Professional Documents
Culture Documents
Introduction
A Sources of Philippine Law on Partnership
1 Code of Commerce ( Arts. 116-238)- Commercial and Mercantile PartnershipsDealt with Mercantile Transactions
So sorry I was not able to find this.
2
Old Spanish Civil Code (Arts. 1665-1708)- Non Commercial Civil Partnerships
Engaged in Civil Purposes; Difference was in the desired purpose not the
manner of organization.
TITLE VIII
On partnerships
CHAPTER ONE
General provisions
Article 1,665. A partnership is a contract whereby two or more persons undertake to put in
common money, property or industry, with the intention of dividing any gains between
them.
Article 1,666. The partnership must have a lawful purpose and be established for the
common interest of the partners. In the event of dissolution of an unlawful partnership, any
gains obtained shall be destined to charitable institutions of the partnerships domicile and,
in the absence thereof, those of the province.
Article 1,667. A civil partnership may be incorporated in any form, unless immovable
properties or rights in rem should be contributed thereto, in which case a public deed shall
be required.
Article 1,668. The partnership contract shall be null and void whenever immovable
properties are contributed thereto, unless an inventory thereof is drafted and signed by the
parties, which must be attached to the relevant public deed.
Article 1,669. Partnerships whose covenants are kept secret between the partners and
those wherein each partner contracts in his own name with third parties shall have no legal
personality. These kinds of partnerships shall be governed by the provisions regulating joint
ownership.
Article 1,670. Civil partnerships may hold all forms recognised by the Commercial Code
depending on their corporate purpose. In such case, the provisions thereof shall apply to the
extent that they do not oppose the provisions of the present Code.
Article 1,671. A partnership is either universal or specific.
Article 1,672. A universal partnership may affect all existing property or all gains.
Article 1,673. A partnership affecting all existing property is the one whereby the parties
put in common all property currently belonging to them, with the intention of dividing it
between them, and all gains acquired as a result thereof.
Article 1,674. In a universal partnership of all existing property, any property which used to
belong to each partner and all gains acquired as a result thereof shall become the common
property of them all. The partners may also agree to share reciprocally any other gains; but
the partnership may not comprise property which the partners may subsequently acquire
pursuant to inheritance, legacy or gift, but may include the fruits thereof.
Article 1,675. The universal partnership of gains comprises everything which the partners
may acquire as a result of their industry or work during the term of the partnership. Movable
or immovable property held by each partner at the time of execution of the contract shall
continue to be the private property of each of them, and the partnership shall only acquire
the usufruct thereof.
Article 1,676. A universal partnership contract entered into without specification of the
kind of partnership shall only create a universal partnership of gains.
Article 1,677. Persons to whom it is forbidden to reciprocally grant each other any gift or
advantage may not create a universal partnership between them.
Article 1,678. The purpose of a specific partnership is only specific things, the use thereof
or their fruits, or a specific undertaking, or the exercise of a profession or Article
CHAPTER 2
On the obligations of the partners
SECTION ONE
On the obligations of the partners toward each other
Article 1,679. The partnership shall begin from the very moment of entering into the
contract, unless otherwise agreed.
Article 1,680. The partnership shall last the agreed term; in the absence of an agreement,
for the term of the business serving as exclusive purpose of the partnership, if the former
should have a limited duration as a result of its nature; in any other case, for the whole life
of the partners, save for the power reserved in article 1,700 and for the provisions of 1,704.
Article 1,681. Each partner shall owe the partnership what he has undertaken to contribute
to it. He shall also be liable for dispossession of any certain and specific things contributed
to the partnership in the same cases and in the same manner as the seller vis--vis the
purchaser.
Article 1,682. The partner who has undertaken to contribute a sum of money and has
failed to provide it shall owe by operation of law the interest thereon from the date on which
he ought to have provided it, without prejudice to his liability for any damages caused. The
same shall apply in respect of any sums taken from the partnerships account, and interest
shall be payable from the date on which he took them for his personal benefit.
Article 1,683. The industrial partner shall owe the partnership any gains obtained in the
branch of industry constituting the purpose thereof.
Article 1,684. Where a partner authorised to administer the partnership should collect an
amount due and payable to him on his own behalf, from a person who also owed the
partnership another amount which was also due and payable, the amount collected must be
attributed to both credits in proportion to their respective amounts, even if he should have
issued a receipt only on account of his own assets; however, if he should have issued a
receipt on account of the partnerships assets, the whole amount thereof shall be
attributed thereto. The provisions of this article shall be understood without prejudice to the
debtors right to exercise the power granted pursuant to article 1,172, in the sole event that
the partners personal credit should be more burdensome to him.
Article 1,685. The partner who has received his share in a credit held against the
partnership without the other partners having received their share shall be obliged to
contribute the amount received to the partnerships assets if the debtor should later become
insolvent, even if he should have issued a receipt only for his share of the credit.
Article 1,686. Any partner shall be liable to the partnership for any damages suffered by
the latter by his fault, and may not set off such damages against any benefits obtained from
his industry.
Article 1,687. The risk of specific and determined non-fungible things contributed to the
partnership whereby only the use and fruits thereof are to be common property shall be
borne by the partner who is their owner. If the things contributed should be fungible, or if
they cannot be stored without impairment thereof, or if they should have been contributed
in order to be sold, the risk shall be borne by the partnership. The risk of any things
contributed including an appraisal thereof in the relevant inventory shall also be borne by
the partnership, and in this case any claim shall be limited to their appraisal price.
Article 1,688. The partnership shall be liable to any partner for any amounts disbursed by
the latter on behalf of the former plus applicable interest; it shall also be liable for any
obligations undertaken in good faith by the partner on corporate business, and for the risks
which are inseparable from the management of the partnership.
Article 1,689. Gains and losses shall be distributed as agreed. If only the share of each
partner in any gains should have been agreed, the same share shall apply for losses.
In the absence of an agreement, the part of each partner in gains and losses must be
proportional to his contribution. The share of the partner who only contributes his industry
shall be equal to that of the partner who has contributed the least. If, as well as his industry,
he should also have contributed some capital, he shall also receive the proportional share
corresponding thereto.
Article 1,690. If the partners should have agreed to entrust to a third party the designation
of the share corresponding to each partner in any gains and losses, such designation may
only be challenged in the event that it should be manifestly inequitable. In no event may
such decision be challenged by a partner who has begun to enforce the third partys
decision, or who has failed to challenge it within three months counting from the time he
became aware of it.Designation of gains and losses may not be entrusted to one of the
partners.
Article 1,691. An agreement excluding one or more partners from any share in gains or
losses shall be null and void. Only the industrial partner may be released from liability for
any losses.
Article 1,692. The partner appointed as director in the partnership contract may perform
all acts of administration in spite of his partners opposition, unless he should act in bad
faith; his powers shall be irrevocable unless there are legitimate grounds for it. A power of
attorney granted after execution of the contract, where such contract should not include
an agreement to confer it, may be revoked at any time.
Article 1,693. Where two or more partners should have been entrusted with the
management of the partnership without determination of their duties, or without having
expressed that the ones may not act without the others consent, each of them may exercise
all acts of administration separately; but any of them may object to the transactions
performed by another before they are legally effective.
Article 1,694. In the event of stipulation that the managing partners cannot act without the
others consent, the consent of all of them shall be required for the validity of any acts,
without the possibility of alleging absence or impossibility of any of them, save in the event
of imminent danger of serious or irreparable harm to the partnership.
Article 1,695. In the absence of stipulations relating to the manner of administration, the
following rules shall be observed:
1 All partners shall be deemed to be attorneys, and whatever each of them performs by
himself shall be binding on the partnership, but any of them may object to the
transactions performed by the others before they become legally effective.
2 Each partner may avail himself of the things which comprise the partnerships funds
according to local custom, as long as he does not do so against the interests of the
partnership, or in such a way that it prevents the use thereof to which his partners are
entitled.
3 Any partner may make the rest bear with him any expenses necessary for the
conservation of common property.
Article 1,703. If the partnership should be extended after expiration of its term, a new
partnership shall be deemed to have been created. If it should be extended prior to
expiration of the term the original partnership shall continue.
Article 1,704. The agreement that, in the event of death of one of the partners the
partnership shall continue between the surviving partners is valid. In such case, the
deceased partners heir shall only be entitled to have the partition performed, as of the date
of the deceaseds death; and he shall not participate in any subsequent rights and
obligations save to the extent that they are a necessary result of acts undertaken prior to
such date. If the agreement provides that the partnership is to continue with the heir, it shall
be enforced,, without prejudice to the provisions of number 4 article 1,700.
Article 1,705. Dissolution of the partnership at the will or pursuant to the resignation of
one of the partners shall only take place where no term of the partnership should have been
set or no term should result from the nature of the business. For the resignation to be
effective it must be given in good faith at the proper time; likewise it must be communicated
to the other partners.
Article 1,706. A resignation shall be in bad faith where the resigning partner intends to
appropriate for himself the profit which should have been common to all. In this case the
resigning partner shall not be released vis-vis his partners, and the latter shall be entitled
to exclude him from the partnership. Resignation shall be deemed not to have been given in
proper time where, things not being in order, the partnership should be interested in
delaying its dissolution. In this case the partnership shall continue until the conclusion of any
outstanding business.
Article 1,707. A partner cannot claim dissolution of a partnership which has been created
for a specific term either pursuant to the provisions of the contract or to the nature of the
business, unless he has just cause to do so, such as the breach by one of his partners of his
obligations, or his becoming disqualified to conduct the business of the partnership or other
similar grounds in the opinion of the Courts.
Article 1,708. Partition between the partners is governed by the rules applicable to estates,
both as regards its form and the resulting obligations. The industrial partner cannot be
adjudicated any share in the property provided, but only its fruits or profits, in accordance
with the provisions of article 1,689, unless otherwise expressly agreed.
3
New Civil Code (Title IX, Arts. 1767-1867) No more distinction between
commercial and civil partnerships; governs all transactions of all partnerships,
whether the object be civil or mercantile
Title IX. - PARTNERSHIP
CHAPTER 1
GENERAL PROVISIONS
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.
(1665a)
Art. 1768. The partnership has a judicial 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. (n)
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do not share
any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property 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:
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.
(n)
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument. (1668a)
Art. 1774. Any immovable property or an interest therein may be acquired in the
partnership name. Title so acquired can be conveyed only in the partnership
name. (n)
Art. 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)
Art. 1776. As to its object, a partnership is either universal or particular.As
regards the liability of the partners, a partnership may be general or limited.
(1671a)
Art. 1777. A universal partnership may refer to all the present property or to all
the profits. (1672)
Art. 1778. A partnership of all present property is that in which the partners
contribute all the property which actually belongs to them to a common fund,
with the intention of dividing the same among themselves, as well as all the
profits which they may acquire therewith. (1673)
Art. 1779. In a universal partnership of all present property, the property which
belongs to each of the partners at the time of the constitution of the partnership,
becomes the common property of all the partners, as well as all the profits which
they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made;
but the property which the partners may acquire subsequently by inheritance,
legacy, or donation cannot be included in such stipulation, except the fruits
thereof. (1674a)
Art. 1780. A universal partnership of profits comprises all that the partners may
acquire by their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess at the
time of the celebration of the contract shall continue to pertain exclusively to
each, only the usufruct passing to the partnership. (1675)
Art. 1781. Articles of universal partnership, entered into without specification of
its nature, only constitute a universal partnership of profits. (1676)
Art. 1782. Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership. (1677)
Art. 1783. A particular partnership has for its object determinate things, their use
or fruits, or specific undertaking, or the exercise of a profession or vocation.
(1678)
CHAPTER 2
OBLIGATIONS OF THE PARTNERS
SECTION 1. - Obligations of the PartnersAmong Themselves
Art. 1784. A partnership begins from the moment of the execution of the contract,
unless it is otherwise stipulated. (1679)
Art. 1785. When a partnership for a fixed term or particular undertaking is
continued after the termination of such term or particular undertaking without
any express agreement, the rights and duties of the partners remain the same as
they were at such termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted
therein during the term, without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the partnership. (n)
Art. 1786. Every partner is a debtor of the partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and
determinate things which he may have contributed to the partnership, in the
same cases and in the same manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand. (1681a)
Art. 1787. When the capital or a part thereof which a partner is bound to
contribute consists of goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the absence of stipulation, it
shall be made by experts chosen by the partners, and according to current prices,
the subsequent changes thereof being for account of the partnership. (n)
Art. 1788. A partner who has undertaken to contribute a sum of money and fails
to do so becomes a debtor for the interest and damages from the time he should
have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership
coffers, and his liability shall begin from the time he converted the amount to his
own use. (1682)
Art. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits
which he may have obtained in violation of this provision, with a right to damages
in either case. (n)
Art. 1790. Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership. (n)
besides his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital. (1689a)
Art. 1798. If the partners have agreed to intrust to a third person the designation
of the share of each one in the profits and losses, such designation may be
impugned only when it is manifestly inequitable. In no case may a partner who
has begun to execute the decision of the third person, or who has not impugned
the same within a period of three months from the time he had knowledge
thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the partners.
(1690)
Art. 1799. A stipulation which excludes one or more partners from any share in
the profits or losses is void. (1691)
Art. 1800. The partner who has been appointed manager in the articles of
partnership may execute all acts of administration despite the opposition of his
partners, unless he should act in bad faith; and his power is irrevocable without
just or lawful cause. The vote of the partners representing the controlling interest
shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at
any time. (1692a)
Art. 1801. If two or more partners have been intrusted with the management of
the partnership without specification of their respective duties, or without a
stipulation that one of them shall not act without the consent of all the others,
each one may separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority shall prevail. In
case of a tie, the matter shall be decided by the partners owning the controlling
interest. (1693a)
Art. 1802. In case it should have been stipulated that none of the managing
partners shall act without the consent of the others, the concurrence of all shall
be necessary for the validity of the acts, and the absence or disability of any one
of them cannot be alleged, unless there is imminent danger of grave or
irreparable injury to the partnership. (1694)
Art. 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)
Art. 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)
Art. 1805. The partnership books shall be kept, subject to any agreement between
the partners, at the principal place of business of the partnership, and every
partner shall at any reasonable hour have access to and may inspect and copy any
of them. (n)
Art. 1806. Partners shall render on demand true and full information of all things
affecting the partnership to any partner or the legal representative of any
deceased partner or of any partner under legal disability. (n)
Art. 1807. Every partner must account to the partnership for any benefit, and hold
as trustee for it any profits derived by him without the consent of the other
partners from any transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its property. (n)
Art. 1808. The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is engaged,
unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds
any profits accruing to him from his transactions, and shall personally bear all the
losses. (n)
Art. 1809. Any partner shall have the right to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the partnership business or possession
of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable. (n)
SECTION 2. - Property Rights of a Partner
Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Art. 1811. A partner is co-owner with his partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement
between the partners, has an equal right with his partners to possess
specific partnership property for partnership purposes; but he has no right
to possess such property for any other purpose without the consent of his
partners;
(2) A partner's right in specific partnership property is not assignable
except in connection with the assignment of rights of all the partners in the
same property;
(3) A partner's right in specific partnership property is not subject to
attachment or execution, except on a claim against the partnership. When
partnership property is attached for a partnership debt the partners, or any
of them, or the representatives of a deceased partner, cannot claim any
right under the homestead or exemption laws;
(4) A partner's right in specific partnership property is not subject to legal
support under Article 291. (n)
Art. 1812. A partner's interest in the partnership is his share of the profits and
surplus. (n)
Art. 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
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)
Art. 1814. Without prejudice to the preferred rights of partnership creditors under
Article 1827, on due application to a competent court by any judgment creditor of
a partner, the court which entered the judgment, or any other court, may charge
the interest of the debtor partner with payment of the unsatisfied amount of such
judgment debt with interest thereon; and may then or later appoint a receiver of
his share of the profits, and of any other money due or to fall due to him in
respect of the partnership, and make all other orders, directions, accounts and
inquiries which the debtor partner might have made, or which the circumstances
of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in case
of a sale being directed by the court, may be purchased without thereby causing a
dissolution:
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with the
consent of all the partners whose interests are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any, under
the exemption laws, as regards his interest in the partnership. (n)
SECTION 3. - Obligations of the Partners
WithRegard to Third Persons
Art. 1815. Every partnership shall operate under a firm name, which may or may
not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm
name, shall be subject to the liability of a partner. (n)
Art. 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)
Art. 1817. Any stipulation against the liability laid down in the preceding article
shall be void, except as among the partners. (n)
Art. 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
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;
(6) Submit a partnership claim or liability to arbitration;
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership. (n)
Art. 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823. (n)
Art. 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 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)
Art. 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)
Art. 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)
CHAPTER 3
DISSOLUTION AND WINDING UP
Art. 1828. The dissolution of a partnership is the change in the relation of the
Art. 1834. After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing
transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had
not taken place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and
had no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of
the partnership prior to dissolution, and, having no knowledge or
notice of dissolution, the fact of dissolution had not been advertised
in a newspaper of general circulation in the place (or in each place if
more than one) at which the partnership business was regularly
carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of
partnership assets alone when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made;
and
(2) So far unknown and inactive in partnership affairs that the business
reputation of the partnership could not be said to have been in any degree
due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the
business, unless the act is appropriate for winding up partnership affairs;
or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs;
except by a transaction with one who:
(a) Had extended credit to the partnership prior to dissolution and
had no knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution,
and, having no knowledge or notice of his want of authority, the fact
of his want of authority has not been advertised in the manner
provided for advertising the fact of dissolution in the first paragraph,
No. 2 (b).
Nothing in this article shall affect the liability under Article 1825 of any person
who, after dissolution, represents himself or consents to another representing
him as a partner in a partnership engaged in carrying business. (n)
Art. 1835. The dissolution of the partnership does not of itself discharge the
existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the
partnership by an agreement to that effect between himself, the partnership
creditor and the person or partnership continuing the business; and such
agreement may be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or partnership continuing the
business.
The individual property of a deceased partner shall be liable for all obligations of
the partnership incurred while he was a partner, but subject to the prior payment
of his separate debts. (n)
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving partner,
not insolvent, has the right to wind up the partnership affairs, provided, however,
that any partner, his legal representative or his assignee, upon cause shown, may
obtain winding up by the court. (n)
Art. 1837. When dissolution is caused in any way, except in contravention of the
partnership agreement, each partner, as against his co-partners and all persons
claiming through them in respect of their interests in the partnership, unless
otherwise agreed, may have the partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash the net amount owing to the
respective partners. But if dissolution is caused by expulsion of a partner, bona
fide under the partnership agreement and if the expelled partner is discharged
from all partnership liabilities, either by payment or agreement under the second
paragraph of Article 1835, he shall receive in cash only the net amount due him
from the partnership.
When dissolution is caused in contravention of the partnership agreement the
rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution
wrongfully, to damages breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all
desire to continue the business in the same name either by themselves or
jointly with others, may do so, during the agreed term for the partnership
and for that purpose may possess the partnership property, provided they
secure the payment by bond approved by the court, or pay any partner who
has caused the dissolution wrongfully, the value of his interest in the
partnership at the dissolution, less any damages recoverable under the
second paragraph, No. 1 (b) of this article, and in like manner indemnify
him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining
partners continue the business under the provisions of article 1837, second
paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs.
The liability of a third person becoming a partner in the partnership continuing
the business, under this article, to the creditors of the dissolved partnership shall
be satisfied out of the partnership property only, unless there is a stipulation to
the contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the dissolved partnership, as
against the separate creditors of the retiring or deceased partner or the
representative of the deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased partner against the person
or partnership continuing the business, on account of the retired or deceased
partner's interest in the dissolved partnership or on account of any consideration
promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set aside
any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the partnership
name, or the name of a deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for any debts contracted by
such person or partnership. (n)
Art. 1841. When any partner retires or dies, and the business is continued under
any of the conditions set forth in the preceding article, or in Article 1837, second
paragraph, No. 2, without any settlement of accounts as between him or his
estate and the person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or partnership may
have the value of his interest at the date of dissolution ascertained, and shall
receive as an ordinary creditor an amount equal to the value of his interest in the
dissolved partnership with interest, or, at his option or at the option of his legal
representative, in lieu of interest, the profits attributable to the use of his right in
the property of the dissolved partnership; provided that the creditors of the
dissolved partnership as against the separate creditors, or the representative of
the retired or deceased partner, shall have priority on any claim arising under this
article, as provided Article 1840, third paragraph. (n)
Art. 1842. The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the contrary. (n)
CHAPTER 4
LIMITED PARTNERSHIP (n)
Art. 1843. A limited partnership is one formed by two or more persons under the
provisions of the following article, having as members one or more general
partners and one or more limited partners. The limited partners as such shall not
be bound by the obligations of the partnership.
Art. 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and
limited partners being respectively designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the agreed value of
the other property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited
partner and the times at which or events on the happening of which
they shall be made;
(h) The time, if agreed upon, when the contribution of each limited
partner is to be returned;
(i) The share of the profits or the other compensation by way of
income which each limited partner shall receive by reason of his
contribution;
(j) The right, if given, of a limited partner to substitute an assignee
as contributor in his place, and the terms and conditions of the
substitution;
(k) The right, if given, of the partners to admit additional limited
partners;
(l) The right, if given, of one or more of the limited partners to
priority over other limited partners, as to contributions or as to
compensation by way of income, and the nature of such priority;
(m) The right, if given, of the remaining general partner or partners
to continue the business on the death, retirement, civil interdiction,
insanity or insolvency of a general partner; and
A limited partner may have the partnership dissolved and its affairs wound up
when:
(1) He rightfully but unsuccessfully demands the return of his contribution,
or
(2) The other liabilities of the partnership have not been paid, or the
partnership property is insufficient for their payment as required by the
first paragraph, No. 1, and the limited partner would otherwise be entitled
to the return of his contribution.
Art. 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that
stated in the certificate as having been made; and
(2) For any unpaid contribution which he agreed in the certificate to make
in the future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but
which was not contributed or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account
of his contribution.
The liabilities of a limited partner as set forth in this article can be waived or
compromised only by the consent of all members; but a waiver or compromise
shall not affect the right of a creditor of a partnership who extended credit or
whose claim arose after the filing and before a cancellation or amendment of the
certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the
capital of his contribution, he is nevertheless liable to the partnership for any
sum, not in excess of such return with interest, necessary to discharge its
liabilities to all creditors who extended credit or whose claims arose before such
return.
Art. 1859. A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited
partner who has died or has assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to
require any information or account of the partnership transactions or to inspect
the partnership books; he is only entitled to receive the share of the profits or
other compensation by way of income, or the return of his contribution, to which
his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the
members consent thereto or if the assignor, being thereunto empowered by the
certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is
appropriately amended in accordance with Article 1865.
The substituted limited partner has all the rights and powers, and is subject to all
the restrictions and liabilities of his assignor, except those liabilities of which he
was ignorant at the time he became a limited partner and which could not be
ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the
assignor from liability to the partnership under Articles 1847 and 1848.
Art. 1860. The retirement, death, insolvency, insanity or civil interdiction of a
general partner dissolves the partnership, unless the business is continued by the
remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
Art. 1861. On the death of a limited partner his executor or administrator shall
have all the rights of a limited partner for the purpose of setting his estate, and
such power as the deceased had to constitute his assignee a substituted limited
partner.
The estate of a deceased limited partner shall be liable for all his liabilities as a
limited partner.
Art. 1862. On due application to a court of competent jurisdiction by any creditor
of a limited partner, the court may charge the interest of the indebted limited
partner with payment of the unsatisfied amount of such claim, and may appoint a
receiver, and make all other orders, directions and inquiries which the
circumstances of the case may require.
The interest may be redeemed with the separate property of any general partner,
but may not be redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of
others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his statutory
exemption.
Art. 1863. In setting accounts after dissolution the liabilities of the partnership
shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except
those to limited partners on account of their contributions, and to general
partners;
(2) Those to limited partners in respect to their share of the profits and
other compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement, limited
partners share in the partnership assets in respect to their claims for capital, and
in respect to their claims for profits or for compensation by way of income on
their contribution respectively, in proportion to the respective amounts of such
claims.
Art. 1864. The certificate shall be cancelled when the partnership is dissolved or
all limited partners cease to be such.
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or
character of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is
sentenced to civil interdiction and the business is continued under Article
1860;
(6) There is a change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the
dissolution of the partnership or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a
contribution, no time having been specified in the certificate, or
(10) The members desire to make a change in any other statement in the
certificate in order that it shall accurately represent the agreement among
them.
Art. 1865. The writing to amend a certificate shall:
A limited partnership formed under the law prior to the effectivity of this Code,
until or unless it becomes a limited partnership under this Chapter, shall continue
to be governed by the provisions of the old law.
a
b
II
A
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and
NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three agreed to
form a joint venture for the sale of cooking wares. Belo was to contribute P2.5 million; Tocao
also contributed some cash and she shall also act as president and general manager; and
Anay shall be in charge of marketing. Belo and Tocao specifically asked Anay because of her
experience and connections as a marketer. They agreed further that Anay shall receive the
following:
1
But then the relationship between Anay and Tocao soured. One day, Tocao advised one of
the branch managers that Anay was no longer a part of the company. Anay then demanded
that the company be audited and her shares be given to her.
ISSUE: Whether or not there is a partnership.
HELD: Yes, even though it was not reduced to writing, for a partnership can be instituted in
any form. The fact that it was registered as a sole proprietorship is of no moment for such
registration was only for the companys trade name.
Anay was not even an employee because when they ventured into the agreement, they
explicitly agreed to profit sharing this is even though Anay was receiving commissions
because this is only incidental to her efforts as a head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits realized from the appropriation
of the partnership business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade name of the copartnership and assets at the time he was wrongfully expelled.
An unjustified dissolution by a partner can subject him to action for damages because by the
mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have thepower, although not necessarily the right to dissolve the partnership.
Tocaos unilateral exclusion of Anay from the partnership is shown by her memo to the
Cubao office plainly stating that Anay was, as of October 9, 1987, no longer the vicepresident for sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her
own withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. Nevertheless, the
partnership was not terminated thereby; it continues until the winding up of the business.
NOTE: Motion for Reconsideration filed by Tocao and Belo decided by the SC on September
20, 2001.
Belo is not a partner. Anay was not able to prove that Belo in fact received profits from the
company. Belo merely acted as a guarantor. His participation in the business meetings was
not as a partner but as a guarantor. He in fact had only limited partnership. Tocao also
testified that Belo received nothing from the profits. The Supreme Court also noted that the
partnership was yet to be registered in the Securities and Exchange Commission. As such, it
was understandable that Belo, who was after all petitioner Tocaos good friend and
confidante, would occasionally participate in the affairs of the business, although never in a
formal or official capacity.
TOCAO V. CA
G.R. No. 127405; October 4, 2000
Ponente: J. Ynares-Santiago
FACTS:
Private respondent Nenita A. Anay met petitioner William T. Belo, then the vicepresident for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to
enter into a joint venture with her for the importation and local distribution of kitchen
cookwares
Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for sales
The parties agreed that Belo's name should not appear in any documents relating to their
transactions with West Bend Company. Anay having secured the distributorship of cookware
products from the West Bend Company and organized the administrative staff and the sales
force, the cookware business took off successfully. They operated under the name of
Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's name.
The parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall weekly production;
(3) thirty percent (30%) of the sales she would make; and
(4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo's assurances that he was sincere, dependable and honest
when it came to financial commitments.
On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letteraddressed to the Cubao sales office to the effect that she was no longer the vicepresident of Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.
Anay still received her five percent (5%) overriding commission up to December 1987. The
following year, 1988, she did not receive the same commission although the company
netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages against Marjorie D. Tocao and William Belo before the Regional Trial
Court of Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement between
the plaintiff and the defendants. The Court of Appeals affirmed the lower courts decision.
ISSUE:
Whether the parties formed a partnership
HELD:
Yes, the parties involved in this case formed a partnership
The Supreme Court held that to be considered a juridical personality, a partnership must
fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property or industry to a
common fund; and
(2) intention on the part of the partners to divide the profits among themselves. It may be
constituted in any form; a public instrument is necessary only where immovable property or
real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one.
In the case at hand, Belo acted as capitalist while Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for sales.
Furthermore, Anay was entitled to a percentage of the net profits of the business.
Therefore, the parties formed a partnership.
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint
venture agreement" with Respondent Manuel Torres for the development of a parcel of land
into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said
parcel of land in favor of respondent, who then had it registered in his name. By mortgaging
the property, respondent obtained from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the development of the subdivision. [4] All three
of them also agreed to share the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed by the
bank.
Petitioners deny having formed a partnership with respondent. They contend that the
Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the
appellate courts finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts,
respondent is liable for his failure to implement the project. Because the agreement entitled
them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray
that respondent pay them damages equivalent to 60 percent of the value of the property. [9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March,
1969, by and between MR. MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located
at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total
area of 17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises herein
contained the respective parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated March 5, 1969, in
the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS.
(P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS.
(P1.50) Philippine Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not
actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary
amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal
obligations and this particular amount will serve as an advance payment from the FIRST
PARTY for the property mentioned to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the
principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for sale to any interested
parties, and the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will
be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project
should be paid by the FIRST PARTY, exclusively and all the expenses will not be deducted
from the sales after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for
the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits
or whatever income deriving from the sales will be divided equally according to the x x x
percentage [agreed upon] by both parties.
SIXTH: That the intended sub-division project of the property involved will start the work and
all improvements upon the adjacent lots will be negotiated in both parties['] favor and all
sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the property
mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including
all necessary improvements spent by the FIRST PARTY, and the FIRST PARTY will be given a
grace period to turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same
freely and voluntarily for the uses and purposes therein stated. [10]
A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:
ART. 1767. By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits
among themselves.
Under the above-quoted Agreement, petitioners would contribute property to the
partnership in the form of land which was to be developed into a subdivision; while
respondent would give, in addition to his industry, the amount needed for general expenses
and other costs. Furthermore, the income from the said project would be divided according
to the stipulated percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.[11]
It should be stressed that the parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the name of the respondent. On the
other hand, respondent caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and entered into a contract to construct
low-cost housing units on the property.
Respondents actions clearly belie petitioners contention that he made no contribution to
the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has
been expressly stipulated, but also to all necessary consequences thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are
bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage
and law.
It is undisputed that petitioners are educated and are thus presumed to have
understood the terms of the contract they voluntarily signed. If it was not in consonance
with their expectations, they should have objected to it and insisted on the provisions they
wanted.
Courts are not authorized to extricate parties from the necessary consequences of their
acts, and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations. They cannot now
from
such
agreement
due
to
their
supposed
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
Code, which provides:
ART. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and attached to
the public instrument.
They contend that since the parties did not make, sign or attach to the public
instrument an inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a
complement of Article 1771,[12] the execution of a public instrument would be useless if there
is no inventory of the property contributed, because without its designation and description,
they cannot be subject to inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those who contract with the
partnership in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is made. The
case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their
claim that respondent should pay them 60 percent of the value of the property. [13] They
cannot in one breath deny the contract and in another recognize it, depending on what
momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a
contract and courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering
the Joint Venture Agreement an ordinary contract from which the parties rights and
obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 [14] of
the Civil Code, because it is the direct result of an earlier illegal contract, which was for the
sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision project. Its first
stipulation states that petitioners did not actually receive payment for the parcel of land sold
to respondent. Consideration, more properly denominated as cause, can take different
forms, such as the prestation or promise of a thing or service by another. [15]
In this case, the cause of the contract of sale consisted not in the stated peso value of
the land, but in the expectation of profits from the subdivision project, for which the land
was intended to be used. As explained by the trial court, the land was in effect given to the
partnership as [petitioners] participation therein. x x x There was therefore a consideration
for the sale, the [petitioners] acting in the expectation that, should the venture come into
fruition, they [would] get sixty percentof the net profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the subdivision
project, petitioners maintain that he should be made to pay damages equivalent to 60
percent of the value of the property, which was their share in the profits under the Joint
Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts were not the
cause of the failure of the project. [16] But it also ruled that neither was respondent
responsible therefor.[17] In imputing the blame solely to him, petitioners failed to give any
reason why we should disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in
this case. Petitioners have not alleged, not to say shown, that their Petition constitutes one
of the exceptions to this doctrine.[18] Accordingly, we find no reversible error in the CA's
ruling that petitioners are not entitled to damages.
Antonia Torres vs Court of Appeals
In 1969, sisters Antonia Torres and Emeteria Baring entered into a joint venture agreement
with Manuel Torres. Under the agreement, the sisters agreed to execute a deed of sale in
favor Manuel over a parcel of land, the sisters received no cash payment from Manuel but
the promise of profits (60% for the sisters and 40% for Manuel) said parcel of land is to be
developed as a subdivision.
Manuel then had the title of the land transferred in his name and he subsequently
mortgaged the property. He used the proceeds from the mortgage to start building roads,
curbs and gutters. Manuel also contracted an engineering firm for the building of housing
units. But due to adverse claims in the land, prospective buyers were scared off and the
subdivision project eventually failed.
The sisters then filed a civil case against Manuel for damages equivalent to 60% of the value
of the property, which according to the sisters, is whats due them as per the contract.
The lower court ruled in favor of Manuel and the Court of Appeals affirmed the lower court.
The sisters then appealed before the Supreme Court where they argued that there is no
partnership between them and Manuel because the joint venture agreement is void.
TONG
LIM, petitioner,
INC., respondent.
vs. PHILIPPINE
FISHING
GEAR
INDUSTRIES,
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to
pursue a business and to divide the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily cash or fixed
assets. Being partners, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered
into a Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from
the Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondent filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their
capacities as general partners, on the allegation that Ocean Quest Fishing Corporation was a
nonexistent corporation as shown by a Certification from the Securities and Exchange
Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets on board F/B
Lourdes which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
requesting a reasonable time within which to pay. He also turned over to respondent some of
the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed
to have waived his right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment.[6] The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries
won the bidding and deposited with the said court the sales proceeds of P900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim,
as general partners, were jointly liable to pay respondent.[8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on
the testimonies of the witnesses presented and (2) on a Compromise Agreement executed
by the three[9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the
RTC of Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction
and (e) damages.[10] The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the
amount of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as
full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the
deficiency shall be shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit
and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
In arguing that he should not be held liable for the equipment purchased from
respondent, petitioner controverts the CA finding that a partnership existed between him,
Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise
Agreement alone. Furthermore, he disclaims any direct participation in the purchase of the
nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has
not even met the representatives of the respondent company. Petitioner further argues that
he was a lessor, not a partner, of Chua and Yao, for the "Contract of Lease" dated February
1, 1990, showed that he had merely leased to the two the main asset of the purported
partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly
rental of P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two
lower courts clearly showed that there existed a partnership among Chua, Yao and him,
pursuant to Article 1767 of the Civil Code which provides:
Article 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.
Specifically, both lower courts ruled that a partnership among the three existed based
on the following factual findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing
to join him, while Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two
fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to
finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale
over these two (2) boats in favor of Petitioner Lim Tong Lim only to serve as security for the
loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the
partnership in the amount of P1 million secured by a check, because of which, Yao and Chua
entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB
Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets
from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation,"
their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by
Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial
documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4)
injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between
the parties-litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had
decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was petitioners brother. 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 were financed with borrowed money,
fell under the term common fund under Article 1767. The contribution to such fund need not
be cash or fixed assets; it could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of the boats would be divided
equally among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat,
but also to that of the nets and the floats. The fishing nets and the floats, both essential to
fishing, were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the business could not have
proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted
the main assets of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve
only questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding
on this Court, absent any cogent proof that the present action is embraced by one of the
exceptions to the rule.[16] In assailing the factual findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership
Petitioner argues that the appellate courts sole basis for assuming the existence of a
partnership was the Compromise Agreement. He also claims that the settlement was
entered into only to end the dispute among them, but not to adjudicate their preexisting
rights and obligations. His arguments are baseless. The Agreement was but an embodiment
of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and
thoroughly appraise all relevant facts. Both lower courts have done so and have found,
correctly, a preexisting partnership among the parties. In implying that the lower courts
have decided on the basis of one piece of document alone, petitioner fails to appreciate that
the CA and the RTC delved into the history of the document and explored all the possible
consequential combinations in harmony with law, logic and fairness. Verily, the two lower
courts factual findings mentioned above nullified petitioners argument that the existence of
a partnership was based only on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was merely the lessor of the
boats to Chua and Yao, not a partner in the fishing venture. His argument allegedly finds
support in the Contract of Lease and the registration papers showing that he was the owner
of the boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he
consented to the sale of his own boats to pay a debt of Chua and Yao, with the excess of the
proceeds to be divided among the three of them. No lessor would do what petitioner
did. Indeed, his consent to the sale proved that there was a preexisting partnership among
all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with
Chua and Yao, in which debts were undertaken in order to finance the acquisition and the
upgrading of the vessels which would be used in their fishing business. The sale of the
boats, as well as the division among the three of the balance remaining after the payment of
their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his
own property but an asset of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, who in this case is the
petitioner himself. After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property
to pay a debt he did not incur, if the relationship among the three of them was merely that
of lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be
imputed only to Chua and Yao, and not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing
it to be without authority to do so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
One who assumes an obligation to an ostensible corporation as such, cannot resist
performance thereof on the ground that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party
may be estopped from denying its corporate existence. The reason behind this doctrine is
obvious - an unincorporated association has no personality and would be incompetent to act
and appropriate for itself the power and attributes of a corporation as provided by law; it
cannot create agents or confer authority on another to act in its behalf; thus, those who act
or purport to act as its representatives or agents do so without authority and at their own
risk. And as it is an elementary principle of law that a person who acts as an agent without
authority or without a principal is himself regarded as the principal, possessed of all the right
and subject to all the liabilities of a principal, a person acting or purporting to act on behalf
of a corporation which has no valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for other acts performed as such
agent.[17]
The doctrine of corporation by estoppel may apply to the alleged corporation and to a
third party. In the first instance, an unincorporated association, which represented itself to
be a corporation, will be estopped from denying its corporate capacity in a suit against it by
a third person who relied in good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract it entered into and by virtue
of which it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation. In such
case, all those who benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts they impliedly
assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to
be paid for the nets it sold. The only question here is whether petitioner should be held
jointly[18] liable with Chua and Yao. Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should be held liable. Since his name
does not appear on any of the contracts and since he never directly transacted with the
respondent corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B
Lourdes, the boat which has earlier been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has effectively stopped his use of
the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form
a corporation. Although it was never legally formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as contracting parties in representation of
it. 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.
Technically, it is true that petitioner did not directly act on
corporation. However, having reaped the benefits of the contract entered
with whom he previously had an existing relationship, he is deemed to
association and is covered by the scope of the doctrine of corporation
reiterate the ruling of the Court in Alonso v. Villamor:[19]
behalf of the
into by persons
be part of said
by estoppel. We
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in
the subtle art of movement and position , entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays before the court the facts in
issue and then, brushing aside as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike duels,
are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy, deserves scant consideration
from courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the
nets. We agree with the Court of Appeals that this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in
the name of petitioner, only to assure payment of the debt he and his partners owed. The
nets and the floats were specifically manufactured and tailor-made according to their own
design, and were bought and used in the fishing venture they agreed upon. Hence, the
issuance of the Writ to assure the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the nets remained with Respondent
Philippine Fishing Gear, until full payment thereof.
Lim vs. Philippine Fishing Gear Industries Inc. [GR 136448, 3 November 1999]
It was established that Lim Tong Lim requested Peter Yao to engage in commercial fishing
with him and one Antonio Chua. The three agreed to purchase two fishing boats but since
they do not have the money they borrowed from one Jesus Lim (brother of Lim Tong Lim).
They again borrowed money and they agreed to purchase fishing nets and other fishing
equipments. Now, Yao and Chua represented themselves as acting in behalf of Ocean Quest
Fishing Corporation (OQFC) they contracted with Philippine Fishing Gear Industries (PFGI)
for the purchase of fishing nets amounting to more than P500k.
They were however unable to pay PFGI and so they were sued in their own names because
apparently OQFC is a non-existent corporation. Chua admitted liability and asked for some
time to pay. Yao waived his rights. Lim Tong Lim however argued that hes not liable because
he was not aware that Chua and Yao represented themselves as a corporation; that the two
acted without his knowledge and consent.
ISSUE: Whether or not Lim Tong Lim is liable.
HELD: Yes. From the factual findings of both lower courts, it is clear that Chua, Yao and Lim
had decided to engage in a fishing business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim. 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 were financed with borrowed money, fell under the term common fund
under Article 1767. The contribution to such fund need not be cash or fixed assets; it could
be an intangible like credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among them also shows that
they had indeed formed a partnership.
Lim Tong Lim cannot argue that the principle of corporation by estoppels can only be
imputed to Yao and Chua. Unquestionably, Lim Tong Lim benefited from the use of the nets
found in his boats, the boat which has earlier been proven to be an asset of the partnership.
Lim, Chua and Yao decided to form a corporation. Although it was never legally formed for
unknown reasons, this fact alone does not preclude the liabilities of the three as contracting
parties in representation of it. 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.
Partnership as a Contract
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do not share
any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property 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:
SEC. 27. Rates of Income tax on Domestic Corporations. (A) In General. - Except as otherwise provided in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the taxable income derived during each taxable year
from all sources within and without the Philippines by every corporation, as defined in
Section 22(B) of this Code and taxable under this Title as a corporation, organized in, or
existing under the laws of the Philippines: Provided, That effective January 1, 1998, the rate
of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be
thirty-three percent (33%); and effective January 1, 2000 and thereafter, the rate shall be
thirty-two percent (32%).
In the case of corporations adopting the fiscal-year accounting period, the taxable income
shall be computed without regard to the specific date when specific sales, purchases and
other transactions occur.
Their income and expenses for the fiscal year shall be deemed to have been earned and
spent equally for each month of the period.
The reduced corporate income tax rates shall be applied on the amount computed by
multiplying the number of months covered by the new rates within the fiscal year by the
taxable income of the corporation for the period, divided by twelve. Provided, further, That
the President, upon the recommendation of the Secretary of Finance, may effective January
1, 2000, allow corporations the option to be taxed at fifteen percent (15%) of gross income
as defined herein, after the following conditions have been satisfied:
(1) A
(2) A
(3) A
(4) A
GNP.
tax effort ratio of twenty percent (20%) of Gross National Product (GNP);
ratio of forty percent (40%) of income tax collection to total tax revenues;
VAT tax effort of four percent (4%) of GNP; and
0.9 percent (0.9%) ratio of the Consolidated Public Sector Financial Position (CPSFP) to
The option to be taxed based on gross income shall be available only to firms whose ratio of
cost of sales to gross sales or receipts from all sources does not exceed fifty-five percent
(55%).
The election of the gross income tax option by the corporation shall be irrevocable for three
(3) consecutive taxable years during which the corporation is qualified under the scheme.
For purposes of this Section, the term 'gross income' derived from business shall be
equivalent to gross sales less sales returns, discounts and allowances and cost of goods sold
"Cost of goods sold" shall include all business expenses directly incurred to produce the
merchandise to bring them to their present location and use.
For a trading or merchandising concern, "cost of goods" sold shall include the invoice cost of
the goods sold, plus import duties, freight in transporting the goods to the place where the
goods are actually sold, including insurance while the goods are in transit.
For a manufacturing concern, "cost of goods manufactured and sold" shall include all costs
of production of finished goods, such as raw materials used, direct labor and manufacturing
overhead, freight cost, insurance premiums and other costs incurred to bring the raw
materials to the factory or warehouse.
In the case of taxpayers engaged in the sale of service, 'gross income' means gross receipts
less sales returns, allowances and discounts.
FACTS:
Sps. Rosita Jarantilla and Vivencio Deocampo entered into an agreement with the
spouses Buenaventura Remotigue and ConchitaJarantilla to provide mutual
assistance to each other by way of financial support to any commercial and
agricultural activity on a joint business arrangement. This proved to be successful
as they were able to establish a manufacturing and trading business, acquire real
properties, and construct buildings, among other things. The same ended in 1973
upon their voluntary dissolution.
pesos (P8,000.00) and Federico Jarantilla, Jr.s as five thousand pesos (P5,000.00).
Respondents denied having formed a partnership. They did not deny the existence
and validity of the "Acknowledgement of Participating Capital" and in fact used this
as evidence to support their claim that Antonietas 8% share was limited to the
businesses enumerated therein. Petitioner Federico Jr joined his aunt Antonieta and
likewise asserted his share in the supposed partnership.
The RTC rendered judgment in favor of Antonieta and Federico. On appeal, the CA
set the RTC Decision. Petitioner filed a petition for review to the SC.
ISSUE:
Whether or not the partnership subject of the Acknowledgement of
Participating Capital funded the subject real properties. (In other words, what is the
petitioners right over these real properties?)
HELD:
Under Article 1767 of the Civil Code, there are two essential elements in a
contract of partnership: (a) an agreement to contribute money, property or industry
to a common fund; and (b) intent to divide the profits among the contracting
parties. The first element is undoubtedly present in the case at bar, for, admittedly,
all the parties in this case have agreed to, and did, contribute money and property
to a common fund.
Hence, the issue narrows down to their intent in acting as they did.39 It is not
denied that all the parties in this case have agreed to contribute capital to a
common fund to be able to later on share its profits. They have admitted this fact,
agreed to its veracity, and even submitted one common documentary evidence to
prove such partnership - the Acknowledgement of Participating Capital.
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses.
The petitioner himself claims his share to be 6%, as stated in the Acknowledgement
of Participating Capital. However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the partnership: Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City.
Since there was a clear agreement that the capital the partners contributed went to
the three businesses, then there is no reason to deviate from such agreement and
go beyond the stipulations in the document. Therefore, the Court of Appeals did not
err in limiting petitioners share to the assets of the businesses enumerated in the
Acknowledgement of Participating Capital.
In Villareal v. Ramirez, the Court held that since a partnership is a separate juridical
entity, the shares to be paid out to the partners is necessarily limited only to its
total resources.
As a rule, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the
trust and its elements. While implied trusts may be proved by oral evidence, the
evidence must be trustworthy and received by the courts with extreme caution, and
should not be made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can easily be fabricated.
The petitioner has failed to prove that there exists a trust over the subject real
properties. Aside from his bare allegations, he has failed to show that the
respondents used the partnerships money to purchase the said properties. Even
assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came
from his share in the partnership profits. After all, by his own admission, and as
stated in the Acknowledgement of Participating Capital, he owned a mere 6% equity
in the partnership.
DENIED.
- Heirs of Jose Lim vs. Juliet Villa Lim, 614 SCRA 141 (2010)
FACTS:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and
Edison, all surnamed Lim (petitioners), represented by Elenito Lim (Elenito). They
filed a Complaint for Partition, Accounting and Damages against respondent Juliet
Villa Lim (respondent), widow of the late Elfledo 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 the
operations of this trucking business until his death on August 15, 1981. Thereafter,
Jose's heirs, including Elfledo, and partners agreed to continue the business under
the management of Elfledo. The shares in the partnership profits and income that
formed part of the estate of Jose were held in trust by Elfledo, with petitioners'
authority for Elfledo to use, purchase or acquire properties using said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate
serving as his fathers driver in the trucking business. He was never a partner or an
investor in the business and merely supervised the purchase of additional trucks
using the income from the trucking business of the partners. By the time the
partnership ceased, it had nine trucks, which were all registered in Elfledo's name.
Petitioners asseverated that it was also through Elfledos management of the
partnership that he was able to purchase numerous real properties by using the
profits derived therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also acquired five other motor
vehicles.
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 of Jose, without their
consent and approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of all income, profits and
rentals received from the estate of Elfledo, and to surrender the administration
thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a
partner of Norberto and Jimmy. Respondent also claimed that per testimony of
Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as the latter's capital in
an informal partnership with Jimmy and Norberto. When Elfledo and respondent got
married in 1981, the partnership only had one truck; but through the efforts of
Elfledo, the business flourished. Other than this trucking business, Elfledo, together
with respondent, engaged in other business ventures. Thus, they were able to buy
real properties and to put up their own car assembly and repair business. When
Norberto was ambushed and killed on July 16, 1993, the trucking business started to
falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked
to Jimmy and to the heirs of Norberto, as she could no longer run the business.
Jimmy suggested that three out of the nine trucks be given to him as his share,
while the other three trucks be given to the heirs of Norberto. However, Norberto's
wife, Paquita Uy, was not interested in the vehicles. Thus, she sold the same to
respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and
the partnership with Jimmy and Norberto ceased upon his demise. Respondent also
stressed that Jose left no properties that Elfledo could have held in trust.
Respondent maintained that all the properties involved in this case were purchased
and acquired through her and her husbands joint efforts and hard work, and without
any participation or contribution from petitioners or from Jose. Respondent
submitted that these are conjugal partnership properties; and thus, she had the
right to refuse to render an accounting for the income or profits of their own
business.
On April 12, 2004, the RTC rendered its decision in favor of petitioners. On
June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing
petitioners' complaint for lack of merit. Undaunted, petitioners filed their Motion for
Reconsideration, which the CA, however, denied in its Resolution dated May 8,
2006. Hence, this petition.
ISSUE:
Whether or not Jose Lim or Elfledo is the partner in the trucking business
HELD:
partnership between Jose, Norberto and Jimmy. Unfortunately, there is none in this
case, because the alleged partnership was never formally organized.
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the understanding that
there shall be a proportionate sharing of the profits and losses among them. A
contract of partnership is defined by the Civil Code as one 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.
Undoubtedly, the best evidence would have been the contract of partnership or the
articles of partnership. Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we are asked to determine
who between Jose and Elfledo was the partner in the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence
presented by petitioners falls short of the quantum of proof required to establish
that: (1) Jose was the partner and not Elfledo; and (2) all the properties acquired by
Elfledo and respondent form part of the estate of Jose, having been derived from the
alleged partnership.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals is
enlightening. Therein, we cited Article 1769 of the Civil Code, which provides:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
Applying the legal provision to the facts of this case, the following circumstances
tend to prove that Elfledo was himself the partner of Jimmy and Norberto:
1) Cresencia testified that Jose gave Elfledo P50,000.00, as share in the partnership,
on a date that coincided with the payment of the initial capital in the partnership;
(2) Elfledo ran the affairs of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever from any of petitioners
herein;
(3) all of the properties, particularly the nine trucks of the partnership, were
registered in the name of Elfledo;
(4) Jimmy testified that Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were shares of the profits of
the business; and
(5) none of the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs of Tan
Eng Kee, a demand for periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and
personal properties acquired and registered in the names of Elfledo and respondent
formed part of the estate of Jose, having been derived from Jose's alleged
partnership with Jimmy and Norberto. They failed to refute respondent's claim that
Elfledo and respondent engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline. Petitioners could not offer any
credible evidence other than their bare assertions. Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the former carries more
weight.
- Philex mining corp. vs. Comm. Of internal revenue, 551 SCRA 183
FACTS:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall
make available to the MANAGERS (Philex Mining) up to ELEVEN MILLION
PESOS (P11,000,000.00), in such amounts as from time to time may be
required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the
owners account in the Sto. Nino PROJECT. Any part of any income of the
PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino PROJECT,
shall be added to such owners account.
(a) The properties shall be appraised and, together with the cash, shall be
carried by the Sto. Nino PROJECT as a special fund to be known as the
MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00,
except with prior approval of the PRINCIPAL; provided, however, that if the
compensation of the MANAGERS as herein provided cannot be paid in cash
from the Sto. Nino PROJECT, the amount not so paid in cash shall be added to
the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto.
Nino PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of
the PRINCIPAL to extend to the MANAGERS the benefit of subsequent
appreciation of property, upon a projected termination of this Agency, the
ratio which the MANAGERS account has to the owners account will be
determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims, shall be transferred to the MANAGERS,
except that such transferred assets shall not include mine development,
roads, buildings, and similar property which will be valueless, or of slight
value, to the MANAGERS. The MANAGERS can, on the other hand, require at
their option that property originally transferred by them to the Sto. Nino
PROJECT be re-transferred to them. Until such assets are transferred to the
MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the
net profit of the Sto. Nino PROJECT before income tax. It is understood that
the MANAGERS shall pay income tax on their compensation, while the
PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT
after deduction therefrom of the MANAGERS compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of the
MANAGERS. This Power of Attorney has been executed as security for the
payment and satisfaction of all such obligations of the PRINCIPAL in favor of
the MANAGERS and as a means to fulfill the same. Therefore, this Agency
shall be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been paid and
satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36month notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL
and the MANAGERS to the contrary, the MANAGERS may withdraw from this
Agency by giving 6-month notice to the PRINCIPAL. The MANAGERS shall not
in any manner be held liable to the PRINCIPAL by reason alone of such
withdrawal. Paragraph 5(d) hereof shall be operative in case of the
MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioners withdrawal as manager of the mine on January
28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6
and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
segments by first assigning its tangible assets for P127,838,051.00 and then
transferring its equitable title in its Philodrill assets for P16,302,426.00. The parties
then ascertained that Baguio Gold had a remaining outstanding indebtedness to
petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining
outstanding indebtedness of Baguio Gold by charging P112,136,000.00 to
allowances and reserves that were set up in 1981 and P2,860,768.00 to the 1982
operations.
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of receivables from
Baguio Gold against reserves and allowances." 9 However, the Bureau of Internal
Revenue (BIR) disallowed the amount as deduction for bad debt and assessed
petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be
allowed since all requisites for a bad debt deduction were satisfied, to wit: (a) there
was a valid and existing debt; (b) the debt was ascertained to be worthless; and (c)
it was charged off within the taxable year when it was determined to be worthless.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and
factual basis. It held that the alleged debt was not ascertained to be worthless since
Baguio Gold remained existing and had not filed a petition for bankruptcy; and that
the deduction did not consist of a valid and subsisting debt considering that, under
the management contract, petitioner was to be paid fifty percent (50%) of the
projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment,
as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby
DENIED for lack of merit. The assessment in question, viz: FAS-1-82-88-003067 for
deficiency income tax in the amount of P62,811,161.39 is hereby AFFIRMED.
The CTA rejected petitioners assertion that the advances it made for the Sto.
Nino mine were in the nature of a loan. It instead characterized the advances as
petitioners investment in a partnership with Baguio Gold for the development and
exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney"
executed by petitioner and Baguio Gold was actually a partnership agreement.
Since the advanced amount partook of the nature of an investment, it could not be
deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term
loan obligations of Baguio Gold could not be allowed as a bad debt deduction. At the
time the payments were made, Baguio Gold was not in default since its loans were
not yet due and demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it was merely
demanding payment of the installment and interests due. Moreover, Citibank
ISSUE:
Whether or not the Court of Appeals erred in ruling that the 50%-50% sharing
in the net profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio
Gold in the development of the Sto. Nino Mine notwithstanding the clear absence of
any intent on the part of Philex and Baguio Gold to form a partnership.
HELD:
The lower courts correctly held that the "Power of Attorney" is the instrument
that is material in determining the true nature of the business relationship between
petitioner and Baguio Gold. Before resort may be had to the two compromise
agreements, the parties contractual intent must first be discovered from the
expressed language of the primary contract under which the parties business
relations were founded. It should be noted that the compromise agreements were
mere collateral documents executed by the parties pursuant to the termination of
their business relationship created under the "Power of Attorney". On the other
hand, it is the latter which established the juridical relation of the parties and
defined the parameters of their dealings with one another.
venture was indeed intended by the parties. Under a contract of partnership, two or
more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves. 15 While a
corporation, like 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 legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. x x x 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. x x x The main
distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while
the joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. x x x This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or universal, and a
particular partnership may have for its object a specific undertaking. x x x It would
seem therefore that under Philippine law, a joint venture is a form of partnership
and should be governed by the law of partnerships. The Supreme Court has
however recognized a distinction between these two business forms, and has held
that although a corporation cannot enter into a partnership contract, it may
however engage in a joint venture with others. x x x (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the
parties had intended to create a partnership and establish a common fund for the
purpose. They also had a joint interest in the profits of the business as shown by a
50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute
money, property and industry to the common fund known as the Sto. Nio mine. 17 In
this regard, we note that there is a substantive equivalence in the respective
contributions of the parties to the development and operation of the mine. Pursuant
to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets under their respective accounts.
Baguio Gold would contribute P11M under its owners account plus any of its
income that is left in the project, in addition to its actual mining claim. Meanwhile,
petitioners contribution would consist of its expertise in the management and
operation of mines, as well as the managers account which is comprised of P11M
in funds and property and petitioners "compensation" as manager that cannot be
paid in cash.
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not "bind" itself to contribute money or
property to the project; that under paragraph 5 of the agreement, it was only
optional for petitioner to transfer funds or property to the Sto. Nio project
"(w)henever the MANAGERS shall deem it necessary and convenient in connection
with the MANAGEMENT of the STO. NIO MINE." 18
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against
withdrawal of advances should not be taken as an indication that it had entered into
a partnership with Baguio Gold; that the stipulation only showed that what the
parties entered into was actually a contract of agency coupled with an interest
which is not revocable at will and not a partnership.
It should be stressed that the main object of the "Power of Attorney" was not to
confer a power in favor of petitioner to contract with third persons on behalf of
Baguio Gold but to create a business relationship between petitioner and Baguio
Gold, in which the former was to manage and operate the latters mine through the
parties mutual contribution of material resources and industry. The essence of an
agency, even one that is coupled with interest, is the agents ability to represent his
principal and bring about business relations between the latter and third persons. 20
Where representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of ones paramount undertaking under a
contract, the latter may not necessarily be a contract of agency, but some other
agreement depending on the ultimate undertaking of the parties. 21
In this case, the totality of the circumstances and the stipulations in the parties
agreement indubitably lead to the conclusion that a partnership was formed
between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return
the advances made by petitioner under the agreement. Paragraph 5 (d) thereof
provides that upon termination of the parties business relations, "the ratio which
the MANAGERS account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE, excluding the
claims" shall be transferred to petitioner. 22 As pointed out by the Court of Tax
Appeals, petitioner was merely entitled to a proportionate return of the mines
assets upon dissolution of the parties business relations. There was nothing in the
agreement that would require Baguio Gold to make payments of the advances to
petitioner as would be recognized as an item of obligation or "accounts payable" for
Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that is
more consistent with a partnership than a creditor-debtor relationship. It should be
pointed out that in a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the creditor an equal
amount of the same kind and quality. 23 In this case, however, there was no
stipulation for Baguio Gold to actually repay petitioner the cash and property that it
had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor of
petitioner, which supposedly arose from the termination of their business relations
over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner
would only be entitled to the return of a proportionate share of the mine assets to
be computed at a ratio that the managers account had to the owners account.
Except to provide a basis for claiming the advances as a bad debt deduction, there
is no reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation
to lend hundreds of millions of pesos to another corporation with neither security, or
collateral, nor a specific deed evidencing the terms and conditions of such loans.
The parties also did not provide a specific maturity date for the advances to become
due and demandable, and the manner of payment was unclear. All these point to
the inevitable conclusion that the advances were not loans but capital contributions
to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the
fact that it would receive 50% of the net profits as "compensation" under paragraph
12 of the agreement. The entirety of the parties contractual stipulations simply
leads to no other conclusion than that petitioners "compensation" is actually its
share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of
a share in the profits of a business is prima facie evidence that he is a partner in the
business." Petitioner asserts, however, that no such inference can be drawn against
it since its share in the profits of the Sto Nio project was in the nature of
compensation or "wages of an employee", under the exception provided in Article
1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of
Baguio Gold who will be paid "wages" pursuant to an employer-employee
relationship. To begin with, petitioner was the manager of the project and had put
substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in
case the mine had no income. It is hard to believe that petitioner would take the risk
of not being paid at all for its services, if it were truly just an ordinary employee.
agreement actually constitutes its share in the net profits of the partnership.
Indeed, petitioner would not be entitled to an equal share in the income of the mine
if it were just an employee of Baguio Gold. 25 It is not surprising that petitioner was
to receive a 50% share in the net profits, considering that the "Power of Attorney"
also provided for an almost equal contribution of the parties to the St. Nino mine.
The "compensation" agreed upon only serves to reinforce the notion that the
parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments
in a partnership known as the Sto. Nino mine. The advances were not "debts" of
Baguio Gold to petitioner inasmuch as the latter was under no unconditional
obligation to return the same to the former under the "Power of Attorney". As for the
amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no
reason to depart from the tax courts factual finding that Baguio Golds debts were
not yet due and demandable at the time that petitioner paid the same. Verily,
petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record. 26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross
income. Deductions for income tax purposes partake of the nature of tax
exemptions and are strictly construed against the taxpayer, who must prove by
convincing evidence that he is entitled to the deduction claimed. 27 In this case,
petitioner failed to substantiate its assertion that the advances were subsisting
debts of Baguio Gold that could be deducted from its gross income. Consequently, it
could not claim the advances as a valid bad debt deduction.
FACTS:
1986, with the understanding that [petitioner] would receive 70% of the profits
while x x x Nieves and Zabat would earn 15% each.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in
the same lending business in competition with their partnership[.] Zabat was
thereby expelled from the partnership. The operations with Monte Maria continued.
In their answer, [respondents] asserted that they were partners and not mere
employees of [petitioner]. The complaint, they alleged, was filed to preempt and
prevent them from claiming their rightful share to the profits of the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat
after [petitioner] learned of Zabats activities. Arsenio resigned from his job at the
For her part, x x x Nieves claimed that she participated in the business as a
partner, as the lending activity with Monte Maria originated from her initiative.
Except for the limited period of July 8, 1986 through August 20, 1986, she did not
handle sums intended for Gragera. Collections were turned over to Gragera because
he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made
on worksheets were based on this assumptive 100% collection of all loans. The loan
releases were made less Grageras agreed commission. Because of this
arrangement, she neither received payments from borrowers nor remitted any
amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to 15DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums
guaranteed by Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere
employees and not partners with respect to the agreement with Gragera. He
claimed that after he discovered Zabats activities, he ceased infusing funds,
thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and Zabat.
[Petitioner] asserted that [respondents] were hired as salaried employees with
respect to the partnership between [petitioner] and Gragera.
During the pre-trial, the parties narrowed the issues to the following points:
whether [respondents] were employees or partners of [petitioner], whether
[petitioner] entrusted money to [respondents] for delivery to Gragera, whether the
P1,555,068.70 claimed under the complaint was actually remitted to Gragera and
whether [respondents] were entitled to their counterclaim for share in the profits.
The trial court as well as the Court of Appeals ruled against Santos and
ordered the latter to pay the shares of the spouses
ISSUE:
HELD:
Partnership.
We agree with both courts on this point. 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. The
Articles of Agreement stipulated that the signatories shall share the profits of the
business in a 70-15-15 manner, with petitioner getting the lions share. stipulation
clearly proved the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the
partnership continued lending money to the members of the Monte Maria
Community Development Group, Inc., which later on changed its business name to
Private Association for Community Development, Inc. (PACDI). Nieves was not
merely petitioners employee. She discharged her bookkeeping duties in accordance
with paragraphs 2 and 3 of the Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and
screening of prospective borrowers, and shall x x x each be responsible in
handling the collection of the loan payments of the borrowers that they each
solicited.
The Second Party named in the Agreement was none other than Nieves
Reyes. On the other hand, Arsenios duties as credit investigator are subsumed
WHEREAS, the parties have decided to formalize the terms of their business
relationship in order that their respective interests may be properly defined and
established for their mutual benefit and understanding.
Private respondent Nenita A. Anay met petitioner William T. Belo, then the
vice-president for operations of Ultra Clean Water Purifier, through her former
employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who
conveyed her desire to enter into a joint venture with her for the importation and
local distribution of kitchen cookwares
Under the joint venture, Belo acted as capitalist, Tocao as president and
general manager, and Anay as head of the marketing department and later, vicepresident for sales
The parties agreed that Belo's name should not appear in any documents
relating to their transactions with West Bend Company. Anay having secured the
distributorship of cookware products from the West Bend Company and organized
the administrative staff and the sales force, the cookware business took off
successfully. They operated under the name of Geminesse Enterprise, a sole
On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter
addressed to the Cubao sales office to the effect that she was no longer the vicepresident of Geminesse Enterprise.
Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January 8, 1988 to February 5, 1988 and the
audit of the company to determine her share in the net profits.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for
sum of money with damages against Marjorie D. Tocao and William Belo before the
Regional Trial Court of Makati, Branch 140
*** William Belo introduced Nenita Anay to his girlfriend, Marjorie Tocao. The three
agreed to form a joint venture for the sale of cooking wares. Belo was to contribute
P2.5 million; Tocao also contributed some cash and she shall also act as president
and general manager; and Anay shall be in charge of marketing. Belo and Tocao
specifically asked Anay because of her experience and connections as a marketer.
HELD:
Art. 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.
Petitioners admit that private respondent had the expertise to engage in the
business of distributorship of cookware. Private respondent contributed such
expertise to the partnership and hence, under the law, she was the industrial or
managing partner. It was through her reputation with the West Bend Company that
the partnership was able to open the business of distributorship of that companys
cookware products; it was through the same efforts that the business was propelled
to financial success. Petitioner Tocao herself admitted private respondents
indispensable role in putting up the business when, upon being asked if private
respondent held the positions of marketing manager and vice-president for sales,
she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to
sell yet, its only me there then her and then two (2) people, so about four (4). Now,
after that when she recruited already Oscar Abella and Lina Torda-Cruz these two
(2) people were given the designation of marketing managers of which definitely
Nita as superior to them would be the Vice President.
By the set-up of the business, third persons were made to believe that a partnership
had indeed been forged between petitioners and private respondents. Thus, the
communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:
On the other hand, petitioner Belos denial that he financed the partnership rings
hollow in the face of the established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover, his having authorized in
writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-seven (37%) of the proceeds
of her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. His claim that he was merely a guarantor is
belied by that personal act of proprietorship in the business. Moreover, if he was
indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil
Code, he should have presented documentary evidence therefor. While Article 2055
of the Civil Code simply provides that guaranty must be express, Article 1403, the
Statute of Frauds, requires that a special promise to answer for the debt, default or
miscarriage of another be in writing.
HELD (Digest):
Yes, even though it was not reduced to writing, for a partnership can be instituted in
any form. The fact that it was registered as a sole proprietorship is of no moment for
such registration was only for the companys trade name.
Anay was not even an employee because when they ventured into the agreement,
they explicitly agreed to profit sharing this is even though Anay was receiving
commissions because this is only incidental to her efforts as a head marketer.
The Supreme Court also noted that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him his due
upon the dissolution of the partnership as well as damages or share in the profits
realized from the appropriation of the partnership business and goodwill. An
innocent partner thus possesses pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time
he was wrongfully expelled.
Motion for Reconsideration filed by Tocao and Belo decided by the SC on September
20, 2001.
Belo is not a partner. Anay was not able to prove that Belo in fact received profits
from the company. Belo merely acted as a guarantor. His participation in the
business meetings was not as a partner but as a guarantor. He in fact had only
limited partnership. Tocao also testified that Belo received nothing from the profits.
The Supreme Court also noted that the partnership was yet to be registered in the
Securities and Exchange Commission. As such, it was understandable that Belo,
who was after all petitioner Tocaos good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal or official
capacity.
FACTS:
The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latters collection of premiums on
behalf of its members, the ceding companies, was taxable income. It added that
prescription did not bar the Bureau of Internal Revenue (BIR) from collecting the
taxes due, because the taxpayer cannot be located at the address given in the
information return filed. Hence, this Petition for Review before us.
ISSUE:
1.Whether or not the Clearing House, acting as a mere agent and performing strictly
administrative functions, and which did not insure or assume any risk in its own
name, was a partnership or association subject to tax as a corporation;
HELD:
The petition is devoid of merit. We sustain the ruling of the Court of Appeals
that the pool is taxable as a corporation, and that the governments right to assess
and collect the taxes had not prescribed.
This Court rules that the Court of Appeals, in affirming the CTA which had
previously sustained the internal revenue commissioner, committed no reversible
error. Section 24 of the NIRC, as worded in the year ending 1975, provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic corporations. -- A tax is
hereby imposed upon the taxable net income received during each taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized, but not including duly registered
general co-partnership (compaias colectivas), general professional partnerships,
private educational institutions, and building and loan associations xxx.
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this Code, an income tax of thirtyfive percent (35%) is hereby imposed upon the taxable income derived during each
taxable year from all sources within and without the Philippines by every
corporation, as defined in Section 22 (B) of this Code, and taxable under this Title as
a corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx Accordingly, a pool of individual real property owners dealing in real estate
business was considered a corporation for purposes of the tax in sec. 24 of the Tax
Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme Court
said:
The term partnership includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. * * * (8 Mertens Law of Federal Income Taxation,
p. 562 Note 63)
association implies associates who enter into a joint enterprise x x x for the
transaction of business.
In the case before us, the ceding companies entered into a Pool Agreement or
an association that would handle all the insurance businesses covered under their
quota-share reinsurance treaty and surplus reinsurance treaty with Munich. The
following unmistakably indicates a partnership or an association covered by Section
24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables that
are deposited in the name and credit of the pool. This common fund
pays for the administration and operation expenses of the pool.
(2) The pool functions through an executive board, which resembles the board
of directors of a corporation, composed of one representative for each
of the ceding companies.
(3) True, the pool itself is not a reinsurer and does not issue any insurance
policy; however, its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich, because
without it they would not have received their premiums. The ceding
companies share in the business ceded to the pool and in the
expenses according to a Rules of Distribution annexed to the Pool
Agreement. Profit motive or business is, therefore, the primordial
reason for the pools formation. As aptly found by the CTA:
xxx The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the
transaction of business for profit. It is apparent, and petitioners admit,
that their association or coaction was indispensable [to] the transaction
of the business. x x x If together they have conducted business, profit
must have been the object as, indeed, profit was earned. Though the
profit was apportioned among the members, this is only a matter of
consequence, as it implies that profit actually resulted.
was no unregistered partnership, but merely a co-ownership which took up only two
isolated transactions. The Court of Appeals did not err in applying Evangelista,
which involved a partnership that engaged in a series of transactions spanning
more than ten years, as in the case before us.
FACTS:
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an
area of 3,713.40 sq. m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land
with an aggregate area of 3,718.40 sq. m. including improvements thereon for
P130,000.00; this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of
4,353 sq. m. including improvements thereon for P108,825.00. This property has an
assessed value of P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq.
m. including improvements thereon for P237,234.34. This property has an assessed
value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and
receive rents; to issue receipts therefor; in default of such payment, to bring suits
against the defaulting tenants; to sign all letters, contracts, etc., for and in their
behalf, and to endorse and deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had
the same rented or leases to various tenants;
8. That from the month of March, 1945 up to and including December, 1945, the
total amount collected as rents on their real properties was P9,599.00 while the
expenses amounted to P3,650.00 thereby leaving them a net rental income of
P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30,
out of which amount was deducted in the sum of P16,288.27 for expenses thereby
leaving them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which
amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a
net rental income of P12,615.35.
INCOME TAXES
1945
14.84
1946
1,144.71
1947
10.34
1948
1,912.30
1949
1,575.90
P6,157.09
P37.50
1947
150.00
1948
150.00
1949
150.00
P527.00
P38.75
1946
38.75
1947
38.75
1948
38.75
1949
38.75
P193.75
P6,878.34.
ISSUE:
HELD:
With respect to the tax on corporations, the issue hinges on the meaning of the
terms "corporation" and "partnership," as used in section 24 and 84 of said Code,
the pertinent parts of which read:
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered general
copartnerships. (compaias colectivas).
Pursuant to the article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. Upon consideration of all the
facts and circumstances surrounding the case, we are fully satisfied that their
purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
2. They invested the same, not merely not merely in one transaction, but in a series
of transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed on April 23,
1944, by the acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transactions undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioners in
February, 1943. In other words, one cannot but perceive a character of habitually
peculiar to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way
of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely Simeon Evangelista, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business and enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over twelve
(12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose
in creating the set up already adverted to, or on the causes for its continued
existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point.
NOTE: For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships with the exception only of duly registered general
copartnerships within the purview of the term "corporation." It is, therefore, clear
to our mind that petitioners herein constitute a partnership, insofar as said Code is
concerned and are subject to the income tax for corporations.
section
of
The term 'corporation' as used in this Act includes joint-stock company, partnership,
joint account (cuentas en participacion), association or insurance company, no
matter how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section
24 and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466),
and that the latter was approved on June 15, 1939, the day immediately after the
approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the
terms "corporation" and "partnership" are used in both statutes with substantially
the same meaning. Consequently, petitioners are subject, also, to the residence tax
for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the
properties above mentioned for a period of over twelve years, and that the yearly
gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to
P17,453. Thus, they are subject to the tax provided in section 193 (q) of our
National Internal Revenue Code, for "real estate dealers," inasmuch as, pursuant to
section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding
himself out as a full or part time dealer in real estate or as an owner of rental
property or properties rented or offered to rent for an aggregate amount of three
thousand pesos or more a year. . . (emphasis supplied.)
FACTS:
On June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff
Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run
and operate a theatre on the premises occupied by former Cine Oro at Plaza Sta.
Cruz, Manila. The principal conditions of the offer are (1) that Yang Chiao Seng
guarantees Mrs. Yulo a monthly participation of P3,000 payable quarterly in advance
within the first 15 days of each quarter, (2) that the partnership shall be for a period
of two years and six months, starting from July 1, 1945 to December 31, 1947, with
the condition that if the land is expropriated or rendered impracticable for the
business, or if the owner constructs a permanent building thereon, or Mrs. Yulo's
right of lease is terminated by the owner, then the partnership shall be terminated
even if the period for which the partnership was agreed to be established has not
yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in
the lobby of the building as is ordinarily carried on in lobbies of theatres in
operation, provided the said business may not obstruct the free ingress and agrees
of patrons of the theatre; (4) that after December 31, 1947, all improvements
placed by the partnership shall belong to Mrs. Yulo, but if the partnership agreement
is terminated before the lapse of one and a half years period under any of the
causes mentioned in paragraph (2), then Yang Chiao Seng shall have the right to
remove and take away all improvements that the partnership may place in the
premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties
executed a partnership agreement establishing the "Yang & Company, Limited,"
which was to exist from July 1, 1945 to December 31, 1947. It states that it will
conduct and carry on the business of operating a theatre for the exhibition of
motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to
be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are
to be distributed among the partners in the same proportion as their capital
contribution and the liability of Mrs. Yulo, in case of loss, shall be limited to her
capital contribution (Exh. "B").
The land on which the theatre was constructed was leased by plaintiff Mrs.
Yulo from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the
contract of lease it was stipulated that the lease shall continue for an indefinite
period of time, but that after one year the lease may be cancelled by either party by
written notice to the other party at least 90 days before the date of cancellation.
The last contract was executed between the owners and Mrs. Yulo on April 5, 1948.
But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the owner's
desire to cancel the contract of lease on July 31, 1949. In view of the above notice,
Mrs. Yulo and her husband brought a civil action to the Court of First Instance of
Manila on July 3, 1949 to declare the lease of the premises. On February 9, 1950,
the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the Court of First Instance, the
two cases were afterwards heard jointly, and judgment was rendered dismissing the
complaint of Mrs. Yulo and her husband, and declaring the contract of lease of the
premises terminated as of July 31, 1949, and fixing the reasonable monthly rentals
of said premises at P100. Both parties appealed from said decision and the Court of
Appeals, on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in
the profits of the business. Yang answered the letter saying that upon the advice of
his counsel he had to suspend the payment (of the rentals) because of the
pendency of the ejectment suit by the owners of the land against Mrs. Yulo. In this
letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs. Yulo
has not paid to the lessors the rentals from August, 1949, he was retaining the
rentals to make good to the landowners the rentals due from Mrs. Yulo in arrears
(Exh. "E").
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954, alleging the existence of a partnership
between them and that the defendant Yang Chiao Seng has refused to pay her
share from December, 1949 to December, 1950; that after December 31, 1950 the
partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff
became the absolute owner of the building occupied by the Cine Astor; that the
reasonable rental that the defendant should pay therefor from January, 1951 is
P5,000; that the defendant has acted maliciously and refuses to pay the
participation of the plaintiff in the profits of the business amounting to P35,000 from
November, 1949 to October, 1950, and that as a result of such bad faith and malice
on the part of the defendant, Mrs. Yulo has suffered damages in the amount of
P160,000 and exemplary damages to the extent of P5,000. The prayer includes a
demand for the payment of the above sums plus the sum of P10,000 for the
attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between the
plaintiff and the defendant was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around the prohibition contained in
the contract of lease between the owners and the plaintiff against the sublease of
the said property. As to the other claims, he denies the same and alleges that the
fair rental value of the land is only P1,100. By way of counterclaim he alleges that
by reason of an attachment issued against the properties of the defendant the latter
has suffered damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the defendant
and thereafter rendered judgment ordering the defendant to pay to the plaintiff
P41,000 for her participation in the business up to December, 1950; P5,000 as
monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation of the lobby
from July 1, 1945 until defendant vacates the property. This decision, however, was
set aside on a motion for reconsideration. In said motion it is claimed that defendant
failed to appear at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable settlement,
would be granted; that in view of the decision of the Court of Appeals in two
previous cases between the owners of the land and the plaintiff Rosario Yulo, the
plaintiff has no right to claim the alleged participation in the profit of the business,
etc. The court, finding the above motion, well-founded, set aside its decision and a
new trial was held. After trial the court rendered the decision making the following
findings: that it is not true that a partnership was created between the plaintiff and
the defendant because defendant has not actually contributed the sum mentioned
in the Articles of Partnership, or any other amount; that the real agreement between
the plaintiff and the defendant is not of the partnership but one of the lease for the
reason that under the agreement the plaintiff did not share either in the profits or in
the losses of the business as required by Article 1769 of the Civil Code; and that the
fact that plaintiff was granted a "guaranteed participation" in the profits also belies
the supposed existence of a partnership between them. It. therefore, denied
plaintiff's claim for damages or supposed participation in the profits.
As to her claim for damages for the refusal of the defendant to allow the use of the
supposed lobby of the theatre, the court after ocular inspection found that the said
lobby was very narrow space leading to the balcony of the theatre which could not
be used for business purposes under existing ordinances of the City of Manila
because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's
counterclaim, on the ground that the defendant failed to present sufficient evidence
to sustain the same. It is against this decision that the appeal has been prosecuted
by plaintiff to this Court.
ISSUE:
Whether or not the lower court erred in holding that the written contracts,
Exhs. "A", "B", and "C, between plaintiff and defendant, are one of lease and not of
partnership.
HELD:
We have gone over the evidence and we fully agree with the conclusion of
the trial court that 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) intention on the part
of the partners to divide the profits among themselves. (Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the
second place, she did not furnish any help or intervention in the management of the
theatre. In the third place, it does not appear that she has ever demanded from
defendant any accounting of the expenses and earnings of the business. Were she
really a partner, her first concern should have been to find out how the business
was progressing, whether the expenses were legitimate, whether the earnings were
correct, etc. She was absolutely silent with respect to any of the acts that a partner
should have done; all that she did was to receive her share of P3,000 a month,
which can not be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had always acted
in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which
shows that both parties considered this offer as the real contract between them.
1
2
3
Art. 1327
Art. 1327. The following cannot give consent to a contract:
1
2
Unemancipated minors;
Insane or demented persons, and deaf-mutes who do not know how to
write. (1263a)
Art. 1329
Art. 1782
Art. 1782. Persons who are prohibited from giving each other any donation
or advantage cannot enter into universal partnership. (1677)
Reason: Each of the partners virtually make a donation. To allow persons who
are prohibited to give each other any donation or advantage to form a
universal partnership will be like permitting them to do indirectly what the
law expressly prohibits.
A partnership formed in violation of this article is null and void. Consequently,
no legal personality is acquired.
A husband and wife, however, may enter into a particular partnership or be
members thereof.
Art. 87
Art. 87. Every donation or grant of gratuitous advantage, direct or indirect,
between the spouses during the marriage shall be void, except moderate
gifts which the spouses may give each other on the occasion of any family
Art. 73
Art. 73. Either spouse may exercise any legitimate profession, occupation,
business or activity without the consent of the other. The latter may object
only on valid, serious, and moral grounds.
1
2
Art. 34. Civil interdiction. Civil interdiction shall deprive the offender
during the time of his sentence of the rights of parental authority, or
guardianship, either as to the person or property of any ward, of 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
Section 1. Who may petition for appointment of guardian for resident. Any
relative, friend, or other person on behalf of a resident minor or incompetent
who has no parent or lawful guardian, or the minor himself if fourteen years of
age or over, may petition the court having jurisdiction for the appointment of a
general guardian for the person or estate, or both, of such minor or incompetent.
An officer of the Federal Administration of the United States in the Philippines
may also file a petition in favor of a ward thereof, and the Director of Health, in
favor of an insane person who should be hospitalized, or in favor of an isolated
leper.
Section 3. Court to set time for hearing. Notice thereof. When a petition for
the appointment of a general guardian is filed, the court shall fix a time and
place for hearing the same, and shall cause reasonable notice thereof to be
given to the persons mentioned in the petition residing in the province, including
the minor if above 14 years of age or the incompetent himself, and may direct
other general or special notice thereof to be given.
Section 5. Hearing and order for letters to issue. At the hearing of the
petition the alleged in competent must be present if able to attend, and it must
be shown that the required notice has been given. Thereupon the courts shall
hear the evidence of the parties in support of their respective allegations, and, if
the person in question is a minor, or incompetent it shall be appoint a suitable
guardian of his person or estate, or both, with the powers and duties hereinafter
specified.
Section 6. When and how guardian for non-resident appointed. Notice. When
a person liable to be put under guardianship resides without the Philippines but
the estate therein, any relative or friend of such person, or any one interested in
his estate, in expectancy or otherwise, may petition a court having jurisdiction
for the appointment of a guardian for the estate, and if, after notice given to
such person and in such manner as the court deems proper, by publication or
otherwise, and hearing, the court is satisfied that such non-resident is a minor or
incompetent rendering a guardian necessary or convenient, it may appoint a
guardian for such estate.
by section 2 hereof. For good reasons the court may, however, appoint another
suitable person.
RULE 94
Bonds of Guardians
Section 2. When new bond may be required and old sureties discharged.
Whenever it is deemed necessary, the court may require a new bond to be given
by the guardian, and may discharge the sureties on the old bond from further
liability, after due notice to interested persons, when no injury can result
therefrom to those interested in the estate.
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 date."6 The Side Agreement outlines the business
relationship of the parties with regard to the Philippine operations of Pacfor. Private
respondent will establish a Pacfor representative office in the Philippines, to be known as
Pacfor Phils, and petitioner ATM will be its President. Petitioner's base salary and the
overhead expenditures of the company shall be borne by the representative office and
funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and
Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license
to transact business in the Philippines under the name of Pacfor or Pacfor Phils.7 In its
application, private respondent Pacfor proposed to establish its representative office in the
Philippines with the purpose of monitoring and coordinating the market activities for paper
products. It also designated petitioner as its resident agent in the Philippines, authorized to
accept summons and processes in all legal proceedings, and all notices affecting the
corporation.8
In March 1997, the Side Agreement was amended through a "Revised Operating and Profit
Sharing Agreement for the Representative Office Known as Pacific Forest Resources
(Philippines),"9 where the salary of petitioner was increased to $78,000 per annum. Both
agreements show that the operational expenses will be borne by the representative office
and funded by all parties "as equal partners," while the profits and commissions will be
shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through William
Gleason, its President, replied that petitioner is not a part-owner of Pacfor Phils. because the
latter is merely Pacfor-USA's representative office and not an entity separate and distinct
from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of dividing the income
50-50."11 Petitioner presumably knew of this arrangement from the start, having been the
one to propose to private respondent Pacfor the setting up of a representative office, and
"not a branch office" in the Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a joint venture with
them. He alleged he would have been better off remaining as an independent agent or
representative of Pacfor-USA as ATM Marketing Corp.13 Had he known that no joint venture
existed, he would not have allowed Pacfor to take the profitable business of his own
company, ATM Marketing Corp.14 Petitioner raised other issues, such as the rentals of office
furniture, salary of the employees, company car, as well as commissions allegedly due him.
The issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA
demanding payment of unpaid commissions and office furniture and equipment rentals,
amounting to more than one million dollars.15
On 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.16 On December 18,
2000, private respondent Pacfor also required petitioner to remit more than three hundred
thousand-peso Christmas giveaway fund for clients of Pacfor Phils.17 Lastly, private
respondent Pacfor withdrew all its offers of settlement and ordered petitioner to transfer title
and turn over to it possession of the service car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them
not to deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated
November 21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific Forest
Resources (Philippines) to:
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of
ATM Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City,
Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December
2000, private respondent directed said client "to please communicate directly with us on any
further questions associated with these payments or any future business. Do not
communicate with [Pacfor] and/or [ATM]."20
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records
to them effective December 19, 2000. The company records were turned over only on
January 26, 2001. This means our jobs with Pacific Forest were terminated effective
December 19, 2000. I am concerned about your welfare. I would like to help you by offering
you to work with ATM Marketing Corporation.
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own
Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.'
office furniture and equipment and the service car. He also reiterated his demand for unpaid
commissions, and proposed to offset these with the remaining Christmas giveaway fund in
his possession.23 Furthermore, he did not renew the lease contract with Pulp and Paper, Inc.,
the lessor of the office premises of Pacfor Phils., wherein he was the signatory to the lease
agreement.24
Petitioner denied the charges. He reiterated that he considered the import of Pacfor
President William Gleason's letters as a "cessation of his position and of the existence of
Pacfor Phils." He likewise informed private respondent Pacfor that ATM Marketing Corp. now
occupies Pacfor Phils.' office premises,26 and demanded payment of his separation pay.27
On February 15, 2001, petitioner filed his complaint for illegal dismissal, recovery of
separation pay, and payment of attorney's fees with the NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a
memorandum dated March 5, 2001, private respondent directed petitioner to explain why he
should not be disciplined for serious misconduct and conflict of interest. Private respondent
charged petitioner anew with serious misconduct for the latter's alleged act of fraud and
misrepresentation in authorizing the release of an additional peso salary for himself, besides
the dollar salary agreed upon by the parties. Private respondent also accused petitioner of
disloyalty and representation of conflicting interests for having continued using the Pacfor
Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited business for
HEPI from a competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal.
By directing petitioner to turn over all office records and materials, regardless of whether he
may have retained copies, private respondent Pacfor virtually deprived petitioner of his job
by the gradual diminution of his authority as resident manager. Petitioner's position as
resident manager whose duty, among others, was to maintain the security of its business
transactions and communications was rendered meaningless.
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20,
2001, the NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of
jurisdiction and lack of merit.31 It held there was no employer-employee relationship
between the parties. Based on the two agreements between the parties, it concluded that
petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50
equity).
Petitioner was not successful on his appeal to the Court of Appeals. The appellate court
upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.
Issue:
Whether or not there was a partnership formed.
Held:
No.
Petitioner argues that he is an industrial partner of the partnership he formed with private
respondent Pacfor, and also an employee of the partnership. Petitioner insists that an
industrial partner may at the same time be an employee of the partnership, provided there
is such an agreement, which, in this case, is the "Side Agreement" and the "Revised
Operating and Profit Sharing Agreement." The Court of Appeals denied the appeal of
petitioner, holding that "the legal basis of the complaint is not employment but perhaps
partnership, co-ownership, or independent contractorship." Hence, the Labor Code cannot
apply.
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 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
(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.
Plaintiff's complaint was amended three times with respect to the extent and description of
the land sought to be recovered. The original complaint described the land as a portion of a
lot registered in plaintiff's name under Transfer Certificate of Title No. 37686 of the land
record of Rizal Province and as containing an area of 13 hectares more or less. But the
complaint was amended by reducing the area of 6 hectares, more or less, after the
defendant had indicated the plaintiff's surveyors the portion of land claimed and occupied by
him. The second amendment became necessary and was allowed following the testimony of
plaintiff's surveyors that a portion of the area was embraced in another certificate of title,
which was plaintiff's Transfer Certificate of Title No. 37677. And still later, in the course of
trial, after defendant's surveyor and witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1,
plaintiff again, with the leave of court, amended its complaint to make its allegations
conform to the evidence.
Defendant, in his answer, sets up prescription and title in himself thru "open, continuous,
exclusive and public and notorious possession (of land in dispute) under claim of ownership,
adverse to the entire world by defendant and his predecessor in interest" from "time inmemorial". The answer further alleges that registration of the land in dispute was obtained
by plaintiff or its predecessors in interest thru "fraud or error and without knowledge (of) or
interest either personal or thru publication to defendant and/or predecessors in interest."
The answer therefore prays that the complaint be dismissed with costs and plaintiff required
to reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without
any right to the land in question and ordering him to restore possession thereof to plaintiff
and to pay the latter a monthly rent of P132.62 from January, 1940, until he vacates the
land, and also to pay the costs.
Issue:
Whether or not the case was brought by the real property in interest.
Held:
Yes.
There is nothing to the contention that the present action is not brought by the real party in
interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an
action be brought in the name of, but not necessarily by, the real party in interest. (Section
2, Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the
complaint, in the name of the plaintiff. That practice appears to have been followed in this
case, since the complaint is signed by the law firm of Araneta and Araneta, "counsel for
plaintiff" and commences with the statement "comes now plaintiff, through its undersigned
counsel." It is true that the complaint also states that the plaintiff is "represented herein by
its Managing Partner Gregorio Araneta, Inc.", another corporation, but there is nothing
against one corporation being represented by another person, natural or juridical, in a suit in
court. The contention that Gregorio Araneta, Inc. can not act as managing partner for
plaintiff on the theory that it is illegal for two corporations to enter into a partnership is
without merit, for the true rule is that "though a corporation has no power to enter into a
partnership, it may nevertheless enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil Gas
Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in
the record to indicate that the venture in which plaintiff is represented by Gregorio Araneta,
Inc. as "its managing partner" is not in line with the corporate business of either of them.
The Agreement has the following provisions relevant to the issues in these cases on the
nomination and election of the directors of the corporation:
3.
Articles of Incorporation
(a)
The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically
provide for
(1)
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5.
Management
xxx
(a)
The management of the Corporation shall be vested in a Board of Directors, which
shall consist of nine individuals. As long as American-Standard shall own at least 30% of the
outstanding stock of the Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also
registered with the Board of Investments for availment of incentives with the condition that
at least 60% of the capital stock of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation
prospered. Unfortunately, with the business successes, there came a deterioration of the
initially harmonious relations between the two groups. According to the Filipino group, a
basic disagreement was due to their desire to expand the export operations of the company
to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in
the countries where Philippine exports were contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes
were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the
agenda, the stockholders then proceeded to the election of the members of the board of
directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin
and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto
Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young.
Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr.
Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order
on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during
the past annual stockholders' meetings to nominate only nine persons as nominees for the
nine-member board of directors, and the legal advice of Saniwares' legal counsel. The
following events then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An
appeal was made by the ASI representative to the body of stockholders present that a vote
be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal
out of order and no vote on the ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present and represented by proxy equally for the 6
nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding
the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The
ASI representative, Mr. Jaqua protested the decision of the Chairman and announced that all
votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were
being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the
votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No.
05617) were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin
Young, nevertheless instructed the Secretary to cast all votes equally in favor of the three
ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan,
Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary
then certified for the election of the following Wolfgang Aurbach, John Griffin, David
Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F.
Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the
meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R.
SP No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who
announced that the motion was carried and declared the meeting adjourned. Protests
against the adjournment were registered and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not adjourned but only recessed and that the
meeting would be reconvened in the next room. The Chairman then threatened to have the
stockholders who did not agree to the decision of the Chairman on the casting of votes
bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly
representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the
cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees;
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the
other six (6) nominees for the four (4) remaining positions of directors and that the body
decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities
and Exchange Commission (SEC). The first petition filed was for preliminary injunction by
Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr.,
Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The
case was denominated as SEC Case No. 2417. The second petition was for quo warranto and
application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano
E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in
SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both
sets of parties except for Avelino Cruz claimed to be the legitimate directors of the
corporation.
Issue:
Whether or not the entity created should be treated as a corporation, partnership or a joint
venture.
Held:
A joint venture.
The rule is that whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual intention which
is determined in accordance with the rules governing the interpretation and construction of
contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678;
Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention
of the parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it
is clearly stated that the parties' intention was to form a corporation and not a joint venture.
xxx
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xxx
c)
nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No.
75875)
They object to the admission of other evidence which tends to show that the parties'
agreement was to establish a joint venture presented by the Lagdameo and Young Group on
the ground that it contravenes the parol evidence rule under section 7, Rule 130 of the
Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in
their pleading that the "Agreement" failed to express the true intent of the parties.
(a)
Where a mistake or imperfection of the writing, or its failure to express the true intent
and agreement of the parties or the validity of the agreement is put in issue by the
pleadings.
(b)
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and
Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true
intent of the parties, to wit:
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4.
While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third parties
and is not inconsistent with, and does not preclude, the existence of two distinct groups of
stockholders in Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In any event, the
evident intention of the Philippine Investors and ASI in entering into the Agreement is to
enter into ajoint venture enterprise, and if some words in the Agreement appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former (Art.
1370, New Civil Code). The various stipulations of a contract shall be interpreted together
attributing to the doubtful ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered. (Art.
1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
In an action at law, where there is evidence tending to prove that the parties joined their
efforts in furtherance of an enterprise for their joint profit, the question whether they
intended by their agreement to create a joint adventure, or to assume some other relation is
a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as
the testimonial evidence presented by the Lagdameo and Young Group shows that the
parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making
body are all consistent with a joint venture and not with an ordinary corporation. As stated
by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement
with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role
of minority vis-a-vis the Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect the
interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in
certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually
entitled to designate a member of the Executive Committee and the vote of this member is
required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles
and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate
the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales
policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that
Saniwares should not export "Standard" products otherwise than through ASI's Export
Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology
and know-how to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx
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xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the
board of directors for certain actions, in effect gave ASI (which designates 3 directors under
the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to
designate certain officers of the corporation; the super-majority voting requirements for
amendments of the articles and by-laws; and most significantly to the issues of tms case,
the provision that ASI shall designate 3 out of the 9 directors and the other stockholders
shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares,
namely ASI, which owns 40% of the capital stock and the Philippine National stockholders
who own the balance of 60%, and that 2) ASI is given certain protections as the minority
stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected"
in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed
number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall
be construed to constitute any of the parties hereto partners or joint venturers in respect of
any transaction hereunder" was merely to obviate the possibility of the enterprise being
treated as partnership for tax purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and
manufacturing capacities of a local firm are constrained to seek the technology and
marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use of its brand names, and other such
assistance. However, there is always a danger from such arrangements. The foreign group
may, from the start, intend to establish its own sole or monopolistic operations and merely
uses the joint venture arrangement to gain a foothold or test the Philippine waters, so to
speak. Or the covetousness may come later. As the Philippine firm enlarges its operations
and becomes profitable, the foreign group undermines the local majority ownership and
actively tries to completely or predominantly take over the entire company. This
undermining of joint ventures is not consistent with fair dealing to say the least. To the
extent that such subversive actions can be lawfully prevented, the courts should extend
protection especially in industries where constitutional and legal requirements reserve
controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter
into agreements regarding the exercise of their voting rights.
xxx
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2.
An agreement between two or more stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any voting rights, the shares held by them
shall be voted as therein provided, or as they may agree, or as determined in accordance
with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on
close corporations and Saniwares cannot be a close corporation because it has 95
stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed
stockholders meeting, these 95 stockholders are not separate from each other but are
divisible into groups representing a single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for
another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9
stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or
business or interest group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there were as of 8
March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp.
5 to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A"
thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it
has more than 20 stockholders, the undeniable fact is that it is a close-held corporation.
Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held
corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed primarily for
public issue corporations. These courts have indicated that express arrangements between
corporate joint ventures should be construed with less emphasis on the ordinary rules of law
usually applied to corporate entities and with more consideration given to the nature of the
agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator
Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US.
490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v.
Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90,
295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal
questions as to the extent to which the requirements arising from the corporate form of joint
venture corporations should control, and the courts ruled that substantial justice lay with
those litigants who relied on the joint venture agreement rather than the litigants who relied
on the orthodox principles of corporation law.
It is said that participants in a joint venture, in organizing the joint venture deviate from the
traditional pattern of corporation management. A noted authority has pointed out that just
as in close corporations, shareholders' agreements in joint venture corporations often
contain provisions which do one or more of the following: (1) require greater than majority
vote for shareholder and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3) give to the shareholders
control over the selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section
1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that
agreements regarding the exercise of voting rights are allowed only in close corporations. As
Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as defined
by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot
qualify as a close corporation under section 96, can some of them enter into an agreement
to vote as a unit in the election of directors? It is submitted that there is no reason for
denying stockholders of corporations other than close ones the right to enter into not voting
or pooling agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or
pooling agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning of close corporations to those which
comply with the requisites laid down by section 96, it is entirely possible that a corporation
which is in fact a close corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like voting agreements if
these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even
nomination of
directors, such
the signatories
ii. Object certain or lawful subject matter arts. 1306; 1347 to 1349; 1409; 1770; 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.
Article 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 cases expressly
authorized by law.
All services which are not contrary to law, morals, good customs, public order or public
policy may likewise be the object of a contract. (1271a)
Article 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.
(1273)
Article1409.
Thefollowingcontractsareinexistentandvoidfromthebeginning:
(1)Thosewhosecause,objectorpurposeiscontrarytolaw,morals,goodcustoms,publicorderorpublic
policy;
(2)Thosewhichareabsolutelysimulatedorfictitious;
(3)Thosewhosecauseorobjectdidnotexistatthetimeofthetransaction;
(4)Thosewhoseobjectisoutsidethecommerceofmen;
(5)Thosewhichcontemplateanimpossibleservice;
(6)Thosewheretheintentionofthepartiesrelativetotheprincipalobjectofthecontractcannotbe
ascertained;
(7)Thoseexpresslyprohibitedordeclaredvoidbylaw.
Thesecontractscannotberatified.Neithercantherighttosetupthedefenseofillegalitybewaived.
ART. 1770
A partnership must have a lawful object or purpose, and must be 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. (1666a)
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the district
forester of Davao City that no further action would be taken on his motion, unless he filed a
new application for the area concerned. So he filed on May 27, 1947 his fishpond application
1717.
Meanwhile, several applications were submitted by other persons for portions of the area
covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares
of land found inside the area applied for by Casteel; he was later granted fishpond permit F-
289-C covering 9.3 hectares certified as available for fishpond purposes by the Bureau of
Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the
land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on December
26, 1946, was given due course on December 9, 1947 with the issuance to him of fishpond
permit F-539-C to develop 30 hectares of land comprising a portion of the area applied for
by Casteel, upon certification of the Bureau of Forestry that the area was likewise available
for fishpond purposes. On November 17, 1948 Felipe Deluao filed his own fishpond
application for the area covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered upon
and spread themselves within the area, Casteel realized the urgent necessity of expanding
his occupation thereof by constructing dikes and cultivating marketable fishes, in order to
prevent old and new squatters from usurping the land. 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. Consequently, two
administrative cases ensued involving the area in question, to wit: DANR Case 353, entitled
"Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A.
No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No.
661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative cases
that Casteel had already introduced improvements on portions of the area applied for by him
in the form of dikes, fishpond gates, clearings, etc., 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. Failing to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and
Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up
in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract denominated a
"contract of service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and agreements
made herein to the Party of the Second Part, hereby enter into a contract of service,
whereby the Party of the First Part hires and employs the Party of the Second Part on the
following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum of TWENTY
SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part
who renders only his services for the construction and improvements of a fishpond at Barrio
Malalag, Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the produce of
the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having financed the
construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the Parties
sometime in the month of November, 1947, with all the above-mentioned conditions
enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao executed a special
power of attorney in favor of Jesus Donesa, extending to the latter the authority "To
represent me in the administration of the fishpond at Malalag, Municipality of Padada,
Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor
Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and
collect the value of the fish that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over
the same area in the two administrative cases (DANR Cases 353 and 353-B) and asked for
reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by
letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural
Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew his
petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision
in DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor
Casteel should be, as hereby it is, reinstated and given due course for the area indicated in
the sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio
shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the dispositive
portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor
Casteel is required to pay the improvements introduced thereon by said permittees in
accordance with the terms and dispositions contained elsewhere in this decision....
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 (exhibit A) entered into between Inocencia
Deluao and Nicanor Casteel, Felipe Deluao 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 and Juan Depra (who, they alleged, instigated Casteel to violate his
contract), 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.
Issue:
Whether or not the contact of service created a partnership or a co-ownership.
Held:
Too well-settled to require any citation of authority 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 the mandatory 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. Were
we to admit the establishment of a co-ownership violative of the prohibitory laws which will
hereafter be discussed, we shall be compelled to declare altogether the nullity of the
contract. This would certainly not serve the cause of equity and justice, considering that
rights and obligations have already arisen between the parties. We shall therefore construe
the contract 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.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into the
so-called "contract of service" on November 25, 1949, there were two pending applications
over the fishpond. One was Casteel's which was appealed by him to the Secretary of
Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on
October 25, 1949. The other was Felipe Deluao's application over the same area which was
likewise rejected by the Director of Fisheries on November 29, 1949, refiled by Deluao and
later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture and
Natural Resources. Clearly, although the fishpond was then in the possession of Casteel,
neither he nor, Felipe Deluao was the holder of a fishpond permit over the area. But be that
as it may, 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 evidence preponderates in favor of the view that 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. This can be gleaned, among others, from the letter of Casteel to Felipe
Deluao on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to your benefit
because you are the ones interested in half of the work we have done so far, besides I did
not insist on our being partners in my fishpond permit, but it was you "Tatay" Eping the one
who wanted that we be partners and it so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to me to be unfair to you. Therefore
so that each of us may be secured, let us have a document prepared to the effect that we
are partners in the fishpond that we caused to be made here in Balasinon, but it does not
mean that you will treat me as one of your "Bantay" (caretaker) on wage basis but not
earning wages at all, while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as "Bantay" (caretaker) instead, do not blame
me if I withdraw all my cases and be left without even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing
their partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which,
although denominated a "contract of service," was actually the memorandum of their
partnership agreement. That it was not a contract of the services of the appellant, was
admitted by the appellees themselves in their letter10 to Casteel dated December 19, 1949
wherein they stated that they did not employ him in his (Casteel's) claim but because he
used their money in developing and improving the fishpond, his right must be divided
between them. Of course, although exhibit A did not specify any wage or share appertaining
to the appellant as industrial partner, he was so entitled this being one of the conditions
he specified for the execution of the document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent to divide the
fishpond. In a letter,12 dated March 24, 1950, the appellant suggested that they divide the
fishpond and the remaining capital, and offered to pay the Deluaos a yearly installment of
P3,000 presumably as reimbursement for the expenses of the appellees for the
development and improvement of the one-half that would pertain to the appellant. Two days
later, the appellee Felipe Deluao replied,13expressing his concurrence in the appellant's
suggestion and advising the latter to ask for a reconsideration of the order of the Director of
Fisheries disapproving his (appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further
need to maintain his petition for the reinvestigation of Casteel's application. Thus by letter14
dated March 15, 1950 addressed to the Secretary of Agriculture and Natural Resources, he
withdrew his petition on the alleged ground that he was no longer interested in the area, but
stated however that he wanted his interest to be protected and his capital to be reimbursed
by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions both
dated September 15, 1950 were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the
dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of
both parties to terminate the partnership because each refused to share the fishpond with
the other.
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.
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.15 To the same
effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not
transfer or sublet all or any area herein granted or any rights acquired therein without the
previous consent and approval of this Office." Parenthetically, we must observe that in DANR
Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was
cancelled not solely for the reason that his permit covered a portion of the area included in
the appellant's prior fishpond application, but also because, upon investigation, it was
ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed
one Lino Estepa to develop with the latter's capital the area covered by his fishpond permit
F-289-C with the understanding that he (Aradillos) would be given a share in the produce
thereof.16
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 Agriculture and Commerce, and the violation of this condition shall avoid the
contract; Provided, That assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case: Provided, further, That nothing contained in this section
shall be understood or construed to permit the assignment, encumbrance, or subletting of
lands leased under this Act, or under any previous Act, to persons, corporations, or
associations which under this Act, are not authorized to lease public lands.
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. Thus, it
states:
When a transfer or sub-lease of area and improvement may be allowed. If the permittee
or lessee had, unless otherwise specifically provided, held the permit or lease and actually
operated and made improvements on the area for at least one year, he/she may request
permission to sub-lease or transfer the area and improvements under certain conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first
approved by the Director under such terms and conditions as may be prescribed, otherwise
it shall be null and void. A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33
of this Order.
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 the unauthorized 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.
The appellees, however, argue that in approving the appellant's application, the Secretary of
Agriculture and Natural Resources likewise recognized and/or confirmed their property right
to one-half of the fishpond by virtue of the contract of service, exhibit A. But the untenability
of this argument would readily surface if one were to consider that the Secretary of
Agriculture and Natural Resources did not do so for the simple reason that he does not
possess the authority to violate the aforementioned prohibitory laws nor to exempt anyone
from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application, coupled
with the foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of
their partnership, succeeding events reveal the intent of both parties to terminate the
partnership by refusing to share the fishpond with the other.
because there were allegedly no appropriate grounds to support the same and, moreover,
the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein
the former expressed his determination to administer the fishpond himself because the
decision of the Government was in his favor and the only reason why administration had
been granted to the Deluaos was because he was indebted to them. In the same letter, the
appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the
fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January 5, 1951 in which he
reiterated his refusal to grant the administration of the fishpond to the appellant, stating as
a ground his belief "that only the competent agencies of the government are in a better
position to render any equitable arrangement relative to the present case; hence, any action
we may privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited 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, that dissolution is caused "by the express will of any
partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive
and administrative powers with regard to the survey, classification, lease, sale or any other
form of concession or disposition and management of the lands of the public domain, and,
more specifically, with regard to the grant or withholding of licenses, permits, leases and
contracts over portions of the public domain to be utilized as fishponds.21, Thus, we held in
Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated in Ganitano vs. Secretary
of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources)
by law regarding the disposition of public lands such as granting of licenses, permits, leases,
and contracts, or approving, rejecting, reinstating, or cancelling applications, or deciding
conflicting applications, are all executive and administrative in nature. It is a well-recognized
principle that purely administrative and discretionary functions may not be interfered with
by the courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general,
courts have no supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact
by an administrative board or official, following a hearing, are binding upon the courts and
will not be disturbed except where the board or official has gone beyond his statutory
authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard
to his duty or with grave abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to
the appellant's fishpond application 1717 and awarded to him the possession of the area in
question. In view of the finality of the Secretary's decision in DANR Cases 353 and 353-B,
and considering the absence of any proof that the said official exceeded his statutory
authority, exercised unconstitutional powers, or acted with arbitrariness and in disregard of
his duty, or with grave abuse of discretion, we can do no less than respect and maintain
unfettered his official acts in the premises. It is a salutary rule that the judicial department
should not dictate to the executive department what to do with regard to the administration
and disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the land
department and compel the latter to do an act which involves the exercise of judgment and
discretion.22
Therefore, with the view that we take of this case, and even assuming that the injunction
was properly issued because present all the requisite grounds for its issuance, its
continuation, and, worse, its declaration as permanent, was improper in the face of the
knowledge later acquired by the lower court that it was the appellant's application over the
fishpond which was given due course. After the Secretary of Agriculture and Natural
Resources approved the appellant's application, he became to all intents and purposes the
legal permittee of the area with the corresponding right to possess, occupy and enjoy the
same. Consequently, the lower court erred in issuing the preliminary mandatory injunction.
We cannot overemphasize that an injunction should not be granted to take property out of
the possession and control of one party and place it in the hands of another whose title has
not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties for the
exploitation of the fishpond before it was awarded to Casteel, this case should be 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 from September 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.
It is well to remember that this case is now brought before the consideration of this court for
the second time. The first one was when the same plaintiffs appeared from the order of the
court below sustaining the defendant's demurrer, and requiring the former to amend their
complaint within a period, so as to include all the members of "Turnuhan Polistico & Co.,"
either as plaintiffs or as a defendants. This court held then that in an action against the
officers of a voluntary association to wind up its affairs and enforce an accounting for money
and property in their possessions, it is not necessary that all members of the association be
made parties to the action. (Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amend, respectively, their complaint and their
answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the
Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of
"Turnuhan Polistico & Co.," and to receive whatever evidence the parties might desire to
present.
The commissioner rendered his report, which is attached to the record, with the following
resume:
Income:
Member's shares...................97,263.70
Credits paid................................6,196.55
Interest received......................4,569.45
Miscellaneous............................1,891.00
P109,620.70
Expenses:
Premiums to members............68,146.25
Loans on real-estate....................9,827.00
Loans on promissory notes......4,258.55
Salaries..............................................1,095.00
Miscellaneous..................................1,686.10
85,012.90
Cash on hand........................................................
24,607.80
The defendants objected to the commissioner's report, but the trial court, having examined
the reasons for the objection, found the same sufficiently explained in the report and the
evidence, and accepting it, rendered judgment, holding that the association "Turnuhan
Polistico & Co." is unlawful, and sentencing the defendants jointly and severally to return the
amount of P24,607.80, as well as the documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest of the members of the said
association represented by said plaintiffs, with costs against the defendants.
Issue:
Whether or not charitable institution should be made party defendant in the case at bar.
Held:
No.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs.
Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable
institution to whom the partnership funds may be ordered to be turned over, should be
included, as a party defendant. The appellants refer to article 1666 of the Civil Code, which
provides:
A partnership must have a lawful object, and must be established for the common benefit of
the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall be given to
charitable institutions of the domicile of the partnership, or, in default of such, to those of
the province.
When the subscriptions of the members have been paid to the management of the
partnership, and employed by the latter in transactions consistent with the purposes of the
partnership may the former demand the return of the reimbursement thereof from the
manager or administrator withholding them?
The authors discuss this point at great length, but Ricci decides the matter quite clearly,
dispelling all doubts thereon. He holds that the partner who limits himself to demanding only
the amount contributed by him need not resort to the partnership contract on which to base
his action. And he adds in explanation that the partner makes his contribution, which passes
to the managing partner for the purpose of carrying on the business or industry which is the
object of the partnership; or in other words, to breathe the breath of life into a partnership
contract with an objection forbidden by law. And as said contrast does not exist in the eyes
of the law, the purpose from which the contribution was made has not come into existence,
and the administrator of the partnership holding said contribution retains what belongs to
others, without any consideration; for which reason he is not bound to return it and he who
has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the partnership,
because they do not constitute or represent the partner's contribution but are the result of
the industry, business or speculation which is the object of the partnership, and therefor, in
order to demand the proportional part of the said profits, the partner would have to base his
action on the contract which is null and void, since this partition or distribution of the profits
is one of the juridical effects thereof. Wherefore considering this contract as non-existent, by
reason of its illicit object, it cannot give rise to the necessary action, which must be the basis
of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a
profit from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this Code, providing
that the profits obtained by unlawful means shall not enrich the partners, but shall upon the
dissolution of the partnership, be given to the charitable institutions of the domicile of the
partnership, or, in default of such, to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of
the former law, which did not describe the purpose to which those profits denied the
partners were to be applied, nor state what to be done with them.
The profits are so applied, and not the contributions, because this would be an excessive
and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving
the partner of the portion of the capital that he contributed, the circumstances of the two
cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership, the
amounts contributed are to be returned by the partners, because it only deals with the
disposition of the profits; but the fact that said contributions are not included in the disposal
prescribed profits, shows that in consequences of said exclusion, the general law must be
followed, and hence the partners should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law will not consent to the latter
remaining in the possession of the manager or administrator who has refused to return
them, by denying to the partners the action to demand them. (Manresa, Commentaries on
the Spanish Civil Code, vol. XI, pp. 262-264)
Judgment was rendered for the defendant in the court below and the plaintiff appealed.
The respective claims of the parties as to the facts, so far as it is necessary to state them in
order to indicate the point in dispute, may be briefly summarized. The plaintiff alleges that in
January, 1900, he entered into a verbal agreement with the defendant to form a partnership
for the purchase of cascoes and the carrying on of the business of letting the same for hire
in Manila, the defendant to buy the cascoes and each partner to furnish for that purpose
such amount of money as he could, the profits to be divided proportionately; that in the
same January the plaintiff furnished the defendant 300 pesos to purchase a casco
designated as No. 1515, which the defendant did purchase for 500 pesos of Doa Isabel
Vales, taking the title in his own name; that the plaintiff furnished further sums aggregating
about 300 pesos for repairs on this casco; that on the fifth of the following March he
furnished the defendant 825 pesos to purchase another casco designated as No. 2089,
which the defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title to this
casco also in his own name; that in April the parties undertook to draw up articles of
partnership for the purpose of embodying the same 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 unwillingly to include casco No. 2089 in the
partnership, they were unable to come to any understanding and no written agreement was
executed; that the defendant having in the meantime had the control and management of
the two cascoes, the plaintiff made a demand for an accounting upon him, which the
defendant refused to render, denying the existence of the partnership altogether.
The defendant admits that the project of forming a partnership in the casco business in
which he was already engaged to some extent individually was discussed between himself
and the plaintiff in January, 1900, and earlier, one Marcos Angulo, who was a partner of the
plaintiff in a bakery business, being also a party to the negotiations, but he denies that any
agreement was ever consummated. He denies that the plaintiff furnished any money in
January, 1900, for the purchase of casco No. 1515, or for repairs on the same, but claims
that he borrowed 300 pesos on his individual account in January from the bakery firm,
consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which he
admits he received from the plaintiff March 5, he claims was for the purchase of casco No.
1515, which he alleged was bought March 12, and he alleges that he never received
anything from the defendant toward the purchase of casco No. 2089. He claims to have
paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second
one.
The case comes to this court under the old procedure, and it is therefore necessary for us
the review the evidence and pass upon the facts. Our general conclusions may be stated as
follows:
(1)
Doa Isabel Vales, from whom the defendant bought casco No. 1515, testifies that
the sale was made and the casco delivered in January, although the public document of sale
was not executed till some time afterwards. This witness is apparently disinterested, and we
think it is safe to rely upon the truth of her testimony, especially as the defendant, while
asserting that the sale was in March, admits that he had the casco taken to the ways for
repairs in January.
It is true that the public document of sale was executed March 10, and that the vendor
declares therein that she is the owner of the casco, but such declaration does not exclude
proof as to the actual date of the sale, at least as against the plaintiff, who was not a party
to the instrument. (Civil Code, sec. 1218.) It often happens, of course, in such cases, that the
actual sale precedes by a considerable time the execution of the formal instrument of
transfer, and this is what we think occurred here.
(2)
The plaintiff presented in evidence the following receipt: "I have this day received
from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco which we
are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa." The authenticity
of this receipt is admitted by the defendant. If casco No. 1515 was bought, as we think it
was, in January, the casco referred to in the receipt which the parties "are to purchase in
company" must be casco No. 2089, which was bought March 22. We find this to be the fact,
and that the plaintiff furnished and the defendant received 825 pesos toward the purchase
of this casco, with the understanding that it was to be purchased on joint account.
(3)
Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio
Angulo give the defendant, in the name of the plaintiff, a sum of money, the amount of
which he is unable to state, for the purchase of a casco to be used in the plaintiff's and
defendant's business. Antonio Angulo also testifies, but the defendant claims that the fact
that Angulo was a partner of the plaintiff rendered him incompetent as a witness under the
provisions of article 643 of the then Code of Civil Procedure, and without deciding whether
this point is well taken, we have discarded his testimony altogether in considering the case.
The defendant admits the receipt of 300 pesos from Antonio Angulo in January, claiming, as
has been stated, that it was a loan from the firm. Yet he sets up the claim that the 825 pesos
which he received from the plaintiff in March were furnished toward the purchase of casco
No. 1515, thereby virtually admitting that casco was purchased in company with the
plaintiff. We discover nothing in the evidence to support the claim that the 300 pesos
received in January was a loan, unless it may be the fact that the defendant had on previous
occasions borrowed money from the bakery firm. We think all the probabilities of the case
point to the truth of the evidence of Antonio Fernandez as to this transaction, and we find
the fact to be that the sum in question was furnished by the plaintiff toward the purchase for
joint ownership of casco No. 1515, and that the defendant received it with the understanding
that it was to be used for this purposed. We also find that the plaintiff furnished some further
sums of money for the repair of casco.
(4)
The balance of the purchase price of each of the two cascoes over and above the
amount contributed by the plaintiff was furnished by the defendant.
(5)
We are unable to find upon the evidence before us that there was any specific verbal
agreement of partnership, except such as may be implied from the fact as to the purchase of
the casco.
(6)
Although the evidence is somewhat unsatisfactory upon this point, we think it more
probable than otherwise that no attempt was made to agree upon articles of partnership till
about the middle of the April following the purchase of the cascoes.
(7)
At some time subsequently to the failure of the attempt to agree upon partnership
articles and after the defendant had been operating the cascoes for some time, the
defendant returned to the plaintiff 1,125 pesos, in two different sums, one of 300 and one of
825 pesos. The only evidence in the record as to the circumstances under which the plaintiff
received these sums is contained in his answer to the interrogatories proposed to him by the
defendant, and the whole of his statement on this point may properly be considered in
determining the fact as being in the nature of an indivisible admission. He states that both
sums were received with an express reservation on his part of all his rights as a partner. We
find this to be the fact.
Issues:
(1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a result of the act of the defendant in
receiving back the 1,125 pesos?
Held:
(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a contract of
partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint
interest in the profits. If the contract contains these two elements the partnership relation
results, and the law itself fixes the incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 1695.)
We have found as a fact that money was furnished by the plaintiff and received by the
defendant with the understanding that it was to be used for the purchase of the cascoes in
question. This establishes the first element 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 the cascoes in common, in the
absence of any other explanation of the object of the parties in making the purchase in that
form, and, it may be added, in view of the admitted fact that prior to the purchase of the
first casco the formation of a partnership had been a subject of negotiation between them.
Under other circumstances the relation of joint ownership, a relation distinct though perhaps
not essentially different in its practical consequence from that of partnership, might have
been the result of the joint purchase. If, for instance, it were shown that the object of the
parties in purchasing in company had been to make a more favorable bargain for the two
cascoes that they could have done by purchasing them separately, and that they had no
ulterior object except to effect a division of the common property when once they had
acquired it, the affectio societatis would be lacking and the parties would have become joint
tenants only; but, as nothing of this sort appears in the case, we must assume that the
object of the purchase was active use and profit and not mere passive ownership in
common.
It is thus apparent that a complete and perfect contract of partnership was entered into by
the parties. This contract, it is true, might have been subject to a suspensive condition,
postponing its operation until an agreement was reached as to the respective participation
of the partners in the profits, the character of the partnership as collective or en comandita,
and other details, but although it is asserted by counsel for the defendant that such was the
case, there is little or nothing in the record to support this claim, and that fact that the
defendant did actually go on and purchase the boat, as it would seem, before any attempt
had been made to formulate partnership articles, strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give efficacy to the
verbal contract of partnership as a civil contract, the contributions of the partners not having
been in the form of immovables or rights in immovables. (Civil Code, art. 1667.) The special
provision cited, requiring the execution of a public writing in the single case mentioned and
dispensing with all formal requirements in other cases, renders inapplicable to this species
of contract the general provisions of article 1280 of the Civil Code.
(2)
The remaining question is as to the legal effect of the acceptance by the plaintiff of
the money returned to him by the defendant after the definitive failure of the attempt to
agree upon partnership articles. The amount returned fell short, in our view of the facts, of
that which the plaintiff had contributed to the capital of the partnership, since it did not
include the sum which he had furnished for the repairs of casco No. 1515. Moreover, it is
quite possible, as claimed by the plaintiff, that a profit may have been realized from the
business during the period in which the defendant have 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 money by the plaintiff did not have the effect of terminating the legal
existence of the partnership by converting it into a societas leonina, as claimed by counsel
for the defendant.
Did the defendant waive his right to such interest as remained to him in the partnership
property by receiving the money? Did he by so doing waive his right to an accounting of the
profits already realized, if any, and a participation in them in proportion to the amount he
had originally contributed to the common fund? Was the partnership dissolved by the "will or
withdrawal of one of the partners" under article 1705 of the Civil Code? We think these
questions must be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money to relinquish his
rights as a partner, nor is there any evidence that by anything that he said or by anything
that he omitted to say he gave the defendant any ground whatever to believe that he
intended to relinquish them. On the contrary he notified the defendant that he waived none
of his rights in the partnership. Nor was the acceptance of the money an act which was in
itself inconsistent with the continuance of the partnership relation, as would have been the
case had the plaintiff withdrawn his entire interest in the partnership. There is, therefore,
nothing upon which a waiver, either express or implied, can be predicated. The defendant
might have himself terminated the partnership relation at any time, if he had chosen to do
so, by recognizing the plaintiff's right in the partnership property and in the profits. Having
failed to do this he can not be permitted to force a dissolution upon his co-partner upon
terms which the latter is unwilling to accept. We see nothing in the case which can give the
transaction in question any other aspect than that of the withdrawal by one partner with the
consent of the other of a portion of the common capital.
The result is that we hold and declare that a partnership was formed between the parties in
January, 1900, the existence of which the defendant is bound to recognize; that cascoes No.
1515 and 2089 constitute partnership property, and that the plaintiff is entitled to an
accounting of the defendant's administration of such property, and of the profits derived
therefrom. This declaration does not involve an adjudication as to any disputed items of the
partnership account.
iii. 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.
Article 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 or
benefit which is remunerated; and in contracts of pure beneficence, the mere liberality of
the benefactor. (1274)
Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced
the instant suit with the filing of their 3 August 1998 Complaint against Josefina, her
husband, Ike Realubit (Ike), and their alleged dummies, for specific performance, accounting,
examination, audit and inventory of assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as Civil Case No. 98-0331 before
respondent Branch 257 of the Regional Trial Court (RTC) of Paraaque City, said complaint
alleged, among other matters, that the Spouses Realubit had no gainful occupation or
business prior to their joint venture with Biondo; that with the income of the business which
earned not less than P3,000.00 per day, they were, however, able to acquire the two-storey
building as well as the land on which the joint ventures ice plant stands, another building
which they used as their office and/or residence and six (6) delivery vans; and, that aside
from appropriating for themselves the income of the business, the Spouses Realubit have
fraudulently concealed the funds and assets thereof thru their relatives, associates or
dummies.8
Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998,
specifically denying the material allegations of the foregoing complaint. Claiming that they
have been engaged in the tube ice trading business under a single proprietorship even
before their dealings with Biondo, the Spouses Realubit, in turn, averred that their said
business partner had left the country in May 1997 and could not have executed the Deed of
Assignment which bears a signature markedly different from that which he affixed on their
Joint Venture Agreement; that they refused the Spouses Jasos demand in view of the
dubious circumstances surrounding their acquisition of Biondos share in the business which
was established at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said
business had already stopped operations on 13 January 1996 when its plant shut down after
its power supply was disconnected by MERALCO for non-payment of utility bills; and, that it
was their own tube ice trading business which had been moved to 66-C Cenacle Drive,
Sanville Subdivision, Project 6, Quezon City that the Spouses Jaso mistook for the ice
manufacturing business established in partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently terminated, the
RTC went on to try the case on its merits and, thereafter, to render its Decision dated 17
September 2001, discounting the existence of sufficient evidence from which the income,
assets and the supposed dissolution of the joint venture can be adequately reckoned. Upon
the finding, however, that the Spouses Jaso had been nevertheless subrogated to Biondos
rights in the business in view of their valid acquisition of the latters share as capitalist
partner,10 the RTC disposed of the case in the following wise:
On appeal before the CA, the foregoing decision was set aside in the herein assailed
Decision dated 30 April 2007, upon the following findings and conclusions: (a) the Spouses
Jaso validly acquired Biondos share in the business which had been transferred to and
continued its operations at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City
and not dissolved as claimed by the Spouses Realubit; (b) absent showing of Josefinas
knowledge and consent to the transfer of Biondos share, Eden cannot be considered as a
partner in the business, pursuant to Article 1813 of the Civil Code of the Philippines; (c)
while entitled to Biondos share in the profits of the business, Eden cannot, however,
interfere with the management of the partnership, require information or account of its
transactions and inspect its books; (d) the partnership should first be dissolved before Eden
can seek an accounting of its transactions and demand Biondos share in the business; and,
(e) the evidence adduced before the RTC do not support the award of moral damages in
favor of the Spouses Jaso.12
The Spouses Realubits motion for reconsideration of the foregoing decision was denied for
lack of merit in the CAs 28 June 2007 Resolution,13 hence, this petition.
Issues:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN THE
JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN SAID
JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT
VENTURE AND IN THE SEPARATE ICE BUSINESS OF PETITIONER[S].14
Held:
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA
inordinately gave premium to the notarization of the 27 June 1997 Deed of Assignment
executed by Biondo in favor of the Spouses Jaso. Calling attention to the latters failure to
present before the RTC said assignor or, at the very least, the witnesses to said document,
the Spouses Realubit maintain that the testimony of Rolando Diaz, the Notary Public before
whom the same was acknowledged, did not suffice to establish its authenticity and/or
validity. They insist that notarization did not automatically and conclusively confer validity
on said deed, since it is still entirely possible that Biondo did not execute said deed or, for
that matter, appear before said notary public.15 The dearth of merit in the Spouses
Realubits position is, however, immediately evident from the settled rule that documents
acknowledged before notaries public are public documents which are admissible in evidence
without necessity of preliminary proof as to their authenticity and due execution.16
It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed
in favor of Eden not only enjoys a presumption of regularity17 but is also considered prima
facie evidence of the facts therein stated.18 A party assailing the authenticity and due
execution of a notarized document is, consequently, required to present evidence that is
clear, convincing and more than merely preponderant.19 In view of the Spouses Realubits
failure to discharge this onus, we find that both the RTC and the CA correctly upheld the
authenticity and validity of said Deed of Assignment upon the combined strength of the
above-discussed disputable presumptions and the testimonies elicited from Eden20 and
Notary Public Rolando Diaz.21 As for the Spouses Realubits bare assertion that Biondos
signature on the same document appears to be forged, suffice it to say that, like fraud,22
forgery is never presumed and must likewise be proved by clear and convincing evidence by
the party alleging the same.23 Aside from not being borne out by a comparison of Biondos
signatures on the Joint Venture Agreement24 and the Deed of Assignment,25 said forgery is,
moreover debunked by Biondos duly authenticated certification dated 17 November 1998,
confirming the transfer of his interest in the business in favor of Eden.26
Generally understood to mean an organization formed for some temporary purpose, a joint
venture is likened to a particular partnership or one which "has for its object determinate
things, their use or fruits, or a specific undertaking, or the exercise of a profession or
vocation."27 The rule is settled that joint ventures are governed by the law on
partnerships28 which are, in turn, based on mutual agency or delectus personae.29 Insofar
as a partners conveyance of the entirety of his interest in the partnership is concerned,
Article 1813 of the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself
dissolve the partnership, or, as against the other partners in the 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 contracts the profits to
which the assigning partners 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 the case of a dissolution of the partnership, the assignee is entitled to receive his
assignors interest and may require an account from the date only of the last account agreed
to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership
interest does not make the assignee of such interest a partner of the firm, nor entitle the
assignee to interfere in the management of the partnership business or to receive anything
except the assignees profits. The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his proportionate interest in the
capital."30 Since a partners interest in the partnership includes his share in the profits,31
we find that the CA committed no reversible error in ruling that the Spouses Jaso are entitled
to Biondos share in the profits, despite Juanitas lack of consent to the assignment of said
Frenchmans interest in the joint venture. Although Eden did not, moreover, become a
partner as a consequence of the assignment and/or acquire the right to require an
accounting of the partnership business, the CA correctly granted her prayer for dissolution of
the joint venture conformably with the right granted to the purchaser of a partners interest
under Article 1831 of the Civil Code.32 1wphi1
Considering that they involve questions of fact, neither are we inclined to hospitably
entertain the Spouses Realubits insistence on the supposed fact that Josefinas joint venture
with Biondo had already been dissolved and that the ice manufacturing business at 66-C
Cenacle Drive, Sanville Subdivision, Project 6, Quezon City was merely a continuation of the
same business they previously operated under a single proprietorship. It is well-entrenched
doctrine that questions of fact are not proper subjects of appeal by certiorari under Rule 45
of the Rules of Court as this mode of appeal is confined to questions of law.33 Upon the
principle that this Court is not a trier of facts, we are not duty bound to examine the
evidence introduced by the parties below to determine if the trial and the appellate courts
correctly assessed and evaluated the evidence on record.34 Absent showing that the factual
findings complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the Court will limit itself to reviewing only
errors of law.35
Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the
dissolution of the joint venture and concluded that the ice manufacturing business at the
aforesaid address was the same one established by Juanita and Biondo. As a rule, findings of
fact of the CA are binding and conclusive upon this Court,38 and will not be reviewed or
disturbed on appeal39 unless the case falls under any of the following recognized
exceptions: (1) when the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible;
(3) where there is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in
making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings of fact are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents; and, (10) when the
findings of fact of the CA are premised on the supposed absence of evidence and
contradicted by the evidence on record.40 Unfortunately for the Spouses Realubits cause,
not one of the foregoing exceptions applies to the case.
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose
Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of
land, with a combined area of 30,000 square meters, located in Tagaytay City and covered
by Transfer Certificate of Title (TCT) No. T-108484 of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement (JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two parcels
of land as their share in the joint venture. For its part, Primelink undertook to contribute
money, labor, personnel, machineries, equipment, contractors pool, marketing activities,
managerial expertise and other needed resources to develop the property and construct
therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural
and architectural plans, site development plans, and such other need plans in accordance
with existing laws and the rules and regulations of appropriate government institutions,
firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure or
fortuitous event or by competent authority, or other unavoidable circumstances beyond the
DEVELOPERS control, not to exceed three years from the date of the signing of this Joint
Venture Agreement, except the installation of the electrical facilities which is solely
MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers, support
personnel and marketing staff, to handle all services related to land and housing
development (administrative and construction) and marketing (sales, advertising and
promotions).
covenanted
that
they
shall
be
entitled
to
draw
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw
allowances or make advances not exceeding a total of twenty percent (20%) of the net
revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and forty
percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for
the first two years, in order to have sufficient reserves or funds to protect and/or guarantee
the construction and completion of the different types of units mentioned above.
2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing
allowances and/or advances equivalent to sixty percent (60%) and forty percent (40%),
respectively, of the total net revenue or income of the sale of the units.
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of
the Joint Venture project, after deducting all expenses incurred in connection with the land
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of
the Joint Venture project, after deducting all the above-mentioned expenses.
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
SALES-INCOME-COST PROJECTION
SELLING PRICE
COST PRICE
DIFFERENCE
INCOME
CLUSTER:
A1 3,200,000
A2 1,260,000
1,940,000 x 24
P 46,560,000.00
B2 960,000
1,540,000 x 24
36,960,000.00
C2 1,400,000
2,100,000 x 16
33,600,000.00
900,000 x 24
21,600,000.00
TWIN:
B1 2,500,000
SINGLE:
C1 3,500,000
ROW-TYPE TOWNHOMES:
D1 1,600,000
D2 700,000
P138,720,000.00
(GROSS)
P231,200,000.00
92,480,000.00
P 69,360,000
P 69,360,000.00
Balance = 70%
x .03069 x 48
161,840,000
P238,409,740
238,409,740.00
P307,769,740.00
EXPENSES:
less: A Building expenses
B Commission (8% of TCP)
P 92,480,000.00
18,496,000.00
4,624,000.00
4,624,000.00
12,000,000.00
P132,224,000.00
less:
Total Expenses
P307,769,740.00
132,224,000.00
P175,545,740.009
The Lazatins agreed to subject the title over the subject property to an escrow agreement.
Conformably with the escrow agreement, the owners duplicate of the title was deposited
with the China Banking Corporation.11 However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on August 30, 1995. On
October 12, 1995, the City issued a Development Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink
comply with its obligations under the JVA, otherwise the appropriate action would be filed
against it to protect their rights and interests. This impelled the officers of Primelink to meet
with the Lazatins and enabled the latter to review its business records/papers. In another
Letter14 dated October 22, 1997, the Lazatins informed Primelink that they had decided to
rescind the JVA effective upon its receipt of the said letter. The Lazatins demanded that
Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of
Tagaytay City, Branch 18, a complaint for rescission accounting and damages, with prayer
for temporary restraining order and/or preliminary injunction against Primelink and Lopez.
The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among others, that,
despite the lapse of almost four (4) years from the execution of the JVA and the delivery of
the title and possession of the land to defendants, the land development aspect of the
project had not yet been completed, and the construction of the housing units had not yet
made any headway, based on the following facts, namely: (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in these
condition: (aa) single detached, one completed and two units uncompleted; (bb) cluster
houses, one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was
done by the defendants was to grade the area; the units so far constructed had been the
object of numerous complaints by their owners/purchasers for poor workmanship and the
use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason,
completely disregarded previously agreed accounting and auditing procedures, checks and
balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They
averred that they sent a letter through counsel, demanding compliance of what was agreed
upon under the agreement but defendants refused to heed said demand. After a succession
of letters with still no action from defendants, plaintiffs sent a letter on October 22, 1997, a
letter formally rescinding the JVA.
thereafter, defendants had yet to deliver these shares to plaintiffs which by conservative
estimates would amount to no less than P40,000,000.00.15
Issues:
(1) Whether respondents are entitled to the possession of the parcels of land covered by the
JVA and the improvements thereon introduced by petitioners as their contribution to the JVA;
(2) Whether petitioners are entitled to reimbursement for the value of the improvements on
the parcels of land.
On the first issue, we agree with petitioners that respondents did not specifically pray in
their complaint below that possession of the improvements on the parcels of land which they
contributed to the JVA be transferred to them. Respondents made a specific prayer in their
complaint that, upon the rescission of the JVA, they be placed in possession of the parcels of
land subject of the agreement, and for other "reliefs and such other remedies as are just and
equitable in the premises." However, the trial court was not precluded from awarding
possession of the improvements on the parcels of land to respondents in its decision.
Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief
sought but it may add as general prayer for such further or other relief as may be deemed
just and equitable. Even without the prayer for a specific remedy, proper relief may be
granted by the court if the facts alleged in the complaint and the evidence introduced so
warrant.50 The court shall grant relief warranted by the allegations and the proof even if no
such relief is prayed for.51 The prayer in the complaint for other reliefs equitable and just in
the premises justifies the grant of a relief not otherwise specifically prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of
land and the improvements on the said parcels of land. It bears stressing that the parcels of
land, as well as the improvements made thereon, were contributed by the parties to the
joint venture under the JVA, hence, formed part of the assets of the joint venture.53 The trial
court 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.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents
entered into a joint venture as evidenced by their JVA which, under the Courts ruling in
Aurbach, is a form of partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on
record that petitioners willfully and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership.54 With the rescission of the JVA on account of
petitioners fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.55 On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is completed.56 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 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.57 After all, Article
1836 of the New Civil Code provides that unless otherwise agreed by the parties in their JVA,
respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has the
right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property,
subject to the rights and obligations of the parties, inter se, of the creditors and of third
parties under Articles 1837 and 1838 of the New Civil Code, and subject to the outcome of
the settlement of the accounts between the parties as provided in Article 1839 of the New
Civil Code, absent any agreement of the parties in their JVA to the contrary.58 Until the
partnership accounts are determined, it cannot be ascertained how much any of the parties
is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the
value of the improvements on the parcels of land owned by the joint venture/partnership.
Notably, the JVA of the parties does not contain any provision designating any party to wind
up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is
caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or jointly with others, may do
so, during the agreed term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond approved by the court, or
pay to any partner who has caused the dissolution wrongfully, the value of his interest in the
partnership at the dissolution, less any damages recoverable under the second paragraph,
No. 1(b) of this article, and in like manner indemnify him against all present or future
partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all
the rights of a partner under the first paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right
as against his co-partners and all claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership, less any damage caused to
his co-partners by the dissolution, ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released from all existing liabilities of
the partnership; but in ascertaining the value of the partners interest the value of the goodwill of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him for
the purchase of an interest in the partnership and for any capital or advances contributed by
him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against
all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article
1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
(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:
(b) Those owing to partners other than for capital and 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:
Art. 1768. The partnership has a judicial 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. (n)
Partnership, a juridical person.
A partnership is sometimes referred to as a firm or a company, terms that
connote an entity separate from its aggregate individual partners.
Like the corporation, a partnership duly formed under the law is a juridical person to
which the law grants a juridical personality separate and distinct from that of each
of the partners. (Art. 44, par. 3.) As an independent juridical person, a partnership
may enter into contracts, acquire and possess property of all kinds in its name, as
well as incur obligations and bring civil or criminal actions in conformity with the
laws and regulations of its organizations. (Art. 46.)
Thus, in the partnership X & Co., in which A and B are the partners, there are three
distinct persons, namely, the partnership X & Co., A, and B. As a consequence of the
distinct legal personality possessed by X & Co., it may be declared insolvent even if
A and B are not. (Campos Rueda & Co. vs. Pacifi c Commercial & Co., 44 Phil. 916
[1923].) It may enter into contracts and may sue and be sued, it being sufficient
that service of summons or other process be served on any partner (Vargas & Co.
vs. Chan, 29 Phil. 446 [1915].); and the death of either A or B is not a ground for the
dismissal of a pending suit against X & Co. (Ngo Tian Tek vs. Phil. Education Co., 78
Phil. 275 [1947].) Neither A nor B may sue on a cause of action belonging to X &
Co., in his own name and for his own benefit. X & Co. may sue and be sued in its
firm name or by its duly authorized representative. (Tai Tong Chuache & Co. vs.
Insurance Commission, 158 SCRA 336 [1988]; see Arts. 1800-1803, 1818.) In view
of the separate juridical personality possessed by a partnership, the partners cannot
be held liable for the obligations of the partnership unless it is shown that the legal
fiction of a different juridical personality is being used for a fraudulent, unfair, or
illegal purpose (Aguila, Jr. vs. Court of Appeals, 316 SCRA 246 [1999].) and except
as provided in Article 1816.
Effect of failure to comply with statutory requirements.
(1) Under Article 1772. This article makes it clear that even in case of failure to
comply with the requirements of Article 1772, with reference to the execution of a
public instrument and registration of the same with the Securities and Exchange
Commission in cases when the partnership capital exceeds P3,000.00, such
partnership acquires juridical personality. (see Art. 1784.) The law recognizes that in
the Philippines, most partnerships are created with very small capital to engage in
small business and it would be impractical to require that they appear in a public
instrument and be registered as provided in Article 1772. (2) Under Articles 1773
and 1775. However, in the case contemplated in Article 1773, the partnership
shall not acquire any juridical personality because the contract itself is void. This is
also true regarding secret associations or societies which do not acquire juridical
personality under Article 1775.
To organize a partnership not an absolute right.
To organize a corporation or a partnership that could claim a juridical personality of
its own and transact business as such, is not a matter of absolute right but a
privilege which may be enjoyed only under such terms as the State may deem
necessary to impose. Thus, it has been held that the State through Congress, and in
the manner provided by law, had the right to enact Republic Act No. 1180 (Retail
Trade Nationalization Law) and to provide therein that only Filipinos may engage in
the retail business, cannot be seriously doubted. The law provides, among other
things, that after its enactment, a partnership not wholly formed by Filipinos could
continue to engage in the retail business only until the expiration of its term. This
provision is clearly intended to apply to partnerships already existing at the time of
the enactment of the law. Hence, the agreement in the articles of partnership to
extend the terms of its life must be deemed subject to Republic Act No. 1180 if it
was already in force when the parties came to agree regarding the extension of the
original term of their partnership. (Ang Pue & Co. vs. Sec. of Commerce and
Industry, 5 SCRA 645 [1962].)
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary. (1667a)
Form of partnership contract.
(1) General rule. As a general rule, no special form is required for the validity or
existence of the contract of partnership. (see Art. 1356.) the contract may be made
orally or in writing regardless of the value of the contributions. (2) Where
immovable property or real rights are contributed. In such case, according to
Article 1771, a public instrument shall be necessary, without stating, unlike Article
1773, that without the public instrument, the contract is void. (See Arts. 13561358.) Read together, they require the execution of a public instrument for the
validity of a contract of partnership whenever immovable property is contributed
thereto. To affect third persons, the transfer of real property to the partnership must
be duly registered in the Registry of Property of the province or city where the
property contributed is located. (3) When partnership agreement covered by
Statute of Frauds. An agreement to enter in a partnership at a future time, which
by its terms is not to be performed within a year from the making thereof is
covered by the Statute of Frauds. Such agreement is unenforceable unless the same
be in writing or at least evidenced by some note or memorandum thereof
subscribed by the parties. (see Art. 1403[2, a].)
Partnership implied from conduct.
(1) Binding effect. A partnership may exist and often exists in the absence of
express agreement, written or verbal, between the parties. Its existence may be
implied from the acts or conduct of the parties, as well as from other declarations,
and such implied contract would be as binding as a written and express contract.
Thus, where A and B, house painters, oblige themselves to paint the house of C for
a certain sum, undertaking to furnish both labor and material, and they divide the
sum received after payment of expenses, a partnership is created notwithstanding
that they did not expressly agree to establish a partnership. (2) Ascertainment of
intention of parties. In determining whether or not a particular transaction
constitutes a partnership, as between the parties, the intention as disclosed by the
entire transaction, and as gathered from the facts and from the language employed
by the parties as well as their conduct, should be ascertained. A partnership may
even be created without any definite intention; the intention of the parties being
inferred from their conduct and dealings with each other. (see Kiel vs. Estate of
Sabert, 46 Phil. 198 [1924]; Negado vs. Makabento, [CA] No. 10342-R, Feb. 28,
1948.) (3) Conflict between intention and terms of contract. Also, if the parties
intend a general partnership, they are general partners although their purpose is to
avoid the creation of such a relation. Thus, in a case, the Supreme Court declared
an association as a general partnership it appearing that the inclusion of Ltd.
(limited) in the firm name was only a subterfuge resorted to by the partners in order
to evade liability for possible losses, while assuming their enjoyment of the
advantages to be derived from the relation. (Jo Chung Cang vs. Pacific Commercial
Co., 45 Phil. 142 [1923].)
1. In general Art. 1772 Effect of non-compliance partnership still a juridical person; art.
1772 (1) is not a prerequisite for acquiring juridical personality, but merely as a condition for
the issuance of licenses to engage in business;
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the pattern . You
will be the only one left with the company, among us brothers and I will ask you to
stay as I want you to run this office every time I am away. I want you to run it the
way I am trying to run it because I will be all alone and I will depend entirely to you
(sic). My sons will not be ready to help me yet until about maybe 15/20 years from
now. Whatever is left in the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two
will gamble the whole thing of what I have and what you are entitled to. . It will be
you and me alone on this. If ever I pass away, I want you to take care of all of this.
You keep my share for my two sons are ready take over but give them the chance to
run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live
better there. The rest I will give you in form of stocks which you can keep. This stock
I assure you is good and saleable. I will also gladly give you the share of Wack-Wack
and Valley Golf because you have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the corporate respondents, as defendants a
quo, filed a joint ANSWER With Compulsory Counterclaim denying under oath the
material allegations of the complaint, more particularly that portion thereof
depicting petitioner and Eduardo as having entered into a contract of
partnership. As affirmative defenses, Eduardo, et al., apart from raising a
jurisdictional matter, alleged that the complaint states no cause of action, since no
cause of action may be derived from the actionable document, i.e., Annex A1, being void under the terms of Article 1767 in relation to Article 1773 of the Civil
Code, infra. It is further alleged that whatever undertaking Eduardo agreed to do, if
any, under Annex A-1, are unenforceable under the provisions of the Statute of
Frauds.[7]
Issue: whether or not petitioner and respondent Eduardo are partners in the
theatre, shipping and realty business, as one claims but which the other denies.
Held: a look at the legal provisions determinative of the existence, or defining the
formal requisites, of a partnership is indicated. Foremost of these are the following
provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary.
Art. 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 requirement of the preceding paragraph shall not affect
the liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
Annex A-1, on its face, contains typewritten entries, personal in tone, but is
unsigned and undated. As an unsigned document, there can be no quibbling that
Annex A-1 does not meet the public instrumentation requirements exacted under
Article 1771 of the Civil Code. Moreover, being unsigned and doubtless referring to
a partnership involving more than P3,000.00 in money or property, Annex A1 cannot be presented for notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773 goes into
the matter of validity when immovable property is contributed to the partnership,
the next logical point of inquiry turns on the nature of petitioners contribution, if
any, to the supposed partnership.
In sum then, the Court rules, as did the CA, that petitioners complaint for specific
performance anchored on an actionable document of partnership which is legally
inexistent or void or, at best, unenforceable does not state a cause of action as
against respondent Eduardo and the corporate defendants.
Per the Courts own count, petitioner used in his complaint the mixed words joint
venture/partnership nineteen (19) times and the term partner four (4) times. He
made reference to the law of joint venture/partnership [being applicable] to the
business relationship between [him], Eduardo and Bobby [Yang] and to his rights in
all specific properties of their joint venture/partnership. Given this consideration,
petitioners right of action against respondents Eduardo and Yang doubtless pivots
on the existence of the partnership between the three of them, as purportedly
evidenced by the undated and unsigned Annex A-1. A void Annex A-1, as an
actionable document of partnership, would strip petitioner of a cause of action
under the premises. A complaint for delivery and accounting of partnership property
based on such void or legally non-existent actionable document is dismissible for
failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED.
- Aguilar Jr. vs. CA, 319 SCRA 246 (1999)
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS
and FELICIDAD S. VDA. DE ABROGAR, respondents.
Facts: Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged
in lending activities. Private respondent and her late husband, Ruben M. Abrogar,
were the registered owners of a house and lot, covered by Transfer Certificate of
Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent,
with the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
petitioner, entered into a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be executed by the FIRST PARTY
conveying the property to the SECOND PARTY for and in consideration of the sum of
Two Hundred Thousand Pesos (P200,000.00), Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase
the said property within a period of ninety (90) days from the execution of this
memorandum of agreement effective April 18, 1991, for the amount of TWO
HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the
said property within a period of ninety (90) days, the FIRST PARTY is obliged to
deliver peacefully the possession of the property to the SECOND PARTY within
fifteen (15) days after the expiration of the said 90 day grace period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis
pendens or whatever claims on the property nor shall be cause the annotation of
say claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY against
any party whom may have any interests over the property;
(6) All expenses for documentation and other incidental expenses shall be for the
account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the
principal amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of
delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property
within ninety (90) days period above-mentioned, this memorandum of agreement
shall be deemed cancelled and the Deed of Absolute Sale, executed by the parties
shall be the final contract considered as entered between the parties and the
SECOND PARTY shall proceed to transfer ownership of the property above described
to its name free from lines and encumbrances.[2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale,[3] dated June 11, 1991, wherein private respondent, with the consent of her
late husband, sold the subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000.00. In a special power of attorney dated the same day, April
18, 1991, private respondent authorized petitioner to cause the cancellation of TCT
No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject property as provided in
the Memorandum of Agreement.[4]
Private respondent failed to redeem the property within the 90-day period as
provided in the Memorandum of Agreement. Hence, pursuant to the special power
of attorney mentioned above, petitioner caused the cancellation of TCT No. 195101
and the issuance of a new certificate of title in the name of A.C. Aguila and Sons,
Co.[5]
Private respondent then received a letter dated August 10, 1991 from Atty.
Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she
vacate the premises within 15 days after receipt of the letter and surrender its
possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring
the appropriate action in court.[6]
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch
76, Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial
Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent
did not redeem the subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent appealed first to
the Regional Trial Court, Branch 163, Pasig, Metro Manila, then to the Court of
Appeals, and later to this Court, but she lost in all the cases.
Issue: Petitioner now contends that: (1) he is not the real party in interest but A.C.
Aguila & Co., against which this case should have been brought;
(2) the judgment in the ejectment case is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this case; - not related to PAT
(3) the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto
de retro sale and not an equitable mortgage as held by the appellate court. not
related to PAT
Held: The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was
filed, provided that every action must be prosecuted and defended in the name of
the real party in interest. A real party in interest is one who would be benefited or
injured by the judgment, or who is entitled to the avails of the suit.[7] This ruling is
now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case
cannot be executed.[8] Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action.[9]
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate
and distinct from that of each of the partners. The partners cannot be held liable for
the obligations of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair, or illegal purposes.
[10] In this case, private respondent has not shown that A.C. Aguila & Sons, Co., as
a separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Moreover, the title to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was executed between private
respondent, with the consent of her late husband, and A. C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint.[11]
-
could attest to the success of their business because of the volume of orders and
deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum
Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however
suspected that the amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish reasons and for tax
avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia
and particularly his daughter, petitioner Lilibeth, took over the operations, control,
custody, disposition and management of Shellite without respondents consent.
Despite respondents repeated demands upon petitioners for accounting, inventory,
appraisal, winding up and restitution of his net shares in the partnership, petitioners
failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite,
converting to her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis
and reasons to evade respondents demands, she disbursed out of the partnership
funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00
represented partial payment of the latters share in the partnership, with a promise
that the former would make the complete inventory and winding up of the
properties of the business establishment. Despite such commitment, petitioners
allegedly failed to comply with their duty to account, and continued to benefit from
the assets and income of Shellite to the damage and prejudice of respondent.
Petitioners filed a Motion to Dismiss, but it was denied. petitioners filed their Answer
with Compulsory Counterclaims, contending that they are not liable for partnership
shares, unreceived income/profits, interests, damages and attorneys fees, that
respondent does not have a cause of action against them, and that the trial court
has no jurisdiction over the nature of the action, the SEC being the agency that has
original and exclusive jurisdiction over the case.
petitioner filed a second Motion to Dismiss this time on the ground that the claim for
winding up of partnership affairs, accounting and recovery of shares in partnership
affairs, accounting and recovery of shares in partnership assets /properties should
be dismissed and prosecuted against the estate of deceased Jacinto in a probate or
intestate proceeding. But this was denied for lack of merit
Judgment is hereby rendered in favor of the plaintiff and against the defendants.
Hence this petition.
Issue: w/n there existed a partnership between respondent Lamberto T. Chua and
the late Jacinto L. Sunga upon the latters invitation and offer and that upon his
death the partnership assets and business were taken over by petitioners.
W/n laches and/or prescription did not apply in the instant case
Held: A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary.[6] Hence, based on the intention of the parties, as gathered
from the facts and ascertained from their language and conduct, a verbal contract
of partnership may arise.[7] The essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a common stock, and
(2) a joint interest in the profits.[8] Understandably so, in view of the absence of a
written contract of partnership between respondent and Jacinto, respondent
resorted to the introduction of documentary and testimonial evidence to prove said
partnership.
Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code[25] explicitly provides that the partnership
retains its juridical personality even if it fails to register. The failure to register the
contract of partnership does not invalidate the same as among the partners, so long
as the contract has the essential requisites, because the main purpose of
registration is to give notice to third parties, and it can be assumed that the
members themselves knew of the contents of their contract.[26] In the case at bar,
non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that respondent and
Jacinto indeed forged the partnership in question.
With regard to petitioners insistence that laches and/or prescription should have
extinguished respondents claim, we agree with the trial court and the Court of
Appeals that the action for accounting filed by respondent three (3) years after
Jacintos death was well within the prescribed period. The Civil Code provides that an
action to enforce an oral contract prescribes in six (6) years[20] while the right to
demand an accounting for a partners interest as against the person continuing the
business accrues at the date of dissolution, in the absence of any contrary
agreement.[21] Considering that the death of a partner results in the dissolution of
the partnership[22], in this case, it was after Jacintos death that respondent as the
surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the partnership, the dissolution
did not immediately terminate the partnership. The Civil Code[23] expressly
provides that upon dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business, culminating in its
termination.[24]
SOLE ISSUE: whether or not the Dead Mans Statute applies to this case so
as to render inadmissible respondents testimony and that of his witness,
Josephine.
Held: Petitioners reliance alone on the Dead Mans Statute to defeat respondents
claim cannot prevail over the factual findings of the trial court and the Court of
Appeals that a partnership was established between respondent and Jacinto. Based
not only on the testimonial evidence, but the documentary evidence as well, the
trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of a partnership, albeit an informal one.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
2. Consequence of legal personality art 51, 46;
Art. 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)
When the law creates or recognizes a juridical person but doesnt fix the domicile it shall be
understood to be the place where it has legal representation
For Natural Persons
The place where their legal representation is established, or where they exercise their primary
functions, unless there is a law or other provision that fixes the domicile (Art. 51, CC).
Art. 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)
JURIDICAL PERSONS
1. The state and its political subdivisions
2. Other corporations, institutions, and entities for public interest or purpose, created by law
3. Corporations, partnerships, and associations for private interest or purpose
- Creation: (1) and (2) are created by the laws creating or recognizing them, private
corporations are governed by the Corp. Code (BP 68) and partnership and associations are
governed by the provisions of the New Civil Code on partnerships.
- Extinguished: by termination of existence
JURIDICAL PERSON: Being of legal existence susceptible of rights and obligations.
1. State: organized corporate society under a government with the legal competence to
exact obedience of its commands. It can enter into treaties and contracts.
- The state cannot be sued without its consent (implied or expressed)
2. Political subdivisions: municipal corporations that consist of provinces, cities and
municipalities. They can be sued because it is granted by their charters but they are
generally not liable for torts committed in the discharge of their governmental functions.
3. Corporation: An artificial being created by operation of law and has the powers and
attributes granted to it by the law, which created it.
4. Partnership: 2 or more persons bind themselves to make contributions to a common
fund with the intention of dividing the profits among themselves.
*Corporations, partnerships, and associations for private interest and purpose may be
granted a separate and distinct personality from the shareholders or members (this is known
as the veil of corporate fiction). However, this veil may be pierced, thus making the
shareholders and members liable, when the fiction is used to defeat public convenience,
justify wrong, protect fraud, defend crime, perpetrate deception, etc.
*State and political subdivisions, other corporations, institutions, and entities for public
interest or purpose are governed by the laws creating them.
*Private corporations are regulated by laws of general application on the subject
*Partnerships are governed by the provisions of this Code concerning partnerships
*Juridical persons may acquire and possess property of all kinds and incur obligations in
conformity with the laws and regulations of their organization
- Campos rueda & Co., vs. pacific comm. Co., 44 Phil. 916 (1922)
Held: The Philippine statutes consider a limited partnership as a juridical entity for
all intents and purposes, which personality is recognized in all its acts and contracts
(art. 116, Code of Commerce). This being so and the juridical personality of a limited
partnership being different from that of its members, it must, on general principle,
answer for, and suffer, the consequence of its acts as such an entity capable of
being the subject of rights and obligations. If, as in the instant case, the limited
partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors
for a period of more than thirty days, which failure constitutes, under our Insolvency
Law, one of the acts of bankruptcy upon which an adjudication of involuntary
insolvency can be predicated, this partnership must suffer the consequences of
such a failure, and must be adjudged insolvent.Wherefore, the judgment appealed
from is reversed, and it is adjudged that the limited partnership Campos Rueda &
Co. is and was on December 28, 1921, insolvent and liable for having failed for more
than thirty days to meet its obligations with the three petitioners herein, and it is
ordered that this proceeding be remanded to the Court of First Instance of Manila
with instruction to said court to issue the proper decrees under section 24 of Act No.
1956, and proceed therewith until its final disposition. It is so ordered without
special finding as to costs.
3. When no juridical personality acquired art. 1773 and 1775
partners. Thus, it has been held that a partnership contract which states that the
partnership is established to operate a fishpond (not to engage in a fishpond
business) is not rendered void because no inventory of the fishpond was made
where it did not clearly and positively appear in the articles of partnership that the
real property had been contributed by anyone of the partners. (Agad vs. Mabolo and
Agad & Co., 23 SCRA 1223 [1968].) If personal property, aside from real property, is
contributed, the inventory need not include the former.
Importance of making inventory of real property in a partnership.
Article 1773 complements Article 1771. (1) An inventory is very important in a
partnership to show how much is due from each partner to complete his share in
the common fund and how much is due to each of them in case of liquidation.
(Tablason vs. Bollozas, [C.A.] 51 O.G. 1966.) (2) The execution of a public instrument
of partnership would be useless if there is no inventory of immovable property
contributed because without its description and designation, the instrument cannot
be subject to inscription in the Registry of Property, and the contribution cannot
prejudice third persons. This will result in fraud to those who contract with the
partnership in the belief of the efficacy of the guaranty in which the immovables
may consist. Thus, the contract is declared void by law when no such inventory is
made. (11 Manresa 278- 279; Republic Engineering Works and Manufacturing Co.
vs. Alcantara, et al., 13 C.A. Rep. 221; Torres vs. Court of Appeals, 320 SCRA 428
[1999].)
Art. 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)
Secret partnerships without juridical personality.
The partnership relation is created only by the voluntary agreement of the partners.
(Art. 1767.) It is essential that the partners are fully informed not only of the
agreement but of all matters affecting the partnership. (Art. 1806.) Likewise, a
partner is considered the agent of his co-partners and of the partnership in respect
of all partnership transactions. (Art. 1803.) Every partnership must have a firm
name under which it shall conduct its business (Art. 1815.) and to distinguish it from
the partners and other partnerships. (Art. 1768.) The partners have equal rights and
interests in the partnership (Art. 1810.) which must be established for the common
benefit or interest of the partners. (Art. 1770, par. 1.)
In view of the above, associations26 whose articles or agreements are kept secret
among the members (i.e., known to some members only but withheld from the rest)
and wherein anyone of them may contract in his own name with third persons are,
by this article, deprived of juridical personality for evidently such associations are
not partnerships. As among themselves, they shall be governed by the provisions
relating to co-ownership.
Importance of giving publicity to articles of partnership.
It is essential that the articles of partnership be given publicity for the protection not
only of the members themselves but also third persons from fraud and deceit to
which otherwise they would be easy victims. A member who transacts business for
the secret partnership in his own name becomes personally bound to third persons
unaware of the existence of such association, in the same way and for the same
reason that an agent who acts in his own name when dealing with third persons is
directly bound in favor of such persons who may only sue or be sued by the agent
and not his principal. (see Art. 1883.)
But a person may be held liable as a partner or partnership liability may result in
favor of third persons by reason of estoppel. (see Art. 1825.)
4. Securities and exchange commission (SEC) information relating to partnership
registration/ monitoring
COMPANY REGISTRATION AND MONITORING DEPARTMENT
Functions
Licenses (a) foreign companies to do business in the Philippines; (b) investment, and lending companies;
and (c) investment houses;
Processes applications for amendment of articles of incorporation/ articles of partnership, by-laws, mergers
and other corporate activities that require the prior approval of the Commission;
Handles petitions for correction of articles of incorporation and by-laws and their amendments, revocation of
amended articles of incorporation and amended by-laws and revocation of certificates of incorporation for
non-compliance with reportorial requirements;
Monitors compliance by registered corporations with their reportorial responsibilities under the Corporation
Code;
Maintains custody over documents it has acted on or are directly filed with it, unless otherwise directed by
the En Banc;
Performs such other functions as may be assigned by the En Banc or the Chairperson.
REGISTRATION OF PARTNERSHIPS
BASIC REQUIREMENTS
1.
2.
Classifications of partnership.
(1) As to the extent of its subject matter. A partnership may be:
(a) Universal partnership or one which refers to all the present property or to all
profits. (Art. 1777.) There are thus two kinds of universal partnership, to wit:
(1) Universal partnership of all present property. This is defined in Article 1778; and
(2) Universal partnership of prof ts. This is defined in
Article 1780; or
(b) Particular partnership. This is defined in Article 1783.
(2) As to liability of the partners. It may be:
(a) General partnership or one consisting of general partners who are liable pro rata
and subsidiarily (Art. 1816.) and sometimes solidarily (Arts. 1822-1824.) with their
separate property for partnership debts; or (b) Limited partnership or one formed by
two or more persons having as members one or more general partners and one or
more limited partners, the latter not being personally liable for the obligations of the
partnership. (Art. 1843.)
(3) As to its duration. It is either:
(a) Partnership at will or one in which no time is specified and is not formed for a
particular undertaking or venture and which may be terminated at any time by
mutual agreement of the partners, or by the will of any one partner alone; or one for
a fixed term or particular undertaking which is continued by the partners after the
termination of such term or particular undertaking without express agreement (see
Art. 1785.); or
(b) Partnership with a fixed term or one in which the term for which the partnership
is to exist is fixed or agreed upon or one formed for a particular undertaking, and
upon the expiration of the term or completion of the particular enterprise, the
partnership is dissolved, unless continued by the partners. (Ibid.)
(4) As to the legality of its existence. It may be:
(a) De jure partnership or one which has complied with all the legal requirements for
its establishment (see Arts. 1772, par. 2; 1773.); or
(b) De facto partnership or one which has failed to comply with all the legal
requirements for its establishment. (Ibid.)
(5) As to representation to others. It may be:
(a) Ordinary or real partnership or one which actually exists among the partners and
also as to third persons; or
(b) Ostensible partnership or partnership by estoppel or one which in reality is not a
partnership, but is considered a partnership only in relation to those who, by their
conduct or admission, are precluded to deny or disprove its existence. (Art. 1825.)
As a general rule, future properties cannot be contributed. The very essence of the
contract of partnership that the properties contributed be included in the
partnership requires the contribution of things determinate. The position of a
partner is like that of a donor, and donations cannot comprehend future property.
(Art. 751.) Thus, property subsequently acquired by (1) inheritance, (2) legacy, or
(3) donation cannot be included by stipulation except the fruits thereof. Hence, any
stipulation including property so acquired is void. Profits from other sources (not
from the properties contributed) will become common property only if there is a
stipulation.
- Present property art 1778; 1779
Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership. (1677)
Limitations upon the right to form a partnership.
Persons who are prohibited by law to give donations cannot enter into a universal
partnership for the reason that each of the partners virtually makes a donation. To
allow persons who are prohibited to give each other any donation or advantage to
form a universal partnership will be like permitting them to do indirectly what the
law expressly prohibits.
A partnership formed in violation of this article is null and void. (Art. 1409[7].)
Consequently, no legal personality is acquired. A husband and his wife, however,
may enter into a particular partnership or be members thereof. (see Commissioner
of Internal Revenue vs. Suter, 27 SCRA 152 [1969].)
In connection with Article 1782, the following provisions must be noted:
Art. 133. Every donation between the spouses during the marriage shall
be void. This prohibition does not apply when the donation takes effect
after the death of the donor.
Neither does this prohibition apply to moderate gifts which the spouses
may give each other on the occasion of any family rejoicing. (1334a)
Art. 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.32
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 the donee may be proved by preponderance of evidence in the same
action. (Civil Code.)
In order that Article 739 may apply, it is not required that there be a previous
conviction for adultery or concubinage. This can be inferred from the clause that
the guilt of the donor and the donee may be proved by preponderance of
evidence. (The Insular Life Assurance Co., Ltd. vs. Ebrado, 80 SCRA 181 [1977].)
- Commissioner of internal revenue vs. Suter, 27 SCRA 152 (1969)
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.
The appellant's view, that by the marriage of both partners the company became a
single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by
them before their marriage; and after they were joined in wedlock, such
contributions remained their respective separate property under the Spanish Civil
Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd.
did not become common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners (unlike
American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law. The limited partnership's separate individuality makes it
impossible to equate its income with that of the component members. True, section
24 of the Internal Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a cardinal tenet of our
partnership laws, and can not be extended by mere implication to limited
partnerships.
As the limited partnership under consideration is taxable on its income, to require
that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with what
it specifically provides in its Section 24: for the appellant Commissioner's stand
results in equal treatment, tax wise, of a general copartnership (compaia colectiva)
and a limited partnership, when the code plainly differentiates the two. Thus, the
code taxes the latter on its income, but not the former, because it is in the case
of compaias colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived from the duly
registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
The difference in tax rates between the income of the limited partnership being
consolidated with, and when split from the income of the spouses, is not a
justification for requiring consolidation; the revenue code, as it presently stands,
does not authorize it, and even bars it by requiring the limited partnership to pay
tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No
costs.
2. Particular partnership art. 1783 limited and well-defined, single, temporary
undertaking
ARTICLE 1783. A particular partnership has for its object determinate things, their
use or fruits, or a specific undertaking, or the exercise of a profession or vocation.
(1678)
B. As to liability of partners
1. General partnership art 1816 personally liable pro rata and subsidiarily; arts.
1822 1824 solidarily
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 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)
ARTICLE 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823. (n)
ARTICLE 1767, par. 2 Two or more persons may also form a partnership for the
exercise of a profession.
Section 22 (B) The term 'corporation' shall include partnerships, no matter how
created or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include general
professional partnerships and a joint venture or consortium formed for the purpose
of undertaking construction projects or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating or consortium agreement
under a service contract with the Government. 'General professional partnerships'
are partnerships formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or
business.
FACTS:
These two consolidated special civil actions for prohibition challenge the
constitutionality of Republic Act No. 7496, also commonly known as the Simplified
Net Income Taxation Scheme ("SNIT"), amending certain provisions of the National
Internal Revenue Regulations No. 2-93, promulgated by public respondents pursuant
to said law.
|||
Petitioners claim to be taxpayers adversely affected by the continued
implementation of the amendatory legislation.
In G.R. No. 109289, it is asserted that the enactment of Republic Act No. 7496
violates article VI, section 26 (1) and section 28 (1) as well as article III section 1 of
the Constitution.
In G.R. No. 109446, petitioners argue that public respondents have exceeded
their rule-making authority in applying SNIT to general professional partnerships.
Petitioner contends that the title of HB 34314, progenitor of RA 7496, is deficient for
being merely entitled, "Simplified Net Income Taxation Scheme for the SelfEmployed and Professionals Engaged in the Practice of their Profession" (Petition in
G.R. No. 109289) when the full text of the title actually reads,
'An Act Adopting the Simplified Net Income Taxation Scheme For The SelfEmployed and Professionals Engaged In The Practice of Their Profession,
Amending Sections 21 and 29 of the National Internal Revenue Code,' as
amended. Petitioners also contend it violated due process.
ISSUE:
Whether or not general professional partnerships may be taxed under SNIT
HELD:
The Court should like to correct the apparent misconception that general
professional partnerships are subject to the payment of income tax or that there is a
difference in the tax treatment between individuals engaged in business or in the
practice of their respective professions and partners in general professional
partnerships.
tax exempt, but on the partners themselves in their individual capacity computed
on their distributive shares of partnership profits.
Section 23 of the Tax Code, which has not been amended at all by Republic
Act 7496, is explicit:
"(b) In determining his distributive share in the net income of the partnership, each
partner
"(1) Shall take into account separately his distributive share of the partnership's
income, gain, loss, deduction, or credit to the extend provided by the pertinent
provisions of this Code, and
"(2) Shall be deemed to have elected the itemized deductions, unless he declares
his distributive share of the gross income undiminished by his share of the
deductions."
There is, then and now, no distinction in income tax liability between a person
who practices his profession alone or individually and one who does it through
partnership (whether registered or not) with others in the exercise of a common
profession.
ARTICLE 1843. A limited partnership is one formed by two or more persons under
the provisions of the following article, having as members one or more general
partners and one or more limited partners. The limited partners as such shall not be
bound by the obligations of the partnership.
C. As to duration
1. Partnership with a fixed term art 1785
FACTS:
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry and reconstituted with the Securities and
Exchange Commission. The SEC records show that there were several subsequent
amendments to the articles of partnership to change the firm [name] to ROSS,
SELPH and CARRASCOSO; to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA;
to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; to DEL ROSARIO, BITO, MISA & LOZADA; to BITO, MISA &
LOZADA; appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas
O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the
end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my
participation in the firm."
On appeal, the SEC en banc reversed the decision. The parties sought a
reconsideration but was denied.
The parties filed with the appellate court separate appeals. During the
pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney
Mariano Lozada both died. The death of the two partners, as well as the admission
of new partners, in the law firm prompted Attorney Misa to renew his application for
receivership. He expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals AFFIRMED in toto the SEC decision and order appealed
from.
ISSUE:
Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will.
HELD:
A partnership that does not fix its term is a partnership at will. That the law
firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored. We quote, with approval, like did
the appellate court, the findings and disquisition of respondent SEC on this matter;
viz:
The partnership agreement does not provide for a specified period or undertaking.
The "DURATION" clause simply states:
"5.
DURATION. The 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."
The birth and life of a partnership at will is predicated on the mutual desire
and consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve,
along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole
pleasure, dictate a dissolution of the partnership at will. He must, however, act in
good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership 4 but that it can result in a liability for damages. 5
ARTICLE 1843. A limited partnership is one formed by two or more persons under
the provisions of the following article, having as members one or more general
partners and one or more limited partners. The limited partners as such shall not be
bound by the obligations of the partnership.
ARTICLE 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state
(a) The name of the partnership, adding thereto the word "Limited";
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited partners
being respectively designated;
(e) The term for which the partnership is to exist;
( f ) The amount of cash and a description of and the agreed value of the other
property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited partner and the
times at which or events on the happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to be
returned;
(i) The share of the profits or the other compensation by way of income which each
limited partner shall receive by reason of his contribution;
( j) The right, if given, of a limited partner to substitute an assignee as contributor in
his place, and the terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other
limited partners, as to contributions or as to compensation by way of income, and
the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to continue the
business on the death, retirement, civil interdiction, insanity or insolvency of a
general partner; and
(n) The right, if given, of a limited partner to demand and receive property other
than cash in return for his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange
Commission.
A limited partnership is formed if there has been substantial compliance in good
faith with the foregoing requirements.
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 1789. An industrial partner cannot engage in business for himself, unless
the partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits
which he may have obtained in violation of this provision, with a right to damages
in either case. (n)
3. Ostensible, nominal, and dormant partners art 1834 (2); - partner by estoppel
based on degree of connection to partnership
ARTICLE 1834. After dissolution, a partner can bind the partnership, except as
provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing
transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken
place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no
knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the
partnership prior to dissolution, and, having no knowledge or notice of dissolution,
the fact of dissolution had not been advertised in a newspaper of general circulation
in the place (or in each place if more than one) at which the partnership business
was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of
partnership assets alone when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation
of the partnership could not be said to have been in any degree due to his
connection with it.
Nothing in this article shall affect the liability under article 1825 of any person who
after dissolution represents himself or consents to another representing him as a
partner in a partnership engaged in carrying on business. (n)
ARTICLE 1800. The partner who has been appointed manager in the articles of
partnership may execute all acts of administration despite the opposition of his
partners, unless he should act in bad faith; and his power is irrevocable without just
or lawful cause. The vote of the partners representing the controlling interest shall
be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any
time. (1692a)
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
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;
(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 1836. Unless otherwise agreed, the partners who have not wrongfully
dissolved the partnership or the legal representative of the last surviving partner,
not insolvent, has the right to wind up the partnership affairs, provided, however,
that any partner, his legal representative or his assignee, upon cause shown, may
obtain winding up by the court. (n)