busorg case digest compilation

8/10/2019 Busorg Case Digest Compilation

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Case Digests on Partnership, Agency and Trusts

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That in all things, God may be glorified! 1

TOCAO V. COURT OF APPEALS342 SCRA 20 (2000)

Facts:Petitioner William T. Bello introduced private respondent Nenita Anay to petitionerTocao, who conveyed her desire to enter into a joint venture with her for the importation

and local distribution of kitchen cookwares. Belo acted the capitalist, Tocao as presidentand general manager, and Anay as head of the marketing department (considering herexperience and established relationship with West Bend Company,c a manufacturer ofkitchen wares in Wisconsin, U.S.A) and later, vice-president for sales. The partiesagreed 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 same was not reduced to writing on the strength of Belos assurances.

Later, Anay was able to secure the distributorship of cookware products from the WestBend Company. They operated under the name of Geminesse Enterprise, a soleproprietorship registered in Marjorie Tocaos name. Anay attended distributor/dealermeetings with West Bend Company with the consent of Tocao.

Due to Anays excellentjob performance she was given a plaque of appreciation. Also,in a memo signed by Belo, Anay was given 37% commission for her personal sales "upDec 31/87, apart from the 10% share in profits.

On October 9, 1987, Anay learned that Marjorie Tocao terminated her as vice-presidentof 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. Belo did notanswer.

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 thecompany netted a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed a complaint for sum of money withdamagesagainst Tocao and Belo before the RTC of Makati. She prayed that she be paid(1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5,1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages.

The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from theinception of its business operation until she was illegally dismissed to determine herten percent (10%) share in the net profits. She further prayed that she be paid the fivepercent (5%) overriding commission on the remaining 150 West Bend cookware setsbefore her dismissal.

However, Tocao and Belo asserted that the alleged agreement was not reduced towriting nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied theexistence of a partnership because, as Anay herself admitted, Geminesse Enterprise


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was the sole proprietorship of Marjorie Tocao. Belo also contended that he merely actedas a guarantor of Tocao and denied contributing capital. Tocao, on the other hand,denied that they agreed on a ten percent (10%) commission on the net profits.

Both trial court and court of appeals ruled that a business partnership existed andordered the defendants to pay.

Issue:Whether or not a partnership existedYES

Ratio: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 acommon fund; and (2) intention on the part of the partners to divide the profits amongthemselves. It may be constituted in any form; a public instrument is necessary onlywhere immovable property or real rights are contributed thereto.This implies that since acontract of partnership is consensual, an oral contract of partnership is as good as awritten one.

Private respondent Anay contributed her expertise in the business of distributorship ofcookware to the partnership and hence, under the law, she was the industrial ormanaging partner.

Petitioner Belo had an proprietary interest. He presided over meetings regarding mattersaffecting the operation of the business. Moreover, his having authorized in writing giving

Anay 37% of the proceeds of her personal sales, could not be interpreted otherwise thanthat he had a proprietary interest in the business. This is inconsistent with his claim thathe merely acted as a guarantor. If indeed he was, he should have presenteddocumentary evidence. Also, Art. 2055 requires that a guaranty must be express and theStatute of Frauds requires that it must be in writing. Petitioner Tocao was also acapitalist in the partnership. She claimed that she herself financed the business.

The business venture operated under Geminesse Enterprise did not result in anemployer-employee relationship between petitioners and private respondent. First, Anayhad a voice in the management of the affairs of the cookware distributorship andsecond, Tocao admitted that Anay, like her, received only commissions andtransportation and representation allowancesand not a fixed salary. If Anay was anemployee, it is difficult to believe that they recieve the same income.

Also, the fact that they operated under the name of Geminesse Enterprise, a soleproprietorship, is of no moment. Said business name was used only for practical reasons- it was utilized as the common name for petitioner Tocaos various business activities,which included the distributorship of cookware.

The partnership exists until dissolved under the law. Since the partnership created bypetitioners and private respondent has no fixed term and is therefore a partnership at willpredicated on their mutual desire and consent, it may be dissolved by the will of apartner.

Petitioners Tocaos unilateral exclusion of private respondent from the partnership isshown by her memo to the Cubao office plainly stating that private respondent was, asof October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise.By


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that memo, petitioner Tocao effected her own withdrawal from the partnership andconsidered herself as having ceased to be associated with the partnership in thecarrying on of the business. Nevertheless, the partnership was not terminated thereby; itcontinues until the winding up of the business.

The partnership among petitioners and private respondent is ordered dissolved, and the

parties are ordered to effect the winding up and liquidation of the partnership pursuant tothe pertinent provisions of the Civil Code. Petitioners are ordered to pay Anays 10%share in the profits, after accounting, 5% overriding commission for the 150 cookwaresets available for disposition since the time private respondent was wrongfully excludedfrom the partnership by petitioner, overriding commission on the total production, as wellas moral and exemplary damages, and attorneys fees.


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JM TUAZON and CO v. BOLANOS95 PHIL 106

Facts:This is an action to recover possession of registered land situated in Barrio Tatalon,Quezon City. The complaint of plaintiff JM Tuason & Co Inc was amended 3 times with

respect to the extent and description of the land sough to be recovered. Originally, theland sought to be recovered was said to be more or less 13 hectares, but it was lateramended to 6 hectares, after the defendant had indicated the plaintiff's surveyors theportion of land claimed and occupied by him. The second amendment is that the portionof the said land was covered in another TCT and the 3rd amendment was made afterthe defendant' surveyor and a witness, Quirino Feria testified that the land occupied bythe defendant was about 13 hectares.

Defendant raised the defense of prescription and title thru "open, continuous, exclusiveand public and notorious possession of land in dispute. He also alleged that theregistration of the land was obtained by plaintiff's predecessor through fraud or error.

The lower court rendered judgment in favor of the plaintiff and ordered the defendant torestore possession of the land to the plaintiff, as well as to pay corresponding rent fromJanuary 1940 until he vacates the land. On appeal defendant raised a number ofassignments or errors in the decision, one of which is that the trial court erred in notdismissing the case on the ground that the case was not brought by the real party ininterest.

Issue:Whether or not the lower court erred in not dismissing the case on the groundthat it was not brought by the real party in interest?NO

Ratio:

What the Rules of Court require is that an action be broughtin the name of, but notnecessarily by, the real party in interest. In fact the practice is for an attorney-at-law tobring the action, that is to file the complaint, in the name of the plaintiff. That practiceappears to have been followed in this case, since the complaint is signed by the law firmof Araneta and Araneta, "counsel for plaintiff" and commences with the statement"comes now plaintiff, through its undersigned counsel." It is true that the complaint alsostates that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta,Inc.", another corporation, but there is nothing against one corporation beingrepresented by another person, natural or juridical, in a suit in court. The contention thatGregorio Araneta, Inc. can not act as managing partner for plaintiff on the theory that it isillegal for two corporations to enter into a partnership is without merit, for the true rule isthat "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 thebusiness authorized by its charter."


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AURBACH v. SANITARY WARES180 SCRA 130

Facts:Saniwares, a domestic corporation was incorporated for the primary purpose ofmanufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin

Young went abroad to look for foreign partners who could help in its expansion plans. aforeign corporation domiciled in Delaware, United States entered into an Agreement withSaniwares and some Filipino investors whereby ASI and the Filipino investors agreed toparticipate in the ownership of an enterprise which would engage primarily in thebusiness of manufacturing in the Philippines and selling here and abroad vitreous chinaand sanitary wares.

Thus, the birth of the two groups. One representing the Filipino investors(LagdameoGroup) and the other, the foreign investors(American Standard Inc.)

The joint enterprise thus entered into by the Filipino investors and the Americancorporation prospered. Unfortunately, with the business successes, there came a

deterioration of the initially harmonious relations between the two groups.

On March 8, 1983, the annual stockholders' meeting was held. The stockholders thenproceeded with the election of the Board of Directors. ASI nominated three, whileLagdameo nominated six, the last one being Eduardo Ceniza, who, in turn, nominatedLuciano Salazar, who further nominated another, Mr. Charles Chamsay. Mr. Young, thepresiding chairman, ruled the last two nominations out of order pursuant to sec.5(a) ofthe agreement.(The consistent practice of the parties during the past annualstockholders' meetings is to nominate only nine persons as nominees for the nine-member board of directors)

After appeal and protests, The Chairman then instructed the Corporate Secretary to cast

all the votes present and represented by proxy equally for the 6 nominees of thePhilippine Investors and the 3 nominees of ASI, thus effectively excluding the 2additional persons nominated. The ASI representative protested this decision, andstated that all the votes accruing to them were being cumulatively voted for the three ASInominees and Charles Chamsay. The Chairman did not heed this protest and acceptedthe duly nominated as the elected board members.

Issues:(1)Whether or not the nature of the business established by the parties is a joint venture

YES(2) Whether or not the ASI Group may vote their additional 10% equity during electionsof Saniwares' board of directors.NO

Ratio:(1) The rule is that whether the parties to a particular contract have thereby establishedamong themselves a joint venture or some other relation depends upon their actualintention which is determined in accordance with the rules governing the interpretationand construction of contracts.

An examination of important provisions of the Agreement as well as the testimonialevidence presented by the Lagdameo and Young Group shows that the parties agreed


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to establish a joint venture and not a corporation.

(2) Section 24 of the Corporation Code(cumulative voting) is not applicable to jointventures.The legal concept of a joint venture is of common law origin. It has no preciselegal definition but it has been generally understood to mean an organization formed forsome temporary purpose. It is in fact hardly distinguishable from the partnership, since

their elements are similar community of interest in the business, sharing of profits andlosses, and a mutual right of control. The main distinction cited by most opinions incommon law jurisdictions is that the partnership contemplates a general business withsome degree of continuity, while the joint venture is formed for the execution of a singletransaction, and is thus of a temporary nature. This observation is not entirely accuratein this jurisdiction, since under the Civil Code, a partnership may be particular oruniversal, and a particular partnership may have for its object a specific undertaking. Itwould seem therefore that under Philippine law, a joint venture is a form ofpartnership and should thus be governed by the law of partnerships. TheSupreme Court has however recognized a distinction between these two businessforms, and has held that although a corporation cannot enter into a partnershipcontract, it may however engage in a joint venture with others.

Having entered into a well-defined contractual relationship, it is imperative that theparties should honor and adhere to their respective rights and obligations thereunder.The Court upheld the original nine nominees to be the members of the Board ofDirectors of Saniware.


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TAI TONG CHUACHE & CO. v. INSURANCE COMMISSION158 SCRA 336 (1988)

Facts:Complainants acquired from a certain Rolando Gonzales a parcel of land and a buildinglocated at San Rafael Villagae, Davao City; they also ssumed the mortgage of the

building in favor of SSS which building was insured with respondent SSS AccreditedGroupd of Insurers for P 25,000.

Azucena Palomo obtained a loan from petitioner herein, Tai Tong Chuache Inc. in theamount of P100,000 and to secure payment thereof, a mortgage was executed over theland and building in favor of the latter. Several days after, Arsenue Chua insuredpetitioners interest with Travellers Multi- Indemnity Corporation for P100,000.

On the other hand, Pedro Palomo secured a Fire Insurance Policy for the building worthP50,000 with respondent herein, Zenith Insurance Corporation. Later on, another fireinsurance policy was procured from Philippine British Assurance Company covering thesame building for the same amount as the first fire insurance policy.

The building and contents were totally razed by a fire. As such complainants was paid bythe following insurance company:

Philippine British Assurance Co P 41, 546.79Zenith Insurance Corporation P 11, 877.14SSS Group of Accredited Insurers P 5, 936.57

Noticeably, respondent Travellers Multi-Indemnity Travellers Multi-Indemnity failed togive its share in spite of demands and as such complainants demanded from the other3 (above mentioned) the balance of each share in the loss based on the computation ofthe Adjustment Standard Report excluding Travellers Multi-Indemnity. An amount of P30,894.31 was demanded from the 3 insurance companies but was refused.

Philippine British Assurance Co P 22,294Zenith Insurance Corporation P 5,732SSS Group of Accredited Insurers P 2,866

Both Philippine British and Zenith Insurance denied liability on the ground that the claimhad already been waived and extinguished. SSS on the other hand informed theCommissioner that the claim for the balance had already been paid. TravellersInsurance alleged that the fire policy covering the building and furniture was secured by

Arsenio Chua, mortgage creditor, for the purpose of protecting his mortgage creditagainst complainants and that the Chua paid the premiums for said insurance. Thus,Travellers is not liable to pay complainants.Tai Tong Chuache filed a complaint in intervention claiming proceeds if the fire

insurance but such was dimissed. Hence, this petition.

Issue:Whether or not petitioner is entitled to the proceeds of the fire insurance policyissued by respondent.YES

Ratio:Respondent advanced the affirmative defense of lack of insurable interest on the part ofpetitioner alleging that before the occurrence of the fire insured against Palomos hadalready paid their credit due to petitioner. Respondent exerted no effort to present any


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evidence to substantiate the aforesaid claim. Respondent Insurance Commissionabsolved respondent insurance company (Travellers Multi-Indemnity) from liability on thebasis of the certification issued by then CFI of Davao.

Petitioner, on the other hand, offered as evidence the contract of mortgage which hasnot been cancelled or released. Jurisprudence would say that when the creditor is in

possession of the document of credit, he need not to prove non-payment for it ispresumed. Petitioners claim that the loan extended to Palomos has not been paid wascorroborated by Azucena Palomo who testified that they are still indebted to hereinpetitioner.

Respondent alleged that the civil action must be brought in the name of the real party ininterest. However, petitioner being a partnership may sue and be sued in its name or byits duly authorized representative Arsenio Chua being the manager partner may executeall acts of administration including the right to sue debtor of the partnership in case offailure to pay. At the very least, Chua being a partner of petitioner herein is an agent ofthe partnership and being one it is understood that he acted for and in behalf of the firm.Respondent insurance company, having failed to prove the allegation of lack on

insurable interest on the part of the petitioner is bound by the terms and conditions of thepolicy in favor of petitioner.


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AGUILA, JR. v. COURT OF APPEALS316 SCRA 246 (1999)

Facts:Alfredo N. Aguilar, Jr. (petitioner) is the manager of A.C. Aguila & Sons, Co., apartnership engaged in lending activities. Felicidad S. Vda. de Abrogar (private

respondent) and her late husband, Ruben M. Abrogar, were the registered owners of ahouse and lot, covered by Transfer Certificate of Title No. 195101, in Marikina, MetroManila. 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 ofAgreement which provided that A.C. Aguila & Sons, Co. shall buy the property fromprivate respondent for P200,000 subject to an option to repurchase for P230,000 (validfor 90 days), etc. On the same day, the parties likewise executed a deed of absolutesale, dated June 11, 1991, wherein private respondent, with the consent of her latehusband, 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. 195101and 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 ofAgreement. Private respondent failed to redeem the property. Pursuant to the specialpower 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 andSons, Co. 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 vacatethe premises within 15 days after receipt of the letter and surrender its possessionpeacefully to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the appropriateaction in court. 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 TrialCourt, Branch 76, Marikina, Metro Manila.MeTC, Marikina, MM (April 3, 1992): Ruled infavor of A.C. Aguila & Sons, Co.Private respondent appealed to RTC Pasig, CA, and

then SC but she still lost.Private respondent then filed a petition for declaration of nullityof a deed of sale filed by Felicidad S. Vda. de Abrogar against Alfredo N. Aguila, Jr. Shealleged that the signature of her husband on the deed of sale was a forgery because hewas already dead when the deed was supposed to have been executed on June 11,1991. RTC, Marikina, MM (April 11, 1995): Dismissed. CA (November 29, 1990): Reversed ruling of the RTC.Hence, this petition for review on certiorari.

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 ejectmentcase is a bar to the filing of the complaint for declaration of nullity of a deed of sale in this

case; and (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.

Issue: Whether the real party in interest is A.C. Aguila & Co. and not petitioner.YES

Ratio:Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate anddistinct from that of each of the partners." The partners cannot be held liable for theobligations of the partnership unless it is shown that the legal fiction of a different


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juridical personality is being used for fraudulent, unfair, or illegal purposes. In this case,private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridicalentity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to thesubject 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 latehusband, 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 litigationinvolving property registered in its name. A violation of this rule will result in the dismissalof the complaint.


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HEIRS OF TAN ENG KEE v. COURT OF APPEALS341 SCRA 740 (2000)

Facts:The heirs of Tan Eng Kee filed a suit against the decedents brother Tan Eng Lay. Thecomplaint alleged that after the Second World War, the brothers, pooling their resources

and industry together, entered into a partnership engaged in the selling of lumber andhardware and construction supplies. They named their enterprise Benguet Lumberwhich they jointly managed until Tan Kees death. Petitioners averred that the businessprospered due to the hard work and thrift of the alleged partners. However, they claimedthat in 1981, Tan Eng Lay and his children caused the conversion of the partnershipBenguet Lumber into a corporation called Benguet Lumber Company. Theincorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of theirrightful participation in the profits of the business. Petitioners prayed for accounting ofthe partnership assets, and the dissolution, and winding up of the alleged partnershipformed after the World War II between Tan Eng Kee and Tan Eng Lay. The RegionalTrial court found that Benguet Lumber is a joint venture which is akin to a particularpartnership, and declared that the assets of Benguet Lumber are the same assets

turned over to Benguet lumber Co. and as such the heirs or legal representatives of thedeceased Tan Eng Kee have a legal right to share in the said assets. The Court of

Appeals reversed the judgment of the Trial Court.

Issue:Whether or not a partnership existed between Tan Eng Kee and Tan Eng Lay NO

Ratio:In order to constitute a partnership, it must be established that (1) two or more personsbound themselves to contribute money, property, or industry to a common fund, and (2)they intend to divide the profits among themselves. The best evidence of thepartnerships existence would have been the contract of partnership itself, or the articles

of partnership but there is none. The alleged partnership, though, was never formallyorganized. In addition, petitioners point out that the New Civil Code was not yet in effectwhen the partnership was allegedly formed sometime in 1945, although the contrarymay well be argued that nothing prevented the parties from complying with theprovisions of the New Civil Code when it took effect on August 30, 1950. A review of therecord persuades us that the Court of Appeals correctly reversed the decision of the trialcourt. The evidence presented by petitioners falls short of the quantum of proof requiredto establish a partnership.

It is indeed odd, if not unnatural, that despite the forty years the partnership wasallegedly in existence, Tan Eng Kee never asked for an accounting. The essence of apartnership is that the partners share in the profits and losses. Each has the right to

demand an accounting as long as the partnership exists. A demand for periodicaccounting is evidence of a partnership. During his lifetime, Tan Eng Kee appearednever to have made any such demand for accounting from his brother.

This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting ofpayrolls purporting to show that Tan Eng Kee was an ordinary employee of BenguetLumber, as it was then called. Exhibits 4 to 4-U in fact shows that Tan Eng Keereceived sums as wages of an employee.In connection therewith, Article 1769 of theCivil Code provides:


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In determining whether a partnership exists, these rules shall apply:

XXX(4) The receipt by a person of a share of the profits of a business is prima facieevidencethat he is a partner in the business, but no such inference shall be drawn if such profits

were received in payment:(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;(b) As an annuity to a widow or representative of a deceased partner;(d) As interest on a loan, though the amount of payment vary with the profits

of the business;(e) As the consideration for the sale of a goodwill of a business or other

property by installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was onlyan employee, not a partner. Even if the payrolls as evidence were discarded, petitionerswould still be back to square one, so to speak, since they did not present and offer

evidence that would show that Tan Eng Kee received amounts of money allegedlyrepresenting his share in the profits of the enterprise. Petitioners failed to show howmuch their father, Tan Eng Kee, received, if any, as his share in the profits of BenguetLumber Company for any particular period. Hence, they failed to prove that Tan Eng Keeand Tan Eng Lay intended to divide the profits of the business between themselves,which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of apartnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee werecommanding the employees; that both were supervising the employees; that both werethe ones who determined the price at which the stocks were to be sold; and that bothplaced orders to the suppliers of the Benguet Lumber Company. They also point out that

the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet LumberCompany compound, a privilege not extended to its ordinary employees.

Even the aforesaid circumstances, when taken together are not persuasive indiciaof apartnership. They only tend to show that Tan Eng Kee was involved in the operations ofBenguet Lumber, but in what capacity is unclear. We cannot discount the likelihood thatas a member of the family, he occupied a niche above the rank-and-file employees. Hewould have enjoyed liberties otherwise unavailable were he not kin, such as hisresidence in the Benguet Lumber Company compound. He would have moral, if notactual, superiority over his fellow employees, thereby entitling him to exercise powers ofsupervision. It may even be that among his duties is to place orders with suppliers.

Again, the circumstances proffered by petitioners do not provide a logical nexus to the

conclusion desired; these are not inconsistent with the powers and duties of a manager,even in a business organized and run as informally as Benguet Lumber Company.


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PASCUAL vs. COMMISSIONER OF INTERNAL REVENUE166 SCRA 560 (1988)

Facts:On June 22, 1965, petitioners Mariano Pascual and Renato Dragon bought two (2)parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought

another three (3) parcels of land from Juan Roque.

The first two parcels of land were sold by petitioners in 1968 to Marenir DevelopmentCorporation, while the three parcels of land were sold by petitioners to Erlinda Reyesand Maria Samson on March 19, 1970.

Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70,while they realized a net profit of P60,000.00 in the sale made in 1970. Thecorresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availingof the tax amnesties granted in the said years.

However, in a letter of then Acting BIR Commissioner Efren I. Plana, petitioners were

assessed and required to pay a total amount of P107,101.70 as alleged deficiencycorporate income taxes for the years 1968 and 1970. Petitioners protested the saidassessment asserting that they had availed of tax amnesties way back in 1974.

Respondent Commissioner informed petitioners that in the years 1968 and 1970,petitioners as co-owners in the real estate transactions formed an unregisteredpartnership or joint venture taxable as a corporation under the National Internal RevenueCode.

Issue:Whether or not respondent is correct in its presumptive determination thatpetitioners formed an unregistered partnership thus subject to corporate income tax. NO

Ratio:There is no evidence that petitioners entered into an agreement to contribute money,property or industry to a common fund, and that they intended to divide the profitsamong themselves. Respondent commissioner and/ or his representative just assumedthese conditions to be present on the basis of the fact that petitioners purchased certainparcels of land and became co-owners thereof. In Evangelista, there was a series oftransactions where petitioners purchased twenty-four (24) lotsshowing that the purposewas not limited to the conservation or preservation of the common fund or even theproperties acquired by them. The character of habituality peculiar to businesstransactions engaged in for the purpose of gain was present. Reliance of the lower courtto the case of Evangelista v. Collector is untenable. In order to constitute a partnership

inter sese there must be: (a) An intent to form the same; (b) generally participating inboth profits and losses; (c) and such a community of interest, as far as third persons areconcerned as enables each party to make contract, manage the business, and disposeof the whole property.There is no adequate basis to support the proposition that theythereby formed an unregistered partnership. The two isolated transactions whereby theypurchased properties and sold the same a few years thereafter did not thereby makethem partners.


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LORENZO T. OA v. THE COMMISSIONER OF INTERNAL REVENUEG.R. No. L-19342 May 25, 1972

Facts:Julia Bunales died on March 23, 1944, leaving as heirs her surviving spouse. Lorenzo T.Oa and her five children. Lorenzo T. Oa, the surviving spouse was appointed

administrator of the estate of said deceased. A partition was thereafter approved by theCourt. The Court also appointed Lorenzo, upon petition to the CFI of Manila, to beappointed guardian of the persons and property of Luz, Virginia and Lorenzo, Jr., whowere minors at the time.Although the project of partition was approved by the Court on May 16, 1949. noattempt was made to divide the properties therein listed. Instead, the propertiesremained under the management of Lorenzo T. Oa who used said properties inbusiness by leasing or selling them and investing the income derived therefrom and theproceeds from the sales thereof in real properties and securities. As a result, petitionersproperties and investments gradually increased from P105,450.00 in 1949 toP480.005.20 in 1956. However, petitioners did not actually receive their shares in theyearly income. The income was always left in the hands of Lorenzo T. Oa who, as

heretofore pointed out, invested them in real properties and securities.

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue)decided that petitioners formed an unregistered partnership and therefore, subject to thecorporate income tax, pursuant to Section 24, in relation to Section 84(b), of the TaxCode. Accordingly, he assessed against the petitioners the amounts of P8,092.00 andP13,899.00 as corporate income taxes for 1955 and 1956, respectively. The defense ofpetitioners revolved mainly in the contention that they are co-owners of the propertiesinherited from Julia Buales and the profits derived therefrom rather than having formeda partnership.

Issue:Whether or not it was proper to consider petitioners as an unregistered

partnership.YES

Ratio:The first thing that has struck the Court is that whereas petitioners predecessor ininterest died way back on March 23, 1944 and the project of partition of her estate was

judicially approved as early as May 16, 1949, and presumably petitioners have beenholding their respective shares in their inheritance since those dates admittedly underthe administration or management of the head of the family, the widower and fatherLorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. Webelieve this point to be important because, apparently, at the start, or in the years 1944to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered them

as having formed an unregistered partnership.

Under the management of Lorenzo T. Oa who used said properties in business byleasing or selling them and investing the income derived therefrom and the proceedsfrom the sales thereof in real properties and securities, as a result of which saidproperties and investments steadily increased yearly from P87,860.00 in land accountand P17,590.00 in building account in 1949 to P175,028.68 in investment account,P135,714.68 in land account and P169,262.52 in building account in 1956. And allthese became possible because, admittedly, petitioners never actually received any


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share of the income or profits from Lorenzo T. Oa, and instead, they allowed him tocontinue using said shares as part of the common fund for their ventures, even as theypaid the corresponding income taxes on the basis of their respective shares of the profitsof their common business as reported by the said Lorenzo T. Oa.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit

themselves to holding the properties inherited by them. Indeed, it is admitted that duringthe material years herein involved, some of the said properties were sold at considerableprofit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in thepurchase and sale of corporate securities. It is likewise admitted that all the profits fromthese ventures were divided among petitioners proportionately in accordance with theirrespective shares in the inheritance. In these circumstances, it is Our considered viewthat from the moment petitioners allowed not only the incomes from their respectiveshares of the inheritance but even the inherited properties themselves to be used byLorenzo T. Oa as a common fund in undertaking several transactions or in business,with the intention of deriving profit to be shared by them proportionally, such act wastantamount to actually contributing such incomes to a common fund and, in effect, theythereby formed an unregistered partnership within the purview of the abovementioned

provisions of the Tax Code.


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GATCHALIAN v. COLLECTOR OF INTERNAL REVENUE67 Phil. 666 (1939)

Facts:Plaintiffs (15 persons), in order to enable them to purchase one sweepstakes ticketvalued at two pesos (P2), subscribed and paid each varied amounts aggregating 2

pesos. The said ticket was registered in the name of Jose Gatchalian and Company .The above-mentioned ticket bearing No. 178637 won one of the third prizes in theamount of 50, 000. Jose Gatchalian was required by income tax examiner Alfredo Davidto file the corresponding income tax return covering the prize won by Jose Gatchalian &Company. The Collector of Internal Revenue collected the tax under section 10 of ActNo. 2833, as last amended by section 2 of Act No. 3761, reading as follows:"SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon thetotal net income received in the preceding calendar year from all sources by everycorporation, joint-stock company, partnership, joint account (cuenta en participacin),association or insurance company, organized in the Philippine Islands, no matter howcreated or organized, but not including duly registered general copartnerships(compaias colectivas), a tax of three per centum upon such income;

Issue:Whether or not the plaintiffs formed a partnership, or merely a community ofproperty without a personality of its own; in the first case it is admitted that thepartnership thus formed is liable for the payment of income tax, whereas if there wasmerely a community of property, they are exempt from such payment.

Ratio:There is no doubt that if the plaintiffs merely formed a community of property the latter isexempt from the payment of income tax under the law. But according to the stipulatedfacts the plaintiffs organized a partnership of a civil nature because each of them put upmoney to buy a sweepstakes ticket for the sole purpose of dividing equally the prizewhich they may win, as they did in fact in the amount of P50,000 (article 1665, Civil

Code). The partnership was not only formed, but upon the organization thereof and thewinning of the prize, Jose Gatchalian personally appeared in the office of the PhilippineCharity Sweepstakes, in his capacity as co-partner, as such collected the prize, theoffice issued the check for P50,000 in favor of Jose Gatchalian and company, and thesaid partner, in the same capacity, collected the said check. All these circumstancesrepel the idea that the plaintiffs organized and formed a community of property only.Having organized and constituted a partnership of a civil nature, the 'said entity is theone bound to pay the income tax which the defendant collected.


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OBILLOS, JR. v. COMMISSIONER OF INTERNAL REVENUE139 SCRA 436 (1985)

Facts:On 2 March 1973, Jose Obillos, Sr. completed payment to Ortigas & Co Ltd. on two lotslocated at Greenhills, San Juan, Rizal. The next day, he transferred his rights to his four

children (petitioners) to enable them to build their residences. The company sold the twolots to petitioners, and the torrens title issued to them show that they were co-owners ofthe two lots. In 1974, petitioners resold the lots to Walled City Securities Corporation andOlga Cruz and divided among themselves the profit. They treated the profit as capitalgain and paid an income tax on one-half thereof. In 1980, or a day before the expirationof the five-year prescriptive period, the CIR required the petitioners to pay corporateincome tax on the total profit, in addition to individual income tax on their shares thereof.

A total of Php 127,781.76 was ordered to be paid by the petitioners, including thecorporate income tax, 50% fraud surcharge, accumulated interest, income taxes anddistributive dividend. Such was ordered by the Commissioner, acting on the theory thatthe four petitioners had formed an unregistered partnership or joint venture.

Issue:Whether or not the petitioners formed an unregistered partnership by the act of sellingthe two lots, of which they were co-owners.NO

Ratio:It is wrong to consider petitioners as having formed a partnership under Article 1767 ofthe Civil Code simply because they allegedly contributed money to buy the two lots,resold the same and divided the profit among themselves. They were co-owners, pureand simple. The petitioners were not engaged in any joint venture by reason of thatisolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they

found it not feasible to build their residences on the lots because of the high cost ofconstruction, then they had no choice but to resell the same to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of theco-ownership which was in the nature of things a temporary state.

Article 1769(3) of the Civil Code provides that "the sharing of gross returns doesnot of itself establish a partnership, whether or not the persons sharing them havea joint or common right or interest in any property from which the returns arederived". There must be an unmistakable intention to form a partnership or jointventure.


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AFISCO v. COURT OF APPEALS302 SCRA 1 (1999)

Facts:The petitioners are 41 non-life insurance corporations, organized and existing under thelaws of the Philippines, entered into a Quota Share Reinsurance Treaty and a Surplus

Reinsurance Treaty with the Munchener Ruckversi-cherungs-Gesselschaft (hereaftercalled Munich), a non-resident foreign insurance corporation. The reinsurance treatiesrequired petitioners to form a [p]ool. Accordingly, a pool composed of the petitioners wasformed on the same day.

The pool of machinery insurers submitted a financial statement and filed an InformationReturn of Organization Exempt from Income Tax for the year ending in 1975, on thebasis of which it was assessed by the Commissioner of Internal Revenue deficiencycorporate taxes in the amount of P1,843,273.60, and withholding taxes in the amount ofP1,768,799.39 and P89,438.68 on dividends paid to Munich and to the petitioners,respectively. These assessments were protested by the petitioners.On January 27, 1986, the Commissioner of Internal Revenue denied the protest and

ordered the petitioners, assessed as Pool of Machinery Insurers, to pay deficiencyincome tax, interest, and with[h]olding tax.

The CA ruled in the main that the pool of machinery insurers was a partnership taxableas a corporation, and that the latters collection of premiums on behalf of its members,the ceding companies, was taxable income.

Issue: Whether or not the Clearing House, acting as a mere agent and performingstrictly administrative functions, and which did not insure or assume any risk in its ownname, was a partnership or association subject to tax as a corporationYES

Ratio:

Article 1767 of the Civil Code recognizes the creation of a contract of partnership whentwo or more persons bind themselves to contribute money, property, or industry to acommon fund, with the intention of dividing the profits among themselves. Itsrequisites are: (1) mutual contribution to a common stock, and (2) a joint interestin the profits. In other words, a partnership is formed when persons contract to devoteto a common purpose either money, property, or labor with the intention of dividing theprofits between themselves. Meanwhile, an association implies associates who enterinto 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 anassociation 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 theNIRC: (1) The pool has a common fund, consisting of money and other valuables thatare deposited in the name and credit of the pool. This common fund pays for theadministration and operation expenses of the pool. (2) The pool functions through anexecutive board, which resembles the board of directors of a corporation, composed ofone representative for each of the ceding companies. (3) True, the pool itself is not areinsurer 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


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share in the business ceded to the pool and in the expenses according to a Rules ofDistribution annexed to the Pool Agreement. Profit motive or business is, therefore, theprimordial reason for the pools formation.


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TORRES v. COURT OF APPEALSG.R. No. 134559 December 9, 1999

Facts:Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a jointventure 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 coveringthe said parcel of land in favor of respondent, who then had it registered in his name. Bymortgaging the property, respondent obtained from Equitable Bank a loan of P40,000which, under the Joint Venture Agreement, was to be used for the development of thesubdivision. All three of them also agreed to share the proceeds from the sale of thesubdivided lots. The project did not push through, and the land was subsequentlyforeclosed by the bank

Issue:Whether or not there was a contract of partnershipYES

Ratio:Under the 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 thestipulated percentage. Clearly, the contract manifested the intention of the parties toform a partnership.

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 ofthe Civil Code, because it is the direct result of an earlier illegal contract, which was forthe sale of the land without valid consideration. This argument is puerile. The JointVenture Agreement clearly states that the consideration for the sale was the expectationof profits from the subdivision project. Its first stipulation states that petitioners did notactually receive payment for the parcel of land sold to respondent. Consideration, more

properly denominated as cause, can take different forms, such as the prestation orpromise of a thing or service by another.


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AGAD v. MABOLO and AGAD CO.23 SCRA 1223 (1968)

Facts:Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners ina fishpond business to which they contributed P1000 each. As managing partner,

Mabato yearly rendered the accounts of the operations of the partnership. However, forthe years 1957-1963, defendant failed to render the accounts despite repeateddemands. Petitioner filed a complaint against Mabato to which a copy of the publicinstrument evidencing their partnership is attached. Aside from the share of profits(P14,000) and attorneys fees (P1000), petitioner prayed for the dissolution of thepartnership and winding up of its affairs.Mabato denied the existence of the partnership alleging that Agad failed to pay hisP1000 contribution. He then filed a motion to dismiss on the ground of lack of cause ofaction. The lower court dismissed the complaint finding a failure to state a cause ofaction predicated upon the theory that the contract of partnership is null and void,pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred insaid instrument had not been attached thereto.

Art. 1771. A partnership may be constituted in any form, except where immovableproperty or real rights are contributed thereto, in which case a public instrument shall benecessary.

Art. 1773. A contract of partnership is void, whenever immovable property is contributedthereto, if inventory of said property is not made, signed by the parties; and attached tothe public instrument.

Issue:Whether or not immovable property or real rights have been contributed to thepartnership.NO

Ratio:Based on the copy of the public instrument attached in the complaint, the partnership

was established to operate a fishpond", and not to "engage in a fishpondbusiness. Thus, Mabatos contention that it is really inconceivable how a partnershipengaged in the fishpond business could exist without said fishpond property (being)contributed to the partnership is without merit. Their contributions were limited to P1000each and neither a fishpond nor a real right thereto was contributed to the partnership.Therefore, Article 1773 of the Civil Code finds no application in the case at bar. Caseremanded to the lower court for further proceedings.


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MORAN JR. v. COURT OF APPEALS133 SCRA 88 (1984)

Facts:Moran and Pecson agreed to contribute P15 000 each for the purpose of printing 95 000posters of the delegates to the then 1971 Constitutional Commission. It was further

agreed that Pecson will receive a commission of P 1000 a month and that thepartnership is to be liquidated on December 15, 1971.

Pecson partially fulfilled his obligation when he issued P10k in favor of the partnership.He gave the P10k to Moran as the managing partner. Moran however did not addanything and, instead, he only used P4k out of the P10k in printing 2,000 posters. Heonly printed 2,000 posters. All the posters were sold for a total of P10k.

Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Courtof Appeals affirmed the decision but modified the same as it ordered Moran to payP47.5k for unrealized profit; P8k for Pecsons monthly commissions; P7k as return ofinvestment because the venture never took off; plus interest.

Issue:Whether or not the Court of Appeals erred in holding Moran liable to respondentPecson in the sum of P47,500 as the supposed expected profits due him.

Ratio:The first question raised in this petition refers to the award of P47,500.00 as the privaterespondent's share in the unrealized profits of the partnership. The award of speculativedamages has no basis in fact and law.

The rule is, when a partner who has undertaken to contribute a sum of money fails to doso, he becomes a debtor of the partnership for whatever he may have promised tocontribute (Art. 1786, Civil Code) and for interests and damages from the time he should

have complied with his obligation (Art. 1788, Civil Code. In this case, there was mutualbreach. Private respondent failed to give his entire contribution in the amount ofP15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any ofthe amount expected of him. He further failed to comply with the agreement to print95,000 copies of the posters. Instead, he printed only 2,000 copies.

There is no evidence whatsoever that the partnership between the petitioner and theprivate respondent would have been a profitable venture. In fact, it was a failure doomedfrom the start. There is therefore no basis for the award of speculative damages in favorof the private respondent

Being a contract of partnership, each partner must share in the profits and losses of the

venture. That is the essence of a partnership. And even with an assurance made by oneof the partners that they would earn a huge amount of profits, in the absence of fraud,the other partner cannot claim a right to recover the highly speculative profits


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FUE LEUNG v. INTERMEDIATE APPELLATE COURTG.R. No. 70926 January 31, 1989

Facts:The petitioner asks for the reversal of the decision of the then Intermediate AppellateCourt in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First

Instance of Manila, Branch II in Civil Case No. 116725 declaring private respondentLeung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteriaand ordering the petitioner to pay to the private respondent his share in the annualprofits of the said restaurant. This case originated from a complaint filed by respondentLeung Yiu with the then Court of First Instance of Manila, Branch II to recover the sumequivalent to twenty-two percent (22%) of the annual profits derived from the operationof Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung. The SunWah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, wasestablished sometime in October, 1955. It was registered as a single proprietorship andits licenses and permits were issued to and in favor of petitioner Dan Fue Leung as thesole proprietor. Respondent Leung Yiu adduced evidence during the trial of the case toshow that Sun Wah Panciteria was actually a partnership and that he was one of the

partners having contributed P4,000.00 to its initial establishment. Furthermore, theprivate respondent received from the petitioner the amount of P12,000.00 covered bythe latter's Equitable Banking Corporation Check No. 13389470-B from the profits of theoperation of the restaurant for the year 1974. The petitioner denied having received fromthe private respondent the amount of P4,000.00. He contested and impugned thegenuineness of the receipt. To bolster his contention that he was the sole owner of therestaurant, the petitioner presented various government licenses and permits showingthe Sun Wah Panciteria was and still is a single proprietorship solely owned andoperated by himself alone. Both the trial court and the appellate court found that theprivate respondent is a partner of the petitioner in the setting up and operations of thepanciteria. While the dispositive portions merely ordered the payment of the respondentsshare, there is no question from the factual findings that the respondent invested in the

business as a partner. Hence, the two courts declared that the private petitioner isentitled to a share of the annual profits of the restaurant. The petitioner, however, claimsthat this factual finding is erroneous. The petitioner also claims that it was an error forthe Hon. Intermediate Appellate Court to interpret or construe 'financial assistance' tomean the contribution of capital by a partner to a partnership;"

Issue: Whether or not the private respondent is a partner of the petitioner in theestablishment of Sun Wah PanciteriaYES

Ratio:In essence, the private respondent alleged that when Sun Wah Panciteria wasestablished, he gave P4,000.00 to the petitioner with the understanding that he would be

entitled to twenty-two percent (22%) of the annual profit derived from the operation of thesaid panciteria. These allegations, which were proved, make the private respondent andthe petitioner partners in the establishment of Sun Wah Panciteria because Article 1767of the Civil Code provides that "By the contract of partnership two or more persons bindthemselves to contribute money, property or industry to a common fund, with theintention of dividing the profits among themselves".Therefore, the lower courts did not errin construing the complaint as one wherein the private respondent asserted his rights aspartner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstandingthe use of the term financial assistance therein.


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RAMNANI v. COURT OF APPEALS196 SCRA 731

Facts:Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the fullblood. Ishwar and his spouse Sonya had their main business based in New York.

Realizing the difficulty of managing their investments in the Philippines they executed ageneral power of attorney appointing Navalrai and Choithram as attorneys-in-fact.Choithram, entered into two agreements for the purchase of two parcels of land. Peragreement, Choithram paid the down payment and installments on the lot with hispersonal checks. A building was constructed thereon by Choithram in 1966. Three otherbuildings were built thereon by Choithram through a loan of P100,000.00 obtained fromthe Merchants Bank as well as the income derived from the first building. The buildingswere leased out by Choithram. Two of these buildings were later burned.

Sometime in 1970 Ishwar asked Choithram to account for the income and expenses.However the latter failed and refused to render such accounting. As a consequence, onFebruary 4, 1971, Ishwar revoked the general power of attorney. Nevertheless,

Choithram as such attorney-in-fact of Ishwar, transferred all rights and interests ofIshwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on February 19,1973. Upon complete payment of the lots, Ortigas executed the corresponding deeds ofsale in favor of Nirmla.6Exhibits and J. Transfer Certificates of Titlle Nos. 403150 and403152 of the Register of Deeds of Rizal were issued in her favor.Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed acomplaint.

Trial Court: Dismissed the decisionAppellate Court: Reversed the decision of Trial Court ordering defendant appellees topay the properties, rental income and building.

Issue: Whether or not defendant appellees should be liable for indemnification of thewhole property.NO

Ratio:Verily, the acts of Choithram, et al. of disposing the properties subject of the litigationdisclose a scheme to defraud spouses Ishwar so they may not be able to recover at all,given a judgment in their favor, thus requiring the issuance of the writ of attachment inthis instance.

Nevertheless, under the peculiar circumstances of this case, the Court cannot ignore thefact that Choithram must have been motivated by a strong conviction that as theindustrial partner in the acquisition of said assets he has as much claim to said

properties as Ishwar, the capitalist partner in the joint venture. Through the industry andgenius of Choithram, Ishwars property was developed and improved into what it isnowa valuable asset worth millions of pesos.

We have a situation where two brothers engaged in a business venture. One furnishedthe capital, the other contributed his industry and talent. Justice and equity dictate thatthe two share equally the fruit of their joint investment and efforts. Perhaps thisSolomonic solution may pave the way towards their reconciliation. Both would stand togain. No one would end up the loser. After all, blood is thicker than water. Wherefore,


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the property, income and building must be divided by .We agree with the appellatecourt's observation to the effect that "... given its ordinary meaning, financial assistanceis the giving out of money to another without the expectation of any returns therefrom'. Itconnotes an ex gratia dole out in favor of someone driven into a state of destitution. Butthis circumstance under which the P4,000.00 was given to the petitioner does not obtainin this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such

financial assistance, plaintiff (private respondent) would be entitled to twenty-twopercentum (22%) of the annual profit derived from the operation of the said panciteria.'(p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed in court isdetermined by the facts alleged in the complaint as constituting the cause of action."


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MARSMAN DRYSDALE LAND INC. v. PHIL GEOANALYTICSG.R. No. 183374 June 29, 2010

Facts:On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and GotescoProperties, Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the

construction and development of an office building on a land owned by MarsmanDrysdale in Makati City. Via Technical Services Contract (TSC) dated July 14, 1997, the

joint venture engaged the services of Philippine Geoanalytics, Inc. (PGI) to providesubsurface soil exploration, laboratory testing, seismic study and geotechnicalengineering for the project. PGI, however, failed to conduct soil exploration andlaboratory testing, due to the failure on the part of the joint venture partners to clear thearea where the drilling was to be made. PGI was able to complete its seismic studythough. PGI then billed the joint venture for P284,553.50 representing the cost of partialsubsurface soil exploration; and for P250,800 representing the cost of the completedseismic study.

Despite repeated demands from PGI, the joint venture failed to pay its

obligations.Meanwhile, due to unfavorable economic conditions at the time, the jointventure was cut short and the planned building project was eventually shelved. PGIsubsequently filed a complaint for collection of sum of money and damages againstMarsman Drysdale and Gotesco.

Issue: Whether or not both joint venturers Marsman Drysdale and Gotesco bears theliability to pay PGI its unpaid claimsYES

Ratio:Marsman Drysdale and Gotesco are jointly liable to PGI. PGI executed a technicalservice contract with the joint venture and was never a party to the JVA. While the JVAclearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and

Gotesco (cash) as well as the funding and financing mechanism for the project, thesame cannot be used to defeat the lawful claim of PGI against the two joint venturers-partners. A joint venture being a form of partnership, it is to be governed by the laws onpartnership.

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds ofthe project. They did not provide for the splitting of losses, however. Applying the above-quoted provision of Article 1797 then, the same ratio applies in splitting the P535,353.50obligation-loss of the joint venture.


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CAOILE v. COURT OF APPEALSG.R. No. 106929 September 21, 1993

Facts:De Jesus bought a residential lot from Sterling. In one of the installment paymentreceipts, Caoile and Gatchalian signed as agents. Caoile is an accountant of Sterling

but not authorized to sell and was convicted of estafa for failing to deliver the TCT.Gatchalian, a mere third grader, is a resident of Sterlings subdivision who pointed theproperty to De Jesus.

Issue: Whether or not Gatchalian, an agent, is solidarily liable with Caoile.NO

Ratio:An agent who signed the receipt as a witness but never received the alleged amount isnot liable. Undue

emphasis and reliance were placed upon the word agent typedbelow Gatchalians signature in the receipt. It was Caoile who prepared the receipt.Gatchalian was asked by Caoile to sign the receipt for P61K as a witness. Gatchaliandid not sign any other receipts. There is as well no evidence to show that it was

Gatchalian who received the P61K. That De Jesus did not include Gatchalian as a co-respondent of Caoile in the estafa case and did not demand reimbursement fromGatchalian before filing the civil case are strong indications that the latter never receivedanything on account of the subject transaction.


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CARAM v. LAURETAG.R. No. L-28740 February 24, 1981

Facts:Marcos Mata conveyed a large tract of agricultural land in favor of Claro Laureta, plaintiffherein. The deed of absolute sale was not registered because at the time the sale was

executed, there was no authorized officer before whom the sale could be acknowledgedinasmuch as the civil government in Tagum, Davao was not as yet organized. However,the defendant Marcos Mata delivered to Laureta the peaceful and lawful possession ofthe premises of the land together with the pertinent papers thereof.However, the same land was sold by Marcos Mata to Fermin Z. Caram, Jr., petitionerherein. Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed apetition for the issuance of a new Owner's Duplicate of Original Certificate of Titlealleging as ground therefor the loss of said title. Later, the second sale between MarcosMata and Fermin Caram, Jr. was registered and on the same date, Transfer Certificateof Title No. 140 was issued in favor of Fermin Caram Jr.Marcos Mata then filed his answer with counterclaim admitting the existence of a privateabsolute deed of sale of his only property in favor of Claro L. Laureta but alleging that he

signed the same as he was subjected to duress, threat and intimidation. He alsoadmitted the existence of a record in the Registry of Deeds regarding a documentallegedly signed by him in favor of Fermin Caram, Jr. but denies that he ever signed thedocument for he knew before hand that he had signed a deed of sale in favor of theplaintiff and that the plaintiff was in possession of the certificate of title.

Issue: Which of the two sales should prevail?Laureta

Ratio:The first sale in favor of Laureta prevails over the sale in favor of Caram. The facts ofrecord show that Mata, the vendor, and Caram, the second vendee had never met.During the trial, Marcos Mata testified that he knows Atty. Aportadera but did not know

Caram. Thus, the sale of the property could have only been through Caram'srepresentatives, Irespe and Aportadera.

There is also every reason to believe that Irespe and Atty. Aportadera had known of thesale of the property in question to Laureta on the day Mata and Irespe, accompanied byLeaning Mansaca, went to the office of Atty. Aportadera. When Leaning Mansacanarrated to Atty. Aportadera the circumstances under which his property had been soldto Laureta, he must have included in the narration the sale of the land of Mata, for thetwo properties had been sold on the same occassion and under the samecircumstances.

Furthermore, even if Irespe and Aportadera did not have actual knowledge of the first

sale, still their actions have not satisfied the requirement of good faith. Bad faith is notbased solely on the fact that a vendee had knowledge of the defect or lack of title of hisvendor.

In the instant case, Irespe and Aportadera had knowledge of circumstances which oughtto have put them an inquiry. Both of them knew that Mata's certificate of title togetherwith other papers pertaining to the land was taken by soldiers under the command ofCol. Claro L. Laureta. Added to this is the fact that at the time of the second sale Laureta


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was already in possession of the land. Irespe and Aportadera should have investigatedthe nature of Laureta's possession.

Also, it was of common knowledge that at the time the soldiers of Laureta took thedocuments from Mata, the civil government of Tagum was not yet established and thatthere were no officials to ratify contracts of sale and make them registerable. Obviously,

Aportadera and Irespe knew that even if Mata previously had sold the disputed landsuch sale could not have been registered.

Therefore, there is no doubt then that Irespe and Aportadera, acting as agents of Caram,purchased the property of Mata in bad faith. Applying the principle of agency, Caram asprincipal, should also be deemed to have acted in bad faith.Since Caram was a registrant in bad faith, the situation is as if there was no registrationat all.


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INLAND REALTY v. COURT OF APPEALSGR No. 76969. June 9, 1997

Facts:Plaintiff Inland Realty Investment Service, Inc. is a corporation engaged among others inthe real estate business and brokerages which sent proposal letters to prospective

buyers for their sales campaign. One such prospective buyer to whom a proposal letterwas sent to was Stanford Microsystems, Inc. which counter-proposed. Upon plaintiffs'receipt of the said counter-proposal, it immediately wrote defendant a letter to registerStanford Microsystems, Inc. as one of its prospective buyers. Defendant Araneta, Inc.,thru its Assistant General Manager Eduque, replied that the price offered by Stanfordwas too low and suggested that plaintiffs see if the price and terms of payment can beimproved upon by Stanford. The authority to sell given to plaintiffs by defendants wasextended several times until it expired. Plaintiffs finally sold the 9,800 shares of stock in

Architects Bldg., Inc. to Stanford Microsystems, Inc. for P13, 500,000.00. Plaintiffsdemanded formally from defendants, through a letter of demand, for payment of their 5%broker's commission which was declined by defendants on the ground that the claim hasno factual or legal basis. Private respondent argues that after their authority to sell

expired, petitioners abandoned the sales transaction and were no longer privy to theconsummation and documentation thereof, Trial court dismissed petitioners' complaintfor collection. Respondent appellate court likewise dismissed petitioners' appeal.

Issues:(1) Whether or not the agency contract and authority to sell were extended.NO(2) Whether or not the broker is automatic entitlement to the stipulated commissionmerely upon securing for, and introducing to, the seller, the particular buyer whoultimately purchases from the former the object of the sale, regardless of the expirationof the broker's contract of agency and authority to sell.NO

Ratio:

(1)Petitioners have conspicuously failed to attach a certified copy of the letter renewingpetitioner Inland Realty's authority to act as agent to sell. Such naivety, this court will nottolerate.

(2)It is understandable why petitioners have resorted to a campaign for an automatic andblanket entitlement to brokerage commission upon doing nothing but submitting toprivate respondent Araneta, Inc., the name of Stanford as prospective buyer of thelatter's shares in Architects'. Of course petitioners would advocate as such becauseprecisely petitioners did nothing but submit Stanford's name as prospectivebuyer. Petitioners did not succeed in outrightly selling said shares under thepredetermined terms and conditions set out by Araneta, Inc., e.g., that the price pershare is P1,500.00. when petitioners' authority to sell was subsisting, if at all, petitioners

had nothing to show that they actively served their principal's interests, pursued to sellthe shares in accordance with their principal's terms and conditions, and performedsubstantial acts that proximately and causatively led to the consummation of the sale toStanford of Araneta, Inc.'s 9,800 shares in Architects'.The Court of Appeals cannot befaulted for emphasizing the lapse of more than one (1) year and five (5) months betweenthe expiration of petitioners' authority to sell and the consummation of the sale toStanford, to be a significant index of petitioners' non-participation in the really criticalevents leading to the consummation of said sale.


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LIM v. COURT OF APPEALSG.R. No. 102784, 28 February, 1996

Facts:An Information for Estafa was filed against petitioner Rosa Lim for allegedly defraudingVictoria Suarez. Lim received from Suarez a 3.35-carat diamond ring and a bracelet to

be sold on commission basis; such agreement was reflected in a receipt. Later, Limreturned to Suarez only the bracelet without the diamond ring nor the proceeds thereof ifsold. Suarez made verbal and written demands on Lim for the return of the diamond ringbut the latter responded that she had already returned both ring and bracelet to theformer, thus she had no longer any liability.

However, petitioner Lim averred that a certain Aurelia Nadera introduced her to Suarez,that she received the two pieces of jewelry for her to consider buying them for her ownuse and not to sell them on commission basis, and that she would inform Suarez of suchdecision before she goes back to Cebu. She also said that since she was not yet readyto buy, she asked Suarez to prepare a paper for her to sign and that she signed saiddocument on its upper portion and not at the bottom where a space was provided for the

signature of the person receiving the jewelry. Before departing, Lim informed Suarez thatshe was no longer interested in buying the jewelry and the latter instructed her to givethem to Nadera which the former allegedly did. Petitioner asserts that she neverreceived the jewelry in trust or on commission basis since the real agreement betweenthem was a sale on credit.

Issue: Whether or not the real transaction between Lim and Suarez was a contract ofagency to sell on commission basisYES

Ratio:The real transaction was a contract of agency to sell as evidenced by the receipt whichstated that Suarez compensation or commission would be the over-price on the value of

each jewelry and that she was prohibited from selling them on credit or by installment,from giving for safekeeping, lending, pledging, or giving as security or guaranty. The factthat Lims signature appeared on the upper portion of the receipt did not have the effectof altering the terms of the transaction from a contract of agency to sell on commissionbasis to a contract of sale. Neither does it indicate absence or vitiation of consent theretoin Lims part which would otherwise render the contract void or voidable. The momentLim affixed her signature thereon, she became bound by all the terms stipulated in thereceipt. Article 1356 of the Civil Code pronounces, Contracts shall be obligatory inwhatever form they may have been entered into, provided all the essential requisites fortheir validity are present. The exceptions to this rule are: 1) when form is required forthe validity of the contract; 2) when form is required to make the contract effective asagainst third parties; and, 3) when form is required for the purpose of proving the

existence of the contract. A contract of agency to sell on commission basis does notbelong to any of these three categories; therefore, it is valid and enforceable in whateverform it may be entered into. Furthermore, the only type of legal instrument where the lawstrictly prescribes the location of the signature of the parties thereto is the notarial will.


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ORIENT-AIR SERVICES & HOTEL REPRESENTATIVES v. COURT OF APPEALSG.R. No. 76933 May 29, 1991

Facts:American Airlines, Inc. (American Air), an air carrier offering passenger and air cargotransportation in the Philippines, and Orient Air Services and Hotel Representatives

(Orient Air), entered into a General Sales Agency Agreement (Agreement), whereby theformer authorized the latter to act as its exclusive general sales agent within thePhilippines for the sale of air passenger transportation. In the agreement, Orient Air shallremit in United States dollars to American the ticket stock or exchange orders, lesscommissions to which Orient Air Services is entitled, not less frequently than semi-monthly. On the other hand, American will pay Orient Air Services commission ontransportation sold by Orient Air Services or its sub-agents. Thereafter, Americanalleged that Orient Air had reneged on its obligations under the Agreement by failing topromptly remit the net proceeds of sales for the months of January to March 1981 in theamount of US $254,400.40, American Air by itself undertook the collection of theproceeds of tickets sold originally by Orient Air and terminated forthwith the Agreementin accordance with paragraph 13 which authorize the termination of the thereof in case

Orient Air is unable to transfer to the United States the funds payable by Orient AirServices to American. American Air instituted suit against Orient Air with the Court ofFirst Instance of Manila for Accounting with Preliminary Attachment or Garnishment,Mandatory Injunction and Restraining Order averring the aforesaid basis for thetermination of the Agreement as well as therein defendant's previous record of failures"to promptly settle past outstanding refunds of which there were available funds in thepossession of the defendant, . . . to the damage and prejudice of plaintiff."Orient Air denied the material allegations of the complaint with respect to plaintiff'sentitlement to alleged unremitted amounts, contending that after application thereof tothe commissions due it under the Agreement, plaintiff in fact still owed Orient Air abalance in unpaid overriding commissions. Further, the defendant contended that theactions taken by American Air in the course of terminating the Agreement as well as the

termination itself were untenable. The trial court ruled in its favor which decision wasaffirmed with modification by Court of Appeals. It held the termination made by the latteras affecting the GSA agreement illegal and improper and ordered the plaintiff to reinstatedefendant as its general sales agent for passenger transportation in the Philippines inaccordance with said GSA agreement.

Issue:Whether or not the Court of Appeals erred in ordering the reinstatement of thedefendant as its general sales agent for passenger transportation in the Philippines inaccordance with said GSA AgreementYES

Ratio:By affirming this ruling of the trial court, respondent appellate court, in effect, compels

American Air to extend its personality to Orient Air. Such would be violative of theprinciples and essence of agency, defined by law as a contract whereby "a person bindshimself to render some service or to do something in representation or on behalf ofanother, WITH THE CONSENT OR AUTHORITY OF THE LATTER . In an agent-principal relationship, the personality of the principal is extended through the facility ofthe agent. In so doing, the agent, by legal fiction, becomes the principal, authorized toperform all acts which the latter would have him do. Such a relationship can only beeffected with the consent of the principal, which must not, in any way, be compelled bylaw or by any court. The Agreement itself between the parties states that "either party


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RURAL BANK OF MILAOR v. OCFEMIAG.R. No. 137686. February 8, 2000

Facts:Several parcels of land were mortgaged by the respondents during the lifetime of therespondents grandparents to the Rural bank of Milaor as shown by the Deed of Real

Estate Mortgage and the Promissory Note. Spouses Felicisimo Ocfemia and JuanitaOcfemia, one of the respondents, were not able to redeem the mortgaged propertiesconsisting of seven parcels of land and so the mortgage was foreclosed and thereafterownership was transferred to the petitioner bank. Out of the seven parcels of land thatwere foreclosed, five of them are in the possession of the respondents because thesefive parcels of land were sold by the petitioner bank to the respondents as evidenced bya Deed of Sale. However, the five parcels of land cannot be transferred in the name ofthe parents of Merife Nino, one of the respondents, because there is a need to have thedocument of sale registered. The Register of deeds, however, said that the document ofsale cannot be registered without the board resolution of the petitioner bank confirmingboth the Deed of sale and the authority of the bank manager, Fe S. Tena, to enter suchtransaction.

The petitioner bank refused her request for a board resolution and made many alibis.Respondents initiated the present proceedings so that they could transfer to their namesthe subject five parcel of land and subsequently mortgage said lots and to use the loanproceeds for the medical expenses of their ailing mother.

Issue: Whether or not the Board of Directors of a rural banking corporation may becompelled to confirm a deed of absolute sale of real property owned by the corporationwhich deed of sale was executed by the bank manager without prior authority of theboard of directors of the rural banking corporation?YES

Ratio:The bank acknowledges, by its own acts or failure to act, the authority of Fe S. Tena to

enter into binding contracts. After the execution of the Deed of Sale, respondentsoccupied the properties in dispute and paid the real estate taxes. If the bankmanagement believed that it had title to the property, it should have taken measured toprevent the infringement and invasion of title thereto and possession thereof.

Likewise, Tena had previously transacted business on behalf of the bank, and the latterhad acknowledged her authority. A bank is liable to innocent third persons whererepresentation is made in the course of its normal business by an agent like ManagerTena even though such agent is abusing her authority.

Clearly, persons dealing with her could not be blamed for believing that she wasauthorized to transact business for and on behalf of the bank.

The bank is estopped from questioning the authority of the bank to enter into contract ofsale. If a corporation knowingly permits one of its officers or any other agent to act withinthe scope of an apparent authority, it holds the agent out to the public as possessing thepower to do those acts; thus, the corporation will, as against anyone who has in goodfaith dealt with it through such agent, be estopped from denying the agents authority.


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SIREDY ENTERPRISES, INC. v. COURT OF APPEALS and CONRADO DE GUZMANG.R. No. 129039. September 17, 2002

Facts:Conrado De Guzman is an architect-contractor doing business under the name and styleof Jigscon Construction. On the other hand, Siredy Enterprises, Inc. (hereafter Siredy) is

the owner and developer of Ysmael Village, a subdivision in Sta. Cruz, Marilao, Bulacan.The primary corporate purpose of Siredy is to acquire lands, subdivide and developthem, erect buildings and houses thereon, and sell, lease or otherwise dispose of saidproperties to interested buyers.

Yanga, the

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