cost (P4,000) Net Profit P6,000

3. Interests at the legal rate on both amounts from the date the complaint was filed until full payment is made.

7. THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI, petitioners, vs. SULPICIO V. CEA, in his capacity as Judge of

the Court of First Instance of Leyte and OLEGARIO LASTRILLA, respondents.

FACTS

In civil case No. 193 of the Court of First Instance of Leyte, which is a suit for damages by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and Raymond Tomassi against the Far Eastern Lumber & Commercial Co. (unregistered commercial partnership hereinafter called FELCO), Arnold Hall, Fred Brown and Jean Roxas, rendered judgment against defendants jointly and severally for the amount of P31,589 plus cost on October 29, 1948.

The Court of Appeals confirmed the award in November 1950, minus P2,000 representing attorney's fees mistakenly included. The decision having become final, the sheriff sold at auction on June 9, 1951 to Robert Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of the defendants in certain buildings and properties described in the certificate, for a total price of eight thousand and one hundred pesos.

On June 4, 1951 Olegario Lastrilla filed in the case a motion, wherein he claimed to be the owner by purchase on September 29, 1949, of all the "shares and interests" of defendant Fred Brown in the FELCO. Over the plaintiffs' objection the judge in his order of June 13, 1951, granted Lastrilla's motion by requiring the sheriff to retain 17 per cent of the money And on motion of Lastrilla, the court on August 14, 1951, modified itsorder of delivery and merely declared that Lastrilla was entitled to 17 per cent of the properties sold.Hence, this petition for "Certiorari and Prohibition with preliminary Injunction" praying for the additional writ of mandamus.

ISSUE: (a) whether or not Lastrilla is a partner of FELCO, having purchased the share and interest of defendant Fred Brown after CFI rendered



anunfavorable judgment, but prior to the auction sale, hence he can claim to the proceeds of the sale? (b) whether or not there was grave abuse of discretion on the part of the judge in granting lastrilla's motion and ordering the delivery to him of the17% of the properties. HELD (a) In the situation it we can conclude that on June 9, 1951 when the sale was effected of the properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastilla was already a partner of FELCO. Now, does Lastrilla have any proper claim to the proceeds of the sale? If he was a creditor of the FELCO, perhaps or maybe. But he was not. The partner of a partnership is not a creditor of such partnership for the amount of his shares. That is too elementary to need elaboration. (b) On this score the respondent judge's action on Lastrilla's motion should be declared as in excess of jurisdiction, which even amounted to want of jurisdiction, considering specially that Dorfe and Austrias, and the defendants themselves, had undoubtedly the right to be heard but they were not notified. Varied interests of necessity make Dorfe, Asturias and the defendants indispensable parties to the motion of Lastrilla. A valid judgment cannot be rendered where there is a want of necessary parties, and a court cannot properly adjudicate matters involved in a suit when necessary and indispensable parties to the proceedings are not before it. In view of the foregoing, it is our opinion, and we so hold, that all orders of the respondents judge requiring delivery of 17 per cent of the proceeds of the auction sale to respondent Olegario Lastrilla are null and void.

8. COMMISSIONER OF INTERNAL REVENUE V. WILLIAM J. SUTER AND THE COURT OF TAX APPEALS

CASE: The present case is a petition for review, filed by the CIR, of the tax court‟s decision.

A limited partnership William J. Suter „Morcoin‟ Co., Ltd. was formed by respondent William J. Suter as the general partner. In 1948, he and limited partner Julia Spirig got married. Thereafter, Gustav Carlson, another limited partner, sold his share in the partnership to Suter and his wife. The limited partnership had been filing its income tax returns as a corporation, without objection by the CIR, until in 1959 when the latter consolidated the income of the firm and the individual incomes of the partners-spouses which resulted in determination of a deficiency income tax against respondent Suter. Respondent protested and requested the cancellation and withdrawal of the assessment but it was denied.

The issue is whether or not the partnership was dissolved after the marriage of the partners and the subsequent sale of Gustav Carlson‟s share.

The Supreme Court held that the partnership was not dissolved since what the law prohibits was when the spouses entered into a general partnership. In the case at bar, the partnership was limited.

FACTS:

September 30, 1947: A limited partnership, named “William J. Suter „Morcoin‟ Co., Ltd.,” was formed by herein respondent William J. Suter as the general partner.

o Julia Spirig and Gustav Carlson as the limited partners.

o The partners contributed P20,000.00, P18,000.00 and P2,000.00 to the partnership, respectively.

October 1, 1947: the limited partnership was registered with the SEC

o The firm engaged in the importation, marketing, distribution and operation of automatic pornographs,



radios, television sets and amusement machines, their parts and accessories.

o It had an office and held itself out as a limited partnership.

In 1948, general partner Suter and limited partner Spirig got married

December 18, 1984: limited partner Carlson sold his share in the partnership to Suter and his wife

o The sale was duly recorded with the SEC on December 20, 1948

The limited partnership had been filing its income tax returns as a corporation, without objection by the CIR, until in 1959 when the latter consolidated the income of the firm and the individual incomes of the partners-spouses

o This resulted in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 (1954) and P4,567.00 (1955).

Respondent protested the assessment, and requested its cancellation and withdrawal – but was denied.

Respondent appealed to the Court of Tax Appeals which rendered a decision on November 11, 1969 reversing that of the CIR.

ISSUES: (There are two issues in this case but I think only the second one is relevant. )

3. Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

HELD & RATIO:

1. NO. The partnership was not dissolved. “A husband and a wife may not enter into a contract of general co-partnership, because under the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. It follows that the marriage of partners necessarily brings about the dissolution of a pre-existing partnership.”

a. The petitioner-appellant has failed to observe the fact that William J. Suter „Morcoin‟ Co., Ltd. was not a universal partnership but a particular one.

b. Universal partnership requires either that the object of the association be all the present party of the partners, as contributed by them to the common fund, or else “all that the partners may acquire by their industry or work during the existence of the partnership.

i. William J. Suter „Morcoin‟ Co., Ltd. was not a universal partnership since:

1. the contributions of the partners were fixed sums of money, and

2. neither of them was an industrial partner.

FINAL VERDICT: The decision under review is affirmed. Aiwiwi



9. PALTING v. SAN JOSE PETROLEUM, INC. (18 SCRA 924) Art. 1767-1783

CASE: The respondent SAN JOSE PETROLEUM, a Panamanian corporation, was allowed by the SEC to sell stocks in the Philippines. The sales proceeds will be invested in the SAN JOSE OIL, a domestic corporation which is 90% owned by SAN JOSE PETROLEUM. The petitioners opposed the SEC authorization arguing that the said “tie-up” is violative of the Philippine Constitution, the Corporation Law, and the Petroleum Act. The respondent claimed that the SEC authorization is conformant to the parity rights agreement. The Supreme Court ruled that the “tie-up” does not comply with the provision of the Parity Rights Agreement as SAN JOSE PETROLEUM is owned by Panamanian citizens, not by American citizens.

FACTS:

In 1956, San Jose Petroleum, Inc. (SAN JOSE PETROLEUM), a mining corporation organized under the laws of Panama, was allowed by the Securities and Exchange Commission (SEC) to sell its shares of stocks in the Philippines.

Apparently, the proceeds of such sale shall be devoted or used exclusively to finance the operations of San Jose Oil Company, Inc. (SAN JOSE OIL), a domestic mining corporation which has 14 petroleum exploration concessions covering an area of a little less than 1,000,000 hectares, located in the provinces of Pangasinan, Tarlac, Nueva Ecija, La Union, Iloilo, Cotabato, Davao and Agusan.

Petitioners Pedro Palting et al opposed the authorization granted to SAN JOSE PETROLEUM because said tie up between SAN JOSE PTEROLEUM and SAN JOSE OIL is violative of the Philippine Constitution, the Corporation Law and the Petroleum Act of 1949; that SAN JOSE OIL outstanding capital stock is 90% owned by SAN JOSE

PETROLEUM and that the other 10% is owned by another foreign corporation; that a mining corporation cannot be interested in another mining corporation.

SAN JOSE PETROLEUM, on the other hand, invoked that under the parity rights agreement (Laurel-Langley Agreement), SAN JOSE PETROLEUM, a foreign corporation, is allowed to invest in a domestic corporation.

PERTINENT PARTNERSHIP ISSUE:

1. Whether or not the "tie-up" between the respondent SAN JOSE PETROLEUM, a foreign corporation, and SAN JOSE OIL COMPANY, INC., a domestic mining corporation, is violative of the Constitution, the Laurel-Langley Agreement, the Petroleum Act of 1949, and the Corporation Law?

HELD & RATIO:

5. YES, the “tie-up” between SAN JOSE PETROLEUM and SAN JOSE OIL is held to be non-conformant to the parity rights under the Laurel-Langley Agreement.

The privilege to utilize, exploit, and develop the natural resources of this country was granted, by Article XIII of the Constitution, to Filipino citizens or to corporations or associations 60% of the capital of which is owned by such citizens. With the Parity Amendment to the Constitution, the same right was extended to citizens of the United States and business enterprises owned or controlled directly or indirectly, by citizens of the United States.

The parity rights agreement does not apply to SAN JOSE PETROLEUM. The parity rights are only granted to American business enterprises or enterprises directly or indirectly controlled by US citizens. SAN JOSE PETROLEUM is a Panamanian corporate citizen. The other owners of SAN JOSE OIL are Venezuelan corporations, not Americans.

Further, the Supreme Court emphasized that the stocks of these corporations are being traded in stocks exchanges



abroad which renders their foreign ownership subject to change from time to time. This fact renders a practical impossibility to meet the requirements under the parity rights. Hence, the tie up between SAN JOSE PETROLEUM and SAN JOSE OIL is illegal, SAN JOSE PETROLEUM not being a domestic corporation or an American business enterprise contemplated under the Laurel-Langley Agreement.

FINAL VERDICT: FOR ALL THE FOREGOING CONSIDERATIONS, the motion of respondent to dismiss this appeal, is denied and the orders of the Securities and Exchange Commissioner, allowing the registration of Respondent's securities and licensing their sale in the Philippines are hereby set aside.

10. CAMPOS RUEDA & CO., vs. PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING

CORPORATION Involuntary Insolvency Of Campos Rueda & Co; Art. 1767-

Art.1783

CASE: Campos Rueda & Co., a limited partnership, was indebted to the appellants which were not paid more than 30 days prior to the filing by petitioners of the application for involuntary insolvency. Trial court denied the petition on the ground that insolvency of the members was not proven at the time of application; and that because of the solidary liability of the partners, it cannot be adjudged insolvent so long as the partners are not proven to be insolvent. The issue is W/N a limited partnership which has failed to pay its obligation with 3 creditors for more than 30 days, may be held to have committed an act of insolvency, and thereby be adjudged insolvent against its will. It was held that Campos is insolvent and liable. Under our Insolvency Law, one of the acts of bankruptcy upon which an adjudication of involuntary insolvency can be predicated is if the limited partnership failed to pay its obligations, and as such, this partnership must be adjudged insolvent. These partnerships can be adjudged bankrupt irrespective of the solvency or insolvency of their members, provided the partnership has committed some of the acts of insolvency provided in our law.

FACTS:

Campos Rueda & Co., a limited partnership, was, and is, indebted to the appellants in various sums amounting to not less than P1,000, payable in the Philippines, which were not paid more than 30 days prior to the date of the filing by the petitioners of the application for involuntary insolvency.

The trial court denied the petition on the ground that: o it was not proven, nor alleged, that the members of

the firm were insolvent at the time the application was filed; and



o as the said partners are personally and solidarily liable for the consequence of the transactions of the partnership, it cannot be adjudged insolvent so long

ISSUES: 4. Whether or not limited partnership which has failed to pay its

obligation with three creditors for more than 30 days, may be held to have committed an act of insolvency, and thereby be adjudged insolvent against its will.

HELD & RATIO:

6. YES, it is adjudged that Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for more than thirty days to meet its obligations with the three petitioners.

The Philippine statutes consider a limited partnership as a juridical entity for all intents and purposes, which personality is recognized in all its acts and contracts. Generally, it must answer for, and suffer, the consequences of its acts as such an entity capable of being the subject of rights and obligations.

Under our Insolvency Law, one of the acts of bankruptcy upon which an adjudication of involuntary insolvency can be predicated is if the limited partnership failed to pay its obligations, and as such, this partnership must suffer the consequences of its failure, and must be adjudged insolvent.

Some US courts have held that a partnership may not be adjudged insolvent in an involuntary insolvency proceeding unless all of its members are insolvent, while others say otherwise. But, under the American common law, partnerships have no juridical personality independent from that of its members; and if now they have such personality for the purpose of the insolvency law, it is only by virtue of general law enacted by the Congress of the United States which reads thus:

o “In the event of one or more but not all of the members of a partnership being adjudged bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent of the partner or partners not adjudged bankrupt; but such partner or partners not adjudged bankrupt shall settle the partnership business as expeditiously as its nature will permit, and account for the interest of the partner or partners adjudged bankrupt.”

The decision of American courts cannot be applied here, nor is there any reason why these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency of their members, provided the partnership has committed some of the acts of insolvency provided in our law.

FINAL VERDICT: Judgment appealed from is reversed.

Additional information:

The liability of the limited partners for the obligations and losses of the partnership is limited to the amounts paid or promised to be paid into the common fund except when a limited partner should have included his name or consented to its inclusion in the firm name.



11. PASCUAL v. CIR Distinction between Partnership and Co-Ownership

CASE: Petitioners bought parcels of land in 1965 and 1966. They then sold the same in 1968 and 1970 where they realized a net profit of P165,224.70 and P60,000.00, respectively. They paid the corresponding capital gains taxes; but in a letter by the CIR, the petitioners were required to a pay P107,101.70 as alleged deficiency corporate incomes taxes for 1968 and 1970, the years they made the sale. According to CIR, petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as corporation under the National Internal Revenue Code. The Court ruled in favor of the petitioners: co-ownership does not in itself give rise to partnership, especially in the absence of any intent by the parties to contribute money, property or industry to a common fund, and divide the profits amongst themselves. The transactions made by the petitioners were isolated cases, and the character of habituality found in business transactions was not present. Hence, the petitioners should not be assessed and required to pay the corporate income taxes.

FACTS:

In 1965, petitioners bought 2 parcels of land from Bernardino, et al. and in 1966, bought another 3 parcels of land from Roque.

The first 2 parcels of land were sold by petitioners in 1968 to Mariner Development Corporation, while the 3 parcels of land were sold to Reyes and Samson in 1970.

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

In a letter of then 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 years 1968 and 1970 (year where they made the sale).

Commissioner‟s argument: petitioners as co-owners in the real estate transactions formed an unregistered partnership or joint venture taxable as corporation under Sections 20(b) and 24 of the National Internal Revenue Code. Hence, the petitioners were required to pay the deficiency income tax assessed.

CTA ruled in favor of the CIR using the doctrine found in Evangelista vs Collector: an unregistered partnership was in fact formed by petitioners which like a corporation was subject to corporate income tax distinct from that imposed on the partners.

ISSUE:

5. Whether or not the CIR made the right call to classify petitioners as co-owners forming an unregistered partnership in the real estate transactions so as to demand them to pay the deficiency corporate income taxes

HELD & RATIO:

7. NO, petitioners did not form an unregistered partnership in the real estate transactions.

In distinguishing between co-ownership and partnership, we go back to the essential elements of partnership: a) agreement to contribute money, property or industry to a common fund; and b) intent to divide the profits among the contracting parties.

o In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intend to divide the profit among themselves.

Comparing this case to Evangelista: in that case, there was a series of transactions where petitioners purchased 24 lots. The character of habituality



peculiar to business transactions engaged in for the purpose of gain was present.

o In this case, petitioners did not sell the lots nor make any improvements thereon; the transactions were isolated, and the character of habituality peculiar to business transactions is not present.

Co-ownership does not in itself give rise to partnership. An isolated transaction whereby 2 or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

There must be a clear intent to form partnership, the existence of a juridical personality different from the individual partners, and the freedom of each party to transfer or assign the whole property.

o In this case, the 2 isolated transactions did not make the petitioners partners. Hence, they cannot be considered to have formed an unregistered partnership that is liable for corporate income tax.

FINAL VERDICT: Petition granted.

12. JOHN FORTIS V. GUTIERREZ HERMANOS Exception of receipt of share as prima facie evidence as partner

CASE: Fortis, an employee of Gutierrez Hermanos (GH) from 1900-1902, who brought this action for his salary for the year 1902. Fortis alleged that he was entitled to 5% of the net profits of the business as salary for that year. There was another complaint for a cause of action for 600php, money spent by Fortis for GH during the year 1903. The court favored Fortis and ordered GH to pay his remaining salary. GH alleges that the receipt of the 5% net profits makes Fortis a co-partner of the defendants in the business. The SC denies this and states that this is a mere contract of employment. Fortis had neither voice nor vote in the management of the affairs of the company. The rule is that, receipt of a person in a share of profits of business is a prima facie evidence that he is a partner. Exception is if the profit is for the payment of wages of an employee. FACTS:

John Fortis (Fortis), an employee of Gutierrez Hermanos (GH) from 1900-1902, brought this action to recover a balance due to him as salary for the year 1902.

Fortis alleged that he was entitled to 5% of the net profits of the business as salary for that year. The complaint also contained a cause of action for the sum of 600php, money spent by Fortis for GH during the year 1903.

The court favored Fortis and found that the 5% net profits of 1902 amounted to 26,378.68 Mexican pesos, but Fortis had only received a salary of MP 12,811.75. Thus, the court ordered GH to pay Fortis the amount of MP 13,025.40, which was reduced to Philippine currency.

They brought the case to the SC through the bill of exceptions; GH alleged that the contract made Fortis a co-partner of the defendants in the business, which they were carrying on.



ISSUES:

1. Whether or not the plaintiff (Fortis) is a co-partner of the defendants in the business.

HELD & RATIO:

1. NO, it was a mere contract of employment.

The plaintiff (Fortis) had neither voice nor vote in the management of the affairs of the company.

The articles of partnership between the defendants provided that the profits should be divided among the partners named in a certain proportion, and the contract made between Fortis and the manager of GH did not in any way vary or modify this provision of the articles of partnership.

o The profits of the business could not be determined until all the expenses had been paid. A part of the expenses to be paid for the year 1902 was the salary of the plaintiff. The salary had to be deducted before the net profits of the business, which were to be divided among the partners, before it could be ascertained.

o It was necessary to determine what the profits of the business were after paying all the expenses except his, in order to determine what the salary of Fortis was. But such determination does not arrive at the net profits of the business yet. It was only made for the purpose of fixing the basis upon which his compensation should be determined.

FINAL VERDICT: Judgement of lower court affirmed. Case was remanded to the lower court for execution. Additional information:

The rule is that, receipt of a person in a share of profits of business is a prima facie evidence that he is a partner.

Exception is if the profit is for the payment of wages of an employee.

Bill of exceptions - A written statement from a trial judge to an appellate court listing a party‟s objections or exceptions made during the trial an the grounds on which they were based.



13. KIEL v. ESTATE OF P.S. SABERT CASE: Albert Kiel, plaintiff herein, entered into an agreement with P.S. Sabert to develop the Parang Plantation Company. Kiel was to manage and Sabert was to furnish capital. Here, it seems a PARTNERSHIP was formed. Kiel developed the plantation but was later deported from the Philippines during the World War. Thereafter, Sabert organized the Nituan Plantation Company with five people where he later transferred all of his rights in 2 parcels of land which allegedly belonged to the partnership which he and Kiel formed. Kiel tried to secure a settlement from Sabert, claiming one-half of the value of the improvements and personal property on the land as to the date upon which he left the plantation. Sabert died. Hence, these proceedings against the estate of Sabert to secure P20,000, the amount representing Kiel‟s share in the partnership.

The issue here is whether or not the alleged verbal copartnership formed by Kiel and Sabert has been proved? YES. To prove that two or more persons formed a partnership, testimony of witnesses, with documentary evidence, firmly proves that they entered into a partnership. Note that the declarations of one partner, not made in the presence of his copartner, are not competent to prove the existence of a partnership between them as against such other partner. The existence of a partnership cannot be established by general reputation, rumor or hearsay. The intention of the parties inferred from their conduct and dealings also determine the existence of a partnership. However, the case was remanded to the lower court to determine the value of improvements and personal property which Kiel is entitled to.

FACTS:

In 1907, Albert Kiel along with William Milfeil started to work on certain public lands situated in the municipality of Parang, province of Cotabato, known as Parang Plantation Company. Subsequently, Kiel took over the interest of Milfeil.

In 1910, Kiel and P.S. Sabert entered into an agreement to develop Parang Plantation Company. Kiel was to manage and Sabert was to furnish capital to run the said Plantation. It seems that this PARTNERSHIP was formed so that the land

could be acquired in the name of Sabert because Kiel was not eligible to acquire public lands in the Philippines for being a German citizen.

From 1910 to 1917, Kiel developed the plantation. During the World War, he was however deported from the Philippines.

On August 16, 1919, 5 persons, including Sabert, organized the Nituan Plantation Company with a capital of P40,000.

On April 10, 1922, Sabert transferred all of his rights in 2 parcels of land in Parang, Cotabato, which are under the alleged partnership, to the Nituan Plantation Company.

In this same period, Kiel appears to have tried to secure a settlement from Sabert. In a letter dated June 6, 1918, Sabert wrote Kiel that he had offered “to sell all property that I have for P40,000 or take in a partner who is willing to develop the plantation, to take up the K. & S. debt no matter which way I will straiten out with you.”

Sabert died before any amicable arrangement could be reached and before an action by Kiel against Sabert could be decided.

Therefore, these proceedings against the estate of Sabert were instituted in order for Kiel to secure from the estate of Sabert the sum of P20,000 representing half of P40,000, the amount that Sabert received from selling the property which was allegedly under the partnership.

ISSUES:

6. Whether or not the alleged verbal copartnership formed by Kiel and Sabert has been proved (If yes, how was the alleged verbal copartnership proved?)

7. Whether or not Kiel is entitled to P20,000, the amount representing his share in the partnership.

HELD & RATIO: 8. YES, the testimony of Kiel‟s witnesses, together with the

documentary evidence, firmly establishes or proves that Kiel and Sabert did enter into a partnership, and that they were to share equally.

The testimonies of the witnesses herein are important in proving the existence of partnership.



o This is because the declarations of one partner, not made in the presence of his copartner, are not competent to prove the existence of a partnership between them as against such other partner. The existence of a partnership cannot be established by general reputation, rumor or hearsay. Therefore, the testimonies of witnesses are important to prove the existence of partnership.

Moreover, in determining whether a particular transaction constitutes partnership, as between the parties, the intention as disclosed by the entire transaction, and as gathered from the facts and from the language employed by the parties and their conduct, should be ascertained. The intention of the parties being inferred from their conduct and dealings with each other.

9. The case was REMANDED for further proceedings to ascertain the value of the improvements and personal property belonging to the partnership which Kiel is entitled to.

This is because the fact that Sabert sold all his land to Nituan Plantation Company for P40,000 was not yet proven.

Moreover, Kiel is not entitled to any share in the land itself but only to one-half of the value of the improvements and personal property on the land as to the date upon which he left the plantation.

FINAL VERDICT: The judgment appealed from is set aside and the record is returned to the lower court where the plaintiff, if he so desires, may proceed to prove his claim against the estate P.S. Sabert. Without costs. So ordered.

14. AGAD v. MABATO When a contract of partnership is void in relation to immovable

property (Art. 1773)

CASE: Agad and Mabato are partners in a fishpond business. Mabato used to render accounts for the partnership but he stopped doing so from 1957 to 1963. From this, Agad seeks to dissolve their partnership and to acquire his share of profits. However, Mabato denies the existence of their partnership, claiming that there was no inventory attached to the public instrument, which serves as proof of their partnership. According to Art. 1771 and Art. 1773, these are requirements for a partnership involving immovable property or real rights to immovable property. The issue in this case is whether or not immovable property or real rights have been contributed to the partnership under consideration. The Court held that no, there are no immovable property or real rights contributed to the partnership because the purpose of the partnership is to operate a fishpond, not to engage in a fishpond business. The requirements in Arts. 1771 and 1773 do not really matter in this case so the Court remanded the case to the lower court for further proceedings.

FACTS:

Agad alleged that he and defendant Mabato are partners in a fishpond business, with proof of a public instrument. Agad contributed P1,000 to the partnership‟s capital, with the right to receive 50% of the profits.

From 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of the operations of the partnership. However, despite repeated demands, he failed and refused to render accounts for 1957 to 1963.

Agad prayed in his complaint that judgment be rendered sentencing Mabato to pay him P14,000 as his share in the profits of the partnership from 1957 to 1963, in addition to to attorney‟s fees and ordering the dissolution of the partnership.

In his answer, Mabato admitted the formal allegations of the complaint but denied the existence of the partnership upon



the ground that the contract had not been perfected despite the execution of the public instrument because Agad allegedly failed to give his P1,000 contribution to the partnership capital.

Mabato filed a motion to dismiss upon the ground that the complaint states no cause of action because the contract of partnership is null and void pursuant to Art. 1773, Civil Code, as an inventory of the fishpond referred in said instrument had not been attached thereto.

o 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.

o 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:

8. Whether or not immovable property or real rights have been contributed to the partnership under consideration.

HELD & RATIO: 10. NO. As stated in the public instrument, the partnership was

established to operate a fishpond, not to engage in a fishpond business.

Moreover, none of the partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited to the sum of P1,000 each.

The operation of the fishpond was the purpose of the partnership so there are no immovable property or real rights to it that have been contributed to the partnership.

FINAL VERDICT: Article 1773 of the Civil Code is not in point so the case is remanded to the lower court for further proceedings, with the costs of this instance against Mabato.

15. AURBACH V. SANITARY WARES MANUFACTURING

CORPORATION Joint venture as a form of partnership; Partnerships may be

organized only for a particular purpose (Art. 1783) CASE: These consolidated petitions seek the review of the amended decision of the Court of Appeals that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI; a FOREIGN corporation) cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI. The nature of the agreement (whether JOINT-VENTURE or a CORPORATION) is the issue to be resolved for determining the rules on election/nomination of officers for Saniwares. Court found that as to the intention of the parties having (2) separate groups (ASI/ foreign corporation; and the Filipino stockholders) considered in the agreement for the undertaking (Saniwares operations and rules for election), it is therefore a joint-venture. FACTS:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans.

On August 15, 1962, ASI, a foreign corporation from the United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that



the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the corporation:

3. Articles of Incorporation (a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for (1) Cumulative voting for directors: xxx xxx xxx 5. Management (a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

Elections/ Nominations conflicts

On the annual stockholders meeting on March 8, 1983, the ASI group nominated three persons, namely; Wolfgang Aurbach, John Griffin and David P. Whittingham.

The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay.

o The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member board of directors, and the legal advice of Saniwares' legal counsel.

The Chairman then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay.

o There was further disagreement in terms of the nominations and election of the board of directors, and as such, the meeting was “recessed”/ adjourned with a continuation of the meeting held by members of the meeting who were not in agreement with the chairman‟s ruling of the duly elected officers. Hence, a different set of officers was elected by this separated faction (who claimed to comprise of 54% of the stockholders).

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established by the parties whether it was a joint venture or a corporation…

The ASI Group and petitioner Salazar contend that the actual intention of the parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint venture.

o “Number 16 under Miscellaneous Provisions which states: xxx xxx xxx c) nothing herein contained shall be construed to constitute any of the parties hereto partners



or joint venturers in respect of any transaction hereunder.”

ISSUE: Whether or not the agreement to operate Saniwares was to form a corporation or a joint venture? HELD: Analysing from the intention of the parties, the agreement is for a joint venture (which is a type of partnership). RATIO:

…[U]nder the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others.

o the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture.

In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and not with an ordinary corporation.

o According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority. Hence,

there are clearly two separate groups to the agreement.

o Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties.

Similar to close corporations. A noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of directors;…

As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. This is the allowable participation of the ASI Group. This allocation of board seats is obviously in consonance with the minority position of ASI.

The joint venture character of the enterprise must always be taken into account, so long as the company exists under its original agreement.

o Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly (this means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group.) There are substantial safeguards in the Agreement



which are intended to preserve the majority status of the Filipino investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They should be maintained.

FINAL VERDICT: The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.

16. LOZANA vs. DEPAKAKIBO Properties contributed belongs to the partnership

CASE: Lozana and Depakakibo formed a partnership, with Depakakibo contributing P12,000 while Lozana contributing P18,000. When previous franchise was revoked, Lozana then sold an equipment to new franchise grantee, but however, Depakakibo still is in possession of the equipment sold. The court ruled that the equipment is under the owner of the partnership, and that the equipment cannot be disposed without the consent of the other partner.

FACTS:

November 16, 1954 plaintiff Mauro Lozana entered into a contract with defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of P30,000, Lozana furnishing 60% (P 18,000) thereof and the Serafin, 40% (P12,000)

The purpose of partnership is maintaining, operating and distributing electric light and power in the Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs. Piadosa Buenaflor.

The franchise in favor of the Mrs. Piadosa Buenaflor was cancelled and revoked by the Public Service Commission on May 15, 1955, which was appealed. A temporary franchise was issued in the name of Olimpia D. Decolongon on December 22, 1955.

Due to cancellation of the franchise of Buenaflor, plaintiff Lozana sold a generator, Buda (diesel), to the new grantee Olimpia D. Decolongon, on October 30, 1955.

On November 15, 1955, plaintiff Lozana brought an action against the defendant, alleging that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires connecting the generator to the different



houses supplied by electric current in the Municipality of Dumangas, and that he is entitled to its possession, but claims that the defendant has wrongfully possessed such

Defendant‟s answer: denying that the generator and the equipment belong to the plaintiff and that the same had been contributed by the plaintiff to the partnership entered into between them, therefore that he is not unlawfully detaining them.

ISSUES:

9. Whether or not the plaintiff Lozada has sole ownership of the Generator and 70 wooden posts contributed in the partnership

HELD & RATIO: 11. YES, the trial court had jurisdiction over the offense imputed

to petitioner. 12. No, the generator and 70 wooden posts belong to the

partnership

It is not stated therein that there has been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel Engine on October 15, 1955, it necessarily follows that the Buda diesel engine contributed by the plaintiff had become the property of the partnership.

13. As properties of the partnership, the same could not be disposed of by the party contributing the same without the consent or approval of the partnership or of the other partner.

17. SANCHO V. LIZARRAGA 55 Phil 601 (1931); G.R. No. 33580

Art.1784-1809

CASE: Sancho and Lizarraga entered into a contract of partnership on October 15, 1920. Upon failure of Lizarraga to contribute all the capital he had bound himself to invest, Sancho brought an action for the rescission of such contract and asking Lizarraga to reimburse his investments therein with interest. CFI manila did not render a judgment in favor of Sancho. The issue in this case is whether or not Sancho is entitled to the rescission of the partnership contract and that article 1124 of the Civil Code is not applicable to the present case. SC ruled that owing to Lizarraga's failure to pay to the partnership the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned thereby, but Sancho did not thereby acquire the right to demand rescission of the partnership contract. The applicable provision of the old civil code is Art. 1681 & 1682.

FACTS:

Sancho brought an action for the rescission of a partnership contract between himself and Lizarraga, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and any other just and equitable remedy against said defendant.

DEFENDANT‟S(Lizarraga) CONTENTION: o He asks for the dissolution of the partnership, and the

payment to him as its manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-half of said amount to be charged to Sancho.

o He also prays for any other just and equitable remedy.

CFI-MANILA‟s FINDINGS: o Lizarraga had not contributed all the capital he had bound

himself to invest, and; o Sancho had demanded that Lizaragga liquidate the

partnership, declared it dissolved on account of the expiration of the period for which it was constituted, and



ordered Lizarraga, as managing partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment, without costs.

Hence, Sancho appealed such decision. ISSUE:

WON Sancho is entitled to the rescission of the partnership contract and that article 1124 of the Civil Code is not applicable to the present case.

HELD+RATIO:

NO, Sancho is not entitled to the rescission of the partnership contract and Art. 1124 is not applicable in the case at bar. o In the case at bar, articles 1681 and 1682 of the Civil Code

have been properly applied. Owing to Lizarraga's failure to pay to the partnership the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned thereby, but Sancho did not thereby acquire the right to demand rescission of the partnership contract according to article 1124 of the Code.

o Article 1124 cannot be applied to the case in question, because it refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well-known principle that special provisions prevail over general provisions.

FINAL VERDICT: Appeal thereby dismissed. ADDITIONAL INFORMATION: Since this case was brought during the 1930s, the governing law then was the old civil code. This case did not indicate the contents of art. 1124, 1681 and 1682 but from the syllabus of Atty. Obieta, it may be inferred that the contents of Article 1681 and 1682 of the old civil code is the same as Art. 1786, 1787 and 1788 of the new civil code.

For easy reference: Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a) Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n) Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (1682)

(AKI)



18. MORA ELECTRIC CO., INC. VS. MATIC 68 Phil 357 (1939); G.R. No. 45441

Civil Partnership

CASE: Paulino Matic obtained a concession from the City of Manila to provide the lighting system of the Manila North and South cemeteries on All Saint’s Day. Matic transferred his rights on this concession to Benita Quiogue which authorized her to contract with Mora Electric Co. Quiogue thus contracts with Mora, each party obligating themselves to contribute labor and materials and thereafter, the profits shall be divided among them. The business failed because it did not yield the expected profit. Luzon Surety Co. now sues Matic and Quiogue because it paid on behalf of them their liability of P8, 773. In turn, Matic and Quiogue sues Mora Electric contending that it is likewise liable for payment of the obligation. The issue in this case is that whether or not Mora Electric is liable to pay the City of Manila and the Court held that Yes, Mora Electric Co. is liable because Mora Electric Co. is under the duty to reimburse whoever paid the amount for it, namely Matic and Quiogue. The amount was neither a loss nor a profit that should be divided among them instead, it is a contribution which Mora Electric obligated himself to pay. FACTS:

Paulino Matic obtained from the City of Manila the concession to provide the lighting system of the Manila North and South Cemeteries on All Saint's Day in 1934, for the amount of P8,733, the payment of which was guaranteed by Luzon Surety Co.

Matic transferred his rights to said concession to Benita Quiogue, authorizing her to enter into a contract with Mora Electric Co., Inc., to make the installation and to pay the P8,773.

Benita Quiogue entered into this contract with Mora Electric Co., Inc., each party binding itself to contribute the necessary labor and material which the latter may be unable to put up, and dividing the profits between them after deducting therefrom all the necessary expenses for labor, materials, cost of the current and the amount of P8,773 which should be paid to the city, both parties also binding themselves, for this purpose, to report the expenses which each might have incurred.

The business was a failure because it did not yield the expected profit.

ISSUE:

Whether or not Mora Electric is liable to pay the City of Manila as stipulated in the contract with Matic and Quiogue.

HELD+RATIO:

YES, Mora Electric is liable to pay. o Mora Electric Co., Inc., bound itself in its contract with Benita

Quiogue to pay the City of Manila the P8,773. o Having undertaken to pay this amount to the City of Manila,

Mora Electric Co., Inc., is under a duty to reimburse whoever made good the amount for it, namely, Paulino Matic and Benita Quiogue.

Mora contends that Quiogue should share in the payment because what exists between them is a civil partnership (i.e. distribution of profits and losses).

But the SC held that the amount now sought to be recovered is not claimed as loss or profit, but as the contribution which Mora Electric Co., Inc., bound itself to make to the partnership and which it was under a duty to pay, although it was paid instead by Matic and Quiogue.

FINAL VERDICT: Appeal dismissed. SC affirmed CA‟s ruling.

(WAYNE)

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Documents

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eufemia evangelista

payment of income tax

corporation residence

partnership case

francisca evangelista

manuela evangelista

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