PAT 1st Set of Case Digests

7/29/2019 PAT 1st Set of Case Digests

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Case digests compilation 1st set (PAT)

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and

NENITA A. ANAY, respondents. (AGASANG)

Facts: Nenita A. Anay met petitioner William T. Belo. Belo introduced Anay to petitioner Marjorie

Tocao, who conveyed her desire to enter into a joint venture with her for the importation and localdistribution of kitchen cook wares. Belo volunteered to finance the joint venture and assigned to Anay thejob of marketing the product considering her experience and established relationship with West BendCompany, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted ascapitalist, Tocao as president and general manager, and Anay as head of the marketing department andlater, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hiredand fired employees, determined commissions and/or salaries of the employees, and assigned them todifferent branches. The parties agreed that Anay would be entitled to: 1. ten percent (10%) of the annualnet profits of the business; 2. overriding commission of six percent (6%) of the overall weeklyproduction; 3. thirty percent (30%) of the sales she would make; and 4. two percent (2%) for herdemonstration services.

Anay having secured the distributorship of cookware products from the West Bend Company andorganized the administrative staff and the sales force, the cookware business took off successfully. Theyoperated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao'sname.

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the Cubao salesoffice to the effect that she was no longer the vice-president of Geminesse Enterprise.

Issue: Whether or not Anay was a partner of Tocao and Belo.

Held: Yes. Anay is an industrial partner. Tocao and Belo admitted that Anay had the expertise to engagein the business of distributorship of cookware. Anay contributed such expertise to the partnership and,hence, under the law, she was the industrial or managing partner. It was through her reputation that thepartnership was able to open the business of distributorship; it was through the same efforts that the

business was propelled to financial success. Moreover, Anay had a voice in the management of the affairsof the business, including selection of people who would constitute the administrative staff and the salesforce. Likewise, Tocao admitted that, like her who owned Gimenesse Enterprises, Anay received onlycommissions and transportation and representation allowances and not a fixed salary. If indeed Tocao wasAnay's employer, it was difficult to believe that they shall receive the same income in the business.

Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc. (AGUILAR, Ares Victor S.)

G.R. No. 136448 Nov. 3, 1999 Panganiban, J.

Facts: Antonio Chua and Peter Yap bought nets of various sizes and floats from Philippine Fishing Gear(PFG) for Ocean Quest Fishing Corporation (OQF), saying that petitioner was also involved with OQF

despite not being a signatory to the agreement. They failed to pay the purchase price, hence PFG filed acollection case against OQF. PFG also alleged that OQF is a non-existent corporation by virtue of acertification by the SEC. RTC issued the writ of attachment on the nets, and was sold at a public auctionwith the proceeds deposited to the court. RTC ruled there was partnership between the three (Chua, Yao,Lim) anchoring on the Compromise Agreement they executed in the civil case filed by Chua and Yaoagainst Lim for the declaration of ownership of the fishing boats, among other things. CA affirmed.

Issue: By their acts, Lim, Chua, and Yao are deemed to have entered into a partnership.

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Held: Yes. A partnership is a contract where 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. Thethree engaged in a commercial venture for commercial fishing and contracted loans to buy two fishingboats, and the nets and floats needed to operate the fishing business. In their Compromise Agreement,they subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and to

divide equally among them the excess or loss. These boats, the purchase and the repair of which werefinanced with borrowed money, fell under the term "common fund" under Article 1767. The contributionto such fund need not be cash or fixed assets; it could be an intangible like credit or industry. That theparties agreed that any loss or profit from the sale and operation of the boats would be divided equallyamong them also shows that they had indeed formed a partnership. It extended to the fishing nets and thefloats, both essential to fishing, which were obviously acquired in furtherance of their business.

Petitioners defense that he was a mere lessor does not hold water. In effect, he would like this Court tobelieve that he consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess ofthe proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, hisconsent to the sale proved that there was a preexisting partnership among all three.

Corporation by estoppels: Although the partnership/corporation was never legally formed for unknownreasons, this fact alone does not preclude the liabilities of the three as contracting parties in representationof it. Clearly, under the law on estoppel, those acting on behalf of a corporation and those benefited by it,knowing it to be without valid existence, are held liable as general partners.

Heirs of Jose Lim vs Juliet Villa Lim (barrido)

FACTS: Petitioners are the heirs of the late Jose Lim (Jose). They filed a Complaint forPartition, Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the lateElfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.

Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban, Quezon.Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto),formed a partnership to engage in the trucking business. Initially, with a contribution of P50,000.00 each,they purchased a truck to be used in the hauling and transport of lumber of the sawmill. Jose managed theoperations of this trucking business until his death on August 15, 1981. Thereafter, Jose's heirs, includingElfledo, and partners agreed to continue the business under the management of Elfledo. The shares in thepartnership profits and income that formed part of the estate of Jose were held in trust by Elfledo, withpetitioners' authority for Elfledo to use, purchase oracquire properties using said funds.Petitioners alleged that Elfledo was never a partner or an investor in the business and merely supervisedthe purchase of additional trucks using the income from the trucking business of the partners.

On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners claimed that

respondent took over the administration of the aforementioned properties, which belonged to the estate ofJose, without their consent and approval. Claiming that they are co-owners of the properties, petitionersrequired respondent to submit an accounting of all income, profits and rentals received from the estate ofElfledo, and to surrender the administration thereof. Respondent refused; thus, the filing of this case.

Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of Norbertoand Jimmy. Respondent also alleged that when Jose died in 1981, he left no known assets, and thepartnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that Jose left noproperties that Elfledo could have held in trust. Respondent maintained that all the properties involved in

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this case were purchased and acquired through her and her husbands joint efforts and hard work, andwithout any participation or contribution from petitioners or from Jose.

ISSUE: Whether or not a partnership exists.

HELD: YES. 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 proportionatesharing of the profits and losses among them. A contract of partnership is defined by the Civil Code asone where two or more persons bind themselves to contribute money, property, or industry to a commonfund, with the intention of dividing the profits among themselves.

The following circumstances tend to prove that Elfledo was himself the partner of Jimmy and Norberto:1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership, on a date thatcoincided with the payment of the initial capital in the partnership; (2) Elfledo ran the affairs of thepartnership, wielding absolute control, power and authority, without any intervention or oppositionwhatsoever from any of petitioners herein; (3) all of the propertieswere registered in the name of Elfledo;(4) Jimmy testified that Elfledo did not receive wages or salaries from the partnership, indicating thatwhat he actually received were shares of the profits of the business; and (5) none of the petitioners, as

heirs of Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime.

Furthermore, petitioners failed to adduce any evidence to show that the real and personal propertiesacquired and registered in the names of Elfledo and Juliet formed part of the estate of Jose, having beenderived from Joses alleged partnership with Jimmy and Norberto.

The extent of his control, administration and management of the partnership and its business, the fact thatits properties were placed in his name, and that he was not paid salary or other compensation by thepartners, are indicative of the fact that Elfledo was a partner and a controlling one at that. It is apparentthat the other partners only contributed in the initial capital but had no say thereafter on how the businesswas ran. Evidently it was through Elfredos efforts and hard work that the partnership was able to acquiremore trucks and otherwise prosper. Even the appellant participated in the affairs of the partnership by

acting as the bookkeeper sans salary.

PHILEX MINING CORP. V. COMMISSIONER OF INTERNAL REVENUE (BRIEVA)

Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former

to manage the latters mining claim known as the Sto. Mine. The parties agreement was denominated as

Power of Attorney. The mine suffered continuing losses over the years, which resulted in petitioners

withdrawal as manager of the mine. The parties executed a Compromise Dation in Payment,

wherein the debt of Baguio amounted to Php. 112,136,000.00. Petitioner deducted said amount from its

gross income in its annualtax income return as loss on the settlement of receivables from Baguio Gold

against reserves and allowances. BIR disallowed the amount as deduction for bad debt. Petitioner claims

that it entered a contract of agency evidenced by the power of attorney executed by them and the

advances made by petitioners is in the nature of a loanand thus can be deducted from its gross income.

Court of Tax Appeals (CTA) rejected the claim and held that it is a partnership rather than an agency. CA

affirmed CTA

Issue: Whether or not partnership exists

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Held: Yes it does! The lower courts correctly held that the Power of Attorney (PA) is the instrument

material that is material in determining the true nature of the business relationship between petitioner and

Baguio. An examination of the said PA reveals that a partnership or joint venture was indeed intended by

the parties. 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. The PA indicates that the parties had intended to create a PAT and establish a

common fund for the purpose. They also had a joint interest in the profits of the business as shown by the

50-50 sharing of income of the mine.

Moreover, 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 the PA applies to the advances made

by the petitioner who is the agent and not the principal under the contract. Thus, it cannot be inferred

from the stipulation that it is an agency. Partnership does exist in this case.

Fernando Santos vs Spouses Reyes (ESPERANZA)

GR 135813, October 25, 2001

In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally instituted apartnership with them as partners. Their venture is to set up a lending business where it was agreed thatSantos shall be financier and that Nieves and Zabat shall contribute their industry. **The percentagesafter their names denote their share in the profit.Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a corporation. It wasagreed that the partnership shall provide loans to the employees of Grageras corporation and Gragera

shall earn commission from loan payments.

In August 1986, the three partners put into writing their verbal agreement to form the partnership. Asearlier agreed, Santos shall finance and Nieves shall do the daily cash flow more particularly from theirdealings with Gragera, Zabat on the other hand shall be a loan investigator. But then later, Nieves andSantos found out that Zabat was engaged in another lending business which competes with theirpartnership hence Zabat was expelled.

The two continued with the partnership and they took with them Nieves husband, Arsenio, who becametheir loan investigator.

Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He sued them forcollection of sum of money. The spouses countered that Santos merely filed the complaint because he didnot want the spouses to get their shares in the profits. Santos argued that the spouses, insofar as thedealing with Gragera is concerned, are merely his employees. Santos alleged that there is a distinctpartnership between him and Gragera which is separate from the partnership formed between him, Zabatand Nieves.

The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to pay the sharesof the spouses.

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ISSUE: Whether or not the spouses are partners.

HELD: Yes. Though it is true that the original partnership between Zabat, Santos and Nieves wasterminated when Zabat was expelled, the said partnership was however considered continued whenNieves and Santos continued engaging as usual in the lending business even getting Nieves husband,who resigned from the Asian Development Bank, to be their loan investigator who, in effect, substituted

Zabat.There is no separate partnership between Santos and Gragera. The latter being merely a commission agentof the partnership. This is even though the partnership was formalized shortly after Gragera met withSantos (Note that Nieves was even the one who introduced Gragera to Santos exactly for the purpose ofsetting up a lending agreement between the corporation and the partnership).

HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares in theprofit is premature. The accounting made by the trial court is based on the total income of thepartnership. Such total income calculated by the trial court did not consider the expenses sustained by thepartnership. All expenses incurred by the money-lending enterprise of the parties must first be deductedfrom the total income in order to arrive at the net profit of the partnership. The share of each one ofthem should be based on this net profit and not from the gross income or total income.

Case: Tocao vs CA, G.R. No. 127405, 20 September 2001 (MR) (GANAN)

Facts: Petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration in reDecision dated October 4, 2000. They maintain that there was no partnership between petitionerBelo, on the one hand, and respondent Nenita A. Anay, on the other hand; and that the latter beingmerely an employee of petitioner Tocao.

Issue: Whether or not there is a partnership between Belo and Anay.

Ruling:The inherent powers of a Court to amend and control its processes and orders so as to make themconformable to law and justice includes the right to reverse itself, especially when in its honest opinion

it has committed an error or mistake in judgment, and that to adhere to its decision will causeinjustice to a party litigant.

After a careful review of the evidence presented, the Court is convinced that, indeed,petitioner Belo acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed byrespondent's own witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilantestified that it was Peter Lo who was the company's financier; that Lo fixes the Companys ordersbecause he is the financier of the Company. The testimony of the witness was neither refuted norcontradicted by respondent's evidence.

It should be recalled that the business relationship created between petitioner Tocao and

respondent Anay was an informal partnership, which was not even recorded with the Securities andExchange Commission. As such, it was understandable that Belo, who was after all petitioner Tocao'sgood friend and confidante, would occasionally participate in the affairs of the business, althoughnever in a formal or official capacity. Again, respondent's witness, Elizabeth Bantilan, confirmedthat petitioner Belo's presence in Geminesse Enterprise's meetings was merely as guarantor of thecompany and to help petitioner Tocao.

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Furthermore, no evidence was presented to show that petitioner Belo participated in theprofits of the business enterprise. Respondent herself professed lack of knowledge that petitioner Beloreceived any share in the net income of the partnership. On the other hand, petitioner Tocao declaredthat petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise. With noparticipation in the profits, petitioner Belo cannot be deemed a partner since the essence of a

partnership is that the partners share in the profits and losses. Consequently, inasmuch as petitionerBelo was not a partner in Geminesse Enterprise, respondent had no cause of action against him andher complaint against him should accordingly be dismissed.

Held: The MR is partially granted. RTC Makati is ordered to dismiss the complaint against pet. Beloonly. The sum of P208,250.00 shall be deducted from whatever amount petitioner Tocao shall beheld liable to pay respondent after the formal accounting of the partnership affairs.

AFISCO INSURANCE CORP vs CA (GUILLEN)

FACTS:

The petitioners, 41 non-life insurance corporations, entered into a Quota Share Reinsurance Treaty and aSurplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter calledMunich). Munich), a non-resident foreign insurance corporation. The reinsurance treaties requiredpetitioners to form a pool. Accordingly, a pool composed of the petitioners was formed on the same day.The Commissioner of Internal Revenue (CIR) assessed them of deficiency corporate taxes on dividendspaid to Munich and to the petitioners. These assessments were protested by the petitioner through itsauditors SGV but CIR denied it and ordered the petitioners, assessed as "Pool of Machinery Insurers," topay deficiency income tax, interest, and withholding tax. The CA, in affirming CTA, ruled that the poolof machinery insurers was a partnership taxable as a corporation, and that the latter's collection ofpremiums on behalf of its members, the ceding companies, was taxable income.

ISSUE: WON the pool of machinery insurers is a partnership

HELD:

For partnership to be established he following requisites must be established: (1) mutual contribution to acommon stock, and (2) a joint interest in the profits. It is evident that the pool has a common fundconsisting of money and valuables that are deposited in the name and credit of the pool. This commonfund pays for the administration and expenses of the pool. Most importantly, profit motive or business isthe primordial reason for the pools formation. The fact that they do not retain profit, because profit isapportioned among the members, what is important is that their object was to earn profit.Being a partnership, it now falls within the meaning of a corporation under section 22 (B) of NIRC, andthus is taxable.

* SEC. 24.Rate of tax on corporations. (a) Tax on domestic corporations. A tax is hereby imposedupon the taxable net income received during each taxable year from all sources by every corporationorganized in, orexisting under the laws of the Philippines, no matter how created or organized, but notincluding duly registered general co-partnership general professional partnerships, private educationalinstitutions.

SEC. 22(B): The term 'corporation' shall include partnerships, no matter how createdor organized (this means unregistered partnerships)

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EVANGELISTA, ET. AL. VS.COLLECTOR OFINTERNAL REVENUE, ET. AL. (INGUSAN)

Facts: The petitioners borrowed from their father PhP59,140.00 which amount together with theirpersonal monies was used by them for the purpose of buying and selling real properties. From 1943to1944, they bought 24 parcels of land (including the improvements thereon) on four differentoccasions.In 1945, they appointed their brother Simeon to manage their properties with full power to

lease; tocollect and receive rents; to issue receipts therefore; in default of such payment, to bring suitsagainst thedefaulting tenant; and to endorse and deposit all notes and checks for them. In 1948, their netrentalincome amounted to PhP12,615.35. On September 1954, the respondent Collector of InternalRevenue demanded the payment of (1) income tax on corporations, (2) real estate dealers fixed tax, and(3) corporation residence tax for the years 1945-1949, computed according to the assessments made ontheir properties.Because of this, the petitioners filed a case against the respondents in the Court of TaxAppeals, praying that the decision of the respondent contained in its letter of demand be reversed and thatthey be absolved from the payment of the taxes in question.

Issue: Whether the petitioners are subject to the tax on corporations, real estate dealers fixed tax, andcorporation residence tax.

Court of Tax Appeals: The petitioners are liable. (No explanation for such in the case)

Petitioners: They are mere co-owners, not copartners, for, in consequence of the acts performed by them,a legal entity, with a personality independent of that of its members, did not come into existence, andsome of the characteristics of partnerships are lacking in the case at bar.

Held: The petitioners are liable to pay the tax on corporations provided for in Sec. 24 of theCommonwealth Act No. 466, otherwise known as the National Internal Revenue Code. According toSec.84 of the same statute, the term corporation includes partnerships, no matter how createdororganized, joint-stock companies, joint accounts, associations or insurance companies, but doesnotinclude duly registered general co-partnerships. Also, Article 1767 of the Civil Code provides: Bythe 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. Pursuant to thisarticle, the essential elements of a partnership are two, namely: (1) an agreement to contribute money,property or industry to a common fund; and (2) intent to divide the profits among the contracting parties.The first element is undoubtedly present in the case at bar, for, admittedly, the petitioners have agreed to,and did, contribute money and property to a common fund. Also, it can be said that their purpose was toengage in real estate transactions for monetary gain and then divide the same among themselves because:(1)they created the common fund purposely; (2) they invested the same, not merely in one transaction,butin a series of transactions; (3) the parcels of land that they bought were not devoted toresidentialpurposes, or to other personal uses of the petitioners but were leased separately to severalpersons; (4)the properties have been under the management of one person, namely Simeon Evangelista,making theaffairs relative to the said properties appear to have been handled as if the same belonged to acorporation or business enterprise operated for profit; and (5) the petitioners have not testified or

introduced any evidence, either on their purpose in creating the set up already adverted to, or on thecausesfor its continued existence. Hence, the petitioners herein constitute a partnership, and in so far as theNational Internal Revenue Code is concerned, they are subject to the income tax for corporations.

I. As regards to the residence tax for corporations provided Sec. 2 of Commonwealth Act No. 4651, theterms corporation and partnership are used in both statutes with substantially the same meaning.Consequently, petitioners are subject, also, to the residence tax for corporations. Entities liable toresidence taxEvery corporation, no matter how created or organized, whether domestic or residentforeign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos

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and an annual additional tax, which in no case, shall exceed one thousand pesos, in accordance with thefollowing schedule: * * *

II. Lastly, the records show that the petitioners have habitually engaged in leasing the properties for aperiod of 12 years, and that the yearly gross rentals of the said properties from 1945 to 1948 rangedfromPhP9,599.00 to PhP 17,453.00. Thus, they are subject to the tax provided in Section 193 (q) of our

national Internal RevenueCode, for real estate dealers, inasmuchas, pursuant to Section 194 (s)thereof:Real estate dealers include any person engagedin the business of buying, selling,exchanging,leasing, or renting property of his own account asprincipal and holding himself out as full ropart-timedealer in real estate or as an owner of rentalproperty or properties rented or offered to rent foranaggregate amount of three thousand pesos or morea year. * * *

YULO V. YANG CHIAO SENG (IRUGUIN)

Facts:

Yang Chiao Seng proposed to form a partnership with Rosario Yulo to run and operate a theatre on thepremises occupied by Cine Oro, PlazaSta. Cruz, Manila, the principal conditions of the offer being (1)Yang guarantees Yulo a monthly participation of P3,000 (2) partnership shall be for a period of 2 yearsand 6 months with the condition that if the land is expropriated, rendered impracticable for business,owner constructs a permanent building, then Yulos right to lease and partnership even if period agreedupon has not yet expired; (3) Yulo is authorized to personally conduct business in the lobby ofthe building; and (4) after Dec 31, 1947, all improvements placed by partnership shall belong to Yulo butif partnership is terminated before lapse of 1 and years, Yang shall have right to remove improvements.

Parties established, Yang and Co. Ltd., to exist from July 1,1945 Dec 31, 1947.

In June 1946, they executed a supplementary agreement extending the partnership for 3 years beginning

Jan.1, 1948 to Dec. 31, 1950.

The land on which the theater was constructed was leased by Yulo from owners, Emilia Carrionand Maria Carrion Santa Marina for an indefinite period but that after 1 year, such lease may be cancelledby either party upon 90-day notice.

In Apr 1949, the owners notified Yulo of their desire to cancel the lease contract come July.

Yulo and husband brought a civil action to declare the lease for a indefinite period. Owners brought theirown civil action for ejectment upon Yulo and Yang.

CFI: Two cases were heard jointly; Complaint of Yuloand Yang dismissed declaring contract of lease

terminated.

CA: Affirmed the judgment. In 1950, Yulo demanded from Yang her share in the profits of the business.Yang answered saying he had to suspend payment because of pending ejectment suit. Yulo filed presentaction in 1954, alleging the existence of a partnership between them and that Yang has refused to pay hershares.

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Defendants Position: The real agreement between plaintiff and defendant was one of lease and not ofpartnership; that the partnership was adopted as a subterfuge to get around the prohibition contained inthe contract of lease between the owners and the plaintiff against the sublease of the property.

Trial Court: Dismissal. It is not true that a partnership was created between them because defendant hasnot actually contributed the sum mentioned in the Articles of Partnership or any other amount. The

agreement is a lease because plaintiff didnt share either in the profits or in the losses of the business asrequired by Art 1769 (CC) and because plaintiff was granted a guaranteed participation in the profitsbelies the supposed existence of a partnership.

Issue:Was the agreement a contract a lease or a partnership?

Ruling:Dismissed. The agreement was a sublease not a partnership.

The following are the requisites of partnership:(1) two or more persons who bind themselves to contribute money, property or industry to a common

fund;

(2) the intention on the part of the partners to divide the profits among themselves (Article 1761, CC).Plaintiff did not furnish the supposed P20,000 capital nor did she furnish any help or intervention in themanagement of the theatre. Neither has she demanded from defendant any accounting of the expenses andearnings of the business. She was absolutely silent with respect to any of the acts that a partner shouldhave done; all she did was to receive her share of P3,000 a month which cannot be interpreted in anymanner than a payment for the use of premises which she had leased from the owners.

We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-appellant.

G.R. No. 159333 July 31, 2006

ARSENIO T. MENDIOLA, petitioner,vs.COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FORESTRESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.(JOAQUIN)

Facts:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existingunder the laws of California, USA. Private respondent Pacfor entered into a "Side Agreement onRepresentative 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 theSecurities and Exchange Commission [SEC] on the said 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 distinctfrom 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 toprivate respondent Pacfor the setting up of a representative office, and "not a branch office" in thePhilippines to save on taxes.12On November 27, 2000, private respondent Pacfor, through counsel,

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http://www.lawphil.net/judjuris/juri2006/jul2006/gr_159333_2006.html#fnt5http://www.lawphil.net/judjuris/juri2006/jul2006/gr_159333_2006.html#fnt11http://www.lawphil.net/judjuris/juri2006/jul2006/gr_159333_2006.html#fnt12http://www.lawphil.net/judjuris/juri2006/jul2006/gr_159333_2006.html#fnt5http://www.lawphil.net/judjuris/juri2006/jul2006/gr_159333_2006.html#fnt11http://www.lawphil.net/judjuris/juri2006/jul2006/gr_159333_2006.html#fnt12


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ordered petitioner to turn over to it all papers, documents, files, records, and other materials in his orATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils. Petitioner construed thesedirectives as a severance of the "unregistered partnership" between him and Pacfor, and the termination ofhis employment as resident manager of Pacfor Phils private respondent Pacfor placed petitioner onpreventive 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 ofthe partnership forms a community of goods, a common fund, in which each party has a proprietaryinterest.37In fact, the New Civil Code regards a partner as a co-owner of specific partnershipproperty.38Each partner possesses a joint interest in the whole of partnership property. If the relation doesnot have this feature, it is not one of partnership. 39 This essential element, the community of interest, orco-ownership of, or joint interest in partnership property is absent in the relations between petitioner andprivate respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, privaterespondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a "theoreticalcompany" for the purpose of dividing the income 50-50. He stressed that petitioner knew of thisarrangement from the very start, having been the one to propose to private respondent Pacfor the settingup of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus, theparties 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 authorizationby statute or charter.41 This doctrine is based on the following considerations: (1) that the mutual agencybetween the partners, whereby the corporation would be bound by the acts of persons who are not its dulyappointed and authorized agents and officers, would be inconsistent with the policy of the law that thecorporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangementwould improperly allow corporate property to become subject to risks not contemplated by thestockholders when they originally invested in the corporation.42 No such authorization has been proved inthe case at bar.

J.M. Tuason v. Bolanos 95 Phil 106 (MAGLAQUE)

FACTS: Plaintiff-appellee JM Tuason & Co., Inc. is a partnership. Thru its managing partner, Gregorio

Araneta, Inc., it originally brought this suit with QC CFI to recover possession of registered landsituated in Tatalon, QC

Defendant-appellant Quirino BOLAOS, on the other hand, is an adverse owner of the same landby alleged acquisitive prescription thru open, continuous, exclusive, public and notoriouspossession of land in dispute under claim of ownership, adverse to the entire world timeimmemorial

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The complaint was amended three times with respect to the description of the land sought to berecovered. Originally, it was 13 hectares reduced to 6 hectares and then back to 13

Meanwhile, BOLAOS had prayed for the dismissal of the case against him by alleging his prior,adverse possession of the disputed land and alleging that TUASONs registration of the land indispute was obtained thru fraud or error and without knowledge of his and/or predecessorsinterest therein

CFI rendered judgment in favor of TUASON, declaring BOLAOS to be without any right to theland in question and ordering him to restore possession thereof to TUASON and to pay the lattera monthly rent and also to pay the costs

BOLAOS appealed directly to the SC because of the value of the property involved raising thefollowing issues

ISSUES:

WON the case was brought by the real party in interest (only relevant issue)o side-issue: Can Gregorio Araneta, Inc. (a corporation) be a partner of another

corporation?

WON the CFI correctly admitted TUASONs amendment of the complaint YES. WON the CFI correctly ruled that TUASON is the true and lawful owner of the land YES.

HELD: BOLAOS petition is without merit. The CFI decision is AFFIRMED.

RATIO:

(1) It is beyond question that the present action was 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 necessarilyby, the real party in interest. (Section 2, Rule 2)

The practice is for an attorney-at-law to bring the action, that is to file the complaint, in the nameof the plaintiff. That practice appears to have been followed in this case, since the complaint issigned by the law firm of Araneta and Araneta, "counsel for plaintiff"

Side-Issue: WON a corporation can be a partner of another corporation It is true that the complaint also states that the TUASON is being represented by its Managing

Partner Gregorio Araneta, Inc., another corporation There is nothing against one corporation being represented by another person, natural or

juridical, in a suit in court

The contention that Gregorio Araneta, Inc. cannot act as managing partner for TUASON on thetheory that it is illegal for two corporations to enter into a partnership is without merit for the

true rule is that "though a corporation has no power to enter into a partnership, it maynevertheless enter into a joint venture with another where the nature of that venture is in

line with the business authorized by its charter. (citing Wyoming-Indiana Oil Gas Co. vs.Weston, 80 A. L. R., 1043)

There is nothing in the record to indicate that the venture in which TUASON is represented byGregorio Araneta, Inc. as "its managing partner" is not in line with the corporate business ofeither of them

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(2) As to the admission of TUASONs amendments, suffice it to say that Section 4 of Rule 17, Rules ofCourt sanctions such amendment. In fact, under the same Rule, amendment is not even necessary for thepurpose of rendering judgment on issues proved though not alleged (3) Considering the ruling in issues#1 and 2 (plus the evidence on record and the admissions of both plaintiff and defendants on trial), and ithaving been proven that TUASONs Torrens title is valid and regularly registered as early as 1914, thedecree of registration can no longer be impugned on the ground of fraud, error or lack of notice to

defendant, as more than one year has already elapsed from the issuance and entry of the decree Neither can the decree be collaterally attacked by any person claiming title to, or interest in, the

land prior to the registration proceedings Nor could title to that land in derogation of that of TUASON, the registered owner, be acquired

by prescription or adverse possession

Adverse, notorious and continuous possession under claim of ownership for the period fixed by law isineffective against a Torrens title

Aurbach vs. Sanitary Wares (MENDIOLA)

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 theparties 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

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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

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 thepartnership, 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

ESSENTIAL ELEMENTS: OBJECT CERTAIN OR LAWFUL SUBJECT MATTER

G.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.

NICANOR CASTEEL and JUAN DEPRA, defendants,

NICANOR CASTEEL, defendant-appellant. (RECAMARA)

CASTRO, J.:

The basic action is for specific performance, and damages resulting from an alleged breach of contract.

In 1940, Nicanor Casteel filed a fishpond application for a big tract of swampy land in Davao. No actionwas taken thereon by the authorities concerned. During the Japanese occupation, he filed another

fishpond application for the same area, but because of the conditions then prevailing, it was not acted

upon either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a

survey, was found to contain 178.76 hectares.

Upon investigation, it was discovered that the area applied for was still needed for firewood production.

Hence on May 13, 1946 this third application was disapproved.

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Meanwhile, several applications were submitted by other persons for portions of the area covered by

Casteel's application. Because of these applications, Casteel realized the urgent necessity of expanding

his occupation of the land by constructing dikes and cultivating marketable fishes, in order to prevent old

and new squatters from usurping it. But lacking financial resources at that time, he sought financial aid

from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to

finance the needed improvements on the fishpond. Hence, a wide productive fishpond was built.

Moreover, upon learning that portions of the area applied for by him were already occupied by rival

applicants, Casteel immediately filed the corresponding protests.

The Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949, required him to

remove all the improvements which he had introduced on the land, and ordered that the land be leased

through public auction.

On November 25, 1949 Inocencia Deluao (wife of Felipe) and Nicanor Casteel executed a contract

denominated a "contract of service" - wherein the Deluaos financed the sum of TWENTY SEVEN

THOUSAND PESOS (P27,000.00) to Casteel who renders only his services for the construction and

improvements of the fishpond; That Casteel will be the Manager and sole buyer of all the produce of the

fish that will be produced from said fishpond; That Deluao will be the administrator of the same she

having financed the construction and improvement of said fishpond.

On the same date the above contract was entered into, Inocencia Deluao executed a special power of

attorney in favor of Jesus Donesa for the latter to represent her in the administration of the fishpond and

to supervise, demand, receive, and collect the value of the fish that is being periodically realized from it.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision on the

administrative cases Casteel filed against the other occupants of the land. The order reinstated Casteeland gave due course for the area disputed in one and rejected his objection in the other. Further, the

fishpond permits of two other adverse claimants were cancelled and revoked.

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the

fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.

Alleging violation of the contract of service entered into between Inocencia Deluao and Nicanor Casteel,

Felipe and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for

specific performance and damages against Nicanor Casteel praying inter alia, (a) that Casteel be ordered

to respect and abide by the terms and conditions of said contract and that Inocencia Deluao be allowed to

continue administering the said fishpond and collecting the proceeds from the sale of the fishes caught

from time to time; and (b) that the defendants be ordered to pay jointly and severally to plaintiffs the sum

of P20,000 in damages.

Casteel contends that the lower court incurred an error in ordering the issuance ex parte of a writ of

preliminary injunction against him, and in not dismissing the appellee's complaint.

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Apparently, the lower court relied on exhibit A the so-called "contract of service" and the appellees'

contention that it created a contract of co-ownership and partnership between Inocencia Deluao and the

appellant over the fishpond in question.

Too well-settled is the rule that everyone is conclusively presumed to know the law. It must be assumed,

conformably to such rule, that the parties entered into the so-called "contract of service" cognizant of themandatory and prohibitory laws governing the filing of applications for fishpond permits. And since they

were aware of the said laws, it must likewise be assumed in fairness to the parties that they did not

intend to violate them. This view must perforce negate the appellees' allegation that exhibit A created a

contract of co-ownership between the parties over the disputed fishpond. If the establishment of a co-

ownership violative of the prohibitory laws was to be admitted, the contract would altogether be declared

null.

The contract is construed as one of partnership, divided into two parts namely, a contract of

partnership to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a

contract of partnership to divide the fishpond between them after such award. The first is valid, the

second illegal.

When they entered into the so-called contract of service, neither Casteel nor Felipe Deluao was the

holder of a fishpond permit over the area although the fishpond was then in the possession of Casteel.

They were not however precluded from exploiting the fishpond pending resolution of Casteel's appeal or

the approval of Deluao's application over the same area whichever event happened first. No law, rule

or regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated

it.

The initial intention of the parties was not to form a co-ownership but to establish a partnership Inocencia Deluao as capitalist partner and Casteel as industrial partner the ultimate undertaking of

which was to divide into two equal parts such portion of the fishpond as might have been developed by

the amount extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse

the expenses incurred by the appellees over one-half of the fishpond that would pertain to him.

The document, although denominated as a "contract of service," was actually the memorandum of their

partnership agreement.

The arrangement under the so-called "contract of service" continued until the decisions were issued by

the Secretary of Agriculture and Natural Resources. This development, by itself, brought about the

dissolution of the partnership.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "...

any event which makes it unlawful for the business of the partnership to be carried on or for the members

to carry it on in partnership." The approval of the appellant's fishpond application by the decisions in

DANR Cases 353 and 353-B brought to the fore several provisions of law which made the continuation of

the partnership unlawful and therefore caused its ipso facto dissolution.

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Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from

transferring or subletting the fishpond granted to him, without the previous consent or approval of the

Secretary of Agriculture and Natural Resources.

Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that the

lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of Agricultureand Commerce, and the violation of this condition shall avoid the contract.

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources

issued in August 1937, prohibits a transfer or sublease unless first approved by the Director of Lands and

under such terms and conditions as he may prescribe.

Since the partnership had for its object the division into two equal parts of the fishpond between the

appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged theunauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was dissolved by

the approval of his application and the award to him of the fishpond. The approval was an event which

made it unlawful for the business of the partnership to be carried on or for the members to carry it on in

partnership.

In addition, succeeding events reveal the intent of both parties to terminate the partnership by refusing to

share the fishpond with the other.

Inasmuch as the erstwhile partners articulated in their exchanges of letters their respective resolutions not

to share the fishpond with each other in direct violation of the undertaking for which they have

established their partnership each must be deemed to have expressly withdrawn from the partnership,

thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which provides, inter alia, thatdissolution is caused "by the express will of any partner at any time."

The case was remanded to the lower court for the reception of evidence relative to an

accounting from November 25, 1949 to September 15, 1950, in order for the court to determine

(a) the profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial

partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the

amounts totalling about P27,000 advanced by Deluao to Casteel for the development and

improvement of the fishpond have already been liquidated. Besides, since the appellee

Inocencia Deluao continued in possession and enjoyment of the fishpond even after it was

awarded to Casteel, she did so no longer in the concept of a capitalist partner but merely as

creditor of the appellant, and therefore, she must likewise submit in the lower court an

accounting of the proceeds of the sales of all the fishes harvested from the fishpond fromSeptember 16, 1950 until Casteel shall have been finally given the possession and enjoyment of

the same. In the event that the appellee Deluao has received more than her lawful credit of

P27,000 (or whatever amounts have been advanced to Casteel), plus 6% interest thereon per

annum, then she should reimburse the excess to the appellant.

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ARBES V. POLISTICO (REYES)

I: FACTS

This is an action for the liquidation of the funds and property of the association called "TurnuhanPolistico & Co.

It appears that in April 1911, the plaintiffs and defendants, together with several hundred otherpersons, formed an association under the name of Turuhan Polistico & Co. Vicente Polistico. Under theby-laws of the association, each member shall pay 50 centavos every Sunday, except that on every 5 th

Sunday the amount to be paid was P1. It is alleged that from April, 1911, until April, 1917, the saidcontributions were paid weekly by all of the members of the society (with few irregularities). Theinducement to these weekly contributions was found in provisions of the by-laws to the effect that alottery should be conducted weekly among the members of the association and that the successfulmember should be paid the amount collected each week.

It has already been ruled that "Turnuhan Polistico & Co." was an unlawful partnership. Plaintiffsnow seek the recovery of contributions paid by them.

II: ISSUES

Whether or not the plaintiffs can still recover the contributions paid by them considering that"Turnuhan Polistico & Co." has no valid existence having been declared as an unlawfulpartnership?

III: HELD/RATIO

Article 1666 of the Civil Code, provides:

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

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

The partner who limits himself to demanding only the amount contributed by him need not resortto the partnership contract on which to base his action. As said contract does not exist in the eyes of thelaw, the purpose from which the contribution was made has not come into existence, and theadministrator of the partnership holding said contribution retains what belongs to others, without anyconsideration; for which reason he is not bound to return it and he who has paid in his share is entitled to

recover it.

This is not the case with regard to profits. In order to demand the proportional part of the saidprofits, the partner would have to base his action on the contract which is null and void, since thispartition or distribution of the profits is one of the juridical effects thereof. Wherefore considering thiscontract as non-existent, by reason of its illicit object, it cannot give rise to the necessary action, whichmust be the basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law topermit a profit from an industry prohibited by it.

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

JOSE FERNANDEZ, plaintiff-appellant, vs. FRANCISCO DE LA ROSA, defendant-appellee.(AGASANG)

Facts: The plaintiff alleges that in January, 1900, he entered into a verbal agreement with the defendant toform a partnership for the purchase of cascoes and the carrying on of the business of letting the same forhire in Manila, the defendant to buy the cascoes and each partner to furnish for that purpose such amountof money as he could, the profits to be divided proportionately; that in the same January, the plaintifffurnished the defendant 300 pesos to purchase a casco designated as No. 1515. That the plaintifffurnished further sums aggregating about 300 pesos for repairs on this casco; that on the fifth of thefollowing March he furnished the defendant 825 pesos to purchase another casco designated as No. 2089.That in April the parties undertook to draw up articles of partnership for the purpose of embodying thesame in an authentic document, but that the defendant having proposed a draft of such articles which

differed materially from the terms of the earlier verbal agreement, and being unwilling to include cascoNo. 2089 in the partnership, they were unable to come to any understanding and no written agreementwas executed.

Issue/s: 1. Did a partnership exist between the parties2. If such partnership existed, was it terminated as a result of the act of the plaintiff in receiving back the1,125 pesos

Held: 1. The essential points upon which the minds of the parties must meet in a contract of partnershipare, therefore, 1. mutual contribution to a common stock, and 2. a joint interest in the profits. If thecontract contains these two elements the partnership relation results.

We have found as a fact that money was furnished by the plaintiff and received by the defendant with theunderstanding that it was to be used for the purchase of the cascoes in question. This establishes the firstelement of the contract, namely, mutual contribution to a common stock. The second element, namely,the intention to share profits, appears to be an unavoidable deduction from the fact of the purchase of thecascoes in common, in the absence of any other explanation of the object of the parties in making thepurchase in that form, and, it may be added, in view of the admitted fact that prior to the purchase of thefirst casco the formation of a partnership had been a subject of negotiation between them.

2. The remaining question is as to the legal effect of the acceptance by the plaintiff of the money returnedto him by the defendant after the definitive failure of the attempt to agree upon partnership articles. Theamount returned fell short, in our view of the facts, of that which the plaintiff had contributed to thecapital of the partnership, since it did not include the sum which he had furnished for the repairs of cascoNo. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a profit may have been realizedfrom the business during the period in which the defendant had been administering it prior to the return of

the money, and if so he still retained that sum in his hands. For these reasons the acceptance of the moneyby the plaintiff did not have the effect of terminating the legal existence of the partnership.

There was no intention on the part of the plaintiff in accepting the money to relinguish his rights as apartner, nor is there any evidence that by anything that he said or by anything that he omitted to say hegave the defendant any ground whatever to believe that he intended to relinquish them. On the contraryhe notified the defendant that he waived none of his rights in the partnership.

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PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and

RAFAELITO W. LOPEZ, Petitionersvs. MA. CLARITA T. LAZATIN-MAGAT, JOSE

SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and JOSE MARCOS T.

LAZATIN, Respondents (Aguilar, Ares Victor S.)

G.R. No. 167379 June 27, 2006

Facts: Primelink and the respondents entered into a Joint Venture Agreement (JVA)

for the development of 2 parcels of land in Tagaytay, which were owned by the

respondents, to a residential subdivision to be known as Tagaytay Garden Villas.

Petitioner as developer would be entitled to 60% of the net profits, with respondents

as owners 40%. Primelink did not make good their own end of the contract, only

managing to build a few units in the subdivision as compared to the agreement

between them and the respondents. Respondents filed a case for rescission and

damages, alleging that Primelink failed to uphold its own obligations as stated

under the contract, and whatever units they have made were subject to complaints

for poor workmanship and use of substandard materials, undermining the projects

marketability. RTC rendered judgment in favor of the respondents, rescinding the

contract and restoring to them the possession of the land. RTC also ruled that

Primelink breached the agreement and attempted to defraud respondents, as the

revenues stated in the reports submitted indicated a net loss of 5million pesos, a

fact that was not true. The CA affirmed with modification, and ordered the

restoration of possession to the Lazatins, along with the improvements introduced

by Primelink as their contribution to the JVA.

Issues:

1. The respondents are entitled to possession of the parcels of land along with

the improvements

2. Petitioners are entitled to reimbursement to the extent of the value of the

improvements on said parcels of land

Held: Since the parcels of land, as well as the improvements made thereon, were

contributed by the parties to the joint venture under the JVA, they formed part of

the assets of the joint venture. The RTC declared that respondents were entitled to

the possession not only of the parcels of land but also of the improvements thereon

as a consequence of its finding that petitioners breached their agreement and

defrauded respondents of the net income under the JVA.

A JVA is a form of partnership; therefore it would be governed by the laws on

partnership. Since the RTC declared rescission of the contract, the JVA was

dissolved. On dissolution, the partnership is not terminated but continues until the

winding up of partnership affairs is completed. Winding up means the

administration of the assets of the partnership for the purpose of terminating the

business and discharging the obligations of the partnership. The transfer of the

possession of the parcels of land and the improvements thereon to respondents was

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only for a specific purpose: the winding up of partnership affairs, and the partition

and distribution of the net partnership assets as provided by law. Until the

partnership accounts are determined, it cannot be ascertained how much any of the

parties is entitled to, if at all. CA decision affirmed insofar as they conform to the

decision of the SC.

Sevilla vs.CA (BARRIDO)

Facts: A contract was entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party ofthe first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the secondpart, and hereinafter referred to as appellants. The Tourist World Service, Inc. leased the premisesbelonging to the party of the first part at Mabini St., Manila for the formers use as a branch office. In thesaid contract the party of the third part held herself solidarily liable with the party of the part for theprompt payment of the monthly rental agreed on. When the branch office was opened, the same was runby the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any farebrought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld bythe Tourist World Service, Inc.

On or about November 24, 1961 the Tourist World Service, Inc. appears to have been informed that LinaSevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office wasanyhow losing, the Tourist World Service considered closing down its office. This was firmed up by tworesolutions of the board of directors of Tourist World Service, Inc., the first abolishing the office of themanager 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 atthe said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use ofthe Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, theappellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and tocomply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went overto 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. Whenneither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaintwall filed by the herein appellants against the appellees with a prayer for the issuance of mandatorypreliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of theparties therein, the trial court ordered the dismissal of the case without prejudice.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by andbetween her and appellee TWS with offices at the Ermita branch office and that she was not an employeeof the TWS to the end that her relationship with TWS was one of a joint business venture

Issue: Whether or not a joint venture exist.

Held: None. The Supreme Court rejected Sevillas claim that the parties had embarked on a joint ventureor otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such arelation. 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 controlover the manner in which the business was run.

A joint venture, including a partnership, presupposes generally a standing between the joint co-venturersor partners, in which each party has an equal proprietary interest in the capital or property contributed and

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where each party exercises equal rights in the conduct of the business. Furthermore, the parties did nothold themselves out as partners, and the building itself was embellished with the electric sign "TouristWorld Service, Inc. in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the privaterespondent, 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 ofanother. In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of herprincipal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the conceptof commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumedher principal's authority as owner of the business undertaking. We are convinced, considering thecircumstances and from the respondent Court's recital of facts, that the ties had contemplated a principalagent relationship, rather than a joint managament or a partnership.

FRANK S. BOURNS, plaintiff-appellee, vs.D. M. CARMAN, ET AL., defendants-appellants. (BRIEVA)

FACTS: The plaintiff in this action seeks to recover the sum of $437.50, United States currency, 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, 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 lumberunder the name and style of Lo-Chim-Lim. Apparently the

plaintiff tries to show by the words above italicized that the other defendants were the partners of Lo-

Chim-Lim in the said lumber-yard business.

ISSUE: Does the contract of partnership exist in the case at hand?

HELD: No. 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.

The court accordingly found that 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.

Although the evidence upon this point as stated by the by the however, that is plainly and manifestly in

conflict with the above finding of that court. Such finding should therefore be sustained.

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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 tothe evidence was the name of one of the defendants. On the other hand, and this is very important, 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. 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

ofcuentas en participacion. It may be that, as a matter of fact, it is something different, but a simple

business and scant evidence introduced by the partnership We see nothing, according to the evidence, but

a simple business conducted by Lo-Chim-Lim exclusively, in his own name, the names of other personsinterested 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 ofcuentas 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. (Article 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. the action of the plaintiff lacks, therefore, a legal foundation and should be accordingly

dismissed.

GEORGE O. DIETRICH, plaintiff-appellee, vs.O.K. FREEMAN, JAMES L. PIERCE, andBURTONWHITCOMB, defendants. BURTON WHITCOMB, appellantG.R. No. L-6252 January 28, 1911 (ESPERANZA)

FACTS: When the plaintiff was first employed, this steam laundry was owned and operated by Freeman and Pierce.Thereafter, Pierce sold all of his right, title, and interest in the said laundry to Whitcomb, who, together with Freeman,then became the owners of this laundry and continued to operate the same as long as the plaintiff was employed.

The trial court found that there is a balance due to Dietrich for services performed.

However, it appears from the record that Whitcomb never knew the plaintiff, never had anything to do with personally,and that the plaintiff's contract was with Freeman, the managing partner of the laundry. It further appears from the

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record that Pierce, after he sold his interest in this laundry to Whitcomb, continued to look after Whitcomb's interestby authority of the latter.

ISSUE: Whether or not partnership was organized between Freeman and Whitcomb

HELD: Articles 17 and 119 of the Code of Commerce provide:

Art. 17. The record in the commercial registry shall be optional for private merchants and compulsory forassociations established in accordance with this code or with special laws, and for vessels.

Art. 119 Every commercial association before beginning business shall be obliged to record itsestablishment, agreements, and conditions in a public instrument, which shall be presented for record in thecommercial registry, in accordance with the provisions of article 17.

Additional instrument which modify or alter in any manner whatsoever the original contracts of theassociation are subject to the same formalities, in accordance with the provisions of article 25.

Partners can not make private agreements, but all must appear in the articles of copartnership.

The above provisions of law were not complied with. No formal partnership was ever entered into by them,notwithstanding the fact that they were engaged in the operation of this laundry.

The purpose for which this partnership was entered into by Freeman and Whitcomb was not a commercial one.Hence the provisions of the Civil Code and not the Code of Commerce must govern in determining the liability of thepartners.

The plaintiff was employed by and performed services for the Manila Steam Laundry and was not employed by nordid he perform services for Freeman alone. The public did not deal with Freeman and Whitcomb personally, but withthe Manila Steam Laundry. These two partners were doing business under this name and, as we have said, it wasnot a commercial partnership. Therefore, by the express provisions of articles 1698 and 1137 of the Civil Code thepartners are not liable individually for the entire amount due the plaintiff. The liability is pro rata and in this case theappellant is responsible to the plaintiff for only one-half of the debt.

NOTE: Cuentas en participacion is a partnership constituted in such a manner that its existence was only known tothose who had an interest in the same, there being no mutual agreement between the partners, and without acorporate name indicating to the public in some way that there were other people besides the one who ostensiblymanaged and conducted the business, is exactly the accidental partnership of cuentas en participacion defined inarticle 239 of the Code of Commerce. In a partnership of cuentas en participacion, under the provisions of article 242of the Code of Commerce, those who contract with the person in whose name the business of such a partnership

was conducted shall have only the right of action against such person and not against other persons interested,

Case: Biglangawa vs Constantino, G.R. No. L-9965, 29 August 1960 (GANAN)

Facts: Respondents appointed petitioner as their agent to develop a parcel of land owned by the formerand to sell them to prospective buyers. As compensation for his services, respondents promised to payhim 20% commission on gross sales and a fee of 10% on the collections made by the Biglangawa.Petitioner, however, advances all the expenses incurred in the development and administration of the

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project. After the petitioner had sold more than half of the property, respondents paid only 30% of thegross monthly collections such that there was still a balance on the petitioners commission.Respondents, however, acknowledger their liability and they promised to settle the same in successivemonthly installments. After some time, respondents continued their practice of paying the petitioner tothe latters disadvantage. Hence, this complaint for collection of the petitioners remaining commissions.

Issue: Whether or not the contract is one of agency or of a partnership.

Ruling:Petitioners theory is neither supported by the allegations of his complaint, nor borne out by thepurpose of his action. There is no word or expression in the various paragraphs of his amended complaintthat suggests any idea of partnership. On the contrary, petitioner expressly averred that respondents"appointed plaintiff (appellant) their exclusive agent to develop the area described in paragraph 2 intosubdivision lots and to sell them to prospective homeowners; and as compensation for his servicesdefendants (appellees) promised to pay him a commission of 20% on the gross sales and a fee of 10% onthe collections made by him . Categorically, appellant referred to himself as an agent, not a partner;entitled to compensation, not participation, in the form of commission or fee, not a share.

It is true that in the amended complaint petitioner claims to have made advances for theexpenses incurred in the development and administration of the property. But again he neverconsidered these as contributions to the business as to make him a partner; otherwise, he would have sostated it in his complaint. In fact, after a liquidation of these advances and the commissions due topetitioner at the time of the termination of the agency, the whole balance was considered asrespondents' indebtedness which petitioner consented to be settled in monthly installments.

While it is true again that the prayer in a complaint does not determine the nature of theaction, it not being a material part of the cause of action, still it logically indicates the purpose of theactor. The paragraphs of the prayer seek the recovery of fixed amounts of underpayments andcommissions and fees, not liquidation or accounting or partition as now insisted upon by petitioner.

Held: The appealed order of the court was affirmed.

ONA vs CIR (GUILLEN)

FACTS:

Julia Bunales died leaving as heirs her husband, petitioner Lorenzo, and her five children.Lorenzo was appointed as the administrator of his wifes estate and also the guardian of theirthree minor children. Although the project of partition was approved by the court, there was noattempt to divide the properties. The properties remained under the management of Lorenzo who

used it in business by leasing or selling them and investing the income or proceeds derivedtherefrom in real properties and securities. As a result, petitioners properties and investmentsincreased. Petitioners did not actually receive their shares in the yearly income. The income wasalways left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in realproperties and securities. The Commissioner of Internal Revenue (CIR) decided that petitionersformed an unregistered partnership and therefore subject to corporate income tax.ISSUE: WON the petitioners formed an unregistered partnership

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HELD:

Petitioners did not merely limit themselves to holding the properties inherited by them. In fact,some were sold at considerable profit, and with said profit, petitioners engaged, thru Lorenzo T.Oa, in the purchase and sale of corporate securities. It is likewise admitted that all the profits

from these ventures were divided among petitioners proportionately in accordance with theirrespective shares in the inheritance. It is thus manifest that there was a common fund toundertake several businesses, with the intention of deriving profit to be shared by themproportionally, such act was tantamount to actually contributing such incomes to a common fundand, in effect, they thereby formed an unregistered partnership.

Petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "Thesharing of gross returns does not of itself establish a partnership, whether or not the personssharing them have a joint or common right or interest in any property from which the returns arederived," is unavailing. In Evangelista case, the SC clearly differentiated the concept ofpartnerships under the Civil Code from that of unregistered partnerships which are considered as"corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. JusticeRoberto Concepcion, now Chief Justice, elucidated on this point thus: "To begin with, the tax inquestion is one imposed upon 'corporations', which, strictly speaking, are distinct and differentfrom 'partnerships'. When our Internal Revenue Code includes 'partnerships' among the entitiessubject to the tax on 'corporations', said Code must allude, therefore, to organizations which arenot necessarily 'partnerships', in the technical sense of the term. Thus, for instance, section 24 ofsaid Code exempts from the aforementioned tax 'duly registered general partnerships', whichconstitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, asdefined in section 84(b) of said Code, 'the term corporation includes partnerships, no matter howcreated or organized.' This qualifying expression clearly indicates that a joint venture need notbe undertaken in any of the standard forms, or in conformity with the usual requirements of thelaw on partnerships, in order that one could be deemed constituted for purposes of the tax oncorporation.

Reyes vs. CIR (ingusan)F: Petitioners purchased a lot and building.The initial payment was shared equallybythe respondents. At the time of thepurchase, the building was leased tovarioustenants, whose rights under the leasecontracts with the original owners,thepurchasers, petitioners herein, agreed torespect. The administration of thebuildingwas entrusted to an administrator whocollected the rents; kept books and recordsand rendered statement of accounts totheowners. Petitioners divided equally theincome of operation and maintenance.TheCTA held that petitioners formed apartnership taxable by law applying theruling inEvangelista case.

I: W/N petitioners indeed formed apartnership as contemplated by law.

H:Yes. The essential elements ofpartnerships are present in this case,namely; (a)

an agreement

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