Compiled Partnership Digest (1st Set)

1 PARTNERSHIP [1st SET] (DIONNE) || D2014

Contents

AGAD v. MABATO ........................................................................................................................................ 2

TORRES v. CA ................................................................................................................................................. 2

ARBES v. POLISTICO ................................................................................................................................... 4

TOCAO v. CA ................................................................................................................................................... 6

HEIRS OF JOSE LIM, represented by Elenito Lim v. JULIET VILLA LIM ............................... 7

AGUILA v. CA .................................................................................................................................................. 9

TAN v. DEL ROSARIO ................................................................................................................................. 9

MENDIOLA v. CA ....................................................................................................................................... 10

ANGELES v. SECRETARY OF JUSTICE .............................................................................................. 13

GATCHALIAN v. CIR ................................................................................................................................. 15

PASCUAL v. CIR .......................................................................................................................................... 15

OBILLOS v. CIR ........................................................................................................................................... 16

RIVERA v. PEOPLE’S BANK ................................................................................................................... 17

TUASON v. BOLANOS .............................................................................................................................. 18

HEIRS OF TANG ENG KEE v. CA .......................................................................................................... 18

AURBACH v. SANITARY WARES ......................................................................................................... 19

LITONJUA v. LITONJUA .......................................................................................................................... 23

BOURNS v. CARMAN ................................................................................................................................ 23

SEVILLA v. CA ............................................................................................................................................. 24

PHILEX v. MINING CORP. ...................................................................................................................... 26

ORTEGA v. CA ............................................................................................................................................. 27


THE LAW ON PARTNERSHIP I. NATURE; CREATION A. DEFINITION; ESSENTIAL FEATURES B. CREATION

AGAD v. MABATO

(June 28, 1968)

DOCTRINE: 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. 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.

NATURE: Appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein is based.

PONENTE: Concepcion, C.J.

FACTS:

- Plaintiff alleges that he and defendant Severino Mabato are — pursuant to a public instrument dated August 29, 1952 " — partners in a fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the profits.

- That from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to render accounts for the years 1957 to 1963.

- Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be appointed.

- In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the ground that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.

- Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the lower court had no jurisdiction over the subject matter of the case, because it involves principally the

determination of rights over public lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of action. This conclusion was 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.

ISSUES:

The issue hinges on whether or not "immovable property or real rights" have been contributed to the partnership under consideration.

HELD:

NO. (Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is really inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership." But...)

RATIO/RULING:

- The Court said that it should be noted, however, that, as stated in Annex "A" 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 mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets.

-

DISPOSITION:

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it is hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against defendant-‐appellee, Severino Mabato. It is so ordered.

VOTE: Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

CONCURRING/DISSENTING OPINION: None.

ADDITIONAL NOTES:

TORRES v. CA

(December 9, 1999)


DOCTRINE: Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement. NATURE: Petition for review on certiorari a CA decision denying MR PONENTE: Panganiban, J. FACTS: -‐Sisters Antonia Torres and Emeteria Baring, 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. Petitioners: the project failed because of “respondent’s lack of funds or means and skills.” They add that respondent used the loan not for the development of the subdivision, but in furtherance of his own company, Universal Umbrella Company. Respondent: alleged that he used the loan to implement the Agreement. With the said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council’s approval of the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-‐cost housing units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of P85,000. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project. -‐petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. -‐Thereafter, they filed the present civil case which, upon respondent's motion, was later dismissed by the trial court in an Order dated September 6, 1982. -‐On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated, was affirmed by the CA. CA ruling: petitioners and respondents formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract. CA cited Article 1979 which said “ The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.”

CA also said: “In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital.” Petitioners claim CA erred in concluding that the transaction between the parties was a joint venture/partnership. ISSUES: WON a partnership relationship existed between the parties? HELD: Yes. RATIO/RULING: Existence of Partnership: Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale were void. In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property.

The pertinent portions of the Joint Venture Agreement read as follows: “That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-‐Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-‐0184 with a total area of 17,009 square meters, to be sub-‐divided by the FIRST PARTY; “Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property entrusted by the SECOND PARTY, for sub-‐division projects and development purposes; “NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the respective parties hereto do hereby stipulate and agree as follows: “ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the payment. xxx “FIFTH: That the sales of the sub-‐divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income deriving from the sales will be divided equally according to the x x x percentage [agreed upon] by both parties. xxx A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides: “ART. 1767. 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.”


Under the above-‐quoted 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. It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-‐cost housing units on the property. Respondent’s actions clearly belie petitioners’ contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, but also industry. Petitioners Bound by Terms of Contract Courts are not authorized to extricate parties from the necessary consequences of their acts, and the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve parties thereto of their obligations. They cannot now disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms. Alleged Nullity of the Partnership Agreement Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which provides: “ART. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.” They contend that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership is void. We clarify. First, Article 1773 was intended primarily to protect third persons. Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice. Partnership Agreement Not the Result of an Earlier Illegal Contract 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.

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for

which the land was intended to be used. As explained by the trial court, “the land was in effect given to the partnership as [petitioner’s] participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits.” DISPOSITION: Petition denied. CA affirmed. VOTE: 3rd Division. Melo, Vitug, Purisima, and Gonzaga-‐Reyes concur CONCURRING/DISSENTING OPINION: none

ARBES v. POLISTICO

(September 7, 1929) ADRIANO ARBES, ET AL., plaintiffs-‐appellees, vs. VICENTE POLISTICO, ET AL.,

defendants-‐appellants.

DOCTRINE: Hence the distinction made in the second paragraph of this article [in the present case 1666 but under the NCC 1770] of this Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law, which did not describe the purpose to which those profits denied the partners were to be applied, nor state what to be done with them.The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different. NATURE: Appeal from a judgment of CFI PONENTE: VILLAMOR, J.: FACTS:

• This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were designated as president-‐treasurer, directors and secretary of said association.

• It is well to remember that this case is now brought before the consideration of this court for the second time. The first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a defendants.


• This court held then that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their possessions, it is not necessary that all members of the association be made parties to the action.The case having been remanded to the court of origin, both parties amend, respectively, their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to present.

• The commissioner rendered his report. • The defendants objected to the commissioner's report, but the trial court,

having examined the reasons for the objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the amount of P24,607.80 to the plaintiffs in this case, and to the rest of the members of the said association

ISSUES: Whether the lower court erred in ordering the return of the the amount of P24,607.80 to the plaintiffs in this case, and to the rest of the members of the said association rather than order it to be given to charitable institutions. HELD: No. The amount should be returned to the members of the said association because they pertain to their contributions and not to profits derived from such unlawful partnership. RATIO/RULING: Petitioner's contention:

• because the partnership is an unlawful partnership, some charitable institution to whom the partnership funds may be ordered to be turned over, should be included, as a party defendant

• If the partnership has no valid existence, if it is considered juridically non-‐existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital, each one's contribution?

COURT:

• The appellants allege that the necessary party, i.e. Charitable institution, was not impleaded. The appellants refer to article 1666 of the Civil Code, which provides:

"A partnership must have a lawful object, and must be established for the common benefit of the partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

• Appellant's contention on this point is untenable. o According to said article, no charitable institution is a necessary

party in the present case of determination of the rights of the parties.

o The action which may arise from said article, in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of the administration of said partnership, and it is not necessary for the said parties to base their action to the existence of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not necessary parties in this case.

• The article cited above permits no action for the purpose of obtaining the earnings made by the unlawful partnership, during its existence as result of the business in which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist cannot be a cause of action.

o Hence, paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable institution.

Petitioner's contention: • If the partnership has no valid existence, if it is considered juridically non-‐

existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action in favor of the partners to judicially demand from the manager or the administrator of the partnership capital, each one's contribution?

COURT:

• Ricci: The partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his action.

o that the partner makes his contribution, which passes to the managing partner for the purpose of carrying on the business or industry which is the object of the partnership; or in other words, to breathe the breath of life into a partnership contract with an objection forbidden by law.

o And as said contrast does not exist in the eyes of the law, the purpose from which the contribution was made has not come into existence, and the administrator of the partnership holding said contribution retains what belongs to others, without any


consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to recover it.

• But this is not the case with regard to profits earned in the course of the partnership, because they do not constitute or represent the partner's contribution but are the result of the industry, business or speculation which is the object of the partnership

o therefor, in order to demand the proportional part of the said profits, the partner would have to base his action on the contract which is null and void, since this partition or distribution of the profits is one of the juridical effects thereof.

o Wherefore considering this contract as non-‐existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an industry prohibited by it.

• Hence the distinction made in the second paragraph of this article of this Code, providing that the profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.

• This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law, which did not describe the purpose to which those profits denied the partners were to be applied, nor state what to be done with them.

o The profits are so applied, and not the contributions, because this would be an excessive and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of the capital that he contributed, the circumstances of the two cases being entirely different.

• Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that said contributions are not included in the disposal prescribed profits, shows that in consequences of said exclusion, the general law must be followed, and hence the partners should reimburse the amount of their respective contributions.

DISPOSITION: The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against the appellants; provided, however, the defendants shall pay the legal interest on the sum of P24,607.80 from the date of the decision of the court, and provided, further, that the defendants shall deposit this sum of money and other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court may distribute them among the members of said association, upon being duly identified in the manner that it may deem proper. So ordered. VOTE: EN BANC; Avanceña, C.J., Johnson, Street, Johns, Romualdez, and Villa-‐Real, JJ., concur. .

TOCAO v. CA

(October 4, 2000)

DOCTRINE: It may be constituted in any form; a publicinstrument 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. Where no immovable property or real rights areinvolved, what matters is that the parties have complied with the requisites of a partnership.

NATURE: Petition for review on certiorari

PONENTE: YNARES-‐SANTIAGO, J.

FACTS:

Petitioner William Belo introduced respondent NenitaAnay to petitioner Marjorie Tocao, who conveyed her desire to enter into a jointventure with her for the importation and local distribution of kitchen cookwares. Under the joint venture, Belo acted as capitalist, Tocao aspresident and general manager, and Anay as head of the marketing department and later, vice-‐president for sales. The parties agreed to useAnay's name in securing distributorship of cookware from West Bend Company, a manufacturer of kitchen cookwares in Wisconsin, U.S.A. Theparties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overridingcommission 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 agreement was not reduced to writing on the strength of Belo's assurances that he was sincere,dependable and honest when it came to financial commitments. Anay having secured the distributorship of cookware products from the WestBend Company and organized the administrative staff and the sales force, the cookware business took off successfully. They operated underthe name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's name, with office at 712 Rufino Building, Ayala Avenue,Makati City. Belo made good his monetary commitments to Anay. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letteraddressed to the Cubao sales office to the effect that she was no longer the vice-‐president of GeminesseEnterprise. The following day,October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding office and conductingdemonstrations in both Makati and Cubao offices.

Anay attempted to contact Belo. She wrote him twice to demand her overriding commissionfor the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. When her letterswere not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not answered. Anay still received her fivepercent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although thecompany netted a gross sales of P13,300,360.00. On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-‐509, a complaint for sum of


moneywith damagesagainst Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140. The trial court held that therewas indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) there was an intention tocreate a partnership; (b) a common fund was established through contributions consisting of money and industry, and (c) there was a jointinterest in the profits. Petitioners appeal to the Court of Appealswas dismissed. Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit.

ISSUES:Whether or not a partnership exists

HELD &RATIO/RULING:

Yes. The issue of whether or not a partnership exists is a factual matter which is within the exclusive domain of both the trial andappellate courts. This Court cannot set aside factual findings of such courts absent any showing that there is no evidence to support theconclusion drawn by the courta quo.

In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and privaterespondent established a business partnership. This Court finds no reason to rule otherwise. To be considered a juridical personality, apartnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a commonfund; and (2) intention on the part of the partners to divide the profits among themselves.

It may be constituted in any form; a publicinstrument 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. Where no immovable property or real rights areinvolved, what matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in theSecurities and Exchange Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states:Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to complywith the requirements of article 1772, first paragraph.

DISPOSITION:

WHEREFORE, the instant petition for review on certiorari is DENIED. 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. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows -‐-‐-‐

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private respondent’s ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorney’s fees in the amount of P25,000.00.

VOTE: 1st division. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

HEIRS OF JOSE LIM, represented by Elenito Lim v. JULIET VILLA LIM

(March 3, 2010)

DOCTRINE: A demand for periodic accounting is evidence of a partnership.

NATURE: Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision dated June 29, 2005, which reversed and set aside the decision of the Regional Trial Court (RTC) of Lucena City, dated April 12, 2004.

PONENTE: Nachura, J.

FACTS:

1. Petitioners are the heirs of the late Jose Lim. represented by Elenito Lim. They filed a Complaint for Partition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late Elfledo Lim, who was the eldest son of Jose and Cresencia.

2. Petitioners alleged that Jose was the liaison officer of Interwood Sawmill. Jose, together with his friends Jimmy Yu and Norberto Uy formed a partnership to engage in the trucking business. Jose managed the operations of this trucking business until his death. Thereafter, Jose's heirs, including Elfledo, and partners agreed to continue the business under the management of Elfledo. The shares in the partnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, with petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.


3. Petitioners alleged that Elfledo was never a partner or an investor in the business and merely supervised the purchase of additional trucks using the income from the trucking business of the partners. By the time the partnership ceased, it had nine trucks, which were all registered in Elfledo's name.

4. Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that respondent took over the administration of the properties, which belonged to the estate of Jose, without their consent and approval. Claiming that they are co-‐owners of the properties, petitioners required respondent to submit an accounting of all income, profits and rentals received from the estate of Elfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case.

5. Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, Jose gave Elfledo capital in an informal partnership with Jimmy and Norberto. When Elfledo and respondent got married, the partnership only had one truck; but through the efforts of Elfledo, the business flourished.

6. When Norberto was ambushed and killed, the trucking business started to falter. When Elfledo died due to a heart attack, respondent talked to Jimmy and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested that three out of the nine trucks be given to him as his share, while the other three trucks be given to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to respondent, who paid for them in installments.

7. Respondent also alleged that when Jose died, he left no known assets, and the partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the properties involved in this case were purchased and acquired through her and her husband’s joint efforts and hard work, and without any participation or contribution from petitioners or from Jose. Respondent submitted that these are conjugal partnership properties; and thus, she had the right to refuse to render an accounting for the income or profits of their own business.

8. TC: favoured petitioners 9. CA: reversed the decision of TC

ISSUES: WON Elfledo Lim was a partner in the business

HELD:

1. Yes

RATIO/RULING:

1. A partnership exists when two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding that there shall be a proportionate sharing of the profits and losses among them.

2. The best evidence would have been the contract of partnership or the articles of partnership. Unfortunately, there is none in this case, because the alleged partnership was never formally organized.

3. SC affirms the CA decision. The evidence presented by petitioners falls short of the quantum of proof required to establish that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part of the estate of Jose, having been derived from the alleged partnership.

4. Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence against respondent. It must be considered and weighed along with petitioners' other evidence vis-‐à-‐vis respondent's contrary evidence.

5. At this juncture, the SC’s ruling in Heirs of Tan Eng Kee v. Court of Appeals is enlightening. Therein, we cited Article 1769 of the Civil Code.

6. Applying the legal provision to the facts of this case, the following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:

a. Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the payment of the initial capital in the partnership;

b. Elfledo ran the affairs of the partnership, wielding absolute control, power and authority, without any intervention or opposition whatsoever from any of petitioners herein;

c. All of the properties, particularly the nine trucks of the partnership, were registered in the name of Elfledo;

d. Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating that what he actually received were shares of the profits of the business;

e. None of the petitioners, as heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan Eng Kee, a demand for periodic accounting is evidence of a partnership.

7. Furthermore, petitioners failed to adduce any evidence to show that the real and personal properties acquired and registered in the names of Elfledo and respondent formed part of the estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto.

8. SC agrees with CA’s findings that the testimonities prove that Elfledo was not just a hired help but one of the partners in the trucking business, active and visible in the running of its affairs from day one until this ceased operations upon his demise. The extent of his control, administration and management of the partnership and its business, the fact that its properties were placed in his name, and that he was not paid salary or other compensation by the partners, are indicative of the fact that Elfledo was a partner and a controlling one at that.

9. Notable too that Jose Lim died when the partnership was barely a year old, and the partnership and its business not only continued but also flourished. If it were true that it was Jose Lim and not Elfledo who was the partner, then upon his death the partnership should have


DISPOSITION: WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners.

VOTE: All concur

C. SEPARATE JURIDICAL PERSONALITY

AGUILA v. CA

FACTS:

Ø Petitioner is the manager of A.C. Aguila & Sons, Co, a partnership engaged in lending activities.

Ø Private respondent Felicidad Abrogar entered into a MOA w/ A.C. Aquila &

Sons involving a pacto de retro sale of a house & lot.

Ø As private respondent failed to redeem the property within the prescribed period, petitioner caused the cancellation of TCT and the issuance of the new certificate of title in the name of the partnership.

Ø Private respondent filed a petition for a declaration of the nullity of the

deed of sale and a criminal complaint for forgery against petitioner alleging that the signature of her husband was a forgery because he was already dead when the deed was supposed to have been executed.

Ø Petitioner now contends that he is not the real party in interest but A.C.

Aguila & Co., against which this case should have been brought. ISSUE: WON the petitioner is the real party in interest. HELD: No.

Ø Rule 3, Section 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that "every action must be prosecuted and defended in the name of the real party in interest." A real party in interest is one who would be benefited or injured by the judgment, or who is entitled to the avails of the suit. This ruling is now embodied in Rule 3, Section 2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a

person who is not a real party in interest in the case cannot be executed. Hence, a complaint filed against such a person should be dismissed for failure to state a cause of action.

Ø Art. 1768 of the Civil Code, a partnership has a juridical personality

separate and distinct from that of each partner. 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.

Ø 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.

TAN v. DEL ROSARIO

(October 3, 1994) DOCTRINE: (see notes below) NATURE: Consolidated case. Two special civil actions for prohibition PONENTE: Vitug, J. FACTS:

Ø This is a consolidated case involving the constitutionality of RA 7496 or the Simplified Net Income Taxation (SNIT) scheme.

Ø Petitioners claim to be taxpayers adversely affected by the continued implementation of the SNIT.

Ø In the 1st case, they contended that the House Bill which eventually became RA 7496 is a misnomer or deficient because it was named as “Simplified Net Income Taxation Scheme for the Self-‐Employed and Professionals Engaged in the Practice of their Profession” while the actual title contains the said words with the additional phrase, “…Amending Section 21 and 29 of the National Internal Revenue Code.”

Ø They alleged that this title was in direct violation of Section 26 (1) and 28 (1) in Article VI of the 1987 Constitution. The petitioner also stressed that it violates the equal protection clause as it only imposed taxes upon one who


practice his profession alone and not to those who are engaged to single proprietorship.

Ø In the 2nd case, they argued that respondents have exceeded their rule-‐making authority in applying SNIT to general professional partnerships by issuing Revenue Regulation 2-‐93 to carry out the RA. This is anchored on the administrative interpretation of public respondents that would apply SNIT topartners in general professional partnerships.-‐

Ø Petitioners cited the deliberations in the HOR regarding the implementation of the said rule in which it was shown that framers did not intend for the bill to be applicable to business corporations or partnerships

ISSUE:

1. WON RA 7496 is unconstitutional (G.R. No. 109289). NO

2. WON in RA 7496, the SNIT applies to partners in general professional partnerships. (G.R. No. 109446). YES

HELD:

1. Constitutionality of RA 7496

o The SC ruled in the negative. The said law is not arbitrary; it is germane to the purpose of the law and; applies to all things of equal conditions and of same class.

o It is neither violative of equal protection clause due to the existence of substantial difference between one who practice his profession alone and one who is engaged to proprietorship.

o Further, the SC said that RA 7496 is just an amendatory provision of the code of taxpayers where it classifies taxpayers in to four main groups: Individuals, Corporations, Estate under Judicial Settlement and Irrevocable Trust.

o The court would have appreciated the contention of the petitioner if RA 7496 was an independent law. But since it is attached to a law that has already classified taxpayers, there is no violation of equal protection clause.

2. Application of SNIT to partners in general professional partnerships

o There is no distinction in income tax liability between a person

who practices his profession alone or individually and one who does it through a partnership (whether registered or not) with others in the exercise of a common profession.

o Under the present income tax system, all individuals deriving income from any source whatsoever are treated in almost invariably the same manner and under a common set of rules.

o Although the general professional partnership is exempt from the payment of taxes (but it still has an obligation to file an income tax

return mainly for administration and data), the partners themselves are liable for the payment of income tax in their individual capacity computed on their respective and distributive shares of profits.

NOTES: Differences between general professional partnerships and ordinary business partnerships:

a. A general professional partnership1, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits.

b. Ordinary business partnerships, no matter how created or organized, are “taxable partnerships.” General professional partnerships are “exempt partnerships.” Under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flow-‐through entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners.

DISPOSITIVE: WHEREFORE, the petitions are DISMISSED. No special pronouncement on costs. VOTING: Narvasa, C.J., Cruz, Feliciano, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno, Kapunan and Mendoza, JJ., concur. Padilla and Bidin, JJ., are on leave.

MENDIOLA v. CA

1 A general professional partnership, in this context, must be formed for the sole purpose of exercising a common profession, no part of the income of which is derived from its engaging in any trade business; otherwise, it is subject to tax as an ordinary business partnership or, which is to say, as a corporation and thereby subject to the corporate income tax. The only other exempt partnership is a joint venture for undertaking construction projects or engaging in petroleum operations pursuant to an operating agreement under a service contract with the government (see Sections 20, 23 and 24, National Internal Revenue Code).


ARSENIO T. MENDIOLA vs. COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB

(July 31, 2006)

DOCTRINE: In a partnership, the members become co-‐owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members. The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest. In fact, the New Civil Code regards a partner as a co-‐owner of specific partnership property. Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership. This essential element, the community of interest, or co-‐ownership of, or joint interest in partnership property is absent in the relations between petitioner and private respondent Pacfor. xxx the parties in this case, merely shared profits. This alone does not make a partnership.

Besides, a corporation cannot become a member of a partnership in the absence of express authorization by statute or charter. This doctrine is based on the following considerations: (1) that the mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested in the corporation.

PONENTE: Puno, J.

FACTS:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the laws of California, USA. It is a subsidiary of Cellulose Marketing International (organized in Sweden)

Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc." with petitioner Arsenio T. Mendiola (ATM). The Side Agreement outlines the business relationship of the parties with regard to the Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's base salary and the overhead expenditures of the company shall be borne by the representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-‐50 equity by ATM and Pacfor-‐usa.

In its application (to the SEC), private respondent Pacfor proposed to establish its representative office in the Philippines. It also designated petitioner as its resident agent in the Philippines, authorized to accept summons and processes in all legal proceedings, and all notices affecting the corporation.

The Side Agreement was amended through a "Revised Operating and Profit Sharing Agreement for the Representative Office Known as Pacific Forest Resources (Philippines)," where the salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational expenses will be borne by the representative office and funded by all parties "as equal partners," while the profits and commissions will be shared among them.

In July 2000, petitioner wrote the Vice President for Asia of Pacfor, seeking confirmation of his 50% equity of Pacfor Phils. Private respondent Pacfor, through its President, replied that petitioner is not a part-‐owner of Pacfor Phils. because the latter is merely Pacfor-‐USA's representative office and not an entity separate and distinct from Pacfor-‐USA. "It's simply a 'theoretical company' with the purpose of dividing the income 50-‐50."11 Petitioner presumably knew of this arrangement from the start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save on taxes.

Petitioner claimed that he was all along made to believe that he was in a joint venture with them; that he would have been better off remaining as an independent agent or representative of Pacfor-‐USA as ATM Marketing Corp. Petitioner raised other issues, such as the rentals of office furniture, salary of the employees, company car, as well as commissions allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-‐USA demanding payment of unpaid commissions and office furniture and equipment rentals.

Privatre respondent Pacfor through counsel ordered petitioner to turn over to it all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils then to remit more than 300k xmas giveaway fund for clients of Pacfor Phil and finally Pacfor withdraw all its offers of settlement and ordered petitioner to transfer title and turn over to it possession of the service car.18

Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal with Pacfor Phils.

Petitioner construed these directives as a severance of the "unregistered partnership" between him and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.

On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a


50/50 basis, Pacfor Phils.' office furniture and equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed to offset these with the remaining Christmas giveaway fund in his possession. Furthermore, he did not renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils., wherein he was the signatory to the lease agreement.

Private respondent Pacfor placed petitioner on preventive suspension and ordered him to show cause why no disciplinary action should be taken against him. Private respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and business of private respondent.

Petitioner denied the charges. He reiterated that he considered the import of Pacfor President’s letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office premises, and demanded payment of his separation pay.

Petitioner filed his complaint for illegal dismissal, recovery of separation pay, and payment of attorney's fees with the NLRC.

Private respondent directed petitioner to explain why he should not be disciplined for serious misconduct and conflict of interest; charged petitioner anew with serious misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the release of an additional peso salary for himself, besides the dollar salary agreed upon by the parties. Private respondent also accused petitioner of disloyalty and representation of conflicting interests for having continued using the Pacfor Phils.' office for operations of HEPI

LA: ruled in favor of petitioner, finding there was constructive dismissal. By directing petitioner to turn over all office records and materials, regardless of whether he may have retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual diminution of his authority as resident manager. Petitioner's position as resident manager whose duty, among others, was to maintain the security of its business transactions and communications was rendered meaningless.

NLRC: in favor of Private respondent Pacfor. He set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of merit. It held there was no employer-‐employee relationship between the parties. Based on the two agreements between the parties, it concluded that petitioner is not an employee of private respondent Pacfor, but a full co-‐owner (50/50 equity).

MR denied.

CA: Affirmed holding that "the legal basis of the complaint is not employment but perhaps partnership, co-‐ownership, or independent contractorship." Hence, the Labor Code cannot apply.

MR denied

Issues: Was there an employer-‐employee relationship or a partnership? Can both exist at the same time? There was an employer employee relationship but no partnership

Was he constructively dismissed? (Not important so omitted) YES.

Ratio:

Petitioner argues that he is an industrial partner of the partnership he formed with private respondent Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the same time be an employee of the partnership, provided there is such an agreement, which, in this case, is the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-‐ownership exists between the parties.

In a partnership, the members become co-‐owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members. The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest. In fact, the New Civil Code regards a partner as a co-‐owner of specific partnership property. Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership. This essential element, the community of interest, or co-‐ownership of, or joint interest in partnership property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is not a part-‐owner of Pacfor Phils. William Gleason, private respondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-‐50. He stressed that petitioner knew of this arrangement from the very start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not make a partnership.

Besides, a corporation cannot become a member of a partnership in the absence of express authorization by statute or charter. This doctrine is based on the following considerations: (1) that the mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed


and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested in the corporation. No such authorization has been proved in the case at bar.

(This part goes into the employer-‐employee relationship bit, I don’t think it’s important but I included it na din if ever magtanong re: paano nagging employee)

Be that as it may, we hold that on the basis of the evidence, an employer-‐employee relationship is present in the case at bar. 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 employer's power to control the employee's conduct. The most important element is the employer's control of the employee's conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.43

In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which selected and engaged the services of petitioner as its resident agent in the Philippines. Second, as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting to $65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds the power of dismissal, as may be gleaned through the various memoranda it issued against petitioner, placing the latter on preventive suspension while charging him with various offenses, including willful disobedience, serious misconduct, and gross neglect of duty, and ordering him to show cause why no disciplinary action should be taken against him.

Lastly and most important, private respondent Pacfor has the power of control over the means and method of petitioner in accomplishing his work.

The power of control refers merely to the existence of the power, and not to the actual exercise thereof. The principal consideration is whether the employer has the right to control the manner of doing the work, and it is not the actual exercise of the right by interfering with the work, but the right to control, which constitutes the test of the existence of an employer-‐employee relationship.44 In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a representative of Pacfor, who transacts business, and accepts service on its behalf.

This right of control was exercised by private respondent Pacfor during the period of November to December 2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it the possession

of the service car. It was also during this period when private respondent Pacfor sent letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor replied to the client's request for an invoice payment extension, and formulated a revised payment program for DAVCOR. This is one unmistakable proof that private respondent Pacfor exercises control over the petitioner.

DISPOSITIVE: IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in CA-‐G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter isREINSTATED with the MODIFICATION that the amount of P250,000.00 representing an alleged increase in petitioner's salary shall be deducted from the grant of separation pay for lack of evidence.

SO ORDERED.

VOTE: Sandoval-‐Gutierrez, Corona, Azcuna, Garcia, J.J., concur

ANGELES v. SECRETARY OF JUSTICE

(July 29, 2005)

Oscar Angeles and Emerita Angeles, petitioners, v. The Hon. Secretary of Justice and Felino Mercado, respondents

DOCTRINE:The purpose of registration of the contract of partnership with the SEC is to give notice to third parties. Failure to register the contract of partnership does not affect the liability of the partnership and of the partners to third persons, nor does it affect the partnership’s juridical personality. A partnership may exist even if the partners do not use the words “partner” or “partnership.” NATURE: Special civil action. Certiorari. PONENTE: Carpio, J. FACTS: • Angeles spouses filed a criminal complaint for estafa against Mercado, their

brother-‐in-‐law o Claimed that Mercado convinced them to enter into a contract of antichresis,

to last for 5 years, covering 8 parcels of land planted with fruit-‐bearing lanzones trees in Nagcarlan, Laguna and owned by Juan Sanzo

o The parties agreed that Mercado would administer the ands and complete the necessary paperwork


o After 3 years, the Angeles spouses asked for an accounting from Mercado, and they claim that only after this demand for an accounting did thy discover that Mercado had put the contract of antichresis over the subject land under Mercado and his spouse’s names

• Mercado denied the Angeles spouses’ allegations o Claimed that there exists an industrial partnership, colloquially known as

sosyo industrial, between him and his spouse as industrial partners and the Angeles spouses as financiers, and that this had existed since 1991, before the contract of antichresis over the subject land

o Mercado used his and his spouse’s earnings as part of the capital in the business transactions which he entered into in behalf of the Angeles spouses. It was their practice to enter into business transactions with other people under the name of Mercado because the Angeles spouses did not want to be identified as the financiers

o Attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his name for the Angeles spouses

• During the barangay conciliation proceedings, Oscar Angeles stated that there was a written sosyo industrial agreement: capital would come from the Angeles spouses while the profit would be divided evenly between Mercado and the Angeles spouses

• Provincial Prosecution Office: first recommended the filing of a criminal information for estafa, but after Mercado filed his counter-‐affidavit and moved for reconsideration, issued an amended resolution dismissing the complaint

• Angeles spouses appealed to Sec. of Justice, saying that the document evidencing the contract of antichresis executed in the name of the Mercado spouses, instead of the Angeles spouses, and that such document alone proves Mercado’s misappropriation of their P210, 000

• Sec. of Justice: dismissed the appeal o Angeles spouses failed to show sufficient proof that Mercado deliberately

deceived them in the transaction o Mercado satisfactorily explained that the Angeles spouses do not want to be

revealed as the financiers o Under the circumstances, it was more likely that the Angeles spouses knew

from the very start that the questioned document was not really in their names

o A partnership truly existed between the Angeles spouses and Mercado, which was clear from the fact that they contributed money to a common fund and divided the profits among themselves.

o Angeles spouses acknowledged their joint business venture in the barangay conciliation proceedings although they assailed the manner the business was conducted

o Although the legal formalities for the formation were not adhered to, the partnership relationship was evident.

o There is no estafa where money is delivered by a partner to his co-‐partner on the latter’s representation that the amount shall be applied to the business of their partnership. In case of the money received, the co-‐partner’s liability is civil in nature

ISSUES/HELD:

1. W/N the Sec. of Justice committed grave abuse of discretion in dismissing the appeal -‐ No

2. W/N a partnership existed between Mercado and the Angeles spouses -‐ Yes 3. W/N there was misappropriation by Mercado – No

RATIO/RULING: 1. Angeles spouses fail to convince that the Secretary of Justice committed grave abuse of discretion when he dismissed their appeal. Moreover, they committed a procedural error when they failed to file a motion for reconsideration of the Sec. of Justice’s resolution, which is already enough reason to dismiss the case. 2. Angeles spouses allege that they had no partnership with Mercado, relying on Arts. 1771 to 1773 of the Civil Code. • The Angeles spouses’ position that there is no partnership because of the lack of a

public instrument indicating the same and a lack of registration with the SEC holds no water o The Angeles spouses contributed money to the partnership and not

immovable property o Mere failure to register the contract of partnership with the SEC does not

invalidate a contract that has the essential requisites of a partnership. The purpose of registration is to give notice to third parties.

• Failure to register does not affect the liability of the partnership and of the partners to third persons, nor does it affect the partnership’s juridical personality

• The Angeles spouses admit to facts that prove the existence of a partnership o A contract showing a sosyo industrial or industrial partnership o Contribution of money & industry to a common fund o Division of profits between the Angeles spouses and Mercado

3. Mercado satisfactorily explained that the Angeles spouses do not want to be revealed as the financiers, thus the document which was in the name of Mercado and his spouse fail to convince that there was deceit or false representation that induced the Angeles spouses to part with their money • Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed by the

Angeles spouses against Mercado and Leo Cerayban stated that it was the practice to have the contracts secured in Mercado’s name as the Angeles spouses fear being kidnapped by the NPA or being questioned by the BIR as Oscar Angeles was working with the government.

• Accounting of the proceeds is not a proper subject for the present case. DISPOSITION: Petition for certiorari dismissed. Decision of Sec. of Justice affirmed. VOTE: 1st Division, all concur.


D. MUTUAL AGENCY

E. DISTINGUISH FROM

1. Co-‐ownership; Co-‐possession

2. Tenancy in common; joint tenancy

3. Joint Ventures

4. Joint Adventures

5. Joint accounts

6. Cuentas en Participacion

7. Agency

GATCHALIAN v. CIR

April 29, 1939 PONENTE: Imperial, J. FACTS: • The 15plaintiff are all residents of the municipality of Pulilan, Bulacan,

purchased one sweepstakes ticket valued at two pesos (P2), divided in various amounts among themselves.

o the said ticket was registered in the name of Jose Gatchalian and Company;

o The ticket won 50,000 pesos. • Plaintiff submitted 15 income tax returns for exemption from the 1,499 tax on

the lottery winnings, asking that the tax be divided according to the amount paid by each plaintiff;

o CIR denied the plaintiff’s request for exemption, stating that the plaintiffs are a partnership;

ISSUE:

1. Whether the plaintiffs formed a partnership, or merely a community of property without a personality of its own; Formed a partnership of a civil nature.

2. Whether they should pay the tax collectively or whether the latter should be prorated among them and paid individually; Collectively.

HELD:

1. According to the stipulation 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;

• 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 Philippines Charity Sweepstakes, in his capacity as co-‐partner, as such collection 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.

2. 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 under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act No. 3761.

PASCUAL v. CIR

(October 18, 1988)

DOCTRINE: There must be a clear intent to form a 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.

NATURE: Petition for review on certiorari of the decision of the Court of Tax Appeals (CTA) affirming the decision of the Commissioner of Internal Revenue.

PONENTE: Gancayo, J.

FACTS:

Petitioners Mariano Pascual and Renato P. Dragon are siblings.

1965 – Bought 2 Parcels of Land

1966 – Bought another 3 Parcels of Land

1968 – Sold the first to Parcels of Land

1970 – Sold the remaining 3 Parcels.

They realized a total of P 60,000.00 profit, and paid the corresponding capital gains by availing of the tax amnesty in the years 1973 – 74.

BIR Commissioner assessed that the siblings owed P107,101.70 for corporate income tax being an unregistered partnership.

Petitioners assert that they are not a partnership, but are co-‐owners who have paid their corresponding capital gains in ‘73 and ‘74.

ISSUES:

W/N the Siblings were an unregistered partnership which was liable to pay corporate tax?


HELD:

No, they were co-‐owners.

RATIO/RULING:

The CTA anchored their ruling on an earlier case of Evangelista. Which held that the requisite for a partnership is a) an agreement to contribute money, property or industry in a common fund, and b) intent to divide the profits among the contracting parties.

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 intended to divide the profits among themselves. Commissioner merely assumed the presence of these elements.

Also, the earlier ruling in Evangelista showed that there were several transactions, which showed the character of habitually peculiar to business transactions engaged in for the purpose of gain was present.

The common ownership of property does not in itself create a partnership between the owners, though they may use it for purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and use of such property and applications of the proceeds therefrom.

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. There must be a clear intent to form a 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.

There must be intent to create a PARTNERSHIP with a distinct juridical personality to that of the partners.

DISPOSITION: Petition is GRANTED decision of the CTA is REVERSED and SET ASIDE

VOTE: 3rd Division. Cruz, Grino-‐Aquino, Medialdea, JJ. Concur

Narvasa, J. Took no part

OBILLOS v. CIR

(October 29, 1985)

DOCTRINE: 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.

NATURE: Petition to review the decision of the Court of Tax Appeals

PONENTE: Aquino, J.

FACTS:

For at least one year after their receipt of two parcels of land from their father, petitioners resold said lots to the Walled City Securities Corporation and Olga Cruz Canda, for which they earned a profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-‐half thereof or of P16,792.

One day before the expiration of the five-‐year prescriptive period, the Commissioner of Internal Revenue, Commissioner acting on the theory that the four petitioners had formed an unregistered partnership or joint venture, required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares thereof, a 50% fraud surcharge and a 42% accumulated interest. Further, the Commissioner considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital gain of which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud surcharge and the accumulated interest.

The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the instant appeal. ISSUES:Whether or not petitioners have indeed formed a partnership or joint venture and thus, liable for corporate income tax.

HELD &RATIO/RULING:We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.

To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-‐owners pure and simple. To consider them as partners would obliterate the distinction between a co-‐ownership and a partnership. The petitioners were not engaged in any joint venture by reason of that isolated transaction.

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.

DISPOSITION:WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.


VOTE: 2nd Division. Abad Santos, Escolin, Cuevas, Alampayconcur. Concepcion Jr. on leave.

RIVERA v. PEOPLE’S BANK

(April 7, 1942)

DOCTRINE: In the absence of clear proof of the contrary, the SC gives full faith and credit to the certificate of deposit, which recites in effect that the funds in question belonged to persons A and B; that they were joint owners and that either of them could withdraw any part or the whole of said account during the lifetime of both, and the balance, if any, upon the death of either, belonged to the survivor.

NATURE: The question raised in this appeal is the validity of the survivorship agreement made by and between Edgar Stephenson, now deceased, and Ana Rivera, appellant herein

PONENTE: Ozaeta, J.

FACTS:

Ana Rivera was employed by Edgar Stephenson as housekeeper. Stephenson opened an account in his name with the defendant Peoples Bank.

When there was a balance of P2,072 in said account, the survivorship agreement in question was executed and the said account was transferred to the name of "Edgar Stephenson and/or Ana Rivera." At the time of Stephenson's death Ana Rivera held the deposit book, and there was a balance in said account of P701.43, which Ana Rivera claimed but which the bank refused to pay to her upon advice of its attorneys who gave the opinion that the survivorship agreement was of doubtful validity.

Ana Rivera instituted the present action against the bank, and Minnie Stephenson, administratix of the estate of the deceased, intervened and claimed the amount for the estate, alleging that the money deposited in said account was and is the exclusive property of the deceased.

TC: held that the agreement in question, viewed from its effect during the lives of the parties, was a mere power of attorney authorizing Ana Rivera to withdraw the deposit, which power terminated upon the death of the principal, Edgar Stephenson; but that, viewed from its effect after the death of either of the parties, the agreement was a donation mortis causa with reference to the balance remaining at the death of one of them, which, not having been executed with the formalities of a testamentary disposition as required by the Civil Code, was of no legal effect.

ISSUES:

1.WON the survivorship agreement was a mere power of attorney from Stephenson to Ana Rivera, or that it is a gift mortis causa of the bank account in question from him to her.

2. WON the survivorship agreement is valid

HELD:

2. No 3. Yes

RATIO/RULING:

First Issue

1. The TC’s conclusion is predicated on the assumption that Stephenson was the exclusive owner of the funds deposited in the bank, which assumption was in turn based on the facts (1) that the account was originally opened in the name of Stephenson alone and (2) that Ana Rivera "served only as housemaid of the deceased."

2. But it not infrequently happens that a person deposits money in the bank in the name of another; and in the instant case it also appears that Ana Rivera served her master for about nineteen years without actually receiving her salary from him. The fact that subsequently Stephenson transferred the account to the name of himself and/or Ana Rivera and executed with the latter the survivorship agreement in question although there was no relation of kinship between them but only that of master and servant, nullifies the assumption that Stephenson was the exclusive owner of the bank account.

3. In the absence of clear proof of the contrary, the SC gives full faith and credit to the certificate of deposit, which recites in effect that the funds in question belonged to Edgar Stephenson and Ana Rivera; that they were joint owners and that either of them could withdraw any part or the whole of said account during the lifetime of both, and the balance, if any, upon the death of either, belonged to the survivor.

Second issue:

1. Prima facie, SC thinks it is valid. It is an aleatory contract supported by law a lawful consideration — the mutual agreement of the joint depositors permitting either of them to withdraw the whole deposit during their lifetime, and transferring the balance to the survivor upon the death of one of them. The trial court said that the Civil Code "contains no provisions sanctioning such an agreement" SC thinks it is covered by article 1790 of the Civil Code.

2. Furthermore, "it is well established that a bank account may be so created that two persons shall be joint owners thereof during their mutual lives, and the survivor take the whole on the death of the other. The right to make such joint deposits has generally been held not to be done with by statutes abolishing joint tenancy and survivorship generally as they existed at common law."

3. Although the survivorship agreement is per se not contrary to law, its operation or effect may be violative of the law. For instance, if it be shown in a given case that such agreement is a mere cloak to hide an


inofficious donation, to transfer property in fraud of creditors, or to defeat the legitime of a forced heir, it may be assailed and annulled upon such grounds. No such vice has been imputed and established against the agreement involved in the case.

DISPOSITION: The agreement appealed from is reversed and another judgment will be entered in favor of the plaintiff ordering the defendant bank to pay to her the sum of P701.43, with legal interest thereon from the date of the complaint, and the costs in both instances. So ordered.

VOTE: All concur

TUASON v. BOLANOS

FACTS: This was an action to recover possesion of registered land situated in barrio Tatalon, Quezon City. The plaintiff was represented by a corporation, the law firm Araneta & Araneta. ISSUE: WON the case should be dismissed on the ground that the case was not brought by the real property in interest HELD: No.

Ø There is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.)

Ø 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.

Ø There is nothing against one corporation being represented by another person, natural or juridical, in a suit in court.

Ø The contention that Gregorio Araneta Inc. cannot 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 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 (Wyoming-‐Indiana Oil Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.)

Ø There is nothing in the record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business of either of them.

HEIRS OF TANG ENG KEE v. CA

October 3, 2000 FACTS: • The common-‐law spouse and children of TAN ENG KEE (the plaintiffs) filed suit

against the decedent's brother TAN ENG LAY for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay;

o After the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies named "Benguet Lumber" which they jointly managed until Tan Eng Kee's death.

o Petitioners claim 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.

• RTC granted the petitioner for accouting and determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, but the CA reversed such decision, hence the present petition.

ISSUE: Was there a partnership between Tan Eng Kee and Tan Eng Lay? No. HELD: • PLAINTIFFS CLAIM THAT because of the pooling of resources, the post-‐war

Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their children were employed in the business in different capacities.

o HOWEVER: These are not evidences supporting the existence of a partnership. There was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and


losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kee's death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership.

On profits earned: 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. On power to give orders: even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore, that an employee's position is higher in rank, it is not unusual that he orders around those lower in rank. On preparing supply orders: even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a partner. On staying in the premises of Benguet Lumber: although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the other employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative. • In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;

(2) Co-‐ownership or co-‐possession does not of itself establish a partnership, whether such co-‐owners or co-‐possessors do or do not share any profits made by the use of the property;

(3) 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 which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is a 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; (c) 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. DISPOSITIVE: There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.

AURBACH v. SANITARY WARES

(December 15, 1989)

DOCTRINE: The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and construction of contracts.

NATURE: Consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-‐G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court

PONENTE: Gutierrez, Jr., J.

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 domiciled in Delaware, 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."

- 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.

- The agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions.

- The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held.

- 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. 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.

- There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. A series of events then ensued that culminated in the eventual adjournment of the meeting and where the ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie

among the other six (6) nominees for the four (4) remaining positions of directors and that the body decided not to break the tie.

- These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision.

- The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-‐G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-‐G.R. SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission.

- Upon a motion for reconsideration filed by the appellees (Lagdameo Group) the appellate court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:

- I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.

- II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW.

- Petitioner Luciano E. Salazar in G.R. Nos. 75975-‐76 assails the amended decision on the following grounds:

- 11.1. That Amended Decision would sanction the CA's disregard of binding contractual agreements entered into by stockholders and the replacement of the conditions of such agreements with terms never contemplated by the stockholders but merely dictated by the CA .

- 11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 14-‐15, Rollo-‐75975-‐76)

- On the other hand, the petitioners in G.R. No. 75951 contend that: - THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE

RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.


- THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-‐75951)

-

ISSUES:

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 and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors.

HELD:

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.

RATIO/RULING:

- There are two groups in this case, the Lagdameo group composed of Filipino investors and the American Standard Inc. composed of foreign investors. 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 stated the parties’ intention was to form a corporation and not a joint venture.

- The ASI Group and petitioner Salazar (G.R. Nos. 75975-‐76) 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.

- They specifically mention 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. (At P. 66, Rollo-‐GR No. 75875)

- They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court.

- 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. As stated by the SEC:

- 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.

- An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts. ASI is contractually entitled to designate a member of the Executive Committee and the vote of this member is required for certain transactions. The Agreement also requires a 75% super-‐majority vote for the amendment of the articles and by-‐laws of Saniwares. ASI is also given the right to designate the president and plant manager. The Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing Services. Under the Agreement, ASI agreed to provide technology and know-‐how to Saniwares and the latter paid royalties for the same.

- It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-‐majority voting requirements for amendments of the articles and by-‐laws; and most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder.

- Premises considered, we believe that under the Agreement there are two groups of stockholders who established a corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-‐5)

- Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.

- 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.

- Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained


to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal requirements reserve controlling ownership to Filipino citizens.

- The Lagdameo Group stated in their appellees' brief in the Court of Appeal: - In fact, the Philippine Corporation Code itself recognizes the right of

stockholders to enter into agreements regarding the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-‐

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them.

Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the undeniable fact is that it is a close-‐held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation.

As correctly held by the SEC Hearing Officer: - It is said that participants in a joint venture, in organizing the joint

venture deviate from the traditional pattern of corporation management. 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; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration.

- Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-‐Campos explain:

- Paragraph 2 refers to pooling and voting agreements in particular. It is submitted that there is no reason for denying stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such case, its stockholders should not be precluded from entering into contracts like voting agreements if these are otherwise valid. In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include appellants.

DISPOSITION: WHEREFORE, the petitions in G.R. Nos. 75975-‐76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. 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. In all other


respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-‐76 and G.R. No. 75875. SO ORDERED. VOTE: 3rd Division. Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part. CONCURRING/DISSENTING OPINION: None. ADDITIONAL NOTES: Sorry mahaba at magulo. Essentially just read the doctrine and the underlined portions sa ratio. Yung doctrine lang naman ang importante, the rest of the discussions show the HOW and WHY of the doctrine na joint venture nga yung intent.

LITONJUA v. LITONJUA

(Dec 13, 2005)

DOCTRINE:

A Partnership must be in a public document if:

1) Immoveable Property and Real Rights contributed to it. a. If it involves immoveable property, inventory of such is needed

signed by the partners. (else VOID) 2) It involves capital P 3,000 (must be filed in the SEC)

NATURE: Petition for review on certiorari

PONENTE: Garcia, J.

FACTS:

Aurelio (Petitioner) and Eduardo Litonjua are brothers.

Aurelio alleges that he had a partnership with his brother Eduardo evidenced by a private memorandum (unsigned) executed by Eduardo which said he was giving 10% of the equity or 1 million pesos, and that they would work together in maintaining the family business.

A third person Yang was also alleged to be a member in the joint venture and partnership.

Here Aurelio files for an action of Specific Performance against his partners, to render an accounting and give him his share of the profits.

ISSUES: W/N there is a Valid Partnership?

HELD: No, the contract was void or at most unenforceable.

RATIO/RULING:

The supposed contract of partnership was evidenced by a private memorandum (unsigned), in which Eduardo expressed his desire to train his brother, and promising him a 10% share or 1 million pesos.

The supposed contract is void, for being contrary to Articles 1771, 1772, and 1773 of the Civil Code.

The memorandum, on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that

1) The memorandum does not meet the public instrumentation requirements exacted under Article 1771 of the Civil Code.

2) Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, The Memorandum cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 of the Code.

3) And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to the partnership, the next logical point of inquiry turns on the nature of petitioner’s contribution, if any, to the supposed partnership.

Petitioner, then goes on to allege that, assuming arguendo, that the contract was not one of partnership that the same actually established an innominate contract and was a source of actionable rights.

Court ruled even as a innominate contract, it would be void as in violation of the statute of frauds. (Being it’s performance was to be done 1 year after perfection of the contract.)

DISPOSITION: Petition is DENIED ruling of the CA AFFIRMED

VOTE: 1st Division. Panganiban, Sandoval-‐Gutierrez, Corona, Carpio-‐Morales concur

BOURNS v. CARMAN

(December 4, 1906) FRANK S. BOURNS, Plaintiff-‐Appellee , vs. D. M. CARMAN, ET AL., Defendants-‐

Appellants.

DOCTRINE: A partnership, the existence of which was only known to those who had an interest in the same, being no mutual agreements between the partners and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en participacion defined in article 239 of the Code of Commerce.

• Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a


right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the code Of Commerce.) It follows, therefore that the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint, as Lo-‐Chim-‐Lim was the only one who contracted with him.

NATURE: Appeal from a judgment of the CFI PONENTE: MAPA, J.: FACTS:

• The plaintiff in this action seeks to recover the sum of $437.50, balance due on a contract for the sawing of lumber for the lumber yard of Lo-‐Chim-‐Lim.

• The contract relating to the said work was entered into by the said Lo-‐Chim-‐Lim, acting as in his own name with the plaintiff, and it appears that the said Lo-‐Chim-‐Lim personally agreed to pay for the work himself.

• The plaintiff, however, has brought this action against Lo-‐Chim-‐Lim and his codefendants jointly, alleging that,

o at the time the contract was made, they were the joint proprietors and operators of the said lumber yard engaged in the purchase and sale of lumber under the name and style of Lo-‐Chim-‐Lim.

o that the other defendants were the partners of Lo-‐Chim-‐Lim in the said lumber-‐yard business.

• The court below dismissed the action as to the defendants D. M. Carman and Fulgencio Tan-‐Tongco on the ground that they were not the partners of Lo-‐Chim-‐Lim, Vicente Palanca and Go-‐Tauco only excepted to the said judgment, moved for a new trial, and have brought the case to this court by bill of exceptions.

• The evidence of record shows, according to the judgment of the court, "That Lo-‐Chim-‐Lim had a certain lumber yard in Calle Lemery of the city of Manila, and that he was the manager of the same, having ordered the plaintiff to do some work for him at his sawmill in the city of Manila; and that Vicente Palanca was his partner, and had an interest in the said business as well as in the profits and losses thereof . . .," and that Go-‐Tuaco received part of the earnings of the lumber yard in the management of which he was interested.

• CFI: "Lo-‐Chim-‐Lim, Vicente Palanca, Go-‐Tuaco had a lumber yard in Calle Lemmery of the city of Manila in the year 1904, and participated in the profits and losses of business and that Lo-‐Chim-‐Lim was managing partner of the said lumber yard." In other words, coparticipants with the said Lo-‐Chim-‐Lim in the business in question.

ISSUES: What is the real legal nature of the participation which the appellants had in Lo-‐Chim-‐Lim's lumber yard and consequently their liability toward the plaintiff? HELD: The partnership is a partnership of cuentas en participacion.

• Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them. (Art 242 of the code Of Commerce.) It follows, therefore that the plaintiff has no right to demand from the appellants the payment of the amount claimed in the complaint, as Lo-‐Chim-‐Lim was the only one who contracted with him.

RATIO/RULING:

• It seems that the alleged partnership between Lo-‐Chim-‐Lim and the appellants was formed by verbal agreement only. At least there is no evidence tending to show that the said agreement was reduced to writing, or that it was ever recorded in a public instrument.

• Moreover, that partnership had no corporate name. The plaintiff himself alleges in his complaint that the partnership was engaged in business under the name and style of Lo-‐Chim-‐Lim only, which according to the evidence was the name of one of the defendants.

• On the other hand, it does not appear that there was any mutual agreement, between the parties, and if there were any, it has not been shown what the agreement was. As far as the evidence shows it seems that the business was conducted by Lo-‐Chim-‐Lim in his own name, although he gave to the appellants a share was has been shown with certainty.

o The contracts made with the plaintiff were made by Lo-‐Chim-‐Lim individually in his own name, and there is no evidence that the partnership over contracted in any other form.

• Under such circumstances we find nothing upon which to consider this partnership other than as a partnership of cuentas en participacion. It may be that, as a matter of fact, it is something different, but a simple business conducted by Lo-‐Chim-‐Lim exclusively, in his own name, the names of other persons interested in the profits and losses of the business nowhere appearing.

• A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same, being no mutual agreements between the partners and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas en participacion defined in article 239 of the Code of Commerce.

DISPOSITION: The judgment appealed from this hereby reversed and the appellants are absolved of the complaint without express provisions as to the costs of both instances. VOTE: EN BANC; Arellano, C.J., Torres, Johnson, Carson, Willard and Tracey, JJ., concur

SEVILLA v. CA


(April 16, 1988)

DOCTRINE: A joint venture, including a partnership, presupposes generally a of standing between the joint co-‐venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed and where each party exercises equal rights in the conduct of the business.

NATURE: Appeal by certiorari

PONENTE: Sarmiento, J.

FACTS:

1. On the strength of a contract entered into by and between Mrs. Segundina Noguera and the Tourist World Service, Inc., represented by Mr. Eliseo Canilao, the Tourist World Service, Inc. leased the premises belonging to Noguera at Mabini St., Manila for the former’s use as a branch office. When the branch office was opened, the same was run by the herein appellant Lina Sevilla.

2. The Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. the first abolishing the office of the manager and vice-‐president of the Tourist World Service, Inc., Ermita Branch, and the second, authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. To comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service.

3. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint was filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice.

4. The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

5. Appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit

ISSUES: WON there was a partnership between Tourist World Service and Lina Sevilla

HELD: NO

RATIO/RULING:

1. The Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc.

2. Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera.

3. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, in reference to the padlocking now questioned.

4. The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force.

5. The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith.

a. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would be like claims of a master-‐servant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment.

b. In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein


appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

6. It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her booking successes.

7. The fact that Sevilla had been designated 'branch manager" does not make her Tourist World's employee. As we said, employment is determined by the right-‐of-‐control test and certain economic parameters.

8. In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-‐venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed and where each party exercises equal rights in the conduct of the business.

9. Furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. in lieu of a distinct partnership name.

10. It is the Court's considered opinion, when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-‐assumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership.

11. But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had

assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

DISPOSITION: WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.

VOTE: All concur

PHILEX v. MINING CORP.

FACTS: Petitioner Philex Mining Corp. entered into an agreement with Baguio Gold, where the former agreed to manage the mining operations of the latter. The agreement was evidenced by a “Power of Attorney”.

Ø It was indicated in the said document, that Baguio Gold would contribute P11M under its owner's account plus any of its income that is left in the project, in addition to its actual mining claim.

Ø Meanwhile, petitioner's contribution would consist of its

expertise in the management and operation of mines, and of the manager's account which is comprised of P11M in funds.

Ø The compensation of the MANAGER shall be fifty per cent (50%)

of the net profit of the project before income tax. The mining suffered serious loses which ended business of both parties evidenced by their execution of a “compromise agreement.” The CIR assessed Philex Mining for tax deficiencies. It stressed that Philex entered into a partnership with Baguio Gold.


Petitioner denied the allegations of the CIR and maintained that its advances of money and property to Baguio Gold were in a nature of a loan as evidenced by the “compromise agreement”. ISSUE: WON the parties entered into a contract of agency coupled with an interest which is not revocable at will HELD: No. An examination of the “Power of Attorney” reveals that a partnership or joint venture was indeed intended by the parties.

• In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due to an interest of a third party that depends upon it, or the mutual interest of both principal and agent. In this case, the non-‐revocation or non-‐withdrawal under paragraph 5(c) applies to the advances made by petitioner who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that the parties’ relation under the agreement is one of agency coupled with an interest and not a partnership.

• Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was one of agency and not a partnership. Although the said provision states that “this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the MANAGERS’ account,” it does not necessarily follow that the parties entered into an agency contract coupled with an interest that cannot be withdrawn by Baguio Gold.

• The main object of the “Power of Attorney” was not to confer a power in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between petitioner and Baguio Gold, in which the former was to manage and operate the latter’s mine through the parties’ mutual contribution of material resources and industry. The essence of an agency, even one that is coupled with interest, is the agent’s ability to represent his principal and bring about business relations between the latter and third persons.

• The strongest indication that petitioner was a partner in the Sto. Nino Mine is the fact that it would receive 50% of the net profits as “compensation” under paragraph 12 of the agreement. The entirety of the parties’ contractual stipulations simply leads to no other conclusion than that petitioner’s “compensation” is actually its share in the income of the joint venture. Article 1769 (4) of the Civil Code explicitly provides that the “receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner in the business.”

• While a corporation, like the petitioner, cannot generally enter into a contract of partnership unless authorized by law or its charter, it has been

held that it may enter into a joint venture which is akin to a particular partnership:

o under Philippine law, a joint venture is a form of partnership and

should be governed by the law of partnerships II. KINDS OF PARTNERSHIP

A. UNIVERSAL

B. PARTICULAR

C. GENERAL

D. LIMITED

E. AT WILL

F. FOR A TERM OR UNDERTAKING

G. COMMERCIAL

H. PROFESSIONAL

I. BY ESTOPPEL APPARENT

ORTEGA v. CA

(err walang nakaassign ditto?)

III. KINDS OF PARTNER

A. INDUSTRIAL

B. CAPITALIST

C. MANAGING

D. BY ESTOPPEL

Compiled Partnership Digest (1st Set)

Documents

tang eng kee

cuentas en

tan eng kee

tan eng kee

tan eng lay

tourist world

tourist world

equal protection