Partnership Session 1 June 23, 2015

1 | P a g e Business Organization 1 (Partnership, Agency and Trust Laws)

PARTNERSHIP, AGENCY AND TRUST LAWS

PART ONE: PARTNERSHIP LAW

I. HISTORICAL CONSIDERATIONS

A. The Evolution of Partnership

1. Development of Partnership

- Earliest form of conducting business: single

entrepreneur.

- To permit combinations of capital, or capital and

experience, and to secure economy by eliminating

some of the overhead costs of individual

enterprises, the partnership plan of business

association was develop.

- Can be traced back to ancient history

2. Ancient origin of partnership as business organization

a. Romans: capitals, good, talents, and credit of two

or more individuals might best be combined to

carry on trade or business.

b. Babylonian period: Hammurabi (King of Babylon)

2300 B.C., provided for the regulation of the

relation called partnership (single transactions or

undertakings).

c. Jewish Law: partnership as bus. org. concerned

with the holding of title to land by two or more

persons.

o hutolin joint ownership of land

3. The relative newness of the law of partnership

- Partnership had been well and generally

established in British commerce.

- Disputes between merchants were considered and

disposed of by special courts (Courts Staple,

Admiralty Courts and Courts of Piepoudre).

a. The law of merchants:

- Special courts established- the merchants moved

more rapidly than the law and they required that

justice be more speedy and that it be in accord

with their custom,

b. English law of partnership

- Special courts was discontinued and their function

were taken over by the law courts (Chief Justice

Lord Mansfield)

- Establish common law for commercial matters.

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c. Beginning of law of partnership: the increased use

of the partnership as bus. org., together with the

increase in the complexity of business, generally

has brought forth a rapid succession of decisions

involving partnership.

4. America Uniform Act

Purpose: to achieve uniformity of decisions in this field

of law (partnership).

a. Uniform Partnership Act (enacted: 1914)

b. Uniform Limited Partnership Act

B. Sources of Philippine Partnership Law

1. Code of Commerce (Arts. 116-238) Commercial and

mercantile partnerships deal with mercantile

transactions.

2. Old Spanish Civil Code (Arts. 1665-1708) non-

commercial or civil partnerships engaged in civil

purposes; difference was in the desired purpose not

the manner of organization.

3. New Civil Code (Title IX, Arts. 1767-1867) no more

distinction between commercial and civil

partnerships; govern all transactions of all

partnership whether the object be civil or mercantile

a. Uniform Partnership Act (Sources of Arts.

1769, 1774, 1785, 1805 to 1907, 1809, 1810

to 1814, 1819 to 1826)

b. Uniform Limited Partnership Act

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II. NATURE AND ATTRIBUTES

A. Concept

Art. 1767, 1st par, CC established by a contract but

the law fixes the conditions under which it shall

operate once established.

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

Two or more persons may also form a partnership for

the exercise of a profession.

B. Partnership as a Contractual Relation

Art. 1769 In determining whether a partnership exists,

these rules shall apply:

1. Except as otherwise provided by Art. 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, WON the persons sharing

them have a joint or common right or interest in any

property from which the returns are derived;

4. The receipt by a person of a share of the profits of a

business is prima facie evidence that he is a partner in

the business, but no such inference shall be drawn if

such profits were received in payment:

a. As a debt by installment of 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;

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e. As the consideration for the sale of a goodwill of a business or other property by

instalments or otherwise.

1. Essential Elements Art.1767

- Valid contract

- Parties (two or more persons)

- Mutual contribution (money, property or industry)

- Profit

- Lawful

a. Necessity of Contract

Art. 1318 There is no contract unless the following requisites concur:

1. Consent of the contracting parties;

2. Object certain which is the subject matter of the contract;

3. Cause of the obligation which is established.

b. Parties who may become a partner

UNEMANCIPATED AND INSANE

Art. 1327 The following cannot give consent to a contract:

1. Unemancipated minors;

2. Insane or demented persons, and deaf-mutes who do not know how to read or write;

Art. 1329 The incapacity declared in Art. 1327 is subject to the modifications determined by

law, and is understood to be without prejudice to special disqualifications established in the

laws.

Art. 234 FC Emancipation takes place by the attainment of majority. Unless otherwise

provided, majority commences at the age of 18 y/o.

Art. 34 RPC Civil Interdiction Civil interdiction shall deprive the offender during the time of

his sentence of the right of parental authority, or guardianship, either as to the person or

property of any ward, or marital authority, of the right to manage his property, and of the

right to dispose of such property by any act or any conveyance inter vivos.

Rule 93 - Appointment of Guardians Rule 94 Bonds of Guardians

DONATION

Art. 1782 Persons who are prohibited from giving each other any donation or advantage

cannot enter into universal partnership.

ARTICLE 739. The following donations shall be void:


(1) Those made between persons who were guilty of

adultery or concubinage at the time of the donation;

(2) Those made between persons found guilty of the

same criminal offense, in consideration thereof;

(3) Those made to a public officer or his wife,

descendants and ascendants, by reason of his office.

In the case referred to in No. 1, the action for

declaration of nullity may be brought by the spouse of

the donor or donee; and the guilt of the donor and

donee may be proved by preponderance of evidence in

the same action. (n)

c. Consent or Intention to become a partner 1769 (1)

1804

Art. 1769 In determining whether a partnership exists,

these rules shall apply:

1. Except as otherwise provided by Art. 1825, persons

who are not partners as to each other are not partners

as to third persons;

x x x x

ARTICLE 1825. When a person, by words spoken or

written or by conduct, represents himself, or consents

to another representing him to anyone, as a partner in

an existing partnership or with one or more persons not

actual partners, he is liable to any such persons to

whom such representation has been made, who has,

on the faith of such representation, given credit to the

actual or apparent partnership, and if he has made

such representation or consented to its being made in

a public manner he is liable to such person, whether

the representation has or has not been made or

communicated to such person so giving credit by or

with the knowledge of the apparent partner making the

representation or consenting to its being made:

(1) When a partnership liability results, he is liable as

though he were an actual member of the partnership;

(2) When no partnership liability results, he is liable pro

rata with the other persons, if any, so consenting to the

contract or representation as to incur liability,

otherwise separately.

When a person has been thus represented to be a

partner in an existing partnership, or with one or more

persons not actual partners, he is an agent of the

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persons consenting to such representation to bind them

to the same extent and in the same manner as though

he were a partner in fact, with respect to persons who

rely upon the representation. When all the members of

the existing partnership consent to the representation,

a partnership act or obligation results; but in all other

cases it is the joint act or obligation of the person acting

and the persons consenting to the representation. (n)

ARTICLE 1804. Every partner may associate

another person with him in his share, but the associate

shall not be admitted into the partnership without the

consent of all the other partners, even if the partner

having an associate should be a manager. (1696)

d. Lawful subject matter and Cause 1347, 1348, 1770

Art. 1306 The contracting parties may establish such

stipulations, clauses, terms and conditions as they

may deem convenient, provided they are not contrary

to law, morals, good customs, public order, or public

policy.

Art. 1347 All things which are not outside the

commerce of men, including future things, may be the

object of a contract. All rights which are not

intransmissible may also be the object of contracts.

No contract may be entered into upon future

inheritance except in case expressly authorized by law.

Art. 1348 Impossible things or services cannot be the

object of contracts.

Art. 1349 The object of every contract must be

determinate as to its kind. The fact that the quantity is

not determinate shall not be an obstacle to the

existence of the contract, provided it is possible to

determine the same, without the need of a new contract

between the parties.

Art. 1409 The following contracts are inexistent and

void from the beginning:

1. Those whose cause, object of purpose is contrary to

law, morals, good customs, public order or public

policy;

2. Those which are absolutely simulated or fictitious;

3. Those whose cause or object did not exist at the

time of the transaction;

4. Those whose object is outside the commerce of men;

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5. Those which contemplate an impossible service;

6. Those where the intention of the parties relative to

the principal object of the contract cannot be

ascertained

7. Those expressly prohibited or declared void by law;

These contracts cannot be ratified. Neither can the right

to set up the defense of illegality be waived.

Art. 1770 A partnership must have a lawful object of

purpose, and must established for the common benefit

or interest of the partners.

When an unlawful partnership is dissolved by a judicial

decree, the profits shall be confiscated in favor of the

State, without prejudice to the provisions of the Penal

Code governing the confiscation of the instruments and

effects of a crime.

The pursuit of a particular business for profit; except

where the law requires a specific form of business

organization such as banking or insurance which only

corporations can undertake.

e. Contribution to a common fund 1767

(1) Existence of proprietary interest must contribute

MPI

a. Money currency which is legal tender in the PH.

- Nego. Ints.: no contribution until encashed.

b. Property real or personal, corporeal or

incorporeal.

- Promissory note, evidence of obligation or goodwill

may be contributed.

c. Industry means active cooperation, the work of

the party associated, which may be either

personal ir manual efforts or intellectual, and for

which he receives a share in the profits.

(2) Proof of contribution necessary in partnership.

f. Purpose: Business or profession - 1767

Cause of obligation Art. 1350 for each contracting

party, the prestation or promise of a thing or service by

the other; the undertaking of the other to contribute

money, property or industry.

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Art. 1350 In onerous contracts the cause is understood to

be, for each contracting party, the prestation or promise of

a thing or service by the other, in remuneratory ones, the

service of benefit which is remunerated; and in contracts of

pure beneficence, the mere liberality of the benefactor

PURPOSE:

(1) The very reason for existence of partnership

- A partnership is formed to carry on a business. The

idea of obtaining pecuniary profit or gain directly

through or as a result of the business to be carrid

on is the very reason for the existence of a

partnership.

(2) Need only be principal, not exclusive aim.

- It is sufficient that the principal purpose of the

partnership is sharing of profits in certain

proportions even if there are incidentally, moral,

social or spiritual ends.

- Sharing of profits:

o Not necessarily in equal shares

o Not conclusive evidence of partnership

- Sharing of losses:

o Necessary corollary of sharing in profits

o Agreement not necessary

-sharing of profit shall be in the same

proportion as the sharing of losses.

g. Community of Interest 1767, 1770, 1769 (3), (4)

i. co-ownership of capital or property

ii. Joint management and control

iii. Co-ownership of profits and participation in

profits and losses

Art. 1770 A partnership must have a lawful object of

purpose, and must established for the common benefit

or interest of the partners.

When an unlawful partnership is dissolved by a judicial

decree, the profits shall be confiscated in favor of the

State, without prejudice to the provisions of the Penal

Code governing the confiscation of the instruments and

effects of a crime.

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Art. 1769. xxx

3. The sharing of gross returns does not of itself establish

a partnership, WON the persons sharing them have a

joint or common right or interest in any property from

which the returns are derived;

4. The receipt by a person of a share of the profits of a

business is prima facie evidence that he is a partner in

the business, but no such inference shall be drawn if

such profits were received in payment:

a. As a debt by installment of 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 instalments or

otherwise.

2. Principles Governing Partnership

a. Contractual in nature 1767, 1784

Art. 1784 A partnership begins from the moment of

execution of the contract, unless it is otherwise

stipulated.

b. Separate Juridical Personality 1768, 46, 51, 1775

Article 1768. The partnership has a juridical personality

separate and distinct from that of each of the partners,

even in case of failure to comply with the requirements of

article 1772, first paragraph.

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Article 1772. Every contract of partnership having a capital of three thousand pesos or more,

in money or property, shall appear in a public instrument,

which must be recorded in the Office of the Securities and

Exchange Commission.

Failure to comply with the requirements of the preceding

paragraph shall not affect the liability of the partnership

and the members thereof to third persons.

ARTICLE 46. Juridical persons may acquire and possess

property of all kinds, as well as incur obligations and

bring civil or criminal actions, in conformity with the laws

and regulations of their organization. (38a)

ARTICLE 51. When the law creating or recognizing them,

or any other provision does not fix the domicile of juridical

persons, the same shall be understood to be the place

where their legal representation is established or where

they exercise their principal functions. (41a)

ARTICLE 1775. Associations and societies, whose

articles are kept secret among the members, and wherein

any one of the members may contract in his own name

with third persons, shall have no juridical personality,

and shall be governed by the provisions relating to co-

ownership. (1669)

c. Delectus Personae 1804, 1813

- Means choice of the person or choice of the persons.

- Partnership relation fiduciary in nature. Partnership

is a form of voluntary association entered into by the

associates. It is a personal relation in which the

element of delectus personae exists, involving as it

does trust and confidence between the partners.

ARTICLE 1804. Every partner may associate another

person with him in his share, but the associate shall not

be admitted into the partnership without the consent of all

the other partners, even if the partner having an associate

should be a manager. (1696)

ARTICLE 1813. A conveyance by a partner of his

whole interest in the partnership does not of itself dissolve

the partnership, or, as against the other partners in the

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absence of agreement, entitle the assignee, during the

continuance of the partnership, to interfere in the

management or administration of the partnership

business or affairs, or to require any information or

account of partnership transactions, or to inspect the

partnership books; but it merely entitles the assignee to

receive in accordance with his contract the profits to which

the assigning partner would otherwise be entitled.

However, in case of fraud in the management of the

partnership, the assignee may avail himself of the usual

remedies.

In case of a dissolution of the partnership, the assignee is

entitled to receive his assignor's interest and may require

an account from the date only of the last account agreed

to by all the partners. (n)

CASE:

ORTEGA vs. CA

G.R. No. 109248, July 3, 1995, Vitug, J;p

FACTS:

Ortega, then a senior partner in the law firm Bito, Misa,

and Lozada withdrew in said firm. He filed with SEC a

petition for dissolution and liquidation of partnership.

SEC en banc ruled that withdrawal of Misa from the firm

had dissolved the partnership. Reason: since it is

partnership at will, the law firm could be dissolved by

any partner at anytime, such as by withdrawal there

from, regardless of good faith or bad faith, since no

partner can be forced to continue in the partnership

against his will.

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ISSUE:

1. WON the partnership of Bito, Misa & Lozada (now Bito,

Lozada, Ortega & Castillo) is a partnership at will;

2. WON the withdrawal of Misa dissolved the partnership

regardless of his good or bad faith;

HELD:

1. Yes. The partnership agreement of the firm provides

that [t]he partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one

of the partners, shall be continued by the surviving

partners.

2. Yes. Any one of the partners may, at his sole pleasure,

dictate a dissolution of the partnership at will (e.g. by way

of withdrawal of a partner). He must, however, act in

good faith, not that the attendance of bad faith can

prevent the dissolution of the partnership but that it can

result in a liability for damages.

d. Mutual Agency 1803, 1818, 1822

ARTICLE 1803. When the manner of management

has not been agreed upon, the following rules shall be

observed:

(1) All the partners shall be considered agents and

whatever any one of them may do alone shall bind the

partnership, without prejudice to the provisions of article

1801.

(2) None of the partners may, without the consent of

the others, make any important alteration in the

immovable property of the partnership, even if it may be

useful to the partnership. But if the refusal of consent by

the other partners is manifestly prejudicial to the interest

of the partnership, the court's intervention may be sought.

(1695a)

ARTICLE 1818. Every partner is an agent of the

partnership for the purpose of its business, and the act of

every partner, including the execution in the partnership

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name of any instrument, for apparently carrying on in the

usual way the business of the partnership of which he is

a member binds the partnership, unless the partner so

acting has in fact no authority to act for the partnership in

the particular matter, and the person with whom he is

dealing has knowledge of the fact that he has no such

authority.

An act of a partner which is not apparently for the carrying

on of business of the partnership in the usual way does

not bind the partnership unless authorized by the other

partners.

Except when authorized by the other partners or unless

they have abandoned the business, one or more but less

than all the partners have no authority to:

(1) Assign the partnership property in trust for

creditors or on the assignee's promise to pay the debts of

the partnership;

(2) Dispose of the good-will of the business;

(3) Do any other act which would make it impossible

to carry on the ordinary business of a partnership;

(4) Confess a judgment;

(5) Enter into a compromise concerning a partnership

claim or liability; meiriw

(6) Submit a partnership claim or liability to

arbitration;

(7) Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on

authority shall bind the partnership to persons having

knowledge of the restriction. (n)

ARTICLE 1822. Where, by any wrongful act or

omission of any partner acting in the ordinary course of

the business of the partnership or with the authority of his

co-partners, loss or injury is caused to any person, not

being a partner in the partnership, or any penalty is

incurred, the partnership is liable therefor to the same

extent as the partner so acting or omitting to act. (n)

e. Unlimited Liability 1816, 1817, 1824, 1826, 1827,

1839 (4), (7)

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ARTICLE 1816. All partners, including industrial

ones, shall be liable pro rata with all their property and

after all the partnership assets have been exhausted, for

the contracts which may be entered into in the name and

for the account of the partnership, under its signature and

by a person authorized to act for the partnership.

However, any partner may enter into a separate

obligation to perform a partnership contract. (n)

ARTICLE 1817. Any stipulation against the liability

laid down in the preceding article shall be void, except as

among the partners. (n)

ARTICLE 1824. All partners are liable solidarily with

the partnership for everything chargeable to the

partnership under articles 1822 and 1823. (n)

ARTICLE 1826. A person admitted as a partner into

an existing partnership is liable for all the obligations of

the partnership arising before his admission as though he

had been a partner when such obligations were incurred,

except that this liability shall be satisfied only out of

partnership property, unless there is a stipulation to the

contrary. (n)

ARTICLE 1827. The creditors of the partnership shall

be preferred to those of each partner as regards the

partnership property. Without prejudice to this right, the

private creditors of each partner may ask the attachment

and public sale of the share of the latter in the partnership

assets. (n)

ARTICLE 1839. In settling accounts between the

partners after dissolution, the following rules shall be

observed, subject to any agreement to the contrary:

wItwsi

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the

payment of all the liabilities specified in No. 2.

(2) The liabilities of the partnership shall rank in order

of payment, as follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and

profits,

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(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

(3) The assets shall be applied in the order of their

declaration in No. 1 of this article to the satisfaction of the

liabilities.

(4) The partners shall contribute, as provided by article

1797, the amount necessary to satisfy the liabilities.

(5) An assignee for the benefit of creditors or any

person appointed by the court shall have the right to

enforce the contributions specified in the preceding

number.

(6) Any partner or his legal representative shall have

the right to enforce the contributions specified in No. 4, to

the extent of the amount which he has paid in excess of

his share of the liability.

(7) The individual property of a deceased partner shall

be liable for the contributions specified in No. 4.

(8) When partnership property and the individual

properties of the partners are in possession of a court for

distribution, partnership creditors shall have priority on

partnership property and separate creditors on individual

property, saving the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate

is insolvent, the claims against his separate property shall

rank in the following order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution. (n)

3. Distinguished from other combinations and relations

a. Joint Venture

- A commercial undertaking by two or more persons,

differing from a partnership in that it relates to the

disposition of a single lot of goods or the completion

of a single project. Its duration is limited to a period

in which the goods are sold or the project is carried

on.

- A corporation may enter into joint venture

partnership with another where the nature of the

venture is in line with the business authorized by its

charter.

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CASE(S):

Aurbach vs. Sanitary Wares

180 scra 130 (1989)

Facts:

This consolidated petition assailed the decision of the CA

directing a certain MANNER OF ELECTION OFOFFICERS IN

THE BOARD OF DIRECTORS. (Noted: There was a

disagreement about the election of Board of Members,

wherein the no. of nominees exceeded to the prescribe no.

that should have been nominated. For foreigner,3 nominees

only, while the Filipino group shall have a 6 nominees.

During the election, there are 3 nominees from the foreign

group while the Filipino group have 8 nominees. The

Chairman ruled that the first 9 nominees will be the winner

in the said election *There are two groups in this case,

theLagdameo group composed of Filipino investors and the

American Standard Inc. (ASI) composed of foreign

investors.The ASI Group and petitioner Salazar (G.R. Nos.

75975-76) contend that the actual intention of theparties

should be viewed strictly on the "Agreement" dated August

15,1962 wherein it is clearly statedthat the parties' intention

was to form a corporation and not a joint venture.

Issue:

The main issue hinges on who were the duly elected

directors of Saniwares for the year 1983 during itsannual

stockholders' meeting held on March 8, 1983.

Ruling:

While certain provisions of the Agreement would make it

appear that the parties theretodisclaim being partners or

joint venturers such disclaimer is directed at third parties

and is notinconsistent with, and does not preclude, the

existence of two distinct groups of stockholders inSaniwares

one of which (the Philippine Investors) shall constitute the

majority, and the other ASIshall constitute the minority

stockholder. In any event, the evident intention of the

PhilippineInvestors and ASI in entering into the Agreement

is to enter into a joint venture enterprise

An examination of the Agreement shows that certain

provisions were included to protect theinterests of ASI as the

minority. For example, the vote of 7 out of 9 directors is

required incertain enumerated corporate acts. ASI is

contractually entitled to designate a member of theExecutive

Committee and the vote of this member is required for

certain transactions

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The Agreement also requires a 75% super-majority vote for

the amendment of the articles andby-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 isnormally followed

by ASI and that Saniwares should not export "Standard"

products otherwisethan through ASI's Export Marketing

Services. Under the Agreement, ASI agreed to

providetechnology and know-how to Saniwares and the

latter paid royalties for the same.

The legal concept of a joint venture is of common law origin.

It has no precise legal definitionbut it has been generally

understood to mean an organization formed for some

temporary purpose. It is in fact hardly distinguishable from

the partnership, since their elements are similar community

of interest in the business, sharing of profits and losses, and

a mutual right of control.

The main distinction cited by most opinions in common law

jurisdictions is that the partnershipcontemplates a general

business with some degree of continuity , while the joint

venture is formedfor the execution of a single transaction,

and is thus of a temporary nature

HEIRS OF TAN ENG KEE vs.CA

341 SCRA 740, G.R. No. 126881, October 3, 2000, De

Leon, Jr.:p

FACTS:

The complaint alleged that after the second World War, Tan

EngKee 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. They named their enterprise "Benguet Lumber"

which they jointly managed until Tan EngKee's death.

Petitioners claimed that Tan Eng Lay and his children

caused the conversion of the partnership "Benguet Lumber"

into a corporation called "Benguet Lumber Company"

allegedly to deprive Tan Eng Kee and his heirs of their

rightful participation in the profits of the business. After

Tang Eng Kees death petitioners prayed for accounting of

the partnership assets, and the dissolution, winding up and

liquidation thereof, and the equal division of the net assets

of Benguet Lumber. The RTC ruled in favor of petitioners,

declaring that Benguet Lumber is a joint venture which is

akin to a particular partnership. The Court of Appeals

rendered the assailed decision reversing the judgment of the

trial court.

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ISSUE:

Whether or not Tan Eng Kee and Tan Eng Lay were partners

in Benguet Lumber.

HELD:

NO. The trial court determined that Tan EngKee and Tan

Eng Lay had entered into a joint venture, which it said is

akin to a particular partnership. A particular partnership is

distinguished from a joint adventure, to wit:(a) A joint

adventure (an American concept similar to our joint

accounts) is a sort of informal partnership, with no firm

name and no legal personality. In a joint account, the

participating merchants can transact business under their

own name, and can be individually liable therefor.(b)

Usually, but not necessarily a joint adventure is limited to a

SINGLE TRANSACTION, although the business of pursuing

to a successful termination may continue for a number of

years; a partnership generally relates to a continuing

business of various transactions of a certain kind. A joint

venture "presupposes generally a parity of standing between

the joint co-ventures 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. The evidence presented by

petitioners falls short of the quantum of proof required to

establish a partnership. In the absence of evidence, we

cannot accept as an established fact that Tan Eng Kee

allegedly contributed his resources to a common fund for the

purpose of establishing a partnership. Besides, it is indeed

odd, if not unnatural, that despite the forty years the

partnership was allegedly in existence, Tan Eng Kee never

asked for an accounting. The essence of a partnership is that

the partners share in the profits and losses. Each has the

right to demand an accounting as long as the partnership

exists. A demand for periodic accounting is evidence of a

partnership. During his lifetime, Tan Eng Kee appeared

never to have made any such demand for accounting from

hisbrother, Tang Eng Lay. We conclude that Tan Eng Kee

was only an employee, not a partner 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.

There being no partnership, it follows that there is no

dissolution, winding up or liquidation to speak of. Hence, the

petition must fail.

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b. Agency

ARTICLE 1868. By the contract of agency a person binds

himself to render some service or to do something in

representation or on behalf of another, with the consent or

authority of the latter. (1709a)

c. Employment

CASE(S):

RUGA VS. NLRC

G.R. No. 72654-81 January 22, 1990

FACTS:

Private respondent's regular business of "trawl" fishing,

petitioners were paid on percentage commission basis in

cash by one Mrs. Pilar de Guzman, cashier of private

respondent. As agreed upon, they received thirteen

percent (13%) of the proceeds of the sale of the fish-catch

if the total proceeds exceeded the cost of crude oil

consumed during the fishing trip, otherwise, they received

ten percent (10%) of the total proceeds of the sale. The

patron/pilot, chief engineer and master fisherman

received a minimum income of P350.00 per week while

the assistant engineer, second fisherman, and fisherman-

winchman received a minimum income of P260.00 per

week.

ISSUE:

Whether or not the fishermen-crew members of the trawl

fishing vessel are employees of its owner-operator, De

Guzman Fishing Enterprises.

HELD:

The hiring of petitioners to perform work which is

necessary or desirable in the usual business or trade of

private respondent for a period of 8-15 years since 1968

qualify them as regular employees within the meaning of

Article 281 of the Labor Code as they were indeed engaged

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to perform activities usually necessary or desirable in the

usual fishing business or occupation of private

respondent.

1. LABOR LAW; EMPLOYER-EMPLOYEE RELATIONSHIP;

ELEMENTS IN DETERMINING EXISTENCE THEREOF.

We have consistently ruled that in determining the

existence of an employer-employee relationship, the

elements that are generally considered are the following

(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 with respect to

the means and methods by which the work is to be

accomplished. The employment relation arises from

contract of hire, express or implied. In the absence of

hiring, no actual employer-employee relation could exist.

2. ID.; ID.; PRESENT IN THE CASE AT BAR. To stress

that there is an employer-employee relationship between

them and private respondent, petitioners invite attention

to the following: that they were directly hired by private

respondent through its general manager, Arsenio de

Guzman, and its operations manager, Conrado de

Guzman; that, except for Laurente Bautu, they had been

employed by private respondent from 8 to 15 years in

various capacities; that private respondent, through its

operations manager, supervised and controlled the

conduct of their fishing operations as to the fixing of the

schedule of the fishing trips, the direction of the fishing

vessel, the volume or number of tubes of the fish-catch,

the time to return to the fishing port, which were

communicated to the patron/pilot by radio (single side

band) that they were not allowed to join other outfits even

the other vessels owned by private respondent without the

permission of the operations manager; that they were

compensated on percentage commission basis of the gross

sales of the fish-catch which were delivered to them in

cash by private respondent's cashier, Mrs. Pilar de

Guzman; and that they have to follow company policies,

rules and regulations imposed on them by private

respondent. Furthermore, the fact that on mere suspicion

based on the reports that petitioners allegedly sold their

fish-catch at midsea without the knowledge and consent

of private respondent, petitioners were unjustifiably not

allowed to board the fishing vessel on September 11, 1983

to resume their activities without giving them the

opportunity to air their side on the accusation against

them unmistakably reveals the disciplinary power

exercised by private respondent over them and the

corresponding sanction imposed in case of violation of any

of its rules and regulations.

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3. ID.; ID.; REGULAR EMPLOYEE, CONSTRUED. While

tenure or length of employment is not considered as the

test of employment, nevertheless the hiring of petitioners

to perform work which is necessary or desirable in the

usual business or trade of private respondent for a period

of 8-15 years since 1968 qualify them as regular

employees within the meaning of Article 281 of the Labor

Code as they were indeed engaged to perform activities

usually necessary or desirable in the usual fishing

business or occupation of private respondent.

4. ID.; WAGE, DEFINED; COMPENSATION ON A

PERCENTAGE COMMISSION BASED ON THE GROSS

SALE OF THE FISH-CATCH TANTAMOUNT TO WAGE.

Aside from performing activities usually necessary and

desirable in the business of private respondent, it must

be noted that petitioners received compensation on a

percentage commission based on the gross sale of the

fish-catch, i.e. 13% of the proceeds of the sale if the total

proceeds exceeded the cost of the crude oil consumed

during the fishing trip, otherwise only 10% of the proceeds

of the sale. Such compensation falls within the scope and

meaning of the term "wage" as defined under Article 97(f)

of the Labor Code, thus: "(f) 'Wage' paid to any employee

shall mean the remuneration or earnings, however

designated, capable of being expressed in terms of money,

whether fixed or ascertained on a time, task, piece or

commission basis, or other method of calculating the

same, which is payable by an employer to an employee

under a written or unwritten contract of employment for

work done or to be done, or for services rendered or to be

rendered, and included the fair and reasonable value, as

determined by the Secretary of Labor, of board, lodging,

or other facilities customarily furnished by the employer

to the employee. . . . "

ARSENIO T. MENDIOLA, petitioner,

vs.

COURT OF APPEALS, NATIONAL LABOR RELATIONS

COMMISSION, PACIFIC FOREST RESOURCES, PHILS.,

INC. and/or CELLMARK AB, respondents

Facts:

Private respondent Pacific Forest Resources, Phils., Inc.

(Pacfor) is a corporation organized and existing under the

laws of California, USA. Private respondent Pacfor entered

into a "Side Agreement on Representative Office known as

Pacific Forest Resources (Phils.), Inc."5 with petitioner

Arsenio T. Mendiola (ATM), effective May 1, 1995,

"assuming that Pacfor-Phils. is already approved by the

Securities and Exchange Commission [SEC] on the said

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date. etitioner 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.12On

November 27, 2000, private 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. 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 private respondent Pacfor placed petitioner

on preventive suspension and ordered him to show

cause why no disciplinary action should be taken

against him. Petioner was dismissed.

ISSUE

WON there is partnership or employer-employee

relationship?

Held:

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.36 The property or stock of the

partnership forms a community of goods, a common

fund, in which each party has a proprietary interest.37

In fact, the New Civil Code regards a partner as a co-

owner of specific partnership property.38 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.39 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

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office" in the Philippines to save on taxes. Thus, the

parties in this case, merely shared profits. This alone

does not make a partnership.40

Besides, a corporation cannot become a member of a

partnership in the absence of express authorization by

statute or charter.41 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.42 No such

authorization has been proved in the case at bar.

d. Co-ownership

There is a co-ownership whenever the ownership of an

undivided thing or right belongs to different persons. (Art.

484.) It is the right of common dominion which two or

more persons have in a spiritual part of a thing which is

not physically divided.

The following are the distinctions between a partnership

and a co-ownership:

(1) Creation. Co-ownership is generally created by law.

It may exist even without a contract, but partnership is

always created by a contract (Art. 1767.), either express

or implied;

(2) Juridical personality. A partnership has a juridical

personality separate and distinct from that of each

partner (Art.1768.), while a co-ownership has none;

(3) Purpose. The purpose of a partnership is the

realization of profits (Art. 1767.), while in co-ownership,

it is the common enjoyment of a thing or right (see Art.

486.) which does not necessarily involve the sharing of

profits;

(4) Duration. Under the law, there is no limitation upon

the duration of a partnership (see Arts. 1767, 1785.)

while in co-ownership, an agreement to keep the thing

undivided for more than ten years is not allowed (see Art.

494.);

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(5) Disposal of interests. A partner may not dispose of

his individual interest in the partnership (Art. 1812.) so as

to make the assignee a partner unless agreed upon by all

of the partners;

(6) Power to act with third persons. In the absence of

any stipulation to the contrary (Art. 1803.), a partner may

bind the partnership, while a co-owner cannot represent

the co-ownership; and

(7) Effect of death. The death of a partner results in the

dissolution of the partnership (Art. 1830[5].), but the death

of a co-owner does not necessarily dissolve the co-

ownership.

e. Corporation

i. Manner of Creation Art. 1787 vs. Sec. 2 Corporation

Code

Art. 1787 When the capital or a part thereof which a partner

is bound to contribute consists of goods, their appraisal must

be made in the manner prescribed in the contract of

partnership, and in the absence if stipulation, it shall be

made by experts chosen by the partners, and according to

current prices, the subsequent changes thereof being for the

account of partnership.

Sec. 2 Corp. Code - Corporation defined. - A corporation is an

artificial being created by operation of law, having the right

of succession and the powers, attributes and properties

expressly authorized by law or incident to its existence.

ii. Number of Incorporators Art. 1767 vs. Sec 10 Corp Code

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.

Two or more persons may also form a partnership for the

exercise of a profession.

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Partnership Session 1 June 23, 2015

Documents

partnership law

english law of partnership

evolution of partnership

development of partnership

trust laws partnership

ancient origin of partnership

law of merchants

common law